Nestle Philippines, Inc. v. Court of Tax Appeals

SIXTEENTH DIVISION [CA-G.R. SP No. 59376. May 31, 2001.] NESTLE PHILIPPINES, INC. , petitioner , vs . COURT OF TAX APPEALS, COMMISSIONER OF CUSTOMS, and the COMMISSIONER OF INTERNAL REVENUE , respondents . D E C I S I O N SALAZAR-FERNANDO , J p : This is an appeal under Rule 43 of the 1997 Rules of Civil Procedure from the decision 1 dated January 6, 2000 of the Court of Tax Appeals in CTA Case No. 5258 and 5249, entitled "Nestle Philippines, Inc., Petitioner vs. Commissioner of Internal Revenue Code and the Commissioner of Customs, Respondents" for refund of overpaid duties and taxes, denying petitioner's petition for review for lack of merit. The primordial issue in this appeal is whether the home consumption value at a shipment subject to customs duty and taxes should be based on the value shown by the consular invoice or on the valuation indicated on the Clear Reports of Finding (CRF) of Societe Generale de Surveillance (SGS), which valuation was adopted by the Bureau of Customs-SGS Import Valuation And Classification Committee (Committee, for brevity). The antecedents as found by the Court of Tax Appeals are: "Petitioner is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines, with office address at Jade Building, 335 Sen. Gil J. Puyat Avenue Extension, Makati City. It is a regular importer of milk and milk products, and is engaged in the manufacture, processing, distribution and sale of processed, manufactured, and formulated milk and milk products. "As borne by the records, Petitioner on several occasions in 1992 and 1993, made importations of Skimmed Milk Powder, Instant Milk Powder and Sweet Butter Milk Powder from different European countries. "On these importations. Petitioner accomplished and filed the corresponding Consumption Entries declaring the invoice cost as basis of their dutiable value. "However, upon pre-shipment inspection and valuation conducted by the Societe Generale de Surveillance ('SGS', for brevity). The latter, in its Clear Report of Findings ('CRF', for brevity) declared a higher valuation of the subject importations. "Triggered by the higher valuation and the assessment of additional duties and taxes on each of the subject importations, petitioner protested and appealed its grievance to the Bureau of Customs SGS Import Valuation and Classification Committee (Committee, for brevity). Petitioner asserted that pursuant to Section 201 of the Tar iff and Cust oms Code, the invoice value should be the basis of the dutiable value of its shipment of goods and not the higher valuation pronounced by the SGS on its CRF. "Later on, the SGS reduced its own valuation through amendments of its originally issued CRFs but which were still much higher than the invoice value. The Committee adopted the modified valuations and imposed, by way of final assessments, additional duties and taxes on the subject importations which petitioner paid under protest. The complete lists of the Committee's re-computations are tabulated hereunder: For CTA Case No. 5258 Entry Commodity Excess Duties and Taxes 13328-93 Buttermilk Powder P376,990.00 12413-93 Instant Milk Powder 1,278,410.00 09481-93 Instant Milk Powder 2,120,898.00 06146-93 Instant Milk Powder 3,388,063.00 20434-93 Instant Milk Powder 852,847.00 TOTAL AMOUNT OF CLAIMS FOR REFUND P8,017,208.00 For CTA Case No. 5249 Entry Commodity Excess Duties and Taxes 64641-92 Skimmed Milk Powder P771,523.00 75615-92 Skimmed Milk Powder 641,046.00 71619-92 Skimmed Milk Powder HH 332,751.00 31365-92 Skimmed Milk Powder HH 385,795.00 60554-92 Sweet Buttermilk Powder 71,868.00 81636-92 Sweet Buttermilk Powder 173,791.00 01127-93a Instant Milk Powder 28% 2,748,963.00 TOTAL AMOUNT OF CLAIMS FOR REFUND P5,125,737.00 "Believing that the imposition of said additional duties and taxes were arbitrary, unjust and illegal, petitioner filed its twelve (12) formal letter protests with the Bureau of Customs on April 28, May 11, June 7, June 9 and July 2, 1993 and prayed that the same be refunded. ETaSDc "On April 20 and May 29, 1995, petitioner likewise filed its formal claims for refund of the value added tax portions thereof with the Commissioner of Internal Revenue. "Failing to obtain affirmative response from the respondent, petitioner elevated its grievance to this Court on April 27 and June 2, 1995 via Petition for Review." 