Commissioner of Customs v. Court of Tax Appeals

[CA-G.R. SP No. 26104. February 12, 1992.] (C.TA. Case No. 3869) COMMISSIONER OF CUSTOMS , petitioner , vs .COURT OF TAX APPEALS and CALTEX (PHIL.) INC. , respondents . D E C I S I O N MENDOZA , J p : This is a petition to review the decision of the Court of Tax Appeals, rendered on August 9, 1991, ordering petitioner to refund certain amounts paid by private respondent Caltex (Phil.) Inc. under protest as ad valorem tax. The following facts are undisputed. Respondent Caltex (Phil.) Inc. imported from Saudi Arabia Arabian light/medium (Al-AMO) Mix special oil and heavy crude oil under the following circumstances: 1. Oil which arrived on or about April 10, 1982, on board the S/S Texaco Panama, and declared under Import Entry No. 163/82, on which ad valorem duties were assessed on the basis of the gross barrels received, in the amount of P97,697,143.00 (Exh. B); 2. Oil which arrived on or about July 7, 1982, on the board S/S Otto Miller, and declared under Import Entry No. 204/82, on which ad valorem duties were assessed on the basis of the gross barrels received, in the amount of P119,572,319.00 (Exh. D);and 3. Oil which arrived on or about July 17, 1982, on board the M/S Bubiyan, and declared under Import Entry No. 293/82 on which ad valorem duties were assessed, on the basis of the gross barrels received, in the amount of P60,769.00 (Exh. F). In making the assessments on the basis of the gross receipts without deducting basic sediment and water (BSW),the Collector of Customs at Batangas acted pursuant to the following memorandum dated January 26, 1971 of the Acting Commissioner of Customs: The Collector of Customs Port of Manila Port of Batangas Subport of Limay, Bataan Effective February 1, 1971, Customs duties and taxes on importation of crude oil shall be based on the gross actual receipts without deducting the BSW as has been previously done. In determining the freight, the amount indicated in the bill of lading or as certified by the ship agent shall be used as basis. However, if it is found by the examiner that the actual receipt is more than the manifested weight, the freight shall be adjusted accordingly. Please see to it that all the personnel concerned in your respective ports are informed of these instructions. (SGD) ROLANDO A. GEOTINA Acting Commissioner of Customs Respondent Caltex paid the ad valorem taxes on three shipments under protest, contending that the BSW contents of the shipments should be deducted from the gross barrels received before computing the tax. But the Collector of Customs dismissed respondent's protests for lack of merit. On appeal, the Commissioner of Customs, on October 23, 1984, affirmed the ruling of the Collector of Customs. Respondent Caltex then filed a petition for review with the Court of Tax Appeals (CTA Case No. 3865),assailing the validity of the Memorandum of January 26, 1971 and reiterating its claim that the BSW contents should not be included in the computation of the dutiable value of imported crude oil. On August 9, 1991, the Court of Tax Appeals rendered a decision reversing the order of both the Collector of Customs and the Commissioner of Customs. The Tax Court held that BSW should be subtracted from gross receipt before ad valorem tax provided in T.H. 27.09 of the Tariff and Customs Code as computed. Accordingly, it ordered petitioner Commissioner of Customs as follows: WHEREFORE, the petition is GRANTED. Respondent (Commissioner of Customs) should and is hereby ordered to refund or credit to petitioner the following amounts: P212,959.00 under Entry No. 163/82; P759,385.00 under Entry No. 204/82; P532,732.00 under Entry No. 293/82. Hence, this petition for review by the Commissioner of Customs. There is no dispute as to the fact that, in computing the ad valorem tax in this case, the Collector of Customs used the gross actual receipt as basis. The question is whether basic sediment and water should be deducted from the gross receipt as the Tax Court held. For reasons to be hereafter explained, we hold they should not be and that the gross actual receipts of the importer should be used as the basis as the Collector of Customs ruled. First . Sec. 203 of the Tariff and Customs Code provides in pertinent parts: "Sec. 203. General Rules of Classification . The interpretation and application of the provisions of this Code relating to the classification of articles imported into the Philippines shall be governed by the following principles: Rule 1. The titles of schedules, chapters and subchapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings or