THIRD DIVISION

COMMISSIONER OF INTERNAL REVENUE,

Petitioner,

- versus -

G.R. No. 177279

Present:
CARPIO MORALES, J.,

Chairperson,

BRION,

BERSAMIN,

VILLARAMA, JR., and

SERENO, JJ.

HON. RAUL M. GONZALEZ, Secretary of Justice, L. M. CAMUS ENGINEERING

CORPORATION (represented by LUIS M. CAMUS and LINO D. MENDOZA),

Respondents.

Promulgated:
October 13, 2010

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DECISION

VILLARAMA, JR., J.:

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, assailing the Decision[1] dated October 31, 2006 and
Resolution[2] dated March 6, 2007 of the Court of Appeals (CA) in CA-G.R. SP No.
93387 which affirmed the Resolution[3] dated December 13, 2005 of respondent
Secretary of Justice in I.S. No. 2003-774 for violation of Sections 254 and 255 of the
National Internal Revenue Code of 1997 (NIRC).

The facts as culled from the records:

Pursuant to Letter of Authority (LA) No. 00009361 dated August 25, 2000 issued by then
Commissioner of Internal Revenue (petitioner) Dakila B. Fonacier, Revenue Officers
Remedios C. Advincula, Jr., Simplicio V. Cabantac, Jr., Ricardo L. Suba, Jr. and Aurelio
Agustin T. Zamora supervised by Section Chief Sixto C. Dy, Jr. of the Tax Fraud Division
(TFD), National Office, conducted a fraud investigation for all internal revenue taxes to
ascertain/determine the tax liabilities of respondent L. M. Camus Engineering
Corporation (LMCEC) for the taxable years 1997, 1998 and 1999.[4] The audit and
investigation against LMCEC was precipitated by the information provided by an
informer that LMCEC had substantial underdeclared income for the said period. For
failure to comply with the subpoena duces tecum issued in connection with the tax fraud
investigation, a criminal complaint was instituted by the Bureau of Internal Revenue
(BIR) against LMCEC on January 19, 2001 for violation of Section 266 of the NIRC (I.S.
No. 00-956 of the Office of the City Prosecutor of Quezon City).[5]

Based on data obtained from an informer and various clients of LMCEC,[6] it was
discovered that LMCEC filed fraudulent tax returns with substantial underdeclarations of
taxable income for the years 1997, 1998 and 1999. Petitioner thus assessed the
company of total deficiency taxes amounting to P430,958,005.90 (income tax -
P318,606,380.19 and value-added tax [VAT] - P112,351,625.71) covering the said
period. The Preliminary Assessment Notice (PAN) was received by LMCEC on February
22, 2001.[7]

LMCECs alleged underdeclared income was summarized by petitioner as follows:

Year

Income

Per ITR

Income
Per Investigation

Undeclared

Income

Percentage of

Underdeclaration

1997

96,638,540.00

283,412,140.84

186,733,600.84

193.30%

1998

86,793,913.00

236,863,236.81
150,069,323.81

172.90%

1999

88,287,792.00

251,507,903.13

163,220,111.13

184.90%[8]

In view of the above findings, assessment notices together with a formal letter of
demand dated August 7, 2002 were sent to LMCEC through personal service on
October 1, 2002.[9] Since the company and its representatives refused to receive the
said notices and demand letter, the revenue officers resorted to constructive service[10]
in accordance with Section 3, Revenue Regulations (RR) No. 12-99[11].

On May 21, 2003, petitioner, through then Commissioner Guillermo L. Parayno, Jr.,
referred to the Secretary of Justice for preliminary investigation its complaint against
LMCEC, Luis M. Camus and Lino D. Mendoza, the latter two were sued in their
capacities as President and Comptroller, respectively. The case was docketed as I.S.
No. 2003-774. In the Joint Affidavit executed by the revenue officers who conducted the
tax fraud investigation, it was alleged that despite the receipt of the final assessment
notice and formal demand letter on October 1, 2002, LMCEC failed and refused to pay
the deficiency tax assessment in the total amount of P630,164,631.61, inclusive of
increments, which had become final and executory as a result of the said taxpayers
failure to file a protest thereon within the thirty (30)-day reglementary period.[12]

Camus and Mendoza filed a Joint Counter-Affidavit contending that LMCEC cannot be
held liable whatsoever for the alleged tax deficiency which had become due and
demandable. Considering that the complaint and its annexes all showed that the suit is
a simple civil action for collection and not a tax evasion case, the Department of Justice
(DOJ) is not the proper forum for BIRs complaint. They also assail as invalid the
assessment notices which bear no serial numbers and should be shown to have been
validly served by an Affidavit of Constructive Service executed and sworn to by the
revenue officers who served the same. As stated in LMCECs letter-protest dated
December 12, 2002 addressed to Revenue District Officer (RDO) Clavelina S. Nacar of
RD No. 40, Cubao, Quezon City, the company had already undergone a series of
routine examinations for the years 1997, 1998 and 1999; under the NIRC, only one
examination of the books of accounts is allowed per taxable year.[13]

LMCEC further averred that it had availed of the Bureaus Tax Amnesty Programs
(Economic Recovery Assistance Payment [ERAP] Program and the Voluntary
Assessment Program [VAP]) for 1998 and 1999; for 1997, its tax liability was terminated
and closed under Letter of Termination[14] dated June 1, 1999 issued by petitioner and
signed by the Chief of the Assessment Division.[15] LMCEC claimed it made payments
of income tax, VAT and expanded withholding tax (EWT), as follows:

TAXABLE

YEAR

AMOUNT OF TAXES

PAID
1997

Termination Letter Under Letter of Authority No. 174600 Dated November 4, 1998

EWT - P 6,000.00

VAT - 540,605.02

IT - 3,000.00

1998

ERAP Program pursuant

to RR #2-99

WC - 38,404.55

VAT - 61,635.40

1999

VAP Program pursuant

to RR #8-2001

IT - 878,495.28

VAT - 1,324,317.00[16]

LMCEC argued that petitioner is now estopped from further taking any action against it
and its corporate officers concerning the taxable years 1997 to 1999. With the grant of
immunity from audit from the companys availment of ERAP and VAP, which have a
feature of a tax amnesty, the element of fraud is negated the moment the Bureau
accepts the offer of compromise or payment of taxes by the taxpayer. The act of the
revenue officers in finding justification under Section 6(B) of the NIRC (Best Evidence
Obtainable) is misplaced and unavailing because they were not able to open the books
of the company for the second time, after the routine examination, issuance of
termination letter and the availment of ERAP and VAP. LMCEC thus maintained that
unless there is a prior determination of fraud supported by documents not yet
incorporated in the docket of the case, petitioner cannot just issue LAs without first
terminating those previously issued. It emphasized the fact that the BIR officers who
filed and signed the Affidavit-Complaint in this case were the same ones who appeared
as complainants in an earlier case filed against Camus for his alleged failure to obey
summons in violation of Section 5 punishable under Section 266 of the NIRC of 1997
(I.S. No. 00-956 of the Office of the City Prosecutor of Quezon City). After preliminary
investigation, said case was dismissed for lack of probable cause in a Resolution issued
by the Investigating Prosecutor on May 2, 2001.[17]

LMCEC further asserted that it filed on April 20, 2001 a protest on the PAN issued by
petitioner for having no basis in fact and law. However, until now the said protest
remains unresolved. As to the alleged informant who purportedly supplied the
confidential information, LMCEC believes that such person is fictitious and his true
identity and personality could not be produced. Hence, this case is another form of
harassment against the company as what had been found by the Office of the City
Prosecutor of Quezon City in I.S. No. 00-956. Said case and the present case both
have something to do with the audit/examination of LMCEC for taxable years 1997,
1998 and 1999 pursuant to LA No. 00009361.[18]

In the Joint Reply-Affidavit executed by the Bureaus revenue officers, petitioner

disagreed with the contention of LMCEC that the complaint filed is not criminal in
nature, pointing out that LMCEC and its officers Camus and Mendoza were being
charged for the criminal offenses defined and penalized under Sections 254 (Attempt to
Evade or Defeat Tax) and 255 (Willful Failure to Pay Tax) of the NIRC. This finds
support in Section 205 of the same Code which provides for administrative (distraint,
levy, fine, forfeiture, lien, etc.) and judicial (criminal or civil action) remedies in order to
enforce collection of taxes . Both remedies may be pursued either independently or
simultaneously. In this case, the BIR decided to simultaneously pursue both remedies
and thus aside from this criminal action, the Bureau also initiated administrative
proceedings against LMCEC.[19]

On the lack of control number in the assessment notice, petitioner explained that such is
a mere office requirement in the Assessment Service for the purpose of internal control
and monitoring; hence, the unnumbered assessment notices should not be interpreted
as irregular or anomalous. Petitioner stressed that LMCEC already lost its right to file a
protest letter after the lapse of the thirty (30)-day reglementary period. LMCECs protest-
letter dated December 12, 2002 to RDO Clavelina S. Nacar, RD No. 40, Cubao, Quezon
City was actually filed only on December 16, 2002, which was disregarded by the
petitioner for being filed out of time. Even assuming for the sake of argument that the
assessment notices were invalid, petitioner contended that such could not affect the
present criminal action,[20] citing the ruling in the landmark case of Ungab v. Cusi, Jr.
[21]

As to the Letter of Termination signed by Ruth Vivian G. Gandia of the Assessment

Division, Revenue Region No. 7, Quezon City, petitioner pointed out that LMCEC failed
to mention that the undated Certification issued by RDO Pablo C. Cabreros, Jr. of RD
No. 40, Cubao, Quezon City stated that the report of the 1997 Internal Revenue taxes of
LMCEC had already been submitted for review and approval of higher authorities.
LMCEC also cannot claim as excuse from the reopening of its books of accounts the
previous investigations and examinations. Under Section 235 (a), an exception was
provided in the rule on once a year audit examination in case of fraud, irregularity or
mistakes, as determined by the Commissioner. Petitioner explained that the distinction
between a Regular Audit Examination and Tax Fraud Audit Examination lies in the fact
that the former is conducted by the district offices of the Bureaus Regional Offices, the
authority emanating from the Regional Director, while the latter is conducted by the TFD
of the National Office only when instances of fraud had been determined by the
petitioner.[22]

Petitioner further asserted that LMCECs claim that it was granted immunity from audit
when it availed of the VAP and ERAP programs is misleading. LMCEC failed to state
that its availment of ERAP under RR No. 2-99 is not a grant of absolute immunity from
audit and investigation, aside from the fact that said program was only for income tax
and did not cover VAT and withholding tax for the taxable year 1998. As for LMCECS
availment of VAP in 1999 under RR No. 8-2001 dated August 1, 2001 as amended by
RR No. 10-2001 dated September 3, 2001, the company failed to state that it covers
only income tax and VAT, and did not include withholding tax. However, LMCEC is not
actually entitled to the benefits of VAP under Section 1 (1.1 and 1.2) of RR No. 10-2001.
As to the principle of estoppel invoked by LMCEC, estoppel clearly does not lie against
the BIR as this involved the exercise of an inherent power by the government to collect
taxes.[23]

Petitioner also pointed out that LMCECs assertion correlating this case with I.S. No. 00-
956 is misleading because said case involves another violation and offense (Sections 5
and 266 of the NIRC). Said case was filed by petitioner due to the failure of LMCEC to
submit or present its books of accounts and other accounting records for examination
despite the issuance of subpoena duces tecum against Camus in his capacity as
President of LMCEC. While indeed a Resolution was issued by Asst. City Prosecutor
Titus C. Borlas on May 2, 2001 dismissing the complaint, the same is still on appeal and
pending resolution by the DOJ. The determination of probable cause in said case is
confined to the issue of whether there was already a violation of the NIRC by Camus in
not complying with the subpoena duces tecum issued by the BIR.[24]

Petitioner contended that precisely the reason for the issuance to the TFD of LA No.
00009361 by the Commissioner is because the latter agreed with the findings of the
investigating revenue officers that fraud exists in this case. In the conduct of their
investigation, the revenue officers observed the proper procedure under Revenue
Memorandum Order (RMO) No. 49-2000 wherein it is required that before the issuance
of a Letter of Authority against a particular taxpayer, a preliminary investigation should
first be conducted to determine if a prima facie case for tax fraud exists. As to the
allegedly unresolved protest filed on April 20, 2001 by LMCEC over the PAN, this has
been disregarded by the Bureau for being pro forma and having been filed beyond the
15-day reglementary period. A subsequent letter dated April 20, 2001 was filed with the
TFD and signed by a certain Juan Ventigan. However, this was disregarded and
considered a mere scrap of paper since the said signatory had not shown any prior
authorization to represent LMCEC. Even assuming said protest letter was validly filed
on behalf of the company, the issuance of a Formal Demand Letter and Assessment
Notice through constructive service on October 1, 2002 is deemed an implied denial of
the said protest. Lastly, the details regarding the informer being confidential, such
information is entitled to some degree of protection, including the identity of the
informant against LMCEC.[25]

In their Joint Rejoinder-Affidavit,[26] Camus and Mendoza reiterated their argument that
the identity of the alleged informant is crucial to determine if he/she is qualified under
Section 282 of the NIRC. Moreover, there was no assessment that has already become
final, the validity of its issuance and service has been put in issue being anomalous,
irregular and oppressive. It is contended that for criminal prosecution to proceed before
assessment, there must be a prima facie showing of a willful attempt to evade taxes. As
to LMCECs availment of the VAP and ERAP programs, the certificate of immunity from
audit issued to it by the BIR is plain and simple, but petitioner is now saying it has the
right to renege with impunity from its undertaking. Though petitioner deems LMCEC not
qualified to avail of the benefits of VAP, it must be noted that if it is true that at the time
the petitioner filed I.S. No. 00-956 sometime in January 2001 it had already in its
custody that Confidential Information No. 29-2000 dated July 7, 2000, these revenue
officers could have rightly filed the instant case and would not resort to filing said
criminal complaint for refusal to comply with a subpoena duces tecum.

On September 22, 2003, the Chief State Prosecutor issued a Resolution[27] finding no
sufficient evidence to establish probable cause against respondents LMCEC, Camus
and Mendoza. It was held that since the payments were made by LMCEC under ERAP
and VAP pursuant to the provisions of RR Nos. 2-99 and 8-2001 which were offered to
taxpayers by the BIR itself, the latter is now in estoppel to insist on the criminal
prosecution of the respondent taxpayer. The voluntary payments made thereunder are
in the nature of a tax amnesty. The unnumbered assessment notices were found highly
irregular and thus their validity is suspect; if the amounts indicated therein were
collected, it is uncertain how these will be accounted for and if it would go to the coffers
of the government or elsewhere. On the required prior determination of fraud, the Chief
State Prosecutor declared that the Office of the City Prosecutor in I.S. No. 00-956 has
already squarely ruled that (1) there was no prior determination of fraud, (2) there was
indiscriminate issuance of LAs, and (3) the complaint was more of harassment. In view
of such findings, any ensuing LA is thus defective and allowing the collection on the
assailed assessment notices would already be in the context of a fishing expedition or
witch-hunting. Consequently, there is nothing to speak of regarding the finality of
assessment notices in the aggregate amount of P630,164,631.61.

Petitioner filed a motion for reconsideration which was denied by the Chief State
Prosecutor.[28]

Petitioner appealed to respondent Secretary of Justice but the latter denied its petition
for review under Resolution dated December 13, 2005.[29]

The Secretary of Justice found that petitioners claim that there is yet no finality as to
LMCECs payment of its 1997 taxes since the audit report was still pending review by
higher authorities, is unsubstantiated and misplaced. It was noted that the Termination
Letter issued by the Commissioner on June 1, 1999 is explicit that the matter is
considered closed. As for taxable year 1998, respondent Secretary stated that the
record shows that LMCEC paid VAT and withholding tax in the amount of P61,635.40
and P38,404.55, respectively. This eventually gave rise to the issuance of a certificate of
immunity from audit for 1998 by the Office of the Commissioner of Internal Revenue.
For taxable year 1999, respondent Secretary found that pursuant to earlier LA No.
38633 dated July 4, 2000, LMCECs 1999 tax liabilities were still pending investigation
for which reason LMCEC assailed the subsequent issuance of LA No. 00009361 dated
August 25, 2000 calling for a similar investigation of its alleged 1999 tax deficiencies
when no final determination has yet been arrived on the earlier LA No. 38633.[30]

On the allegation of fraud, respondent Secretary ruled that petitioner failed to establish
the existence of the following circumstances indicating fraud in the settlement of
LMCECs tax liabilities: (1) there must be intentional and substantial understatement of
tax liability by the taxpayer; (2) there must be intentional and substantial overstatement
of deductions or exemptions; and (3) recurrence of the foregoing circumstances. First,
petitioner miserably failed to explain why the assessment notices were unnumbered;
second, the claim that the tax fraud investigation was precipitated by an alleged
informant has not been corroborated nor was it clearly established, hence there is no
other conclusion but that the Bureau engaged in a fishing expedition; and furthermore,
petitioners course of action is contrary to Section 235 of the NIRC allowing only once in
a given taxable year such examination and inspection of the taxpayers books of
accounts and other accounting records. There was no convincing proof presented by
petitioner to show that the case of LMCEC falls under the exceptions provided in
Section 235. Respondent Secretary duly considered the issuance of Certificate of
Immunity from Audit and Letter of Termination dated June 1, 1999 issued to LMCEC.
[31]

Anent the earlier case filed against the same taxpayer (I.S. No. 00-956), the Secretary
of Justice found petitioner to have engaged in forum shopping in view of the fact that
while there is still pending an appeal from the Resolution of the City Prosecutor of
Quezon City in said case, petitioner hurriedly filed the instant case, which not only
involved the same parties but also similar substantial issues (the joint complaint-affidavit
also alleged the issuance of LA No. 00009361 dated August 25, 2000). Clearly, the
evidence of litis pendentia is present. Finally, respondent Secretary noted that if indeed
LMCEC committed fraud in the settlement of its tax liabilities, then at the outset, it
should have been discovered by the agents of petitioner, and consequently petitioner
should not have issued the Letter of Termination and the Certificate of Immunity From
Audit. Petitioner thus should have been more circumspect in the issuance of said
documents.[32]

Its motion for reconsideration having been denied, petitioner challenged the ruling of
respondent Secretary via a certiorari petition in the CA.

On October 31, 2006, the CA rendered the assailed decision[33] denying the petition
and concurred with the findings and conclusions of respondent Secretary. Petitioners
motion for reconsideration was likewise denied by the appellate court.[34] It appears
that entry of judgment was issued by the CA stating that its October 31, 2006 Decision
attained finality on March 25, 2007.[35] However, the said entry of judgment was set
aside upon manifestation by the petitioner that it has filed a petition for review before
this Court subsequent to its receipt of the Resolution dated March 6, 2007 denying
petitioners motion for reconsideration on March 20, 2007.[36]

The petition is anchored on the following grounds:

I.

The Honorable Court of Appeals erroneously sustained the findings of the Secretary of
Justice who gravely abused his discretion by dismissing the complaint based on
grounds which are not even elements of the offenses charged.

II.

The Honorable Court of Appeals erroneously sustained the findings of the Secretary of
Justice who gravely abused his discretion by dismissing petitioners evidence, contrary
to law.

III.