2 On January 6, 2000, after due consideration of the issues raised, the Court of Tax Appeals, denied the petitioner's petition for review for lack of merit. Hence, this appeal, raising the following issues, to wit: "1. WHETHER RESPONDENT COURT GRAVELY ERRED IN DISREGARDING THE WELL-SETTLED RULE: That the dutiable value of an imported article subject to ad valorem is based on home consumption value or price (now fair market value or cost, as amended by EO 156), which is the value or price declared in consular, commercial, trade or sales invoice; "2. WHETHER RESPONDENT COURT GRAVELY ERRED IN HOLDING THAT THE SGS' HIGHER VALUATIONS HAVE CREATED A REASONABLE DOUBT ON THE FAIRNESS OF PETITIONER'S INVOICE VALUE; "3. WHETHER RESPONDENT COURT GRAVELY ERRED IN ADOPTING SGS' HIGHER VALUATIONS BASED ON ECC DOMESTIC PRICE WHICH ADDED-UP TO INVOICE VALUE SUPPOSED EEC RESTITUTION OR SUBSIDY, AS BASIS OF DUTIABLE VALUE; "4. WHETHER OR NOT SGS' HIGHER VALUATIONS UPON WHICH THE SUBJECT DUTIES AND VALUE-ADDED TAXES WERE BASED, ARE ARBITRARY, UNJUST AND ILLEGAL; "5. WHETHER OR NOT PETITIONER IS ENTITLED TO REFUND OF THE ADDITIONALLY IMPOSED DUTIES AND TAXES WHICH WERE PAID UNDER PROTEST, AGGREGATING THE AMOUNT OF P13,172,945.00." 3 Section 201 of the Tariff and Customs Code, as amended by E.O. 156, the law applicable to the present controversy, provides as follows: "SECTION 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 cost (fair market value) of same, like or similar articles, as brought and sold or offered for sale freely in the usual wholesale quantities in the ordinary course of trade in the principal markets of the exporting country on the date of exportation to the Philippines (excluding internal excise taxes to be remitted or rebated) or where there is none on such date, then on the cost (fair market value) nearest to the date of exportation, including the value of all containers, coverings and/or packings of any kind and all other expenses, costs and charges incident to placing the article in a condition ready for shipment to the Philippines, and freight as well as insurance premiums covering the transportation of such articles to the port of entry in the Philippines. "Where the fair market value or price of the article cannot be ascertained thereat or where there exists a reasonable doubt as to the fairness of such value or price, then the fair market value or price in the principal market in the country of manufacture or origin, if it is not the country of exportation, or in a third country with the same stage of economic development as the country of exportation shall be used. "When the dutiable value of the article cannot be ascertained in accordance with the preceding paragraphs or where there exists a reasonable doubt as the cost (fair market value) of the imported article declared in the entry, the correct dutiable value of the article shall be ascertained by the Commissioner of Customs from the reports of the Revenue or Commercial Attach (Foreign Trade Promotion Attach), pursuant to Republic Act Numbered Fifty-Four Hundred and Sixty-Six or other Philippine diplomatic officers or Customs Attaches and from such other information that may be available to the Bureau of Customs. Such values shall be published by the Commissioner of Customs from time to time. "When the dutiable value cannot be ascertained as provided in the preceding paragraphs., or where there exists a reasonable doubt as to the dutiable value of the imported article declared in the entry, it shall be the domestic wholesale selling price of such or similar article in Manila or other principal markets in the Philippines on the date the duty becomes payable on the article under appraisement, on the usual wholesale quantities and in the ordinary course of trade, minus (a) not more than twenty-five (25) per cent thereof for expenses and profits; and (b) duties and taxes paid thereon." It is the contention of petitioner that the Court of Tax Appeals erred in disregarding the well-settled rule that the home consumption value (HCV) or the fair market value (FMV) on which the imposable duties would be based is the price declared in the sales invoice. This is untenable. There can be no doubt, based on Section 201 of the Tariff and Customs Code, as amended, that as a general rule the home consumption value or price of an imported article subject to an ad valorem rate of duty shall be the value or price declared in the consular, commercial, trade or sales invoice. However, the law also provides that where there exists a reasonable doubt as to the fairness of such value or price, the value or price may be based on other information that may be available to the Bureau of Customs. Stress however, is being given on the phrase "where there exists a reasonable doubt as to the fairness of such value or price" since before the Bureau of Customs may resort to other sources, there is a necessity that the presence of reasonable doubt as to the declared value must first be established. 