subheadings and any relative schedule or chapter notes and, provided such headings, subheadings or notes do not otherwise require, according to the succeeding rules. Rule 2. (a) .... (b) Any reference in a heading or subheading to a material or substance shall include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to articles of a given material or substance shall include a reference to articles consisting wholly or partly of such material or substance. The classification of articles consisting of more than one material or substance shall be according to the principles of Rule 3. Rule 3. When articles are prima facie classifiable under two or more headings or subheadings, or imported in sets consisting of several articles, classification shall be effected as follows: ... (b) Mixtures and composite articles which consists of different materials or are made up of different components and which cannot be classified by reference to "3(a)" shall be classified as if they consisted of the material or component which gives the articles their essential character, insofar as this criterion is applicable. Now, T.H. 27.09 of the Code states: T.H. 27.09 Petroleum oils and oils obtained from bituminous minerals, crude: (a) for use as fuel for the generation of ad val. 10% electric power and for the manufacture of "city gas" (b) others ad val. 20% The Tax Court applied Rule 3(b) of Sec. 203, to wit: (b) Mixtures and composite articles which consist of different materials or are made up of different components and which cannot be classified by reference "3(a)" shall be classified as if they consisted of the materials or component which gives the articles their essential character, insofar as this criterion is applicable. and held that BSW are neither "components" nor "composites" of crude oil and, therefore, they cannot be included in the definition of petroleum oil and other oils in T.H. 27.09 which imposes the ad valorem tax. As petitioner contends, however, the applicable rule is Rule 2(b) and not Rule 3(b) and so any reference in T.H. 27.09 to oil must be understood to include "other materials or substances" with which the oil is mixed or combined when imported. Consequently, the ad valorem tax imposed on oil in T.H. 27.09 must be computed on the basis of the gross actual receipt as directed in the Memorandum dated January 26, 1971 of the Commissioner of Customs. Indeed, the ad valorem tax is defined in the Code as a uniform rate of duty imposed on all imported articles. (Tariff & Customs Code, Sec. 104) It is paid on account of the bringing of foreign articles into a country. (1 Tejam, Commentaries in the Revised Tariff & Customs Code 12 (1973)) Sec. 201 of Code states in part: "Sec. 201. Basis of Dutiable Value . The dutiable value of an imported article subject to an ad valorem rate of duty shall be based on the home consumption value or price (excluding excise tax) of same, like or similar articles, as bought and sold or offered for sale freely in the usual wholesale quantities in the ordinary course of trade, in the principal markets of the country from where exported on the date of exportation to the Philippines, or where there is none on such date, then on the home consumption value or price nearest to the date of exportation, including the value of all containers, coverings and/or packings of any kind and all other costs, charges and expenses incident to placing the article in a condition ready for shipment to the Philippines, plus ten (10) per cent of such home consumption value or price." Thus, even the value of coverings and packing materials, which when destroyed upon opening after arrival of the shipment has no value except perhaps as scrap, is included in determining the home consumption value. There is no reason then why the BSW elements, which naturally occur in oil, should be deducted from the gross receipt. Second . In Commissioner of Customs v. Court of Tax Appeals, 161 SCRA 376, 381 (1988) it was held: The law is clear and mandatory. The dutiable value of an imported article subject to an ad valorem rate of duty is based on its home consumption value or price as freely offered for sale in wholesale quantities in the ordinary course of trade in the principal markets of the country from where exported on the date of exportation to the Philippines. That home consumption value or price is the value or price declared in the consular, commercial, trade or sales invoice. The ad valorem duties should thus be based on the price paid by the importer as shown in the sales invoice. In this case, apparently the sale invoices do not indicate a distinct