The Honorable Court of Appeals erroneously sustained the findings of the Secretary of
Justice who gravely abused his discretion by inquiring into the validity of a Final
Assessment Notice which has become final, executory and demandable pursuant to
Section 228 of the Tax Code of 1997 for failure of private respondent to file a protest
against the same.[37]

The core issue to be resolved is whether LMCEC and its corporate officers may be
prosecuted for violation of Sections 254 (Attempt to Evade or Defeat Tax) and 255
(Willful Failure to Supply Correct and Accurate Information and Pay Tax).

Petitioner filed the criminal complaint against the private respondents for violation of the
following provisions of the NIRC, as amended:

SEC. 254. Attempt to Evade or Defeat Tax. Any person who willfully attempts in any
manner to evade or defeat any tax imposed under this Code or the payment thereof
shall, in addition to other penalties provided by law, upon conviction thereof, be
punished by a fine of not less than Thirty thousand pesos (P30,000) but not more than
One hundred thousand pesos (P100,000) and suffer imprisonment of not less than two
(2) years but not more than four (4) years: Provided, That the conviction or acquittal
obtained under this Section shall not be a bar to the filing of a civil suit for the collection
of taxes.

SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax,
Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation. Any
person required under this Code or by rules and regulations promulgated thereunder to
pay any tax, make a return, keep any record, or supply any correct and accurate
information, who willfully fails to pay such tax, make such return, keep such record, or
supply such correct and accurate information, or withhold or remit taxes withheld, or
refund excess taxes withheld on compensations at the time or times required by law or
rules and regulations shall, in addition to other penalties provided by law, upon
conviction thereof, be punished by a fine of not less than Ten thousand pesos (P10,000)
and suffer imprisonment of not less than one (1) year but not more than ten (10) years.

x x x x (Emphasis supplied.)

Respondent Secretary concurred with the Chief State Prosecutors conclusion that there
is insufficient evidence to establish probable cause to charge private respondents under
the above provisions, based on the following findings: (1) the tax deficiencies of LMCEC
for taxable years 1997, 1998 and 1999 have all been settled or terminated, as in fact
LMCEC was issued a Certificate of Immunity and Letter of Termination, and availed of
the ERAP and VAP programs; (2) there was no prior determination of the existence of
fraud; (3) the assessment notices are unnumbered, hence irregular and suspect; (4) the
books of accounts and other accounting records may be subject to audit examination
only once in a given taxable year and there is no proof that the case falls under the
exceptions provided in Section 235 of the NIRC; and (5) petitioner committed forum
shopping when it filed the instant case even as the earlier criminal complaint (I.S. No.
00-956) dismissed by the City Prosecutor of Quezon City was still pending appeal.
Petitioner argues that with the finality of the assessment due to failure of the private
respondents to challenge the same in accordance with Section 228 of the NIRC,
respondent Secretary has no jurisdiction and authority to inquire into its validity.
Respondent taxpayer is thereby allowed to do indirectly what it cannot do directly to
raise a collateral attack on the assessment when even a direct challenge of the same is
legally barred. The rationale for dismissing the complaint on the ground of lack of
control number in the assessment notice likewise betrays a lack of awareness of tax
laws and jurisprudence, such circumstance not being an element of the offense. Worse,
the final, conclusive and undisputable evidence detailing a crime under our taxation
laws is swept under the rug so easily on mere conspiracy theories imputed on persons
who are not even the subject of the complaint.

We grant the petition.

There is no dispute that prior to the filing of the complaint with the DOJ, the report on
the tax fraud investigation conducted on LMCEC disclosed that it made substantial
underdeclarations in its income tax returns for 1997, 1998 and 1999. Pursuant to RR
No. 12-99,[38] a PAN was sent to and received by LMCEC on February 22, 2001
wherein it was notified of the proposed assessment of deficiency taxes amounting to
P430,958,005.90 (income tax - P318,606,380.19 and VAT - P112,351,625.71) covering
taxable years 1997, 1998 and 1999.[39] In response to said PAN, LMCEC sent a letter-
protest to the TFD, which denied the same on April 12, 2001 for lack of legal and factual
basis and also for having been filed beyond the 15-day reglementary period.[40]

As mentioned in the PAN, the revenue officers were not given the opportunity to
examine LMCECs books of accounts and other accounting records because its officers
failed to comply with the subpoena duces tecum earlier issued, to verify its alleged
underdeclarations of income reported by the Bureaus informant under Section 282 of
the NIRC. Hence, a criminal complaint was filed by the Bureau against private
respondents for violation of Section 266 which provides:

SEC. 266. Failure to Obey Summons. Any person who, being duly summoned to appear
to testify, or to appear and produce books of accounts, records, memoranda, or other
papers, or to furnish information as required under the pertinent provisions of this Code,
neglects to appear or to produce such books of accounts, records, memoranda, or other
papers, or to furnish such information, shall, upon conviction, be punished by a fine of
not less than Five thousand pesos (P5,000) but not more than Ten thousand pesos
(P10,000) and suffer imprisonment of not less than one (1) year but not more than two
(2) years.

It is clear that I.S. No. 00-956 involves a separate offense and hence litis pendentia is
not present considering that the outcome of I.S. No. 00-956 is not determinative of the
issue as to whether probable cause exists to charge the private respondents with the
crimes of attempt to evade or defeat tax and willful failure to supply correct and accurate
information and pay tax defined and penalized under Sections 254 and 255,
respectively. For the crime of tax evasion in particular, compliance by the taxpayer with
such subpoena, if any had been issued, is irrelevant. As we held in Ungab v. Cusi, Jr.,
[41] [t]he crime is complete when the [taxpayer] has x x x knowingly and willfully filed [a]
fraudulent [return] with intent to evade and defeat x x x the tax. Thus, respondent
Secretary erred in holding that petitioner committed forum shopping when it filed the
present criminal complaint during the pendency of its appeal from the City Prosecutors
dismissal of I.S. No. 00-956 involving the act of disobedience to the summons in the
course of the preliminary investigation on LMCECs correct tax liabilities for taxable
years 1997, 1998 and 1999.

In the Details of Discrepancies attached as Annex B of the PAN,[42] private

respondents were already notified that inasmuch as the revenue officers were not given
the opportunity to examine LMCECs books of accounts, accounting records and other
documents, said revenue officers gathered information from third parties. Such
procedure is authorized under Section 5 of the NIRC, which provides:

SEC. 5. Power of the Commissioner to Obtain Information, and to Summon, Examine,

and Take Testimony of Persons. In ascertaining the correctness of any return, or in
making a return when none has been made, or in determining the liability of any person
for any internal revenue tax, or in collecting any such liability, or in evaluating tax
compliance, the Commissioner is authorized:

(A) To examine any book, paper, record or other data which may be relevant or material
to such inquiry;
(B) To obtain on a regular basis from any person other than the person whose internal
revenue tax liability is subject to audit or investigation, or from any office or officer of the
national and local governments, government agencies and instrumentalities, including
the Bangko Sentral ng Pilipinas and government-owned or -controlled corporations, any
information such as, but not limited to, costs and volume of production, receipts or sales
and gross incomes of taxpayers, and the names, addresses, and financial statements of
corporations, mutual fund companies, insurance companies, regional operating
headquarters of multinational companies, joint accounts, associations, joint ventures or
consortia and registered partnerships, and their members;

(C) To summon the person liable for tax or required to file a return, or any officer or
employee of such person, or any person having possession, custody, or care of the
books of accounts and other accounting records containing entries relating to the
business of the person liable for tax, or any other person, to appear before the
Commissioner or his duly authorized representative at a time and place specified in the
summons and to produce such books, papers, records, or other data, and to give
testimony;

(D) To take such testimony of the person concerned, under oath, as may be relevant or
material to such inquiry; x x x

x x x x (Emphasis supplied.)

Private respondents assertions regarding the qualifications of the informer of the Bureau
deserve scant consideration. We have held that the lack of consent of the taxpayer
under investigation does not imply that the BIR obtained the information from third
parties illegally or that the information received is false or malicious. Nor does the lack
of consent preclude the BIR from assessing deficiency taxes on the taxpayer based on
the documents.[43] In the same vein, herein private respondents cannot be allowed to
escape criminal prosecution under Sections 254 and 255 of the NIRC by mere
imputation of a fictitious or disqualified informant under Section 282 simply because
other than disclosure of the official registry number of the third party informer, the
Bureau insisted on maintaining the confidentiality of the identity and personal
circumstances of said informer.
Subsequently, petitioner sent to LMCEC by constructive service allowed under Section
3 of RR No. 12-99, assessment notice and formal demand informing the said taxpayer
of the law and the facts on which the assessment is made, as required by Section 228
of the NIRC. Respondent Secretary, however, fully concurred with private respondents
contention that the assessment notices were invalid for being unnumbered and the tax
liabilities therein stated have already been settled and/or terminated.

We do not agree.

A notice of assessment is:

[A] declaration of deficiency taxes issued to a [t]axpayer who fails to respond to a Pre-
Assessment Notice (PAN) within the prescribed period of time, or whose reply to the
PAN was found to be without merit. The Notice of Assessment shall inform the
[t]axpayer of this fact, and that the report of investigation submitted by the Revenue
Officer conducting the audit shall be given due course.

The formal letter of demand calling for payment of the taxpayers deficiency tax or taxes
shall state the fact, the law, rules and regulations or jurisprudence on which the
assessment is based, otherwise the formal letter of demand and the notice of
assessment shall be void.[44]

As it is, the formality of a control number in the assessment notice is not a requirement
for its validity but rather the contents thereof which should inform the taxpayer of the
declaration of deficiency tax against said taxpayer. Both the formal letter of demand and
the notice of assessment shall be void if the former failed to state the fact, the law, rules
and regulations or jurisprudence on which the assessment is based, which is a
mandatory requirement under Section 228 of the NIRC.

Section 228 of the NIRC provides that the taxpayer shall be informed in writing of the
law and the facts on which the assessment is made. Otherwise, the assessment is void.
To implement the provisions of Section 228 of the NIRC, RR No. 12-99 was enacted.
Section 3.1.4 of the revenue regulation reads:
3.1.4. Formal Letter of Demand and Assessment Notice. The formal letter of demand
and assessment notice shall be issued by the Commissioner or his duly authorized
representative. The letter of demand calling for payment of the taxpayers deficiency tax
or taxes shall state the facts, the law, rules and regulations, or jurisprudence on which
the assessment is based, otherwise, the formal letter of demand and assessment notice
shall be void. The same shall be sent to the taxpayer only by registered mail or by
personal delivery. x x x.[45] (Emphasis supplied.)

The Formal Letter of Demand dated August 7, 2002 contains not only a detailed
computation of LMCECs tax deficiencies but also details of the specified discrepancies,
explaining the legal and factual bases of the assessment. It also reiterated that in the
absence of accounting records and other documents necessary for the proper
determination of the companys internal revenue tax liabilities, the investigating revenue
officers resorted to the Best Evidence Obtainable as provided in Section 6(B) of the
NIRC (third party information) and in accordance with the procedure laid down in RMC
No. 23-2000 dated November 27, 2000. Annex A of the Formal Letter of Demand thus
stated:

Thus, to verify the validity of the information previously provided by the informant, the
assigned revenue officers resorted to third party information. Pursuant to Section 5(B) of
the NIRC of 1997, access letters requesting for information and the submission of
certain documents (i.e., Certificate of Income Tax Withheld at Source and/or
Alphabetical List showing the income payments made to L.M. Camus Engineering
Corporation for the taxable years 1997 to 1999) were sent to the various clients of the
subject corporation, including but not limited to the following:

1. Ayala Land Inc.

2. Filinvest Alabang Inc.

3. D.M. Consunji, Inc.

4. SM Prime Holdings, Inc.

5. Alabang Commercial Corporation

6. Philam Properties Corporation

7. SM Investments, Inc.

8. Shoemart, Inc.

9. Philippine Securities Corporation

10. Makati Development Corporation

From the documents gathered and the data obtained therein, the substantial
underdeclaration as defined under Section 248(B) of the NIRC of 1997 by your
corporation of its income had been confirmed. x x x x[46] (Emphasis supplied.)

In the same letter, Assistant Commissioner Percival T. Salazar informed private

respondents that the estimated tax liabilities arising from LMCECs underdeclaration
amounted to P186,773,600.84 in 1997, P150,069,323.81 in 1998 and P163,220,111.13
in 1999. These figures confirmed that the non-declaration by LMCEC for the taxable
years 1997, 1998 and 1999 of an amount exceeding 30% income[47] declared in its
return is considered a substantial underdeclaration of income, which constituted prima
facie evidence of false or fraudulent return under Section 248(B)[48] of the NIRC, as
amended.[49]

On the alleged settlement of the assessed tax deficiencies by private respondents,

respondent Secretary found the latters claim as meritorious on the basis of the
Certificate of Immunity From Audit issued on December 6, 1999 pursuant to RR No. 2-
99 and Letter of Termination dated June 1, 1999 issued by Revenue Region No. 7 Chief
of Assessment Division Ruth Vivian G. Gandia. Petitioner, however, clarified that the
certificate of immunity from audit covered only income tax for the year 1997 and does
not include VAT and withholding taxes, while the Letter of Termination involved tax
liabilities for taxable year 1997 (EWT, VAT and income taxes) but which was submitted
for review of higher authorities as per the Certification of RD No. 40 District Officer
Pablo C. Cabreros, Jr.[50] For 1999, private respondents supposedly availed of the VAP
pursuant to RR No. 8-2001.

RR No. 2-99 issued on February 7, 1999 explained in its Policy Statement that
considering the scarcity of financial and human resources as well as the time
constraints within which the Bureau has to clean the Bureaus backlog of unaudited tax
returns in order to keep updated and be focused with the most current accounts in
preparation for the full implementation of a computerized tax administration, the said
revenue regulation was issued providing for last priority in audit and investigation of tax
returns to accomplish the said objective without, however, compromising the revenue
collection that would have been generated from audit and enforcement activities. The
program named as Economic Recovery Assistance Payment (ERAP) Program granted
immunity from audit and investigation of income tax, VAT and percentage tax returns for
1998. It expressly excluded withholding tax returns (whether for income, VAT, or
percentage tax purposes). Since such immunity from audit and investigation does not
preclude the collection of revenues generated from audit and enforcement activities, it
follows that the Bureau is likewise not barred from collecting any tax deficiency
discovered as a result of tax fraud investigations. Respondent Secretarys opinion that
RR No. 2-99 contains the feature of a tax amnesty is thus misplaced.

Tax amnesty is a general pardon to taxpayers who want to start a clean tax slate. It also
gives the government a chance to collect uncollected tax from tax evaders without
having to go through the tedious process of a tax case.[51] Even assuming arguendo
that the issuance of RR No. 2-99 is in the nature of tax amnesty, it bears noting that a
tax amnesty, much like a tax exemption, is never favored nor presumed in law and if
granted by statute, the terms of the amnesty like that of a tax exemption must be
construed strictly against the taxpayer and liberally in favor of the taxing authority.[52]

For the same reason, the availment by LMCEC of VAP under RR No. 8-2001 as
amended by RR No. 10-2001, through payment supposedly made in October 29, 2001
before the said program ended on October 31, 2001, did not amount to settlement of its
assessed tax deficiencies for the period 1997 to 1999, nor immunity from prosecution
for filing fraudulent return and attempt to evade or defeat tax. As correctly asserted by
petitioner, from the express terms of the aforesaid revenue regulations, LMCEC is not
qualified to avail of the VAP granting taxpayers the privilege of last priority in the audit
and investigation of all internal revenue taxes for the taxable year 2000 and all prior
years under certain conditions, considering that first, it was issued a PAN on February
19, 2001, and second, it was the subject of investigation as a result of verified
information filed by a Tax Informer under Section 282 of the NIRC duly recorded in the
BIR Official Registry as Confidential Information (CI) No. 29-2000[53] even prior to the
issuance of the PAN.

Section 1 of RR No. 8-2001 provides:

SECTION 1. COVERAGE. x x x

Any person, natural or juridical, including estates and trusts, liable to pay any of the
above-cited internal revenue taxes for the above specified period/s who, due to
inadvertence or otherwise, erroneously paid his internal revenue tax liabilities or failed
to file tax return/pay taxes may avail of the Voluntary Assessment Program (VAP),
except those falling under any of the following instances:

1.1 Those covered by a Preliminary Assessment Notice (PAN), Final Assessment Notice
(FAN), or Collection Letter issued on or before July 31, 2001; or

1.2 Persons under investigation as a result of verified information filed by a Tax Informer
under Section 282 of the Tax Code of 1997, duly processed and recorded in the BIR
Official Registry Book on or before July 31, 2001;

1.3 Tax fraud cases already filed and pending in courts for adjudication; and

x x x x (Emphasis supplied.)
Moreover, private respondents cannot invoke LMCECs availment of VAP to foreclose
any subsequent audit of its account books and other accounting records in view of the
strong finding of underdeclaration in LMCECs payment of correct income tax liability by
more than 30% as supported by the written report of the TFD detailing the facts and the
law on which such finding is based, pursuant to the tax fraud investigation authorized by
petitioner under LA No. 00009361. This conclusion finds support in Section 2 of RR No.
8-2001 as amended by RR No. 10-2001 provides:

SEC. 2. TAXPAYERS BENEFIT FROM AVAILMENT OF THE VAP. A taxpayer who has
availed of the VAP shall not be audited except upon authorization and approval of the
Commissioner of Internal Revenue when there is strong evidence or finding of
understatement in the payment of taxpayers correct tax liability by more than thirty
percent (30%) as supported by a written report of the appropriate office detailing the
facts and the law on which such finding is based: Provided, however, that any VAP
payment should be allowed as tax credit against the deficiency tax due, if any, in case
the concerned taxpayer has been subjected to tax audit.

xxxx

Given the explicit conditions for the grant of immunity from audit under RR No. 2-99, RR
No. 8-2001 and RR No. 10-2001, we hold that respondent Secretary gravely erred in
declaring that petitioner is now estopped from assessing any tax deficiency against
LMCEC after issuance of the aforementioned documents of immunity from
audit/investigation and settlement of tax liabilities. It is axiomatic that the State can
never be in estoppel, and this is particularly true in matters involving taxation. The errors
of certain administrative officers should never be allowed to jeopardize the governments
financial position.[54]

Respondent Secretarys other ground for assailing the course of action taken by
petitioner in proceeding with the audit and investigation of LMCEC -- the alleged
violation of the general rule in Section 235 of the NIRC allowing the examination and
inspection of taxpayers books of accounts and other accounting records only once in a
taxable year -- is likewise untenable. As correctly pointed out by petitioner, the discovery
of substantial underdeclarations of income by LMCEC for taxable years 1997, 1998 and
1999 upon verified information provided by an informer under Section 282 of the NIRC,
as well as the necessity of obtaining information from third parties to ascertain the
correctness of the return filed or evaluation of tax compliance in collecting taxes (as a
result of the disobedience to the summons issued by the Bureau against the private
respondents), are circumstances warranting exception from the general rule in Section
235.[55]

As already stated, the substantial underdeclared income in the returns filed by LMCEC
for 1997, 1998 and 1999 in amounts equivalent to more than 30% (the computation in
the final assessment notice showed underdeclarations of almost 200%) constitutes
prima facie evidence of fraudulent return under Section 248(B) of the NIRC. Prior to the
issuance of the preliminary and final notices of assessment, the revenue officers
conducted a preliminary investigation on the information and documents showing
substantial understatement of LMCECs tax liabilities which were provided by the
Informer, following the procedure under RMO No. 15-95.[56] Based on the prima facie
finding of the existence of fraud, petitioner issued LA No. 00009361 for the TFD to
conduct a formal fraud investigation of LMCEC.[57] Consequently, respondent
Secretarys ruling that the filing of criminal complaint for violation of Sections 254 and
255 of the NIRC cannot prosper because of lack of prior determination of the existence
of fraud, is bereft of factual basis and contradicted by the evidence on record.