4 The foregoing is not without basis. The Honorable Supreme Court, scrutinizing Section 201 of the Tariff and Customs Code, expressed the same view in Commissioner of Customs vs. Procter and Gamble Philippine Manufacturing Corp., et al ., G.R. No. 56705, January 31, 1989, and thus declared: "From the foregoing provisions of the statute, there can be no question that as a general rule the home consumption value or price of an imported article subject to an ad valorem rate of duty shall be the value or price declared in the consular, commercial, trade or sales invoice. "However, where there exists a reasonable doubt as to the value or price of the imported article declared in the entry, the correct dutiable value of the article shall be ascertained from the reports of the Revenue Attach or Commercial Attach (Foreign Trade Promotion Attach), pursuant to Republic Act Numbered Fifty-four hundred and sixty-six or other diplomatic officers and from such other information that may be available to the Bureau of Customs." Now, is there a reasonable doubt on the declared value? The answer is in the affirmative. When SGS declared in its Clear Report of Findings a higher valuation, it, in effect, creates a reasonable doubt on the truthfulness and accuracy of the value or price of the imported articles as declared by petitioner. It should be emphasized on this point that the Bureau of Customs is not in any way prohibited by law to resort to other information or sources even if the value or price is already declared in the consular, commercial, trade or sales invoice in order for it to determine the true and correct value or price of the imported goods and in the end, to protect itself against fraud. This is the reason why the Government appointed the SGS as inspector in the countries of supplier, of the quality, quantity, and price of goods, prior to shipment to the Philippines. Moreover, Section 1405 of the Tariff and Customs Code also provides "SECTION 1405. Proceedings and Reports of Appraisers . Appraisers shall by all reasonable ways and means, ascertain, estimate and determine the value or price of the articles as required by law, any invoice or affidavit thereto or statement of cost, or of cost of production to the contrary notwithstanding, and after revising and correcting the reports of the examiners as they may judge proper, shall report in writing on the face of the entry the value so determined, irrespective of whether such value is equal, higher or lower than the invoice and/or entered value of the articles." IDETCA From the foregoing, the appraisers of the Bureau of Customs are clearly given ample leeway, in determining the correct customs duties. This must be so since the consular and commercial invoice should not be in any way conclusive on the government. "Otherwise, the government would be rendered helpless to a considerable extent in the collection of the correct amount of customs revenues. Customs officials would be left at the mercy of foreign merchants and importers who may avail of various devices, schemes and other arrangements, short of outright fraud, to lower and reduce the face value of the articles covered by such invoices and certifications issued by consular officials who may not have. The facilities to verify the correctness of the stated invoice prices as against the true and actual value of the importation." 5 While the SGS is a private entity and its findings are merely recommendatory to the government, its recommended valuations, upon its adoption by the latter, would now enjoy the presumption of regularity. Hence, in the absence of sufficient proof to the contrary, the same is presumed valid and correct. Petitioner likewise contends that the higher valuation of SGS is unjust and arbitrary. This is also untenable. As correctly pointed out by the Office of the Solicitor General, the SGS valuation could be questioned by the importer and/or the Customs Examiner/Appraiser with the Bureau of Customs-SGS Appeals Committee. If the decision is adverse to the importer, the latter may pay the duties under protest pursuant to Section 2308 of TCCP, as amended. With the preceding, importers could not say that the valuation of SGS is unjust and arbitrary as it is very glaring that they have recourse to have any mistake or error in the valuation corrected. Relevantly, there is no necessity that the foregoing valuation of the SGS or any other valuation of the Bureau of Customs be published before the same may be the basis of assessment of the customs duty and taxes. This issue has been settled in Commissioner of Customs vs. Procter and Gamble Philippine Manufacturing Corp., et al ., supra , where the Supreme Court, speaking through then Justice Gancayco, pronounced that: "The law does not provide that it is only after the "established" or "information" value is "published" that such home consumption value may be the basis of assessment of the customs duty and taxes. On the contrary, it is