Commissioner of Customs v. New Frontier Sugar Corp.

FOURTH DIVISION [CA-G.R. SP No. 48842. March 29, 2004.] COMMISSIONER OF CUSTOMS, represented herein by Hon. GUILLERMO L. PARAYNO, JR., and the District Collector of Customs, JESUS G. PEPITO, Port of Iloilo , petitioners , vs . NEW FRONTIER SUGAR CORPORATION , respondent . D E C I S I O N ASUNCION , EJ ., J p : Before Us is a petition for review under Rule 43 of the 1997 Rules of Civil Procedure assailing the June 19, 1998 Decision of the Court of Tax Appeals (CTA), which disposes as follows: "WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby GRANTED. Accordingly, the decision to impose a 20% penalty of petitioner's subject shipment of raw sugar is hereby REVERSED and SET ASIDE. The GSIS Surety Bond with No. G (16) GIF 027358, posted by the petitioner before this Court in the amount of P83,717,100.00 is hereby CANCELLED and RELEASED its undertaking, SO ORDERED." Also assailed in the CTA's Order of July 23 denying petitioners' motion for reconsideration. The facts are: On September 25, 1995, New Frontier Sugar Corporation (NFSC), through its President, Margarita Chua Sia, entered into a contract of sale of 15,000 metric tons of Thailand raw sugar with Osumo Nishihara of Maruha Corporation, a Japan based trading company in behalf of the seller Taiyo (U.K.) Limited. NFSC was issued a Letter of Credit for the sugar transaction, by the United Coconut Planter's Bank. The imported sugar arrived the Port of Iloilo on October 4, 1995. NFSC requested the Collector of Customs (Collector) that said shipment be transferred to their bodega at Calinog, Iloilo to which the Collector agreed subject to certain conditions. On December 6, 1995, an Alert Order was issued by the Customs Intelligence & Investigation Service (CIIS) declaring that the shipment violated Joint Order No . 1-91 for lack of Clean Report of Findings (CRF). Thus, a Warrant of Seizure and Detention (WSD) against the shipment was recommended for violation of the said Joint Order 1-91 in relation to Section 2530 (f) of the Tariff and Customs Code of the Philippines (TCCP) . On December 22, 1995, NFSC wrote the Collector explaining that their lack of CRF should not be considered intentional there being good faith in complying with the requirements for the issuance of the Import Advice. Further, they explained that Taiyo Limited was aware of the Societe Generale de Surveillance (SGS) pre-shipment inspection requirements and instructed their agent in Thailand to allow an authorized third party United Asia Supplier Co. Ltd. (United Asia) to inspect the samples of sugar. NFSC likewise explained that they were not advised by the seller that the sugar ordered was initially shipped-out to China and that the Thailand agent failed to advise them of the SGS pre-shipment inspection thinking that the previous inspection and testing made by United Asia was all that was required. In view thereof, NFSC requested for the tentative release of the shipment on the ground that the SGS pre-shipment inspection was not undertaken due to miscommunication and it was without intention to circumvent the Comprehensive Import Supervision Service (CISS). The Collector agreed and the shipment was tentatively released. The CIIS opposed the tentative release insisting that NFSC was not able to prove that its failure to obtain a CRF was unintentional. The Customs Commissioner (Commissioner) then directed the Collector to resolve the opposition of the CIIS. It was found that the failure to secure CRF was due to the fault of the shipper and it was unintentional on the part of NFSC, hence, there was no need to issue a Warrant of Seizure and Detention. NFSC submitted a postdated guarantee/security check in the amount of P234,998,950.90 so the Collector recommended to the Commissioner that the imposition of penalty be dispensed with unless the SGS will not issue the required CRF. The Commissioner then created a three-man hearing body to resolve the issue on whether the lack of CRF was intentional or not, under Customs Special Order No. D-03-96. While the hearing was pending, SGS Manila Liaison Office issued on January 18, 1996 CRF No. THL 017904 covering the shipment. Thereafter, the three-man hearing body issued a Resolution dated February 15, 1996, the dispositive portion of which, reads: "WHEREFORE, in view of the foregoing and subject to the approval of the Commissioner of Customs, the District Collector of Customs, Port of Iloilo, is hereby ordered to initiate a seizure proceeding against the security/guarantee put up by NFSC to secure the tentative release of the subject shipment for the imposition of appropriate penalty pursuant to CAO No. 4-94 and the collection of proper duties, taxes, penalties and other charges." The Resolution was approved by the Commissioner with the following handwritten modifications: "1. First demand for payment of PENALTY as instructed in the Commissioner's Memorandum dated 17 January 1996. 