Tax assessments by tax examiners are presumed correct and made in good faith, and
all presumptions are in favor of the correctness of a tax assessment unless proven
otherwise.[58] We have held that a taxpayers failure to file a petition for review with the
Court of Tax Appeals within the statutory period rendered the disputed assessment final,
executory and demandable, thereby precluding it from interposing the defenses of
legality or validity of the assessment and prescription of the Governments right to
assess.[59] Indeed, any objection against the assessment should have been pursued
following the avenue paved in Section 229 (now Section 228) of the NIRC on protests
on assessments of internal revenue taxes.[60]

Records bear out that the assessment notice and Formal Letter of Demand dated
August 7, 2002 were duly served on LMCEC on October 1, 2002. Private respondents
did not file a motion for reconsideration of the said assessment notice and formal
demand; neither did they appeal to the Court of Tax Appeals. Section 228 of the
NIRC[61] provides the remedy to dispute a tax assessment within a certain period of
time. It states that an assessment may be protested by filing a request for
reconsideration or reinvestigation within 30 days from receipt of the assessment by the
taxpayer. No such administrative protest was filed by private respondents seeking
reconsideration of the August 7, 2002 assessment notice and formal letter of demand.
Private respondents cannot belatedly assail the said assessment, which they allowed to
lapse into finality, by raising issues as to its validity and correctness during the
preliminary investigation after the BIR has referred the matter for prosecution under
Sections 254 and 255 of the NIRC.

As we held in Marcos II v. Court of Appeals[62]:

It is not the Department of Justice which is the government agency tasked to determine
the amount of taxes due upon the subject estate, but the Bureau of Internal Revenue,
whose determinations and assessments are presumed correct and made in good faith.
The taxpayer has the duty of proving otherwise. In the absence of proof of any
irregularities in the performance of official duties, an assessment will not be disturbed.
Even an assessment based on estimates is prima facie valid and lawful where it does
not appear to have been arrived at arbitrarily or capriciously. The burden of proof is
upon the complaining party to show clearly that the assessment is erroneous. Failure to
present proof of error in the assessment will justify the judicial affirmance of said
assessment. x x x.

Moreover, these objections to the assessments should have been raised, considering
the ample remedies afforded the taxpayer by the Tax Code, with the Bureau of Internal
Revenue and the Court of Tax Appeals, as described earlier, and cannot be raised now
via Petition for Certiorari, under the pretext of grave abuse of discretion. The course of
action taken by the petitioner reflects his disregard or even repugnance of the
established institutions for governance in the scheme of a well-ordered society. The
subject tax assessments having become final, executory and enforceable, the same can
no longer be contested by means of a disguised protest. In the main, Certiorari may not
be used as a substitute for a lost appeal or remedy. This judicial policy becomes more
pronounced in view of the absence of sufficient attack against the actuations of
government. (Emphasis supplied.)

The determination of probable cause is part of the discretion granted to the investigating
prosecutor and ultimately, the Secretary of Justice. However, this Court and the CA
possess the power to review findings of prosecutors in preliminary investigations.
Although policy considerations call for the widest latitude of deference to the
prosecutors findings, courts should never shirk from exercising their power, when the
circumstances warrant, to determine whether the prosecutors findings are supported by
the facts, or by the law. In so doing, courts do not act as prosecutors but as organs of
the judiciary, exercising their mandate under the Constitution, relevant statutes, and
remedial rules to settle cases and controversies.[63] Clearly, the power of the Secretary
of Justice to review does not preclude this Court and the CA from intervening and
exercising our own powers of review with respect to the DOJs findings, such as in the
exceptional case in which grave abuse of discretion is committed, as when a clear
sufficiency or insufficiency of evidence to support a finding of probable cause is ignored.
[64]

WHEREFORE, the petition is GRANTED. The Decision dated October 31, 2006 and
Resolution dated March 6, 2007 of the Court of Appeals in CA-G.R. SP No. 93387 are
hereby REVERSED and SET ASIDE. The Secretary of Justice is hereby DIRECTED to
order the Chief State Prosecutor to file before the Regional Trial Court of Quezon City,
National Capital Judicial Region, the corresponding Information against L. M. Camus
Engineering Corporation, represented by its President Luis M. Camus and Comptroller
Lino D. Mendoza, for Violation of Sections 254 and 255 of the National Internal
Revenue Code of 1997.

No costs.

SO ORDERED.

MARTIN S. VILLARAMA, JR.

Associate Justice

WE CONCUR:

CONCHITA CARPIO MORALES

Associate Justice

Chairperson

ARTURO D. BRION
Associate Justice

LUCAS P. BERSAMIN

Associate Justice

MARIA LOURDES P. A. SERENO

Associate Justice

ATTE STATI O N

I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

CONCHITA CARPIO MORALES

Associate Justice

Chairperson, Third Division

C E RTI F I CATI O N

Pursuant to Section 13, Article VIII of the 1987 Constitution and the Division
Chairpersons Attestation, I certify that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer of the opinion of the
Courts Division.

RENATO C. CORONA

Chief Justice
[1] CA rollo, pp. 130-137. Penned by Associate Justice Juan Q. Enriquez, Jr. and
concurred in by Associate Justices Ruben T. Reyes (now a retired member of this
Court) and Vicente S.E. Veloso.

[2] Id. at 155-156.

[3] Id. at 31-41.

[4] Id. at 49.

[5] Id. at 64.

[6] Records, p. 102.

[7] CA rollo, pp. 102-104.

[8] Records, p. 159.

[9] CA rollo, pp. 50-60.

[10] Records, pp. 139-140.

[11] Revenue Regulations No. 12-99, Implementing the Provisions of the National
Internal Revenue Code of 1997 Governing the Rules on Assessment of National
Internal Revenue Taxes, Civil Penalties and Interest and the Extrajudicial Settlement of
a Taxpayers Criminal Violation of the Code through Payment of a Suggested
Compromise Penalty, September 6, 1999.

[12] CA rollo, pp. 42-48.

[13] Id. at 61-62.

[14] Records, p. 97.

[15] CA rollo, p. 62.

[16] Id. at 62-63.

[17] Id. at 64.

[18] Id. at 65.

[19] Records, pp. 158-159.

[20] Id. at 157-158.

[21] Nos. L-41919-24, May 30, 1980, 97 SCRA 877.

[22] Records, pp. 156-157.

[23] Id. at 154-155.

[24] Id. at 153-154.

[25] Id. at 152-153.

[26] Id. at 114-119.

[27] CA rollo, pp. 67-74.

[28] Id. at 76-85.

[29] Id. at 31-41, 86-101.

[30] Id. at 36-37.

[31] Id. at 37-39.

[32] Id. at 39-41.

[33] Id. at 130-137.

[34] Id. at 155-156.

[35] Id. at 158.

[36] Id. at 206.

[37] Rollo, p. 202.

[38] Revenue Regulations No. 12-99, Section 3.1.2.

SECTION 3. Due process requirement in the issuance of a deficiency tax assessment.

xxxx

3.1.2 Preliminary Assessment Notice (PAN). If after review and evaluation by the
Assessment Division or by the Commissioner or his duly authorized representative, as
the case may be, it is determined that there exists sufficient basis to assess the
taxpayer for any deficiency tax or taxes, the said Office shall issue to the taxpayer, at
least by registered mail, a Preliminary Assessment Notice (PAN) for the proposed
assessment, showing in detail, the facts and the law, rules and regulations, or
jurisprudence on which the proposed assessment is based. If the taxpayer fails to
respond within fifteen (15) days from date of receipt of the PAN, he shall be considered
in default, in which case, a formal letter of demand and assessment notice shall be
caused to be issued by the said Office, calling for payment of the taxpayers deficiency
tax liability, inclusive of the applicable penalties.

[39] CA rollo, pp. 102-104.

[40] Records, p. 120.

[41] Supra note 21 at 884, citing Guzik v. United States, 54 F2d. 618.
[42] CA rollo, p. 104.

[43] Fitness By Design, Inc. v. Commissioner of Internal Revenue, G.R. No. 177982,
October 17, 2008, 569 SCRA 788, 797.

[44] Commissioner of Internal Revenue v. Enron Subic Power Corporation, G.R. No.
166387, January 19, 2009, 576 SCRA 212, 216, citing
http://www.bir.gov.ph/taxpayerrights/taxpayerrights.htm.

[45] Id.; See also Commissioner of Internal Revenue v. Reyes, G.R. Nos. 159694 &
163581, January 27, 2006, 480 SCRA 382.

[46] CA rollo, p. 60.

[47] Id. at 59.

[48] SEC. 248. Civil Penalties.

xxxx

(B) In case of willful neglect to file the return within the period prescribed by this Code or
by rules and regulations, or in case a false or fraudulent return is willfully made, the
penalty to be imposed shall be fifty percent (50%) of the tax or of the deficiency tax, in
case any payment has been made on the basis of such return before the discovery of
the falsity or fraud; Provided, That a substantial underdeclaration of taxable sales,
receipts or income, or a substantial overstatement of deductions, as determined by the
Commissioner pursuant to the rules and regulations to be promulgated by the Secretary
of Finance, shall constitute prima facie evidence of a false or fraudulent return:
Provided, further, That failure to report sales, receipts or income in an amount
exceeding thirty percent (30%) of that declared per return, and a claim of deductions in
an amount exceeding thirty percent (30%) of actual deductions, shall render the
taxpayer liable for substantial underdeclaration of sales, receipts or income or for
overstatement of deductions, as mentioned herein.

[49] See Santos v. People, G.R. No. 173176, August 26, 2008, 563 SCRA 341, 347.

[50] Records, p. 138.

[51] Baas, Jr. v. Court of Appeals, G.R. No. 102967, February 10, 2000, 325 SCRA 259,
273.

[52] Id. at 274, citing People v. Castaeda, Jr., No. L-46881, September 15, 1988, 165
SCRA 327, 341 and Commissioner of Internal Revenue v. Guerrero, No. L-20942,
September 22, 1967, 21 SCRA 180. See also Philippine Banking Corporation (Now:
Global Business Bank, Inc.) v. Commissioner of Internal Revenue, G.R. No. 170574,
January 30, 2009, 577 SCRA 366, 392.

[53] Rollo, p. 116.

[54] Commissioner of Internal Revenue v. Procter & Gamble PMC, No. L-66838, April
15, 1988, 160 SCRA 560, 565.

[55] SEC. 235. Preservation of Books of Accounts, and Other Accounting Records. All
the books of accounts, including the subsidiary books and other accounting records of
corporations, partnerships, or persons shall be preserved by them for a period
beginning from the last entry in each book until the last day prescribed by Section 203
within which the Commissioner is authorized to make an assessment. The said books
and records shall be subject to examination and inspection by internal revenue officers:
Provided, That for income tax purposes, such examination and inspection shall be
made only once in a taxable year, except in the following cases:
(a) Fraud, irregularity or mistakes as determined by the Commissioner;

xxxx

(c) Verification or compliance with withholding tax laws and regulations;

xxxx

(e) In the exercise of the Commissioners power under Section 5(B) to obtain information
from other persons, in which case, another or separate examination and inspection may
be made. x x x

[56] RMO No. 15-95 dated June 9, 1995.

C. PROCEDURE

A Preliminary Investigation must first be conducted to establish the prima facie

existence of fraud. This shall include the verification of the allegations on the
confidential information and/or complaints filed, and the determination of the schemes
and extent of fraud perpetrated by the denounced taxpayers.

The Formal Fraud Investigation, which includes the examination of the taxpayers books
of accounts through the issuance of Letters of Authority, shall be conducted only after
the prima facie existence of fraud has been established.

1. TAX FRAUD DIVISION

1.1. Where indications of fraud have been established in a preliminary investigation, the
TFD thru the Assistant Commissioner, Intelligence and Investigation Service (IIS), shall
request/recommend the issuances of the corresponding Letter of Authority by the
Commissioner which will automatically supersede all previously issued Letters of
Authority with respect thereto.

xxxx

[57] RMO No. 49-2000, II (2).

[58] Rizal Commercial Banking Corporation v. Commissioner of Internal Revenue, G.R.

No. 168498, April 24, 2007, 522 SCRA 144, 149-150, citing Commissioner of Internal
Revenue v. Hantex Trading Co., Inc., G.R. No. 136975, March 31, 2005, 454 SCRA
301, 329.

[59] Id. at 150, citing Benjamin B. Aban, Law of Basic Taxation in the Philippines,
Revised Edition (1997), p. 247.

[60] Marcos II v. Court of Appeals, G.R. No. 120880, June 5, 1997, 273 SCRA 47, 65.

[61] Revenue Regulations No. 12-99, Section 3.1.5.

3.1.5 Disputed Assessment. The taxpayer or his duly authorized representative may
protest administratively against the aforesaid formal letter of demand and assessment
notice within thirty (30) days from date of receipt thereof. x x x

[62] Supra note 60, at 66-67.

[63] Social Security System v. Department of Justice, G.R. No. 158131, August 8, 2007,
529 SCRA 426, 442, citing Ladlad v. Velasco, G.R. Nos. 172070-72, 172074-76 &
175013, June 1, 2007, 523 SCRA 318; Principio v. Barrientos, G.R. No. 167025,
December 19, 2005, 478 SCRA 639; Acua v. Deputy Ombudsman for Luzon, G.R. No.
144692, January 31, 2005, 450 SCRA 232.

[64] See Tan v. Ballena, G.R. No. 168111, July 4, 2008, 557 SCRA 229, 252.

Xxxxxxxccccccc

Republic of the Philippines

Supreme Court

Manila

THIRD DIVISION
COMMISSIONER OF G.R. No. 163345

INTERNAL REVENUE,

Petitioner, Present:

YNARES-SANTIAGO, J.,

Chairperson,

AUSTRIA-MARTINEZ,

- versus - CHICO-NAZARIO,

NACHURA, and

REYES, JJ.
Promulgated:

PERF REALTY CORPORATION,

Respondent. July 4, 2008

x--------------------------------------------------x

DECISION

REYES, R.T., J.:

FOR Our review on certiorari is the Decision[1] of the Court of Appeals (CA) granting
the claim for refund of respondent PERF Realty Corporation (PERF) for creditable
withholding tax for the year 1997.

Facts

Petitioner Commissioner is the head of the Bureau of Internal Revenue (BIR) whose
principal duty is to assess and collect internal revenue taxes. Respondent PERF is a
domestic corporation engaged in the business of leasing properties to various clients
including the Philippine American Life and General Insurance Company (Philamlife) and
Read-Rite Philippines (Read-Rite).

On April 14, 1998, PERF filed its Annual Income Tax Return (ITR) for the year 1997
showing a net taxable income in the amount of P6,430,345.00 and income tax due of
P2,250,621.00.

For the year 1997, its tenants, Philamlife and Read-Rite, withheld and subsequently
remitted creditable withholding taxes in the total amount of P3,531,125.00.
After deducting creditable withholding taxes in the total amount of P3,531,125.00 from
its total income tax due of P2,250,621.00, PERF showed in its 1997 ITR an
overpayment of income taxes in the amount of P1,280,504.00.

On November 3, 1999, PERF filed an administrative claim with the appellate division of
the BIR for refund of overpaid income taxes in the amount of P1,280,504.00.

On December 3, 1999, due to the inaction of the BIR, PERF filed a petition for review
with the Court of Tax Appeals (CTA) seeking for the refund of the overpaid income taxes
in the amount of P1,280,504.00.

CTA Disposition

In a Decision dated November 20, 2001, the CTA denied the petition of PERF on the
ground of insufficiency of evidence. The CTA noted that PERF did not indicate in its
1997 ITR the option to either claim the excess income tax as a refund or tax credit
pursuant to Section 69[2] (now 76) of the National Internal Revenue Code (NIRC)
Further, the CTA likewise found that PERF failed to present in evidence its 1998 annual
ITR. It held that the failure of PERF to signify its option on whether to claim for refund or
opt for an automatic tax credit and to present its 1998 ITR left the Court with no way to
determine with certainty whether or not PERF has applied or credited the refundable
amount sought for in its administrative and judicial claims for refund.

PERF moved for reconsideration attaching to its motion its 1998 ITR. The motion was,
however, denied by the CTA in its Resolution dated March 26, 2002.

Aggrieved by the decision of the CTA, PERF filed a petition for review with the CA under
Rule 43 of the Rules of Court.

CA Disposition

In a Decision dated July 18, 2003, the CA ruled in favor of PERF, disposing as follows:

WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated

November 20, 2001, and Resolution of March 26, 2002 of the Court of Tax Appeals are
SET ASIDE. The Commissioner of Internal Revenue is ordered to REFUND to the
petitioner the amount of P1,280,504.00 as creditable withholding tax for the year 1997.

SO ORDERED.[3]

According to the appellate court, even if the taxpayer has indicated its option for refund
or tax credit in its ITR, it does not mean that it will automatically be entitled to either
option since the Commissioner of Internal Revenue (CIR) must be given the opportunity
to investigate and confirm the veracity of the claim. Thus, there is still a need to file a
claim for refund.

As to the failure of PERF to present its 1998 ITR, the CA observed that there is no need
to rule on its admissibility since the CTA already held that PERF had complied with the
requisites for applying for a tax refund. The sole purpose of requiring the presentation of
PERFs 1998 ITR is to verify whether or not PERF had carried over the 1997 excess
income tax claimed for refund to the year 1998. The verification process is not
incumbent upon PERF; rather, it is the duty of the BIR to disprove the taxpayers claim.
The CIR filed a motion for reconsideration which was subsequently denied by the CA.
Thus, this appeal to Us under Rule 45.

Issues

Petitioner submits the following assignment:

THE COURT OF APPEALS ERRED IN GRANTING RESPONDENTS TAX REFUND

CONSIDERING THE LATTERS FAILURE TO SUBSTANTIALLY ESTABLISH ITS
CLAIM FOR REFUND.

II

THE COURT OF APPEALS ERRED IN CONSIDERING RESPONDENTS ANNUAL

CORPORATE INCOME TAX RETURN FOR 1998 NOTWITHSTANDING THAT IT WAS
NOT FORMALLY OFFERED IN EVIDENCE.[4] (Underscoring supplied)
Our Ruling

We rule in favor of respondent.

I. Respondent substantially complied with the requisites for claim of refund.

The CTA, citing Section 10 of Revenue Regulations 6-85 and Citibank, N.A. v. Court of
Appeals,[5] determined the requisites for a claim for refund, thus:
1) That the claim for refund was filed within the two (2) year period as prescribed under
Section 230 of the National Internal Revenue Code;

2) That the income upon which the taxes were withheld were included in the return of
the recipient;

3) That the fact of withholding is established by a copy of a statement (BIR Form

1743.1) duly issued by the payor (withholding agent) to the payee, showing the amount
paid and the amount of tax withheld therefrom.[6]

We find that PERF filed its administrative and judicial claims for refund on November 3,
1999 and December 3, 1999, respectively, which are within the two-year prescriptive
period under Section 230 (now 229) of the National Internal Tax Code.