explicitly provided that upon reasonable doubt as to the accuracy of the declared value of the article in the consular or commercial invoice, the Commissioner of Customs may determine its home consumption value from other available and more reliable sources which "established" or "information" value shall then be the basis of the imposition of the customs duty and taxes. The publication of said "established" or "information" value is not a prerequisite before it may be the basis of the imposition of customs duty and taxes. Conversely, its non-publication is no obstacle to the assessment of customs duty and taxes based on such "established" or "information" value. The publication is intended as a guide in the assessment of future shipment of similar articles . While such published value of an imported article is reliable, nevertheless, in the absence of the same, the Commissioner of Customs may establish said value from other sources as above provided by law." (Emphasis supplied) As regards the foregoing principle, it should be stressed that the valuation of goods based on the reports of the Revenue Attach or Commercial Attach (Foreign Trade Promotion Attach) abroad and other information obtained by the Bureau of Customs are called established or information value. 6 This, without doubt, includes valuation of the SGS. In the light of the foregoing, it is now incumbent upon petitioner to prove that the valuation adopted by the government is wrong, to entitle it to a refund. Thus, as aptly declared by the Supreme Court in Commissioner of Customs vs. Court of Tax Appeals : 7 "A higher assessment on its imported goods having been made, it became incumbent upon private respondent to show that the value declared in its consular invoice was the true and correct home consumption value thereof. It cannot simply rely on the consular invoice, precisely because a question on the veracity of the figure contained therein had been raised by the re-assessment made by the Customs Appraiser, which re-assessment was affirmed by the Collector and Commissioner of Customs." Also fitting in the instant case is the declaration by the Supreme Court in Coca-cola Export Corporation vs. The Commissioner of Internal Revenue , 8 to wit: ". . . that the value of merchandise fixed by the appraiser and affirmed by the Collector of Customs is conclusive in the absence of an affirmative showing that the appraiser, in assessing the value, proceeded upon a wrong principle and contrary to law, and that if the customs authorities were bound by the invoice value, it is evident that they would be, to a considerable extent, at the mercy of foreign merchants and importers. The purpose of Congress in providing for appraisers was to prevent fraud upon the customs, and thus protect the revenues of the Government." "The Court has likewise consistently held as a necessary corollary that the value of imported articles as fixed by the customs authorities in the discharge of their function of assessing and collecting the lawful revenues justly on imported articles and confirmed by the customs commissioner and/or respondent revenue commissioner . . . that such valuation is presumed to be correct and therefore conclusive in the absence of fraud or illegality or of an affirmative showing by the protesting importer that the customs authorities in fixing or assessing the value of the importation proceeded upon a wrong principle and contrary to law. "The burden thus rests upon the importer disputing the customs valuation not only to prove the contrary and overcome the presumption of correctness of the valuation but also to show that the figures declared by him are in fact true and correct. As restated by the Court in a 1960 case, 'the determination of the tax deficiency by the Government has prima facie validity and the burden rests upon the taxpayer to overcome this presumption and to show to the satisfaction of the Tax Court that the determination was not correct." Unfortunately, petitioner failed to prove that he was entitled to the refund. WHEREFORE, premises considered, the instant appeal is hereby DISMISSED for lack of merit. SO ORDERED. Brawner and De Guia-Salvador, JJ . , concur. Footnotes 1. Penned by Presiding Judge Ernesto D. Acosta; Rollo , pp. 38-52. 2. CTA's Decision, pp. 1-3, Rollo , pp. 39-52. 3. Rollo , pp. 16 & 17, Petition, pp. 11-12. 4. Commissioner of Customs vs. CTA , 161 SCRA 376 (1988). 5. Commissioner of Customs vs. Procter and Gamble Philippine Manufacturing Corp., et al ., G.R. No. 56705, January 31, 1989. 6. Aban, Law of Basic Taxation in the Philippines, 1994 Ed., p. 344, citing Commissioner vs. Procter and Gamble PMC, supra . 7. G.R. No. L-48027, March 11, 1991. 8. 56 SCRA 5 (1974); cited in Commissioner of Customs vs. Court of Tax Appeals, supra .