and separate price or value for the crude oil alone without the basic sediment and water content or BSW. This is so because, as already stated, the BSW naturally occur in crude oil. In the case at bar, the BSW was only formed and produced during transit which should be considered as accession. Therefore, it should be included in the delivery of crude oil as part of what was actually purchased by the importer. (Civil Code, Art. 1166). In computing the ad valorem duties on the basis of the sales invoice, it becomes irrelevant whether the volume of crude oil increased while in transit by reason of BSW and other impurities, because the law mandates that the tax should be based on the home consumption value which is the price indicated in the sales invoice or the value of importation (Commissioner of Customs v. Procter & Gamble, 169 SCRA 693 (1989); Commissioner of Customs v. Court of Tax Appeals, 162 SCRA 730 (1988); Commissioner of Customs v. Court of Tax Appeals, supra). Even if BSW contents are deducted from the actual gross barrels received by respondent Caltex, the price in the sales invoice would remain unaltered. Third .The Tax Court, in holding that the BSW elements should be deducted from the gross receipts in computing the ad valorem tax, cited the following rule implementing Ministry of Energy Memorandum Circular No. 82-07-36 in its support: 2. The volume of crude oil shall be the net received volume of 60 F as determined by the duly authorized surveyors in coordination with the receiving oil company. The bottom, sediment, water content as established by PNOC's suppliers and other allowable deductions, e.g.,free water in the delivering tanker, shall be subtracted from the gross received volume to arrive at the net received volume. Apparently, the Tax Court overlooked par. 1 of the Memorandum Circular which the above rule sought to implement. This par. 1 of the Memorandum specifically stated that: The aforementioned volumes are not of Petrophil's allocation of the above crudes. In other words, the Memorandum Circular precisely specified that the allocations to various oil companies in the 1980s were to be "net" allocations, i.e., minus BSW, because otherwise the BSW would be understood as included. By contrast, the Tariff and Customs Code, in light of Sec. 203, Rule 2(b) in relation to T.H. 27.09, as already seen, does not except BSW from the basis of computation of the ad valorem tax. To the contrary, Sec. 201 says that such tax should be computed on the basis of the home consumption value as shown by invoices or other pertinent documents. We now consider a question which we have thus far postponed which respondent Caltex has raised, i.e.,the effect of the party's failure to serve within the 15-day period for filing a petition for review a copy of his petition on the adverse party. The following provisions of Circular No. 1-91 of the Supreme Court is invoked by Caltex: "5. How Appeal Taken . Appeal shall be taken by filing a verified petition for review in six (6) legible copies, with the Court of Appeals, a copy of which shall be served on the adverse party and on the Court or agency a quo. Proof of service of the petition on the adverse party and on the court or agency a quo shall be attached to the petition." The records show that a copy of the decision of the Tax Court was received by petitioner's counsel on September 9, 1991 and therefore, petitioner has until September 24, 1991 within which to file a petition for review with this Court. While the petition was filed on the last day (September 24, 1991),private respondent claims that a copy was served on its counsel only on September 25. Circular No. 1-91 is similar to Rule 45, sec. 1 of the Rules of Court which does not fix the time within which a petition for certiorari to review the decision of the Court of Appeals should be served on the Court of Appeals but only provides that "The petition shall not be acted upon without proof of service of a copy thereof to the Court of Appeals." Similarly we construe Circular No. 1-91 to mean that a petition for review, otherwise filed on time as in this case, will not be acted upon without proof of service on the agency concerned and the adverse party. Since it is admitted that private party was after all served a copy of the petition, the mere fact that service was made one day after the last day is not an obstacle to the consideration of this appeal. WHEREFORE, the decision appealed from is REVERSED and the decision of the Collector of Customs, as affirmed by the Commissioner of Customs, is REINSTATED. SO ORDERED. Herrera and Sempio Diy, JJ .,concur.