The CTA noted that based on the records, PERF presented certificates of creditable
withholding tax at source reflecting creditable withholding taxes in the amount of
P4,153,604.18 withheld from PERFs rental income of P83,072,076.81 (Exhibits B, C, D,
E, and H). In addition, it submitted in evidence the Monthly Remittance Returns of its
withholding agents to prove the fact of remittance of said taxes to the BIR. Although the
certificates of creditable withholding tax at source for 1997 reflected a total amount of
P4,153,604.18 corresponding to the rental income of P83,072,076.81, PERF is claiming
only the amount of P3,531,125.00 pertaining to a rental income of P70,813,079.00. The
amount of P3,531,125.00 less the income tax due of PERF of P2,250,621.00 leaves the
refundable amount of P1,280,504.00.
It is settled that findings of fact of the CTA are entitled to great weight and will not be
disturbed on appeal unless it is shown that the lower courts committed gross error in the
appreciation of facts. We see no cogent reason not to apply the same principle here.

II. The failure of respondent to indicate its option in its annual ITR to avail itself of either
the tax refund or tax credit is not fatal to its claim for refund.

Respondent PERF did not indicate in its 1997 ITR the option whether to request a
refund or claim the excess withholding tax as tax credit for the succeeding taxable year.

Citing Section 76 of the NIRC, the CIR opines that such failure is fatal to PERFs claim
for refund.

We do not agree.
In Philam Asset Management, Inc. v. Commissioner of Internal Revenue,[7] the Court
had occasion to trace the history of the Final Adjustment Return found in Section 69
(now 76) of the NIRC. Thus:

The provision on the final adjustment return (FAR) was originally found in Section 69 of
Presidential Decree (PD) No. 1158, otherwise known as the National Internal Revenue
Code of 1977. On August 1, 1980, this provision was restated as Section 86 in PD
1705.

On November 5, 1985, all prior amendments and those introduced by PD 1994 were
codified into the National Internal Revenue Code (NIRC) of 1985, as a result of which
Section 86 was renumbered as Section 79.

On July 31, 1986, Section 24 of Executive Order (EO) No. 37 changed all net income
phrases appearing in Title II of the NIRC of 1977 to taxable income. Section 79 of the
NIRC of 1985, however, was not amended.

On July 25, 1987, EO 273 renumbered Section 86 of the NIRC as Section 76, which
was also rearranged to fall under Chapter of Title II of the NIRC. Section 79, which had
earlier been renumbered by PD 1994, remained unchanged.
Thus, Section 69 of the NIRC of 1977 was renumbered as Section 86 under PD 1705;
later, as Section 79 under PD 1994; then, as Section 76 under EO 273. Finally, after
being renumbered and reduced to the chaff of a grain, Section 69 was repealed by EO
37.

Subsequently, Section 69 reappeared in the NIRC (or Tax Code) of 1997 as Section 76,
which reads:

Section 76. Final Adjustment Return. Every corporation liable to tax under Section 24
shall file a final adjustment return covering the total net income for the preceding
calendar or fiscal year. If the sum of the quarterly tax payments made during the said
taxable year is not equal to the total tax due on the entire taxable net income of that
year the corporation shall either:

(a) Pay the excess tax still due; or

(b) Be refunded the excess amount paid, as the case may be.
In case the corporation is entitled to a refund of the excess estimated quarterly income
taxes paid, the refundable amount shown on its final adjustment return may be credited
against the estimated quarterly income tax liabilities for the taxable quarters of the
succeeding taxable year.[8]

Section 76 offers two options: (1) filing for tax refund and (2) availing of tax credit. The
two options are alternative and the choice of one precludes the other. However, in
Philam Asset Management, Inc. v. Commissioner of Internal Revenue,[9] the Court
ruled that failure to indicate a choice, however, will not bar a valid request for a refund,
should this option be chosen by the taxpayer later on. The requirement is only for the
purpose of easing tax administration particularly the self-assessment and collection
aspects. Thus:

These two options under Section 76 are alternative in nature. The choice of one
precludes the other. Indeed, in Philippine Bank of Communications v. Commissioner of
Internal Revenue, the Court ruled that a corporation must signify its intention whether to
request a tax refund or claim a tax credit by marking the corresponding option box
provided in the FAR. While a taxpayer is required to mark its choice in the form provided
by the BIR, this requirement is only for the purpose of facilitating tax collection.

One cannot get a tax refund and a tax credit at the same time for the same excess
income taxes paid. Failure to signify ones intention in the FAR does not mean outright
barring of a valid request for a refund, should one still choose this option later on. A tax
credit should be construed merely as an alternative remedy to a tax refund under
Section 76, subject to prior verification and approval by respondent.
The reason for requiring that a choice be made in the FAR upon its filing is to ease tax
administration, particularly the self-assessment and collection aspects. A taxpayer that
makes a choice expresses certainty or preference and thus demonstrates clear
diligence. Conversely, a taxpayer that makes no choice expresses uncertainty or lack of
preference and hence shows simple negligence or plain oversight.

xxxx

Third, there is no automatic grant of a tax refund. As a matter of procedure, the BIR
should be given the opportunity to investigate and confirm the veracity of a taxpayers
claim, before it grants the refund. Exercising the option for a tax refund or a tax credit
does not ipso facto confer upon a taxpayer the right to an immediate availment of the
choice made. Neither does it impose a duty on the government to allow tax collection to
be at the sole control of a taxpayer.

Fourth, the BIR ought to have on file its own copies of petitioners FAR for the
succeeding year, on the basis of which it could rebut the assertion that there was a
subsequent credit of the excess income tax payments for the previous year. Its failure to
present this vital document to support its contention against the grant of a tax refund to
petitioner is certainly fatal.
Fifth, the CTA should have taken judicial notice of the fact of filing and the pendency of
petitioners subsequent claim for a refund of excess creditable taxes withheld for 1998.
The existence of the claim ought to be known by reason of its judicial functions.
Furthermore, it is decisive to and will easily resolve the material issue in this case. If
only judicial notice were taken earlier, the fact that there was no carry-over of the
excess creditable taxes withheld for 1997 would have already been crystal clear.

Sixth, the Tax Code allows the refund of taxes to a taxpayer that claims it in writing
within two years after payment of the taxes erroneously received by the BIR. Despite
the failure of petitioner to make the appropriate marking in the BIR form, the filing of its
written claim effectively serves as an expression of its choice to request a tax refund,
instead of a tax credit. To assert that any future claim for a tax refund will be instantly
hindered by a failure to signify ones intention in the FAR is to render nugatory the clear
provision that allows for a two-year prescriptive period.

In fact, in BPI-Family Savings Bank v. CA, this Court even ordered the refund of a
taxpayers excess creditable taxes, despite the express declaration in the FAR to apply
the excess to the succeeding year. When circumstances show that a choice of tax credit
has been made, it should be respected. But when indubitable circumstances clearly
show that another choice a tax refund is in order, it should be granted. Technicalities
and legalisms, however exalted, should not be misused by the government to keep
money not belonging to it and thereby enrich itself at the expense of its law-abiding
citizens.

In the present case, although petitioner did not mark the refund box in its 1997 FAR,
neither did it perform any act indicating that it chose a tax credit. On the contrary, it filed
on September 11, 1998, an administrative claim for the refund of its excess taxes
withheld in 1997. In none of its quarterly returns for 1998 did it apply the excess
creditable taxes. Under these circumstances, petitioner is entitled to a tax refund of its
1997 excess tax credits in the amount of P522,092.[10]

In this case, PERF did not mark the refund box in its 1997 FAR. Neither did it perform
any act indicating that it chose tax credit. In fact, in its 1998 ITR, PERF left blank the
portion Less: Tax Credit/ Payments. That action coupled with the filing of a claim for
refund indicates that PERF opted to claim a refund. Under these circumstances, PERF
is entitled to a refund of its 1997 excess tax credits in the amount of P1,280,504.00.

III. The failure of respondent to present in evidence the 1998 ITR is not fatal to its claim
for refund.

The CIR takes the view that the CA erred in considering the 1998 ITR of PERF. It was
not formally offered in evidence. Section 34, Rule 132 of the Revised Rules of Court
states that the court shall consider no evidence which has not been formally offered.

The reasoning is specious.

PERF attached its 1998 ITR to its motion for reconsideration. The 1998 ITR is a part of
the records of the case and clearly showed that income taxes in the amount of
P1,280,504.00 were not claimed as tax credit in 1998.

In Filinvest Development Corporation v. Commissioner of Internal Revenue,[11] the

Court held that the 1997 ITR attached to the motion for reconsideration is part of the
records of that case and cannot be simply ignored by the CTA. Moreover, technicalities
should not be used to defeat substantive rights, especially those that have been held as
a matter of right. We quote:

In the proceedings before the CTA, petitioner presented in evidence its letter of claim for
refund before the BIR to show that it was made within the two-year reglementary period;
its Income Tax Returns for the years 1995 and 1996 to prove its total creditable
withholding tax and the fact that the amounts were declared as part of its gross income;
and several certificates of income tax withheld at source corresponding to the period of
claim to prove the total amount of the taxes erroneously withheld. More importantly,
petitioner attached its 1997 Income Tax Return to its Motion for Reconsideration,
making the same part of the records of the case. The CTA cannot simply ignore this
document.
Thus, we hold that petitioner has complied with all the requirements to prove its claim
for tax refund. The CA, therefore, erred in denying the petition for review of the CTAs
denial of petitioners claim for tax refund on the ground that it failed to present its 1997
Income Tax Return.

The CAs reliance on Rule 132, Section 34 26 of the Rules on Evidence is misplaced.
This provision must be taken in the light of Republic Act No. 1125, as amended, the law
creating the CTA, which provides that proceedings therein shall not be governed strictly
by technical rules of evidence. Moreover, this Court has held time and again that
technicalities should not be used to defeat substantive rights, especially those that have
been established as a matter of fact.

xxxx

We must also point out that, simply by exercising the CIRs power to examine and verify
petitioners claim for tax exemption as granted by law, respondent CIR could have easily
verified petitioners claim by presenting the latters 1997 Income Tax Return, the original
of which it has in its files. However, records show that in the proceedings before the
CTA, respondent CIR failed to comment on petitioners formal offer of evidence, waived
its right to present its own evidence, and failed to file its memorandum. Neither did it file
an opposition to petitioners motion to reconsider the CTA decision to which the 1997
Income Tax Return was appended.
That no one shall unjustly enrich oneself at the expense of another is a long-standing
principle prevailing in our legal system. This applies not only to individuals but to the
State as well. In the field of taxation where the State exacts strict compliance upon its
citizens, the State must likewise deal with taxpayers with fairness and honesty. The
harsh power of taxation must be tempered with evenhandedness. Hence, under the
principle of solutio indebiti, the Government has to restore to petitioner the sums
representing erroneous payments of taxes.[12]

Further, We sustain the CA that there is no need to rule on the issue of the admissibility
of the 1998 ITR since the CTA ruled that PERF already complied with the requisites of
applying for a tax refund. The verification process is not incumbent on PERF; it is the
duty of the CIR to verify whether or not PERF had carried over the 1997 excess income
taxes.

WHEREFORE, the petition is DENIED for lack of merit.

SO ORDERED.
RUBEN T. REYES

Associate Justice

WE CONCUR:
CONSUELO YNARES-SANTIAGO

Associate Justice

Chairperson

MA. ALICIA AUSTRIA-MARTINEZ MINITA V. CHICO-NAZARIO

Associate Justice Associate Justice

ANTONIO EDUARDO B. NACHURA

Associate Justice

ATTE STATI O N
I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO

Associate Justice

Chairperson
C E RTI F I CATI O N

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts
Division.

REYNATO S. PUNO

Chief Justice
[1] Rollo, pp. 42-49. Dated July 18, 2003. Penned by Associate Justice Hakim S.
Abdulwahid, with Associate Justices B. A. Adefuin Dela Cruz and Jose L. Sabio, Jr.,
concurring.

[2] Section 69. Final Adjustment Return. Every corporation liable to pay tax under
Section 24 shall file a final adjustment return covering the total net income for the
preceding calendar year or fiscal year. If the sum of the quarterly tax payments made
during the said taxable year is not equal to the total tax due on the entire taxable net
income of that year the corporation shall either:

(a) Pay the tax still due; or

(b) Be refunded the excess amount paid, as the case may be.

In case the corporation is entitled to a refund of the excess estimated quarterly income
taxes paid, the refundable amount shown on its final adjustment return may be credited
against the estimated quarterly income tax liabilities for the taxable quarters of the
succeeding taxable year.

[3] Rollo, p. 48.

[4] Id. at 20-21.

[5] G.R. No. 107434, October 10, 1997, 280 SCRA 459.

[6] Rollo, p. 52.

[7] G.R. Nos. 156637 & 162004, December 14, 2005, 477 SCRA 761.

[8] Philam Asset Management, Inc. v. Commissioner of Internal Revenue, id. at 769-
771.

[9] Id. at 772.

[10] Philam Asset Management, Inc. v. Commissioner of Internal Revenue, id. at 772-
777.

[11] G.R. No. 146941, August 9, 2007, 529 SCRA 605.

[12] Filinvest Development Corporation v. Commissioner of Internal Revenue, id. at 611-

620.

Xxxxxxxxxx

Xxxxxxx

SECOND DIVISION

COMMISSIONER OF CUSTOMS,
Petitioner,

- versus -

MARINA SALES, INC.,

Respondent.
G.R. No. 183868

Present:

CARPIO, J., Chairperson,

DE CASTRO,*

PERALTA,

ABAD, and

MENDOZA, JJ.
Promulgated:

November 22, 2010

X -------------------------------------------------------------------------------------- X

DECISION

MENDOZA, J.:

In this petition for review on certiorari[1] under Rule 45, the Commissioner of Customs
(Commissioner), represented by the Office of the Solicitor General (OSG), assails the
April 11, 2008 Resolution[2] of the Court of Tax Appeals En Banc (CTA-En Banc), in
C.T.A. E.B. No. 333, dismissing his petition for review for his failure to file a motion for
reconsideration before the Court of Tax Appeals Division (CTA-Division).
Respondent Marina Sales, Inc. (Marina) is engaged in the manufacture of Sunquick
juice concentrates. It was appointed by CO-RO Food A/S of Denmark, maker of
Sunquick Juice Concentrates, to be its manufacturing arm in the Philippines. As such,
Marina usually imports raw materials into the country for the purpose. In the past, the
Bureau of Customs (BOC) assessed said type of importations under Tariff Heading H.S.
2106.90 10 with a 1% import duty rate.[3]

On March 6, 2003, Marinas importation, labeled as Import Entry No. C-33771-03,

arrived at the Manila International Container Port (MICP) on board the vessel APL Iris V-
111. Said Import Entry No. C-33771-03 consisted of a 1 x 20 container STC with a total
of 80 drums: (a) 56 drums of 225 kilograms Sunquick Orange Concentrate; and (b) 24
drums of 225 kilograms of Sunquick Lemon Concentrate.[4] It was supported by the
following documents: (a) Bill of Lading No. APLU 800452452 dated February 2, 2003;[5]
and (b) CO-RO Food A/S of Denmark Invoice No. 1619409 dated January 27, 2003.[6]

Marina computed and paid the duties under Tariff Harmonized System Heading H.S.
2106.90 10 at 1% import duty rate.

This time, however, the BOC examiners contested the tariff classification of Marinas
Import Entry No. C-33771-03 under Tariff Heading H.S. 2106.90 10. The BOC
examiners recommended to the Collector of Customs, acting as Chairman of the
Valuation and Classification Review Committee (VCRC) of the BOC, to reclassify
Marinas importation as Tariff Heading H.S. 2106.90 50 (covering composite
concentrates for simple dilution with water to make beverages) with a corresponding 7%
import duty rate.
The withheld importation being necessary to its business operations, Marina requested
the District Collector of the BOC to release Import Entry No. C-33771-03 under its
Tentative Release System.[7] Marina undertook to pay the reclassified rate of duty
should it be finally determined that such reclassification was correct. The District
Collector granted the request.

On April 15, 2003, the VCRC directed Marina to appear in a deliberation on May 15,
2003 and to explain why its shipment under Import Entry No. C-33771-03 should not be
classified under Tariff Heading H.S. 2106.90 50 with import duty rate of 7%.[8]

On May 15, 2003, Marina, through its Product Manager Rowena T. Solidum and
Customs Broker Juvenal A. Llaneza, attended the VCRC deliberation and submitted its
explanation,[9] dated May 13, 2003, along with samples of the importation under Import
Entry No. C-33771-03.

On May 21, 2003, another importation of Marina arrived at the MICP designated as
Import Entry No. C-67560-03. It consisted of another 1 x 20 container STC with a total
of 80 drums: (a) 55 drums of 225 kilograms of Sunquick Orange Concentrate; (b) 1
drum of 225 kilograms of Sunquick Tropical Fruit Concentrate; (c) 17 drums of 225
kilograms of Sunquick Lemon Concentrate; (d) 3 drums of 225 kilograms of Sunquick
Ice Lemon Concentrate; and (e) 4 drums of 225 kilograms Sunquick Peach Orange
Concentrate. The said importation was accompanied by the following documents: (a)
Bill of Lading No. KKLUCPH060291 dated April 17, 2003;[10] and (b) CO-RO Foods A/S
Denmark Invoice No. 1619746 dated April 15, 2003.[11]
Again, the BOC examiners disputed the tariff classification of Import Entry No. C-67560-
03 and recommended to the VCRC that the importation be classified at Tariff Heading
H.S. 2106.90 50 with the corresponding 7% duty rate.

In order for Import Entry No. C-67560-03 to be released, Marina once again signed an
undertaking under the Tentative Release System.[12]

In a letter dated July 7, 2003, the VCRC scheduled another deliberation requiring
Marina to explain why Import Entry No. C-67560-03 should not be classified under Tariff
Heading H.S. 2106.90 50 at the import duty rate of 7%.[13]

On July 17, 2003, Marina again attended the VCRC deliberation and submitted its
explanation[14] dated July 17, 2003 together with samples in support of its claim that
the imported goods under Import Entry No. C-67560-03 should not be reclassified under
Tariff Heading H.S. 2106.90 50.

Thereafter, the classification cases for Import Entry No. C-33771-03 and Import Entry
No. C-67560-03 were consolidated.
On September 11, 2003, as reflected in its 1st Indorsement, the VCRC reclassified
Import Entry No. C-33771-03 and Import Entry No. C-67560-03 under Tariff Heading
H.S. 2106.90 50 at 7% import duty rate.[15]

On October 7, 2003, Marina appealed before the Commissioner challenging VCRCs

reclassification.[16]

In its 1st Indorsement of November 13, 2003,[17] the VCRC modified its earlier ruling
and classified Marinas Import Entry No. C-33771-03 and Import Entry No. C-67560-03
under Tariff Heading H.S. 2009 19 00 at 7% duty rate, H.S. 2009.80 00 at 7% duty rate
and H.S. 2009.90 00 at 10% duty rate.

Apparently not in conformity, Marina interposed a petition for review before the CTA on
February 3, 2004, which was docketed as CTA Case No. 6859.