2. Failure by importer to pay the penalty within (10) days from receipt of demand, proceed against the security/guarantee as provided above by depositing immediately the guarantee and taking up as customs collection." SO ORDERED." NFSC filed a Motion for Reconsideration of the Resolution but the same was denied on March 27, 1996. On March 29, 1996, the Collector sent to NFSC a demand letter for the payment of the 20% penalty within ten days from receipt which the NFSC actually received on April 3, 1996. Without waiting for the lapse of the ten days grace period, the Bureau of Customs of the Port of Iloilo deposited the security check on April 2, 1996 but NFSC ordered a stop payment of the check. Consequently, the Collector demanded from NFSC the payment of penalty indicated in the assailed Resolution in the amount of P41,858,550. Thereafter, a subsequent shipment of 9,948,615 metric tons of raw sugar by NFSC was thereafter withheld by the Collector to be sold at public auction to answer for the 20% penalty. Thus, NFSC filed a petition for review with prayer for the issuance of a writ of preliminary injunction and/or temporary restraining order of the February 16, 1996 Resolution as modified by the Commissioner before the Court of Tax Appeals. The Court of Tax Appeals held that the lack of CRF does not give rise to a 20% penalty but merely serves as a basis to investigate the shipment that may lead to findings of undervaluation, misdeclaration or misclassification. Moreover, the subsequent issuance of the CRF cured the deficiency. AcHEaS Not satisfied, respondent filed this petition for review on the ground that the CTA erred: a.) in ruling that the issuance of a Warrant of Seizure and Detention was necessary; b.) in ruling that the imposition of the twenty per cent penalty on the respondent's shipment was not justified; c.) in ruling that the later issuance of the Clean Report of Findings over respondent's shipment had the effect of full compliance with Joint Order No. 1-91 , and; d.) in ruling that the deposit of respondent's check by the respondent was improper and without legal basis. Petitioner argues that the issuance of a Warrant of Seizure and Detention was not necessary since under paragraph 12 of Joint Order No. 1-91 , automatic seizure may be resorted to in case of lack of CRF whether or not there was fault on the part of the importer. Considering further that in this case, the order for the conduct of a seizure proceeding could only be commenced after the Resolution was approved with modification by the Commissioner, seizure could no longer be made because at that time, respondent had already ordered the stop payment of the check. We are not persuaded. Paragraph 12 of the Joint Order No. 1-91 reads: No customs entry shall be filed or accepted or any shipment released in respect of any goods which require a CRF as provided for by this Joint Order where the Importer is unable to produce to the Bureau of Customs the authenticated customs copy of the CRF. With or without fault on the part of the importer, such goods shall be subject to automatic seizure by the Bureau of Customs. The seller is therefore warned against the shipment of goods which have not been inspected or for which a CRF has not been issued". Apparently, the provision authorizes automatic seizure of the goods that were imported without CRF regardless of the fault of the importer. However, it must first be determined how goods are placed under seizure. Section 2301 of the Tariff and Customs Code of the Philippines provides : SEC. 3201. Warrant for Detention of Property-Cash Bond . Upon making any seizure, the Collector shall issue a warrant of detention of the property; and if the owner or importer desires to secure the release of the property for legitimate use, the Collector shall, with the approval of the Commissioner of Customs, surrender it upon the filing of a cash bond, in an amount to be fixed by him, conditioned upon the payment of the appraised value of the article and/or any fine, expenses and costs which may be adjudged in the case: . . . It appears then that seizure of goods starts with the issuance of a Warrant of Seizure and Detention. In the present case, no warrant of seizure and detention was ever issued since NFSC was entitled to a tentative release of the sugar shipment pursuant to Customs Memorandum Order (CMO) No. 9-95 after it was found that the lack of CRF was not intentional on its part. It cannot even be said that with the phrase "automatic seizure" the issuance of a Warrant of Seizure and Detention can be dispensed with. The issuance of a WSD is part of due process to which appellee is entitled. Furthermore, without the WSD, appellee will be deprived of its right to avail of the tentative release of the shipment which is expressly allowed under the conditions set forth in CMO No . 