On October 31, 2007, the CTA Second Division ruled in favor of Marina[18] holding that
its classification under Tariff Heading H.S. 2106.90 10 was the most appropriate and
descriptive of the disputed importations.[19] It opined that Marinas importations were
raw materials used for the manufacture of its Sunquick products, not ready-to-drink juice
concentrates as argued by the Commissioner.[20] Thus, the decretal portion of the CTA
- Second Division reads:
WHEREFORE, finding merit in petitioners Petition for Review, the same is hereby
GRANTED. Accordingly, the Resolution/Decision dated November 13, 2003 of the
Valuation and Classification Review Committee of the Bureau of Customs is hereby
SET ASIDE and petitioners importation covered by Import Entry Nos. C-33771-03 and
C-67560-03 are reclassified under Tariff Harmonized System Heading H.S. 2106.90 10
with an import duty rate of 1%.

SO ORDERED.

The Commissioner disagreed and elevated the case to the CTA-En Banc via a petition
for review.[21]

In its Resolution of April 11, 2008, the CTA En Banc dismissed the petition. The
pertinent portions of the decision including the fallo read:

A careful scrutiny of the record of this case showed that petitioner failed to file before
the Second Division the required Motion for Reconsideration before elevating his case
to the CTA En Banc.
Section 1, Rule 8 of the Revised Rules of the Court of Tax Appeals provided for the
following rule, to wit:

RULE 8

PROCEDURE IN CIVIL CASES

SECTION 1. Review of Cases in the Court en banc.- In cases falling under the
exclusive appellate jurisdiction of the Court en banc, the petition for review of a decision
or resolution of the Court in Division must be preceded by the filing of a timely motion
for reconsideration or new trial with the Division.

In statutory construction, the use of the word must indicates that the requirement is
mandatory. Furthermore, the word must connote an imperative act or operates to simply
impose a duty which may be enforced. It is true the word must is sometimes construed
as may permissive but this is only when the context requires it. Where the context
plainly shows the provision to be mandatory, the word must is a command and cannot
be construed as permissive, but must be given the signification which it imparts.
It is worthy to note that the Supreme Court ruled that a Motion for Reconsideration is
mandatory as a precondition to the filing of a Petition for Review under Rule 43 of the
Rules of Court.

WHEREFORE, applying by analogy the above ruling of the Supreme Court and taking
into consideration the mandatory provision provided by Section 1 of Rule 8 of the
Revised Rules of the Court of Tax Appeals and considering further that petitioner did not
file a Motion for Reconsideration with the Second Division before elevating the case to
the Court En Banc, which eventually deprived the Second Division of an opportunity to
amend, modify, reverse or correct its mistake or error, if there be, petitioners Petition for
Review is hereby DISMISSED.

SO ORDERED.[22]

The Commissioner sought reconsideration of the disputed decision, but the CTA En
Banc issued a denial in its July 14, 2008 Resolution.[23]
Hence, this petition.

In his Memorandum,[24] the Commissioner submits the following issues for resolution:

A.

WHETHER THE DISMISSAL BY THE COURT OF TAX APPEALS EN BANC OF

PETITIONERS PETITION BASED ON MERE TECHNICALITY WILL RESULT IN
INJUSTICE AND UNFAIRNESS TO PETITIONER.

B.

WHETHER THE CHALLENGED DECISION OF THE COURT OF TAX APPEALS

SECOND DIVISION HOLDING THAT RESPONDENTS IMPORTATION ARE COVERED
BY IMPORT ENTRY NOS. C-33771-03 AND C-67560-03 ARE CLASSIFIED UNDER
TARIFF HARMONIZED SYSTEM HEADING H.S. 2106.90 10 WITH AN IMPORT DUTY
RATE OF ONE PERCENT (1%) IS NOT CORRECT.[25]

The Commissioner argues that the dismissal of his petition before the CTA-En Banc is
inconsistent with the principle of the liberal application of the rules of procedure.[26] He
points out that due to the dismissal of the petition, the government would only be
collecting 1% import duty rate from Marina instead of 7%.[27] This, if sanctioned, would
result in grave injustice and unfairness to the government.[28]

The Commissioner also contends that the testimony of Marinas expert witness, Aurora
Kimura, pertaining to Sunquick Lemon compound shows that it could be classified as
heavy syrup[29] falling under the category of H.S. 2190.90 50 with a 7% import duty
rate.[30]

The Court finds no merit in the petition.

On the procedure, the Court agrees with the CTA En Banc that the Commissioner failed
to comply with the mandatory provisions of Rule 8, Section 1 of the Revised Rules of
the Court of Tax Appeals[31] requiring that the petition for review of a decision or
resolution of the Court in Division must be preceded by the filing of a timely motion for
reconsideration or new trial with the Division. The word "must" clearly indicates the
mandatory -- not merely directory -- nature of a requirement.[32]
The rules are clear. Before the CTA En Banc could take cognizance of the petition for
review concerning a case falling under its exclusive appellate jurisdiction, the litigant
must sufficiently show that it sought prior reconsideration or moved for a new trial with
the concerned CTA division. Procedural rules are not to be trifled with or be excused
simply because their non-compliance may have resulted in prejudicing a partys
substantive rights.[33] Rules are meant to be followed. They may be relaxed only for
very exigent and persuasive reasons to relieve a litigant of an injustice not
commensurate to his careless non-observance of the prescribed rules.[34]

At any rate, even if the Court accords liberality, the position of the Commissioner has no
merit. After examining the records of the case, the Court is of the view that the import
duty rate of 1%, as determined by the CTA Second Division, is correct.

The table shows the different classification of Tariff import duties relevant to the case at
bar:

TARIFF HEADING

IMPORT DUTY RATE

COVERAGE
H.S. 2106.90 10

1%

Covers flavouring materials, nes., of kind used in food and drink industries; other food
preparations to be used as raw material in preparing composite concentrates for making
beverages

H.S. 2106.90 50

7%

Covers composite concentrate for simple dilution with water to make beverages

H.S. 2009. 19 00

7%

Covers orange juice, not frozen

H.S. 2009.80 00

7%

Covers juice of any other single fruit or vegetable

H.S. 2009.90 00

10%

Covers mixtures of juices

The Commissioner insists that Marinas two importations should be classified under
Tariff Heading H.S. 2106.90 50 with an import duty rate of 7% because the concentrates
are ready for consumption by mere dilution with water.

The Court is not persuaded.

As extensively discussed by the CTA Second Division, to fit into the category listed
under the Tariff Harmonized System Headings calling for a higher import duty rate of
7%, the imported articles must not lose its original character. In this case, however, the
laboratory analysis of Marinas samples yielded a different result.[35] The report
supported Marinas position that the subject importations are not yet ready for human
consumption. Moreover, Marinas plant manager, Rebecca Maronilla, testified that the
juice compounds could not be taken in their raw form because they are highly
concentrated and must be mixed with other additives before they could be marketed as
Sunquick juice products. If taken in their unprocessed form, the concentrates without
the mixed additives would produce a sour taste.[36] In other words, the concentrates, to
be consumable, must have to lose their original character. To quote the CTA Second
Division:
Verily, to fall under the assailed Tariff Harmonized System Headings, petitioners (herein
respondent) articles of importation, as fruit juices/mixtures, should not have lost its
original character, in spite of the addition of certain standardizing agents/constituents.
Contrary thereto, We find the subject importations categorized as non-alcoholic
composite concentrates to have apparently lost their original character due to the
addition of ingredients in such quantity that the concentrated fruit juice mixture only
comprises a small percentage of the entire compound.

This was clearly explained by the VCRC in its subsequent Resolution/Decision (1st
Indorsement) issued on February 17, 2005 pertaining to subsequent similar
importations of petitioner, effectively correcting its findings in the assailed
Resolution/Decision dated November 13, 2003 concerning the same party-importer,
issues and articles of importation,[37] to wit:

SUB-GROUP OBSERVATIONS/FINDINGS:

The classification issue was divided into two regimes. The era under the old
Harmonized Commodity Description and Coding System, while the other is the latest
revised edition, the Asean Harmonized Tariff Nomenclature.
The previous committee resolution was promulgated technically not on the merit of the
case but failure on the part of the importer to submit their position paper/arguments
within the prescriptive period given by the committee.

Importer submitted samples of subject shipment for laboratory analysis to Philippine

Customs laboratory to validate the veracity of product information given by the supplier
and to determine the correct tariff classification.

Xxx xxx xxx

Based on the report of the Laboratory Analysis, compound is made up to water 57.9%,
Invert Sugar 34.34%, Citric Acid 2.94%, Vitamin C (Ascorbic Acid) 105 mg.

Since the item is compound which is composed of water, sugar, concentrated juice,
flavourings, citric acid, stabilizer, preservatives, vitamins C and colouring to produce
beverage ready to drink. Consequently the concentrated citrus juice has lost its original
character due to the fact that it comprises only 12% of the total compound.[38]
Items (fruit juices) classifiable under HS 2009 are fruit juices generally obtained by
pressing fresh, healthy and ripe fruit. Per item 4 of the Explanatory Notes to the
Harmonized Commodity Description and Coding System apparently subject article has
lost its original character as concentrated fruit juice drink to the compounding
ingredients which reduces the fruit juices to 12% of the total compound.

In view of the foregoing subject article is classifiable under Tariff Heading H.S. 2106.90
10 at 1% for entries filed under the old regime. For those filed under the new regime
tariff heading AHTN 2106.90 51 at 1% where the item are specifically provided.

RESOLUTION: To apply sub-group recommendation which is to adopt H.S. 2106.90 10

at 1% for entries filed under the old regime and for those filed under the new regime,
AHTN 2106.90 51 at 1% where the item are specifically provided.[39]

To manufacture is to make or fabricate raw materials by hand, art or machinery, and

work into forms convenient for use.[40] Stated differently, it is to transform by any
process into another form suitable for its intended use. Marina, as the manufacturing
arm of CO-RO Food A/S of Denmark, transforms said juice compounds, being raw
materials, into a substance suitable for human consumption. This is evident from the
Commissioners Report[41] of Executive Clerk of Court II, CTA, Jesus P. Inocando, Jr.,
who conducted an ocular inspection of Marinas manufacturing plant in Taguig City.
Pertinent excerpts of the Commissioners Report are herein reproduced:
On our ocular inspection of the manufacturing plant of petitioner, Ms. Solidum and Mr.
Domingo showed us the sample of the imported compounds (raw materials), showed to
us the step by step manufacturing process of petitioner and even showed us the bottling
and packaging of the finished product.

Per observation of the undersigned, the imported compounds (raw materials) are very
sticky, the plant is clean and that the personnel of petitioner in the plant strictly following
the manufacturing process as presented in Annex A and Annex B of this report.

Upon questioning by the counsel for respondent, Mr. Domingo said that while the
imported compounds (raw materials) can be mixed with water and may be drinkable, he
is not sure if the same is suitable for human consumption. None of us dared to taste the
sample of imported compounds (raw materials) diluted in water. The imported
compounds (raw materials) mixed with water produces bubbles on top of the mixture,
not like the one that has gone through the manufacturing process. Counsel for
respondent requested for the marking of Label of Sunquick Lemon (840 ml.), [Annex C],
as Exhibit 1 for the respondent.[42]
Contrary to the Commissioners assertions, empirical evidence shows that the subject
importations would have to undergo a laborious method, as shown by its manufacturing
flowchart[43] and manufacturing process,[44] to achieve their marketable juice
consistency. Accordingly, the 1% tariff import duty rate under Tariff Heading H.S.
2106.90 10 was correctly applied to the subject importations.

In any case, the VCRC in its 1st Indorsement[45] of February 17, 2005 (a subsequent
proceeding involving the same type of importation) rectified the disputed tariff
reclassification rate. Thus, in Marinas succeeding importations, the VCRC already
adopted the 1% import duty rate as paid by Marina in the past.

WHEREFORE, the petition is DENIED.

SO ORDERED.

JOSE CATRAL MENDOZA

Associate Justice
WE CONCUR:

ANTONIO T. CARPIO
Associate Justice

Chairperson

TERESITA J. LEONARDO-DE CASTRO DIOSDADO M. PERALTA

Associate Justice Associate Justice

ROBERTO A. ABAD
Associate Justice

ATTE STATI O N

I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

ANTONIO T. CARPIO

Associate Justice

Chairperson, Second Division

C E RTI F I CATI O N

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts
Division.

RENATO C. CORONA

Chief Justice
* Designated as additional member in lieu of Associate Justice Antonio Eduardo B.
Nachura per Raffle dated November 22, 2010.

[1] Rollo, pp. 112-145.

[2] Id. at 146-148. Penned by Associate Justice Caesar A. Casanova with Presiding
Justice Ernesto D. Acosta and Associate Justices Juanito C. Castaeda, Jr., Lovell R.
Bautista, Erlinda P. Uy, and Olga Palanca-Enriquez, concurring.

[3] Id. at 766-767.

[4] Id. at 345.

[5] Id. at 436.

[6] Id. at 437.

[7] Id. at 439.

[8] Id. at 348.

[9] Id. at 349-350.

[10] Id. at 358.

[11] Id. at 451.

[12] Id. at 452.

[13] Id. at 361.

[14] Id. at 362-363.

[15] Id. at 364.

[16] Id. at 365-366.

[17] Id. at 337-339.

[18] Id. at 673-701.

[19] Id. at 688.

[20] Id. at 696.

[21] Id. at 184-211.

[22] Id. at 147-148.

[23] Id. at 149-152.

[24] Id. at 734-763.

[25] Id. at 746.

[26] Id. at 747-748.

[27] Id. at 749.

[28] Id. at 750.

[29] Id. at 753.

[30] Id. at 756.

[31] A.M. No. 05-11-07-CTA.

[32] Dangan-Corral v. Commission on Elections, G.R. No. 190156, February 12, 2010.

[33] Systra Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 176290,
September 21, 2007, 533 SCRA 776, 780, citing Galang v. Court of Appeals, G.R. No.
76221, July 29, 1991, 199 SCRA 683, 689.

[34] Galang v. Court of Appeals, G.R. No. 76221, July 29, 1991, 199 SCRA 683, 689,
citing Limpot v. Court of Appeals, 252 Phil. 377, 387 (1989).

[35] Rollo, pp. 468-470.

[36] Id. at 643. TSN, February 7, 2005, p. 23.

[37] Emphasis supplied.

[38] Emphasis supplied.

[39] Rollo, pp. 691-692. Emphasis and underscoring supplied.

[40] Bouviers Law Dictionary, Vol. II, p. 2086

[41] Rollo, pp. 411-412.

[42] Id. at 412.

[43] Id. at 351.

[44] Id. at 414-415.

[45] Id. at 472-474.

D
Xxxxcccccc

Today is Thursday, June 07, 2018

Custom Search

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 187425 March 28, 2011

COMMISSIONER OF CUSTOMS, Petitioner,

vs.

AGFHA INCORPORATED, Respondent.

DECISION

MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing
the February 25, 2009 Decision1 of the Court of Tax Appeals En Banc (CTA-En Banc),
in CTA EB Case No. 136, which affirmed the October 18, 2005 Resolution2 of its
Second Division (CTA-Second Division), in CTA Case No. 5290, finding petitioner, the
Commissioner of Customs (Commissioner), liable to pay respondent AGFHA
Incorporated (AGFHA) the amount of US$160,348.08 for the value of the seized
shipment which was lost while in petitioner’s custody.

On December 12, 1993, a shipment containing bales of textile grey cloth arrived at the
Manila International Container Port (MICP). The Commissioner, however, held the
subject shipment because its owner/consignee was allegedly fictitious. AGFHA
intervened and alleged that it was the owner and actual consignee of the subject
shipment.

On September 5, 1994, after seizure and forfeiture proceedings took place, the District
Collector of Customs, MICP, rendered a decision3 ordering the forfeiture of the subject
shipment in favor of the government.

AGFHA filed an appeal. On August 25, 1995, the Commissioner rendered a decision4
dismissing it.

On November 4, 1996, the CTA-Second Division reversed the Commissioner’s August

25, 1995 Decision and ordered the immediate release of the subject shipment to
AGFHA. The dispositive portion of the CTA-Second Division Decision5 reads:

WHEREFORE, in view of the foregoing premises, the instant Petition for Review is
hereby GRANTED. Accordingly, the decision of the respondent in Customs Case No.
94-017, dated August 25, 1995, affirming the decision of the MICP Collector, dated
September 5, 1994, which decreed the forfeiture of the subject shipments in favor of the
government, is hereby REVERSED and SET ASIDE. Respondent is hereby ORDERED
to effect the immediate RELEASE of the subject shipment of goods in favor of the
petitioner. No costs.
SO ORDERED.

On November 27, 1996, the CTA-Second Division issued an entry of judgment declaring
the above-mentioned decision final and executory.6

Thereafter, on May 20, 1997, AGFHA filed a motion for execution.

In its June 4, 1997 Resolution, the CTA-Second Division held in abeyance its action on
AGFHA’s motion for execution in view of the Commissioner’s appeal with the Court of
Appeals (CA), docketed as CA-G.R. SP No. 42590 and entitled "Commissioner of
Custom v. The Court of Tax Appeals and AGFHA, Incorporated."

On May 31, 1999, the CA denied due course to the Commissioner’s appeal for lack of
merit in a decision,7 the dispositive portion of which reads:

WHEREFORE, the instant petition is hereby DENIED DUE COURSE and DISMISSED
for lack of merit. Accordingly, the Commissioner of Customs is hereby ordered to effect
the immediate release of the shipment of AGFHA, Incorporated described as "2 x 40"
Cont. No. NYKU-6772906 and NYKU-6632117 STA 197 Bales of Textile Grey Cloth"
placed under Hold Order No. H/CI/01/2293/01 dated 22 January 1993.

No costs.

SO ORDERED.

Thereafter, the Commissioner elevated the aforesaid CA Decision to this Court via a
petition for review on certiorari, docketed as G.R. No. 139050 and entitled "Republic of
the Philippines represented by the Commissioner of Customs v. The Court of Tax
Appeals and AGFHA, Inc."
On October 2, 2001, the Court dismissed the petition.8

On January 14, 2002, the Court denied with finality the Commissioner’s motion for
reconsideration of its October 2, 2001 Decision.

On March 18, 2002, the Entry of Judgment was issued by the Court declaring its
aforesaid decision final and executory as of February 5, 2002.

In view thereof, the CTA-Second Division issued the Writ of Execution, dated October
16, 2002, directing the Commissioner and his authorized subordinate or representative
to effect the immediate release of the subject shipment. It further ordered the sheriff to
see to it that the writ would be carried out by the Commissioner and to make a report
thereon within thirty (30) days after receipt of the writ. The writ, however, was returned
unsatisfied.

On July 23, 2003, the CTA-Second Division received a copy of AGFHA’s Motion to
Show Cause dated July 21, 2003.

Acting on the motion, the CTA-Second Division issued a notice setting it for hearing on
August 1, 2003 at 9:00 o’clock in the morning.

In its August 13, 2003 Resolution, the CTA-Second Division granted AGFHA’s motion
and ordered the Commissioner to show cause within fifteen (15) days from receipt of
said resolution why he should not be disciplinary dealt with for his failure to comply with
the writ of execution.

On September 1, 2003, Commissioner’s counsel filed a Manifestation and Motion, dated

August 28, 2003, attaching therewith a copy of an Explanation (With Motion for
Clarification) dated August 11, 2003 stating, inter alia, that despite diligent efforts to
obtain the necessary information and considering the length of time that had elapsed
since the subject shipment arrived at the Bureau of Customs, the Chief of the Auction
and Cargo Disposal Division of the MICP could not determine the status, whereabouts
and disposition of said shipment.

Consequently, AGFHA filed its Motion to Cite Petitioner in Contempt of Court dated
September 13, 2003. After a series of pleadings, on November 17, 2003, the CTA-
Second Division denied, among others, AGFHA’s motion to cite petitioner in contempt
for lack of merit. It, however, stressed that the denial was without prejudice to other
legal remedies available to AGFHA.

On August 13, 2004, the Commissioner received AGFHA’s Motion to Set Case for
Hearing, dated April 12, 2004, allegedly to determine: (1) whether its shipment was
actually lost; (2) the cause and/or circumstances surrounding the loss; and (3) the
amount the Commissioner should pay or indemnify AGFHA should the latter’s shipment
be found to have been actually lost.

On May 17, 2005, after the parties had submitted their respective memoranda, the CTA-
Second Division adjudged the Commissioner liable to AGFHA. Specifically, the
dispositive portion of the resolution reads:

WHEREFORE, premises considered, the Bureau of Customs is adjudged liable to

petitioner AGFHA, INC. for the value of the subject shipment in the amount of ONE
HUNDERED SIXTY THOUSAND THREE HUNDRED FORTY EIGHT AND 08/100 US
DOLLARS (US$160,348.08). The Bureau of Custom’s liability may be paid in Philippine
Currency, computed at the exchange rate prevailing at the time of actual payment, with
legal interests thereon at the rate of 6% per annum computed from February 1993 up to
the finality of this Resolution. In lieu of the 6% interest, the rate of legal interest shall be
12% per annum upon finality of this Resolution until the value of the subject shipment is
fully paid.

The payment shall be taken from the sale or sales of the goods or properties which
were seized or forfeited by the Bureau of Customs in other cases.

SO ORDERED.9
On June 10, 2005, the Commissioner filed his Motion for Partial Reconsideration
arguing that (a) the enforcement and satisfaction of respondent’s money claim must be
pursued and filed with the Commission on Audit pursuant to Presidential Decree (P.D.)
No. 1445; (b) respondent is entitled to recover only the value of the lost shipment based
on its acquisition cost at the time of importation; and (c) taxes and duties on the subject
shipment must be deducted from the amount recoverable by respondent.

On the same day, the Commissioner received AGFHA’s Motion for Partial
Reconsideration claiming that the 12% interest rate should be computed from the time
its shipment was lost on June 15, 1999 considering that from such date, petitioner’s
obligation to release their shipment was converted into a payment for a sum of money.

On October 18, 2005, after the filing of several pleadings, the CTA-Second Division
promulgated a resolution which reads:

WHEREFORE, premises considered, respondent Commissioner of Customs’ "Motion

for Partial Reconsideration" is hereby PARTIALLY GRANTED. The Resolution dated
May 17, 2005 is hereby MODIFIED but only insofar as the Court did not impose the
payment of the proper duties and taxes on the subject shipment. Accordingly, the
dispositive portion of Our Resolution, dated May 17, 2005, is hereby MODIFIED to read
as follows:

WHEREFORE, premises considered, the Bureau of Customs is adjudged liable to

petitioner AGFHA, INC. for the value of the subject shipment in the amount of ONE
HUNDRED SIXTY THOUSAND THREE HUNDRED FORTY EIGHT AND 08/100 US
DOLLARS (US$160,348.08), subject however, to the payment of the prescribed taxes
and duties, at the time of the importation. The Bureau of Custom’s liability may be paid
in Philippine Currency, computed at the exchange rate prevailing at the time of actual
payment, with legal interests thereon at the rate of 6% per annum computed from
February 1993 up to the finality of this Resolution. In lieu of the 6% interest, the rate of
legal interest shall be 12% per annum upon finality of this Resolution until the value of
the subject shipment is fully paid.
The payment shall be taken from the sale or sales of the goods or properties which
were seized or forfeited by the Bureau of Customs in other cases.

SO ORDERED.

Petitioner AGFHA, Inc.’s "Motion for Partial Reconsideration" is hereby DENIED for lack
of merit.

SO ORDERED.10

Consequently, the Commissioner elevated the above-quoted resolution to the CTA-En

Banc.

On February 25, 2009, the CTA-En Banc promulgated the subject decision dismissing
the petition for lack of merit and affirming in toto the decision of the CTA-Second
Division.

On March 18, 2009, the Commissioner filed his Motion for Reconsideration, but it was
denied by the CTA-En Banc in its April 13, 2009 Resolution.

Hence, this petition.

ISSUE

Whether or not the Court of Tax Appeals was correct in awarding the respondent the
amount of US$160,348.08, as payment for the value of the subject lost shipment that
was in the custody of the petitioner.
In his petition, the Commissioner basically argues two (2) points: 1] the respondent is
entitled to recover the value of the lost shipment based only on its acquisition cost at the
time of importation; and 2] the present action has been theoretically transformed into a
suit against the State, hence, the enforcement/satisfaction of petitioner’s claim must be
pursued in another proceeding consistent with the rule laid down in P.D. No. 1445.

He further argues that the basis for the exchange rate of its liability lacks basis. Based
on the Memorandum, dated August 27, 2002, of the Customs Operations Officers, the
true value of the subject shipment is US$160,340.00 based on its commercial invoices
which have been found to be spurious. The subject shipment arrived at the MICP on
December 12, 1992 and the peso-dollar exchange rate was ₱20.00 per US$1.00. Thus,
this conversion rate must be applied in the computation of the total land cost of the
subject shipment being claimed by AGFHA or ₱3,206,961.60 plus interest.

The Commissioner further contends that based on Executive Order No. 688 (The 1999
Tariff and Customs Code of the Philippines), the proceeds from any legitimate
transaction, conveyance or sale of seized and/or forfeited items for importations or
exportations by the customs bureau cannot be lawfully disposed of by the petitioner to
satisfy respondent’s money judgment. EO 688 mandates that the unclaimed proceeds
from the sale of forfeited goods by the Bureau of Customs (BOC) will be considered as
customs receipts to be deposited with the Bureau of Treasury and shall form part of the
general funds of the government. Any disposition of the said unclaimed proceeds from
the sale of forfeited goods will be violative of the Constitution, which provides that "No
money shall be paid out of the Treasury except in pursuance of an appropriation made
by law."11

Thus, the Commissioner posits that this case has been transformed into a suit against
the State because the satisfaction of AGFHA’s claim will have to be taken from the
national coffers. The State may not be sued without its consent. The BOC enjoys
immunity from suit since it is invested with an inherent power of sovereignty which is
taxation.

To recover the alleged loss of the subject shipment, AGFHA’s remedy here is to file a
money claim with the Commission on Audit (COA) pursuant to Act No. 3083 (An Act
Defining the Condition under which the Government of the Philippine Island may be
Sued) and Commonwealth Act No. 327 (An Act Fixing the Time within which the Auditor
General shall render his Decisions and Prescribing the Manner of Appeal therefrom, as
amended by P.D. No. 1445). Upon the determination of State liability, the prosecution,
enforcement or satisfaction thereof must still be pursued in accordance with the rules
and procedures laid down in P.D. No. 1445, otherwise known as the Government
Auditing Code of the Philippines.

On the other hand, AGFHA counters that, in line with prevailing jurisprudence, the
applicable peso-dollar exchange rate should be the one prevailing at the time of actual
payment in order to preserve the real value of the subject shipment to the date of its
payment. The CTA-En Banc Decision does not constitute a money claim against the
State. The Commissioner’s obligation to return the subject shipment did not arise from
an import-export contract but from a quasi-contract particularly solutio indebiti under
Article 2154 of the Civil Code. The payment of the value of the subject lost shipment
was in accordance with Article 2159 of the Civil Code. The doctrine of governmental
immunity from suit cannot serve as an instrument for perpetrating an injustice on a
citizen. When the State violates its own laws, it cannot invoke the doctrine of state
immunity to evade liability. The commission of an unlawful or illegal act on the part of
the State is equivalent to implied consent.

THE COURT’S RULING

The petition lacks merit.

The Court agrees with the ruling of the CTA that AGFHA is entitled to recover the value
of its lost shipment based on the acquisition cost at the time of payment.

In the case of C.F. Sharp and Co., Inc. v. Northwest Airlines, Inc. the Court ruled that the
rate of exchange for the conversion in the peso equivalent should be the prevailing rate
at the time of payment:

In ruling that the applicable conversion rate of petitioner's liability is the rate at the time
of payment, the Court of Appeals cited the case of Zagala v. Jimenez, interpreting the
provisions of Republic Act No. 529, as amended by R.A. No. 4100. Under this law,
stipulations on the satisfaction of obligations in foreign currency are void. Payments of
monetary obligations, subject to certain exceptions, shall be discharged in the currency
which is the legal tender in the Philippines. But since R.A. No. 529 does not provide for
the rate of exchange for the payment of foreign currency obligations incurred after its
enactment, the Court held in a number of cases that the rate of exchange for the
conversion in the peso equivalent should be the prevailing rate at the time of
payment.12 [Emphases supplied]

Likewise, in the case of Republic of the Philippines represented by the Commissioner of

Customs v. UNIMEX Micro-Electronics GmBH,13 which involved the seizure and
detention of a shipment of computer game items which disappeared while in the
custody of the Bureau of Customs, the Court upheld the decision of the CA holding that
petitioner’s liability may be paid in Philippine currency, computed at the exchange rate
prevailing at the time of actual payment.

On the issue regarding the state immunity doctrine, the Commissioner cannot escape
liability for the lost shipment of goods. This was clearly discussed in the UNIMEX Micro-
Electronics GmBH decision, where the Court wrote:

Finally, petitioner argues that a money judgment or any charge against the government
requires a corresponding appropriation and cannot be decreed by mere judicial order.

Although it may be gainsaid that the satisfaction of respondent's demand will ultimately
fall on the government, and that, under the political doctrine of "state immunity," it
cannot be held liable for governmental acts (jus imperii), we still hold that petitioner
cannot escape its liability. The circumstances of this case warrant its exclusion from the
purview of the state immunity doctrine.

As previously discussed, the Court cannot turn a blind eye to BOC's ineptitude and
gross negligence in the safekeeping of respondent's goods. We are not likewise
unaware of its lackadaisical attitude in failing to provide a cogent explanation on the
goods' disappearance, considering that they were in its custody and that they were in
fact the subject of litigation. The situation does not allow us to reject respondent's claim
on the mere invocation of the doctrine of state immunity. Succinctly, the doctrine must
be fairly observed and the State should not avail itself of this prerogative to take undue
advantage of parties that may have legitimate claims against it.

In Department of Health v. C.V. Canchela & Associates, we enunciated that this Court,
as the staunch guardian of the people's rights and welfare, cannot sanction an injustice
so patent in its face, and allow itself to be an instrument in the perpetration thereof.
Over time, courts have recognized with almost pedantic adherence that what is
inconvenient and contrary to reason is not allowed in law. Justice and equity now
demand that the State's cloak of invincibility against suit and liability be
shredded.1awphi1

Accordingly, we agree with the lower courts' directive that, upon payment of the
necessary customs duties by respondent, petitioner's "payment shall be taken from the
sale or sales of goods or properties seized or forfeited by the Bureau of Customs."

WHEREFORE, the assailed decisions of the Court of Appeals in CA-G.R. SP Nos.

75359 and 75366 are hereby AFFIRMED with MODIFICATION. Petitioner Republic of
the Philippines, represented by the Commissioner of the Bureau of Customs, upon
payment of the necessary customs duties by respondent Unimex Micro-Electronics
GmBH, is hereby ordered to pay respondent the value of the subject shipment in the
amount of Euro 669,982.565. Petitioner's liability may be paid in Philippine currency,
computed at the exchange rate prevailing at the time of actual payment.

SO ORDERED.14 [Emphases supplied]

In line with the ruling in UNIMEX Micro-Electronics GmBH, the Commissioner of

Customs should pay AGFHA the value of the subject lost shipment in the amount of
US$160,348.08 which liability may be paid in Philippine currency computed at the
exchange rate prevailing at the time of the actual payment.

WHEREFORE, the February 25, 2009 Decision of the Court of Tax Appeals En Banc, in
CTA EB Case No. 136, is AFFIRMED. The Commissioner of Customs is hereby ordered
to pay, in accordance with law, the value of the subject lost shipment in the amount of
US$160,348.08, computed at the exchange rate prevailing at the time of actual payment
after payment of the necessary customs duties.

SO ORDERED.

JOSE CATRAL MENDOZA

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO

Associate Justice

Chairperson

DIOSDADO M. PERALTA

Associate Justice LUCAS P. BERSAMIN*

Associate Justice

ROBERTO A. ABAD

Associate Justice

ATTE STATI O N

I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court’s Division.
ANTONIO T. CARPIO

Associate Justice

Chairperson, Second Division

C E RTI F I CATI O N

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Court’s
Division.

RENATO C. CORONA

Chief Justice

Footnotes

* Designated as additional member in lieu of Associate Justice Antonio Eduardo B.

Nachura, per Raffle dated July 15, 2009.

1 Rollo, pp. 44-63. Penned by Associate Justice Caesar A. Casanova with Associate
Justice Ernesto D. Acosta, Associate Justice Juanito C. Castañeda, Jr., Associate
Justice Lovell R. Bautista, Associate Justice Erlinda P. Uy, and Associate Justice Olga
Palanca-Enriquez, concurring.

2 CTA Records, pp. 532-552.

3 Id. at 90-95.
4 Id. at 96-100.

5 Id. at 110-136.

6 Id. at 138.

7 Id. at 279-296. Penned by Associate Justice B.A. Adefuin-De La Cruz with Associate
Justice Fermin A. Martin, Jr. and Associate Justice Presbitero J. Velasco, Jr. (now with
the Supreme Court), concurring.

8 SC Decision, id. at 462-473.

9 Id. at 460-461.

10 Id. at 551-552.

11 Section 29 (1), Article VI of the 1987 Philippine Constitution.

12 431 Phil. 11, 18 (2002).

13 G.R. Nos. 166309-10, March 9, 2007, 518 SCRA 19.

14 Id. at 32-34.
The Lawphil Project - Arellano Law Foundation

FIRST DIVISION

CHEVRON PHILIPPINES, INC., G.R. No. 178759

Petitioner,

Present:

PUNO, C.J., Chairperson,

CARPIO,

- v e r s u s - AUSTRIA-MARTINEZ,*

CORONA and
LEONARDO-DE CASTRO, JJ.

COMMISSIONER OF THE

BUREAU OF CUSTOMS,

Respondent. Promulgated:

August 11, 2008

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION
CORONA, J.:

This is a petition for review on certiorari[1] of the decision[2] and resolution[3] of the
Court of Tax Appeals (CTA) en banc dated March 1, 2007 and July 5, 2007,
respectively, in CTA EB Nos. 121 and 122 which reversed the decision of the CTA First
Division dated April 5, 2005 in CTA Case No. 6358.

Petitioner Chevron Philippines, Inc.[4] is engaged in the business of importing,

distributing and marketing of petroleum products in the Philippines. In 1996, the
importations subject of this case arrived and were covered by eight bills of lading,
summarized as follows:

ARRIVAL

PRODUCT DATE VESSEL

66,229,960 liters Ex MT

Nan Hai Crude Oil 3/8/1996 Bona Spray

6,990,712 liters Ex MT

Reformate 3/18/1996 Orient Tiger

16,651,177 liters Ex MT

FCCU Feed Stock 3/21/1996 Probo Boaning

236,317,862 liters

Oman/Dubai Ex MT

Crude Oil 3/26/1996 Violet

51,878,114 liters Ex MT

Arab Crude Oil 4/10/1996 Crown Jewel[5]

The shipments were unloaded from the carrying vessels onto petitioners oil tanks over a
period of three days from the date of their arrival. Subsequently, the import entry
declarations (IEDs) were filed and 90% of the total customs duties were paid. The
import entry and internal revenue declarations (IEIRDs) of the shipments were
thereafter filed on the following dates:

ENTRY

NO.

PRODUCT

ARRIVAL DATE

IED

IEIRD

606-96
66,229,960 liters

Nan Hai Crude Oil

3/8/1996

3/12/1996

5/10/1996

604-96

6,990,712 liters

Reformate

3/18/1996

3/26/1996

5/10/1996

605-96
16,651,177 liters

FCCU Feed Stock

3/21/1996

3/26/1996

5/10/1996

600-96

601-96

602-96

603-96

236,317,862 liters

Oman/Dubai Crude Oil

3/26/1996

3/28/1996
5/10/1996

818-96

51,878,114 liters

Arab Crude Oil

4/10/1996

4/10/1996

6/21/1996

The importations were appraised at a duty rate of 3% as provided under RA 8180[6] and
petitioner paid the import duties amounting to P316,499,021.[7] Prior to the effectivity of
RA 8180 on April 16, 1996, the rate of duty on imported crude oil was 10%.

Three years later, then Finance Secretary Edgardo Espiritu received a letter (with
annexes) dated June 10, 1999 from a certain Alfonso A. Orioste denouncing the
deliberate concealment, manipulation and scheme employed by petitioner and Pilipinas
Shell in the importation of crude oil, thereby resulting in huge losses of revenue for the
government. This letter was endorsed to the Bureau of Customs (BOC) for investigation
on July 19, 1999.[8]
On January 28, 2000, petitioner received a subpoena duces tecum/ad testificandum
from Conrado M. Unlayao, Chief of the Investigation and Prosecution Division, Customs
Intelligence and Investigation Service (IPD-CIIS) of the BOC, to submit pertinent
documents in connection with the subject shipments pursuant to the investigation he
was conducting thereon. It appeared, however, that the Legal Division of the BOC was
also carrying out a separate investigation. Atty. Roberto Madrid (of the latter office) had
gone to petitioners Batangas Refinery and requested the submission of information and
documents on the same shipments. This prompted petitioner to seek the creation of a
unified team to exclusively handle the investigation.[9]

On August 1, 2000, petitioner received from the District Collector of Customs of the Port
of Batangas (District Collector) a demand letter requiring the immediate settlement of
the amount of P73,535,830 representing the difference between the 10% and 3% tariff
rates on the shipments. In response, petitioner wrote the District Collector to inform him
of the pending request for the creation of a unified team with the exclusive authority to
investigate the matter. Furthermore, petitioner objected to the demand for payment of
customs duties using the 10% duty rate and reiterated its position that the 3% tariff rate
should instead be applied. It likewise raised the defense of prescription against the
assessment pursuant to Section 1603 of the Tariff and Customs Code (TCC). Thus, it
prayed that the assessment for deficiency customs duties be cancelled and the notice of
demand be withdrawn.[10]

In a letter petitioner received on October 12, 2000, respondent Commissioner of the

BOC[11] stated that it was the IPD-CIIS which was authorized to handle the
investigation, to the exclusion of the Legal Division and the District Collector.[12]
The IPD-CIIS, through Special Investigator II Domingo B. Almeda and Special
Investigator III Nemesio C. Magno, Jr., issued a finding dated February 2, 2001 that the
import entries were filed beyond the 30-day non-extendible period prescribed under
Section 1301 of the TCC. They concluded that the importations were already
considered abandoned in favor of the government. They also found that fraud was
committed by petitioner in collusion with the former District Collector.[13]

Thereafter, respondent[14] wrote petitioner on October 29, 2001 informing it of the

findings of irregularity in the filing and acceptance of the import entries beyond the
period required by customs law and in the release of the shipments after the same had
already been deemed abandoned in favor of the government. Petitioner was ordered to
pay the amount of P1,180,170,769.21 representing the total dutiable value of the
importations.[15]

This prompted petitioner to file a petition for review in the CTA First Division on
November 28, 2001, asking for the reversal of the decision of respondent.[16]

In a decision promulgated on April 5, 2005, the CTA First Division ruled that respondent
was correct when he affirmed the findings of the IPD-CIIS on the existence of fraud.
Therefore, prescription was not applicable. Ironically, however, it also held that petitioner
did not abandon the shipments. The shipments should be subject to the 10% rate
prevailing at the time of their withdrawal from the custody of the BOC pursuant to
Sections 204, 205 and 1408 of the TCC. Petitioner was therefore liable for deficiency
customs duties in the amount of P105,899,569.05.[17]
Petitioner sought reconsideration of the April 5, 2005 decision while respondent likewise
filed his motion for partial reconsideration. Both motions were denied in a resolution
dated September 9, 2005.[18]

After both respondent and petitioner had filed their petitions for review with the CTA en
banc, docketed as CTA EB No. 121 and CTA EB No. 122, respectively, the petitions
were consolidated.