9-95 . There is no point in arguing that seizure can no longer be made because of the stop payment ordered by appellee to the drawee bank. First of all, the reason why the goods were not seized at the first instance was because NFSC is entitled to a tentative release thereof. This is a right of the appellee under the CMO No. 9-95 so that the release of the shipment cannot be used against NFSC in case no seizure was effected on the goods. Secondly, appellee cannot be faulted when it ordered the stop payment of the check because it was deposited on March 2, 1996 while appellee still had until March 8, 1996 within which to pay the 20% penalty. The grace period has not yet lapsed when appellant deposited the check. Thirdly, appellee can no longer be held liable for the 20% penalty because at the time appellant deposited the check, appellant was already issued the CRF on January 18, 1996 by the SGS Manila Liaison. Hence, there is no violation of customs duty to which appellee can be held liable for 20% penalty. Petitioner insists that the 20% penalty was justified under item 2(C) of Customs Administrative Order (CAO) No. 4-94 and as a condition in the CMO No . 9-95 to which respondent bound itself. Hence, respondent is estopped from disclaiming its liability of 20% penalty. We do not agree. The Court of Tax Appeals is correct. The subject of CAO No. 4-94 is "schedule of fines to be imposed in the settlement of seizure cases pending hearing pursuant to Section 2307 of the TCCP, as amended by Executive Order No. 38 ". A perusal of Section 2307 of the TCCP presupposes a pending seizure proceeding for it to apply. In the present case, it is reiterated that there was no seizure of the shipment, hence, CAO No. 4-94 does not apply. More importantly, this administrative issuance imposes a penalty that impedes or limits the propriety rights of the appellee. Accordingly, it should be construed strictly against the state, pursuant to the legal maxim that statutes in derogation of common rights are in general strictly construed and rigidly confined to cases clearly within their scope and purpose ( Republic vs. Sandiganbayan , 293 SCRA 440). Petitioner maintains that the later issuance of the CRF does not cure the violation because item 2 of Joint Order No. 1-91 distinguished the required CRF as those at the port of exportation and not those issued in the Philippines. We are not convinced. Item 2 of Joint Order No. 1-91 provides : "Except as otherwise provided for herein, goods destined for importation into the Philippines from all countries of supply shall be subject to inspection by SGS being the inspector duly authorized by Government in the countries of supply, as to the quality, quantity, price/dutiable value, verification of Tariff and Customs code Classification and verification of Tariff rate, prior to shipment to the Philippines, under a Comprehensive Import Supervision Service. The Government of the Philippines may require SGS to conduct pre-shipment inspection on goods otherwise exempt from pre-shipment inspection under paragraph 3 below in which case such inspections shall be conducted as provided under the terms of the Agreement between the Government and SGS. SGS will cooperate with Philippine Government officials designated by the Government through the Bureau of Customs, or otherwise, to witness the inspections performed subject to legal restrictions in the host country which prevent said officials being present at such inspections. The import of these goods into the Philippines customs territory is only permitted with an inspection report called a "Clean Report of Findings" (CRF) issued by SGS." While it may be argued that the CRF is required before the shipment of the goods, the late issuance of the CRF to NFSC amounts to substantial compliance of the Joint Order No. 1-91 . The issuance of CRF rendered the application of Joint Order No. 1-91 moot considering that NFSC had just the same, complied with the requirements. At any rate, the purpose for which the CRF is required has already been served since the imported goods were also inspected by the SGS. If the belatedly issued CRF will be ignored, then it will work against all the procedures conducted to determine the propriety of issuing the late CRF. Further, petitioner contends that the deposit of the security check is not arbitrary considering that the shipment has already been released and there is -no other way to seize it but through the deposit. The contention is not tenable. It must be noted that the Bureau of Custom's right to go after the security check would accrue only after the lapse of the ten days grace period which was granted to NFSC. Before the lapse of this period, Customs had no right to hold the check liable. Even granting arguendo that the agency had a right to seizure through the check advanced by NFSC, there is grave abuse on the part of Customs to exercise this before the lapse of the grace period. Article 19 of the Civil Code requires that every person in the exercise of his rights must act with justice, give everyone his due, and observe honesty and good faith. The premature deposit of the check is an utter disregard of good faith and of the ten days grace period which was given to NFSC. Hence, the order of "stop payment" by the NFSC was justified and the Bureau of Custom's premature deposit of the check was arbitrary. WHEREFORE, premises considered, the appeal is hereby DENIED. The June 19, 1998 Decision and July 23, 1998 Order of the Court of Tax Appeals in C.T.A. Case No. 5347 are AFFIRMED. SO ORDERED. Jacinto and Bersamin, JJ . , concur.