In a decision dated March 1, 2007, the CTA en banc held that it was the filing of the
IEIRDs that constituted entry under the TCC. Since these were filed beyond the 30-day
period, they were not seasonably entered in accordance with Section 1301 in relation to
Section 205 of the TCC. Consequently, they were deemed abandoned under Sections
1801 and 1802 of the TCC. It also ruled that the notice required under Customs
Memorandum Order No. 15-94 (CMO 15-94) was not necessary in view of petitioners
actual knowledge of the arrival of the shipments. It likewise agreed with the CTA
Divisions finding that petitioner committed fraud when it failed to file the IEIRD within the
30-day period with the intent to evade the higher rate. Thus, petitioner was ordered to
pay respondent the total dutiable value of the oil shipments amounting to
P893,781,768.21.[19]

Hence this petition.

There are three issues for our resolution:

1. whether entry under Section 1301 in relation to Section 1801 of the TCC
refers to the IED or the IEIRD;

2. whether fraud was perpetrated by petitioner and

3. whether the importations can be considered abandoned under Section

1801.

ENTRY IN SECTIONS 1301 AND 1801 OF THE

TCC REFERS TO BOTH THE IED AND IEIRD

Under Section 1301 of the TCC, imported articles must be entered within a non-
extendible period of 30 days from the date of discharge of the last package from a
vessel. Otherwise, the BOC will deem the imported goods impliedly abandoned under
Section 1801. Thus:

Section 1301. Persons Authorized to Make Import Entry. - Imported articles must be
entered in the customhouse at the port of entry within thirty (30) days, which shall not be
extendible from date of discharge of the last package from the vessel or aircraft either
(a) by the importer, being holder of the bill of lading, (b) by a duly licensed customs
broker acting under authority from a holder of the bill or (c) by a person duly empowered
to act as agent or attorney-in-fact for each holder: Provided, That where the entry is filed
by a party other than the importer, said importer shall himself be required to declare
under oath and under the penalties of falsification or perjury that the declarations and
statements contained in the entry are true and correct: Provided, further, That such
statements under oath shall constitute prima facie evidence of knowledge and consent
of the importer of violation against applicable provisions of this Code when the
importation is found to be unlawful. (Emphasis supplied)

Section 1801. Abandonment, Kinds and Effect of. - An imported article is deemed
abandoned under any of the following circumstances:

xxx xxx xxx

b. When the owner, importer, consignee or interested party after due notice, fails to file
an entry within thirty (30) days, which shall not be extendible, from the date of discharge
of the last package from the vessel or aircraft, or having filed such entry, fails to claim
his importation within fifteen (15) days, which shall not likewise be extendible, from the
date of posting of the notice to claim such importation. (Emphasis supplied)

Petitioner argues that the IED is an entry contemplated by these sections. According to
it, the congressional deliberations on RA 7651 which amended the TCC to provide a
non-extendible 30-day period show the legislative intent to expedite the procedure for
declaring importations as abandoned. Filing an entry serves as notice to the BOC of the
importers willingness to complete the importation and to pay the proper taxes, duties
and fees. Conversely, the non-filing of the entry within the period connotes the importers
disinterest and enables the BOC to consider the goods as abandoned. Since the IED is
a BOC form that serves as basis for payment of advance duties on importation as
required under PD 1853,[20] it suffices as an entry under Sections 1301 and 1801 of the
TCC.[21]

We disagree.

The term entry in customs law has a triple meaning. It means (1) the documents filed at
the customs house; (2) the submission and acceptance of the documents and (3) the
procedure of passing goods through the customs house.[22]

The IED serves as basis for the payment of advance duties on importations whereas
the IEIRD evidences the final payment of duties and taxes. The question is: was the
filing of the IED sufficient to constitute entry under the TCC?

The law itself, in Section 205, defines the meaning of the technical term entered as
used in the TCC:

Section 205. Entry, or Withdrawal from Warehouse, for Consumption. - Imported articles
shall be deemed entered in the Philippines for consumption when the specified entry
form is properly filed and accepted, together with any related documents regained by
the provisions of this Code and/or regulations to be filed with such form at the time of
entry, at the port or station by the customs official designated to receive such entry
papers and any duties, taxes, fees and/or other lawful charges required to be paid at the
time of making such entry have been paid or secured to be paid with the customs
official designated to receive such monies, provided that the article has previously
arrived within the limits of the port of entry.

xxx xxx xxx

(Emphasis supplied)

Clearly, the operative act that constitutes entry of the imported articles at the port of
entry is the filing and acceptance of the specified entry form together with the other
documents required by law and regulations. There is no dispute that the specified entry
form refers to the IEIRD. Section 205 defines the precise moment when the imported
articles are deemed entered.

Moreover, in the old case of Go Ho Lim v. The Insular Collector of Customs,[23] we

ruled that the word entry refers to the regular consumption entry (which, in our current
terminology, is the IEIRD) and not the provisional entry (the IED):
It is disputed by the parties whether the application for the special permit. Exhibit A,
containing the misdeclared weight of the 800 cases of eggs, comes within the meaning
of the word "entry" used in section 1290 of the Revised Administrative Code, or said
word "entry" means only the "original entry and importer's declaration." The court below
reversed the decision of the Insular Collector of Customs on the ground that the
provisions of section 1290 of the Revised Administrative Code refer to the regular
consumption entry and not to a provisional declaration made in an application for a
special permit, as the one filed by the appellee, to remove the cases of eggs from the
customhouse.

This court is of the opinion that certainly the application, Exhibit A, cannot be considered
as a final regular entry of the weight of the 800 cases of eggs imported by the appellee,
taking into account the fact that said application sought the delivery of said 800 cases of
eggs "from the pier after examination," and the special permit granted, Exhibit E,
provided for "delivery to be made after examination by the appraiser." All the foregoing,
together with the circumstance that the appellee had to file the regular consumption
entry which he bound himself to do, as shown by the application, Exhibit A, logically
lead to the conclusion that the declaration of the weight of the 800 cases of eggs made
in said application, is merely a provisional entry, and as it is subject to verification by the
customhouse examiner, it cannot be considered fraudulent for the purpose of imposing
a surcharge of customs duties upon the importer.[24] (Emphasis supplied)

The congressional deliberations on House Bill No. 4502 which was enacted as RA
7651[25] amending the TCC lay down the policy considerations for the non-extendible
30-day period for the filing of the import entry in Section 1301:

MR. JAVIER (E.).

xxx xxx xxx

Under Sections 1210[26] and 1301 of the [TCC], Mr. Speaker, import entries for
imported articles must be filed within five days from the date of discharge of the last
package from the vessel. The five-day period, however, Mr. Speaker, is subject to an
indefinite extension at the discretion of the collector of customs, which more often than
not stretches to more than three months, thus resulting in considerable delay in the
payment of duties and taxes.

This bill, Mr. Speaker, seeks to amend Sections 1210 and 1301 by extending the five-
day period to thirty days, which will no longer be extendible, within which import entries
must be filed for imported articles. Moreover, to give the importer reasonable time, the
bill prescribes a period of fifteen days which may not be extended within which to claim
his importation from the time he filed the import entry. Failure to file an import entry or to
claim the imported articles within the period prescribed under the proposed measure,
such imported articles will be treated as abandoned and declared as ipso facto the
property of the government to be sold at public auction.

Under this new procedure, Mr. Speaker, importers will be constrained under the threat
of having their importation declared as abandoned and forfeited in favor of the
government to file import entries and claim their importation as early as possible thus
accelerating the collection of duties and taxes. But providing for a non-extendible period
of 30 days within which to file an import entry, an appeal of fifteen days within which to
claim the imported article, the bill has removed the discretion of the collector of Customs
to extend such period thus minimizing opportunity for graft. Moreover, Mr. Speaker, with
these non-extendible periods coupled with the threat of declaration of abandonment of
imported articles, both the [BOC] and the importer are under pressure to work for the
early release of cargo, thus decongesting all ports of entry and facilitating the release of
goods and thereby promoting trade and commerce.

Finally, Mr. Speaker, the speedy release of imported cargo coupled with the sanctions of
declaration of abandonment and forfeiture will minimize the pilferage of imported cargo
at the ports of entry.[27] (Emphasis supplied)

The filing of the IEIRDs has several important purposes: to ascertain the value of the
imported articles, collect the correct and final amount of customs duties and avoid
smuggling of goods into the country.[28] Petitioners interpretation would have an absurd
implication: the 30-day period applies only to the IED while no deadline is specified for
the submission of the IEIRD. Strong issues of public policy militate against petitioners
interpretation. It is the IEIRD which accompanies the final payment of duties and taxes.
These duties and taxes must be paid in full before the BOC can allow the release of the
imported articles from its custody.

Taxes are the lifeblood of the nation. Tariff and customs duties are taxes constituting a
significant portion of the public revenue which enables the government to carry out the
functions it has been ordained to perform for the welfare of its constituents.[29] Hence,
their prompt and certain availability is an imperative need[30] and they must be
collected without unnecessary hindrance.[31] Clearly, and perhaps for that reason
alone, the submission of the IEIRD cannot be left to the exclusive discretion or whim of
the importer.
We hold, therefore, that under the relevant provisions of the TCC,[32] both the IED and
IEIRD should be filed within 30 days from the date of discharge of the last package from
the vessel or aircraft. As a result, the position of petitioner, that the import entry to be
filed within the 30-day period refers to the IED and not the IEIRD, has no legal basis.

THE EXISTENCE OF FRAUD

WAS ESTABLISHED

Petitioner also denies the commission of fraud. It maintains that it had no predetermined
and deliberate intention not to comply with the 30-day period in order to evade the
payment of the 10% rate of duty. Its sole reason for the delayed filing of IEIRDs was
allegedly due to the late arrival of the original copies of the bills of lading and
commercial invoices which its suppliers could send only after the latter computed the
average monthly price of crude oil based on worldwide trading. It claims that the BOC
required these original documents to be attached to the IEIRD.

Petitioners arguments lack merit.

Fraud, in its general sense, is deemed to comprise anything calculated to deceive,
including all acts, omissions, and concealment involving a breach of legal or equitable
duty, trust or confidence justly reposed, resulting in the damage to another, or by which
an undue and unconscionable advantage is taken of another.[33] It is a question of fact
and the circumstances constituting it must be alleged and proved in the court below.[34]
The finding of the lower court as to the existence or non-existence of fraud is final and
cannot be reviewed here unless clearly shown to be erroneous.[35] In this case, fraud
was established by the IPD-CIIS of the BOC. Both the CTA First Division and en banc
agreed completely with this finding.

The evidence showed that petitioner bided its time to file the IEIRD so as to avail of a
lower rate of duty. (At or about the time these developments were taking place, the bill
lowering the duty on these oil products from 10% to 3% was already under intense
discussion in Congress.) There was a calculated and preconceived course of action
adopted by petitioner purposely to evade the payment of the correct customs duties
then prevailing. This was done in collusion with the former District Collector, who
allowed the acceptance of the late IEIRDs and the collection of duties using the 3%
declared rate. A clear indication of petitioners deliberate intention to defraud the
government was its non-disclosure of discrepancies on the duties declared in the IEDs
(10%) and IEIRDs (3%) covering the shipments.[36]

It was not by sheer coincidence that, by the time petitioner filed its IEIRDs way beyond
the mandated period, the rate of duty had already been reduced from 10% to 3%. Both
the CTA Division and en banc found the explanation of petitioner (for its delay in filing)
untruthful. The bills of lading and corresponding invoices covering the shipments were
accomplished immediately after loading onto the vessels.[37] Notably, the memorandum
of a district collector cited by petitioner as basis for its assertion that original copies
were required by the BOC was dated October 30, 2002.[38] There is no showing that in
1996, the time pertinent in this case, this was in fact a requirement.
More importantly, the absence of supporting documents should not have prevented
petitioner from complying with the mandatory and non-extendible period, specially since
the consequences of delayed filing were extremely serious. In addition, these
supporting documents were not conclusive on the government.[39] If this kind of excuse
were to be accepted, then the collection of customs duties would be at the mercy of
importers.

Hence, due to the presence of fraud, the prescriptive period of the finality of liquidation
under Section 1603 was inapplicable:

Section 1603. Finality of Liquidation. When articles have been entered and passed free
of duty or final adjustments of duties made, with subsequent delivery, such entry and
passage free of duty or settlements of duties will, after the expiration of one (1) year,
from the date of the final payment of duties, in the absence of fraud or protest or
compliance audit pursuant to the provisions of this Code, be final and conclusive upon
all parties, unless the liquidation of the import entry was merely tentative.[40]

THE IMPORTATIONS WERE ABANDONED

IN FAVOR OF THE GOVERNMENT

The law is clear and explicit. It gives a non-extendible period of 30 days for the importer
to file the entry which we have already ruled pertains to both the IED and IEIRD. Thus
under Section 1801 in relation to Section 1301, when the importer fails to file the entry
within the said period, he shall be deemed to have renounced all his interests and
property rights to the importations and these shall be considered impliedly abandoned in
favor of the government:

Section 1801. Abandonment, Kinds and Effect of. -

xxx xxx xxx

Any person who abandons an article or who fails to claim his importation as provided for
in the preceding paragraph shall be deemed to have renounced all his interests and
property rights therein.

According to petitioner, the shipments should not be considered impliedly abandoned

because none of its overt acts (filing of the IEDs and paying advance duties) revealed
any intention to abandon the importations.[41]
Unfortunately for petitioner, it was the law itself which considered the importation
abandoned when it failed to file the IEIRDs within the allotted time. Before it was
amended, Section 1801 was worded as follows:

Sec. 1801. Abandonment, Kinds and Effect of. Abandonment is express when it is made
direct to the Collector by the interested party in writing and it is implied when, from the
action or omission of the interested party, an intention to abandon can be clearly
inferred. The failure of any interested party to file the import entry within fifteen days or
any extension thereof from the discharge of the vessel or aircraft, shall be implied
abandonment. An implied abandonment shall not be effective until the article is declared
by the Collector to have been abandoned after notice thereof is given to the interested
party as in seizure cases.

Any person who abandons an imported article renounces all his interests and property
rights therein.[42]

After it was amended by RA 7651, there was an indubitable shift in language as to what
could be considered implied abandonment:

Section 1801. Abandonment, Kinds and Effect of. - An imported article is deemed
abandoned under any of the following circumstances:
a. When the owner, importer, consignee of the imported article expressly signifies in
writing to the Collector of Customs his intention to abandon; or

b. When the owner, importer, consignee or interested party after due notice, fails to file
an entry within thirty (30) days, which shall not be extendible, from the date of discharge
of the last package from the vessel or aircraft xxxx

From the wording of the amendment, RA 7651 no longer requires that there be other
acts or omissions where an intent to abandon can be inferred. It is enough that the
importer fails to file the required import entries within the reglementary period. The
lawmakers could have easily retained the words used in the old law (with respect to the
intention to abandon) but opted to omit them.[43] It would be error on our part to
continue applying the old law despite the clear changes introduced by the amendment.

NOTICE WAS NOT NECESSARY UNDER

THE CIRCUMSTANCES OF THIS CASE

Petitioner also avers that the importations could not be deemed impliedly abandoned
because respondent did not give it any notice as required by Section 1801 of the TCC:

Sec. 1801. Abandonment, Kinds and Effect of. - An imported article is deemed
abandoned under any of the following circumstances:

xxx xxx xxx

b. When the owner, importer, consignee or interested party after due notice, fails to file
an entry within thirty (30) days, which shall not be extendible, from the date of discharge
of the last package from the vessel or aircraft xxx (Emphasis supplied)

Furthermore, it claims that notice and abandonment proceedings were required under
the BOCs guidelines on abandonment (CMO 15-94):

SUBJECT: REVISED GUIDELINES ON ABANDONMENT

xxx xxx xxx

B. ADMINISTRATIVE PROVISIONS

xxx xxx xxx

B.2 Implied abandonment occurs when:

B.2.1 The owner, importer, consignee, interested party or his authorized

broker/representative, after due notice, fails to file an entry within a non-extendible
period of thirty (30) days from the date of discharge of last package from the carrying
vessel or aircraft.

xxx xxx xxx

Due notice to the consignee/importer/owner/interested party shall be by means of
posting of a notice to file entry at the Bulletin Board seven (7) days prior to the lapse of
the thirty (30) day period by the Entry Processing Division listing the consignees
who/which have not filed the required import entries as of the date of the posting of the
notice and notifying them of the arrival of their shipment, the name of the carrying
vessel/aircraft, Voy. No. Reg. No. and the respective B/L No./AWB No., with a warning,
as shown by the attached form, entitled: URGENT NOTICE TO FILE ENTRY which is
attached hereto as Annex A and made an integral part of this Order.

xxx xxx xxx

C. OPERATIONAL PROVISIONS

xxx xxx xxx

C.2 On Implied Abandonment:

C.2.1 When no entry is filed

C.2.1.1 Within twenty-four (24) hours after the completion of the boarding formalities,
the Boarding Inspector must submit the manifests to the Bay Service or similar office so
that the Entry Processing Division copy may be put to use by said office as soon as
possible.

C..2.1.2 Within twenty-four (24) hours after the completion of the unloading of the
vessel/aircraft, the Inspector assigned in the vessel/aircraft, shall issue a certification
addressed to the Collector of Customs (Attention: Chief, Entry Processing Division),
copy furnished Chief, Data Monitoring Unit, specifically stating the time and date of
discharge of the last package from the vessel/aircraft assigned to him. Said certificate
must be encoded by Data Monitoring Unit in the Manifest Clearance System.

C.2.1.3 Twenty-three (23) days after the discharge of the last package from the carrying
vessel/aircraft, the Chief, Data Monitoring Unit shall cause the printing of the URGENT
NOTICE TO FILE ENTRY in accordance with the attached form, Annex A hereof, sign
the URGENT NOTICE and cause its posting continuously for seven (7) days at the
Bulletin Board for the purpose until the lapse of the thirty (30) day period.
C.2.1.4 The Chief, Data Monitoring Unit, shall submit a weekly report to the Collector of
Customs with a listing by vessel, Registry Number of shipments/ importations which
shall be deemed abandoned for failure to file entry within the prescribed period and with
certification that per records available, the thirty (30) day period within which to file the
entry therefore has lapsed without the consignee/importer filing the entry and that the
proper posting of notice as required has been complied with.

xxx xxx xxx

C.2.1.5 Upon receipt of the report, the Collector of Customs shall issue an order to the
Chief, Auction and Cargo Disposal Division, to dispose of the shipment enumerated in
the report prepared by the Chief, Data Monitoring Unit on the ground that those are
abandoned and ipso facto deemed the property of the Government to be disposed of as
provided by law.

xxx xxx xxx[44] (Emphasis supplied)

We disagree.
Under the peculiar facts and circumstances of this case, due notice was not necessary.
The shipments arrived in 1996. The IEDs and IEIRDs were also filed in 1996. However,
respondent discovered the fraud which attended the importations and their subsequent
release from the BOCs custody only in 1999. Obviously, the situation here was not an
ordinary case of abandonment wherein the importer merely decided not to claim its
importations. Fraud was established against petitioner; it colluded with the former
District Collector. Because of this, the scheme was concealed from respondent. The
government was unable to protect itself until the plot was uncovered. The government
cannot be crippled by the malfeasance of its officials and employees. Consequently, it
was impossible for respondent to comply with the requirements under the rules.

By the time respondent learned of the anomaly, the entries had already been belatedly
filed and the oil importations released and presumably used or sold. It was a fait
accompli. Under such circumstances, it would have been against all logic to require
respondent to still post an urgent notice to file entry before declaring the shipments
abandoned.

The minutes of the deliberations in the House of Representatives Committee on Ways

and Means on the proposed amendment to Section 1801 of the TCC show that the
phrase after due notice was intended for owners, consignees, importers of the
shipments who live in rural areas or distant places far from the port where the
shipments are discharged, who are unfamiliar with customs procedures and need the
help and advice of people on how to file an entry:
xxxxxxxxx

MR. FERIA. 1801, your Honor. The question that was raised here in the last hearing
was whether notice is required to be sent to the importer. And, it has been brought
forward that we can dispense with the notice to the importer because the shipping
companies are notifying the importers on the arrival of their shipment. And, so that
notice is sufficient to . . . sufficient for the claimant or importer to know that the
shipments have already arrived.

Second, your Honor, the legitimate businessmen always have . . . they have their
agents with the shipping companies, and so they should know the arrival of their
shipment.

xxx xxx xxx

HON. QUIMPO. Okay. Comparing the two, Mr. Chairman, I cannot help but notice that
in the substitution now there is a failure to provide the phrase AFTER NOTICE
THEREOF IS GIVEN TO THE INTERESTED PARTY, which was in the original. Now in
the second, in the substitution, it has been deleted. I was first wondering whether this
would be necessary in order to provide for due process. Im thinking of certain cases, Mr.
Chairman, where the owner might not have known. This is now on implied
abandonment not the express abandonment.
xxx xxx xxx

HON. QUIMPO. Because Im thinking, Mr. Chairman. Im thinking of certain situations

where the importer even though, you know, in the normal course of business sometimes
they fail to keep up the date or something to that effect.

THE CHAIRMAN. Sometimes their cargoes get lost.

HON. QUIMPO. So just to, you know . . . anyway, this is only a notice to be sent to them
that they have a cargo there.

xxx xxx xxx

MR. PARAYNO. Your Honor, I think as a general rule, five days [extendible] to another
five days is a good enough period of time. But we cannot discount that there are some
consignees of shipments located in rural areas or distant from urban centers where the
ports are located to come to the [BOC] and to ask for help particularly if a ship
consignment is made to an individual who is uninitiated with customs procedures. He
will probably have the problem of coming over to the urban centers, seek the advice of
people on how to file entry. And therefore, the five day extendible to another five days
might really be a tight period for some. But the majority of our importers are
knowledgeable of procedures. And in fact, it is in their interest to file the entry even
before the arrival of the shipment. Thats why we have a procedure in the bureau
whereby importers can file their entries even before the shipment arrives in the country.
[45] (Emphasis supplied)

xxxxxxxxx

Petitioner, a regular, large-scale and multinational importer of oil and oil products, fell
under the category of a knowledgeable importer which was familiar with the governing
rules and procedures in the release of importations.

Furthermore, notice to petitioner was unnecessary because it was fully aware that its
shipments had in fact arrived in the Port of Batangas. The oil shipments were
discharged from the carriers docked in its private pier or wharf, into its shore tanks.
From then on, petitioner had actual physical possession of its oil importations. It was
thus incumbent upon it to know its obligation to file the IEIRD within the 30-day period
prescribed by law. As a matter of fact, importers such as petitioner can, under existing
rules and regulations, file in advance an import entry even before the arrival of the
shipment to expedite the release of the same. However, it deliberately chose not to
comply with its obligation under Section 1301.
The purpose of posting an urgent notice to file entry pursuant to Section B.2.1 of CMO
15-94 is only to notify the importer of the arrival of its shipment and the details of said
shipment. Since it already had knowledge of such, notice was superfluous. Besides, the
entries had already been filed, albeit belatedly. It would have been oppressive to the
government to demand a literal implementation of this notice requirement.

AN ABANDONED ARTICLE SHALL IPSO FACTO BE DEEMED THE PROPERTY OF

THE GOVERNMENT

Section 1802 of the TCC provides:

Sec. 1802. Abandonment of Imported Articles. - An abandoned article shall ipso facto be
deemed the property of the Government and shall be disposed of in accordance with
the provisions of this Code. (Emphasis supplied)

The term ipso facto is defined as by the very act itself or by mere act. Probably a closer
translation of the Latin term would be by the fact itself.[46] Thus, there was no need for
any affirmative act on the part of the government with respect to the abandoned
imported articles since the law itself provides that the abandoned articles shall ipso
facto be deemed the property of the government. Ownership over the abandoned
importation was transferred to the government by operation of law under Section 1802
of the TCC, as amended by RA 7651.

A historical review of the pertinent provisions of the TCC dispels any view that is
contrary to the automatic transfer of ownership of the abandoned articles to the
government by the mere fact of an importers failure to file the required entries within the
mandated period.

Under the former Administrative Code, Act 2711,[47] Section 1323 of Article XV thereof
provides:

Sec. 1323. When implied abandonment takes effect Notice An implied abandonment
shall not take effect until after the property shall be declared by the collector to have
been abandoned and notice to the party in interest as in seizure cases.

Thereafter, RA 1937[48] was enacted. Section 1801 thereof provides:

Sec. 1801. Abandonment, Kinds and Effect of. Abandonment is express when it is made
direct to the Collector by the interested party in writing and it is implied when, from the
action or omission of the interested party, an intention to abandon can be clearly
inferred. The failure of any interested party to file the import entry within fifteen days or
any extension thereof from the discharge of the vessel or aircraft, shall be implied
abandonment. An implied abandonment shall not be effective until the article is declared
by the Collector to have been abandoned after notice thereof is given to the interested
party as in seizure cases.

Any person who abandons an imported article renounces all his interests and property
rights therein.

PD 1464[49] did not amend the provisions of the TCC on abandonment. The latest
amendment was introduced by Section 1802 of RA 7651 which provides:

Sec. 1802. Abandonment of Imported Articles. An abandoned article shall ipso facto be
deemed the property of the Government and shall be disposed of in accordance with
the provisions of this Code.
The amendatory law, RA 7651, deleted the requirement that there must be a declaration
by the Collector of Customs that the goods have been abandoned by the importers and
that the latter shall be given notice of said declaration before any abandonment of the
articles becomes effective.

No doubt, by using the term ipso facto in Section 1802 as amended by RA 7651, the
legislature removed the need for abandonment proceedings and for a declaration that
the imported articles have been abandoned before ownership thereof can be transferred
to the government.[50]

Petitioner claims it is arbitrary, harsh and confiscatory to deprive importers of their

property rights just because of their failure to timely file the IEIRD. In effect, petitioner is
challenging the constitutionality of Sections 1801 and 1802 by contending that said
provisions are violative of substantive and procedural due process. We disallow this
collateral attack on a presumably valid law:

We have ruled time and again that the constitutionality or validity of laws, orders, or
such other rules with the force of law cannot be attacked collaterally. There is a legal
presumption of validity of these laws and rules. Unless a law or rule is annulled in a
direct proceeding, the legal presumption of its validity stands.[51]
Besides,

[a] law is deemed valid unless declared null and void by a competent court; more so
when the issue has not been duly pleaded in the trial court. The question of
constitutionality must be raised at the earliest opportunity. xxx The settled rule is that
courts will not anticipate a question of constitutional law in advance of the necessity of
deciding it.[52]

Be that as it may, the intent of Congress was unequivocal. Our policy makers wanted to
do away with lengthy proceedings before an importation can be considered abandoned:

x x x x x x xxx

MR. PARAYNO. Thank you, Mr. Chairman. The proposed amendment to Section 1801
on the abandonment, kinds and effects. This aimed to facilitate, Mr. Chairman, the
process by which this activity is being acted upon at the moment. The intention, Mr.
Chairman, is for the Customs Administration to be able to maximize the revenue that
can be derived from abandoned goods, and the problem that we are encountering at the
moment is that we have to go through a lengthy process similar to a seizure
proceedings to be able to finally declare the cargo, the abandoned cargo forfeited in
favor of the government and therefore, may be disposed of pursuant to law. And that
therefore, the proposed amendment particularly on the implied abandonment as framed
here will do away with the lengthy process of seizure proceedings and therefore, enable
us to dispose of the shipments through public auction and other modes of disposal as
early as possible.
THE CHAIRMAN. In other words, Commissioner, therell be no need for a seizure in the
case of abandonment because under the proposed bill its considered to be government
property.[53]

x x x xxx xxx

CONCLUSION

Petitioners failure to file the required entries within a non-extendible period of thirty days
from date of discharge of the last package from the carrying vessel constituted implied
abandonment of its oil importations. This means that from the precise moment that the
non-extendible thirty-day period lapsed, the abandoned shipments were deemed (that
is, they became) the property of the government. Therefore, when petitioner withdrew
the oil shipments for consumption, it appropriated for itself properties which already
belonged to the government. Accordingly, it became liable for the total dutiable value of
the shipments of imported crude oil amounting to P1,210,280,789.21 reduced by the
total amount of duties paid amounting to P316,499,021.00 thereby leaving a balance of
P893,781,768.21.

By the very nature of its functions, the CTA is a highly specialized court specifically
created for the purpose of reviewing tax and customs cases. It is dedicated exclusively
to the study and consideration of revenue-related problems and has necessarily
developed an expertise on the subject. Thus, as a general rule, its findings and
conclusions are accorded great respect and are generally upheld by this Court, unless
there is a clear showing of a reversible error or an improvident exercise of authority.
There is no such showing here.

WHEREFORE, the petition is hereby DENIED. Petitioner Chevron Philippines, Inc. is

ORDERED to pay the amount of EIGHT HUNDRED NINETY THREE MILLION SEVEN
HUNDRED EIGHTY ONE THOUSAND SEVEN HUNDRED SIXTY EIGHT PESOS AND
TWENTY-ONE CENTAVOS (P893,781,768.21) plus six percent (6%) legal interest per
annum accruing from the date of promulgation of this decision until its finality. Upon
finality of this decision, the sum so awarded shall bear interest at the rate of twelve
percent (12%) per annum until its full satisfaction.

Costs against petitioner.

SO ORDERED.
RENATO C. CORONA

Associate Justice

WE CONCUR:

REYNATO S. PUNO

Chief Justice
Chairperson

ANTONIO T. CARPIO MA. ALICIA M. AUSTRIA-MARTINEZ

Associate Justice Associate Justice

TERESITA J. LEONARDO-DE CASTRO

Associate Justice
C E RTI F I CATI O N

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in
the above decision had been reached in consultation before the case was assigned to
the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

* As replacement of Justice Adolfo S. Azcuna who is on official leave per Special Order
No. 510.

[1] Under Rule 45 of the Rules of Court in relation to Rule 16 of the Revised Rules of
the Court of Tax Appeals.

[2] Penned by Associate Justice Juanito C. Castaeda and concurred in by Associate

Justices Erlinda P. Uy, Caesar A. Casanova and Olga Palanca-Enriquez. Presiding
Justice Ernesto D. Acosta and Associate Justice Lovell R. Bautista dissented. Rollo, pp.
86-133.

[3] Id., pp. 134-138.

[4] Formerly known as Caltex (Philippines), Inc.

[5] Rollo, p. 88.

[6] Otherwise known as the Downstream Oil Industry Deregulation Act of 1996.

[7] Rollo, p. 121.

[8] Id., p. 89.

[9] Id.

[10] Id., pp. 89,142-145.

[11] Through Commissioner Renato A. Ampil.

[12] Rollo, pp. 90, 146.

[13] Id., pp. 90-93. The name of this former District Collector does not appear in the
rollo.

[14] Through Commissioner Titus B. Villanueva.

[15] Rollo, pp. 93, 147.

[16] Id., pp. 93, 149-157. The October 29, 2001 demand letter is a decision within the
purview of Section 7, RA 1125 (An Act Creating the CTA [1954]). According to the
decision of the CTA First Division, the BOC sent another letter, dated December 28,
2001, demanding payment of the deficiency customs duties. Since petitioner did not
pay, the BOC instituted a civil case for collection of a sum of money docketed as civil
case no. 02-103239 in the Regional Trial Court, Manila, Branch 25 on April 11, 2002.
(Id., p. 167.)

[17] This includes a 25% surcharge due to fraud; id., p. 180.

[18] Id., pp. 236-240.

[19] The total amount of duties paid amounting to P316,499,021 was subtracted from
the total dutiable value of the shipments amounting to P1,210,280,789.21; id., p. 121.

[20] PD 1853 was the law that took effect on January 1, 1983, requiring deposits of
duties upon the opening of letters of credit to cover imports. Section 2 thereof states:

Section 2. The amount of the duties due shall be based on the declaration of the
applicant for the letter of credit/importer, subject to the penalties prescribed under Sec.
2503 of the [TCC] of 1978, as amended.

[21] Rollo, pp. 32-36.

[22] Rodriguez v. CA, G.R. No. 115218, 18 September 1995, 248 SCRA 288, 297, citing
the Tariff and Customs Code, Section 1201 and IV Tejam, Commentaries on the
Revised Tariff and Customs Code 2230 [1987].

[23] 64 Phil. 64 (1937).

[24] Id., pp. 66-67. See Commissioner of Internal Revenue v. Hantex Trading Co., Inc.,
G.R. No. 136975, 31 March 2005, 454 SCRA 301, 304.

[25] An Act to Revitalize and Strengthen the Bureau of Customs, Amending for the
Purpose Certain Sections of the Tariff and Costoms Code of the Philippines, as
Amended (Approved on June 4, 1993).

[26] Section 1210. - Disposition of Imported Articles Remaining on Vessel After Time for
Unlading. - Imported articles remaining on board any vessel after the expiration of the
said period for discharge and not reported for transshipment to another port, may be
unladen by the customs authorities and stored at the vessels expense.
Unless prevented by causes beyond the vessels control, such as port congestion,
strikes, riots or civil commotions, failure of vessels gear, bad weather, and similar
causes, articles so stored shall be entered within thirty (30) days, which shall not be
extendible, from the date of discharge of the last package from the vessel or aircraft and
shall be claimed within fifteen (15) days, which shall not likewise be extendible from the
date of posting of the notice to claim in conspicuous places in the [BOC]. If not entered
or not claimed, it shall be disposed of in accordance with the provisions of this Code.

[27] Sponsorship Speech of Exequiel B. Javier, March 22, 1993.

[28] Rollo, p. 176.

[29] Commissioner of Internal Revenue v. Court of Tax Appeals, G.R. No. 106611, 21
July 1994, 234 SCRA 348, 356; Commissioner of Customs v. Makasiar, G.R. No.
79307, 29 August 1989, 177 SCRA 27, 34. According to then Senator Gloria
Macapagal-Arroyo (now President of the Republic of the Philippines):

The [BOC] is one of the premier revenue collecting arms of the Government, who
together with the Bureau of the Internal Revenue accounts for the collection of more
than eighty percent (80%) of government revenue. (March 29, 1993, Explanatory Note
of Senate Bill No. 451, p. 14)

[30] Commissioner of Internal Revenue v. Goodrich International Rubber Co., G.R. No.
L-22265, 27 March 1968, 22 SCRA 1256, 1257; Commissioner of Internal Revenue v.
Pineda, G.R. No. L-22734, 15 September 1967, 21 SCRA 105, 110.

[31] Philex Mining Corporation v. Commissioner of Internal Revenue, G.R. No. 125704,
28 August 1998, 294 SCRA 687, 696.

[32] Sections 205, 1301 and 1801.

[33] Commissioner of Internal Revenue v. Estate of Benigno P. Toda, Jr., G.R. No.
147188, 14 September 2004, 438 SCRA 290, 300, citing Commissioner of Internal
Revenue v. CA, 327 Phil. 1, 33 (1996).

[34] Commissioner of Internal Revenue v. Ayala Securities Corporation, G.R. No. L-

29485, 31 March 1976, 70 SCRA 205, 209.

[35] Id., pp. 209-210, citations omitted.

[36] Rollo, p. 178.

[37] Id., pp. 108-109.

[38] Id., p. 68.

[39] Caltex (Philippines), Inc. v. CA, G.R. No. 104781, 10 July 1998, 292 SCRA 273,
284-285.

[40] Before it was amended by RA 9135 (An Act Amending Certain Provisions of PD
1464, Otherwise Known as the TCC of The Philippines, as Amended, and for Other
Purposes [2001]).

[41] Rollo, p. 40.

[42] RA 1937 entitled An Act to Revise and Codify the Tariff and Customs Laws of the
Philippines (Approved on June 22, 1957).
[43] See Parras v. Land Registration Commission, 108 Phil. 1142, 1146 (1960) and Phil.
Packing Corp. v. Coll. of Internal Rev., 100 Phil. 545, 553 (1956).

[44] Dated April 29, 1994; rollo, pp. 49-51.

[45] October 21, 1992, pp. II-1 to II-4, III-2.

[46] Words and Phrases, Permanent Edition, Volume 22A (1958), p. 446.

[47] An Act Amending the Administrative Code (March 10, 1917).

[48] Supra note 42.

[49] A Decree to Consolidate and Codify All Tariff and Customs Laws of the Philippines
(Approved on June 11, 1978).

[50] In the Sponsorship Speech of Senator Herrera, he stated:

Specifically, [Senate Bill No. 451] seeks to speed up the movement of the imported
goods by clarifying when imported articles are being abandoned. (March 29, p. 20.)

[51] Tan v. Bausch & Lomb, Inc., G.R. No. 148420, 15 December 2005, 478 SCRA 115,
123-124, citing Olsen and Co., v. Aldanese, 43 Phil. 259 (1922); San Miguel Brewery v.
Magno, 128 Phil. 328 (1967).
[52] Philippine National Bank v. Palma, G.R. No. 157279, 9 August 2005, 466 SCRA
307, 323, citations omitted.

[53] Minutes of the Deliberations in the House of Representatives Committee on Ways

and Means, October 21, 1992, pp. I-2 to I-3.