Nestle Philippines, Inc. v. Court of Tax Appeals

SEVENTH DIVISION [CA-G.R. SP No. 60740. April 24, 2002.] 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 CARPIO MORALES , J p : In 1986, the Bureau of Customs engaged Societe Generale de Surveillance Far East Ltd. (SGS), the biggest among five preshipment companies providing worldwide preshipment services ( The GATT and WTO: An Introduction by Rufus Rodriguez , p. 112, 1998 edition) to implement the country's Comprehensive Import Supervision Scheme (CISS). Under the CISS, a pre-shipment inspection of the quality, quantity and price of imports coming into the Philippines is conducted at the exporting country to prevent the undervaluation, misdeclaration and overvaluation of imports shipped to the Philippines which defraud the government of revenues ( Bureau Verita v. Office of the President , 205 SCRA 705 [1992]). In 1992, Nestle Philippines, Inc. (Nestle) imported skimmed milk powder, High heat, Medium Heat and Low Heat, and instant milk powder 28% from different European Economic Community (EEC) countries. From the SGS Clean Report of Findings (CRFs), the dutiable value assigned to Nestle's importations was its Home Consumption Value (purchase price plus export subsidy) and not the purchase price reflected in the commercial invoices. The value of the importation contained in the sales/commercial/consular invoices was disregarded by SGS because the same was much lower than the domestic prices of the imported milk in the countries of origin/manufacture. It appears that Nestle's foreign suppliers could sell their products at lower prices because of the export subsidy extended to them by their governments. The dutiable value of an imported article being the basis of ad valorem rate, the higher SGS valuation meant that Nestle had to pay higher customs duties and its advance payments to the Bureau of Internal Revenue for the importation was thus deficient. Nestle thus contested the SGS valuation before the Customs-SGS Import Valuation and Classification Committee (BOC-SGS-IVCC), also known as the Appeal Committee under the Office of the Commissioner. On March 29, 1993, SGS lowered the original valuation of the imported products to conform with the EEC domestic price as published in the German language less normal cash discount, which valuation was still higher than the sales invoice values of such products. The Philippines customs authorities thereupon adopted the SGS valuation and assessed Nestle a total deficiency of P5,259,777.60 in customs duties and VAT on importation. While Nestle paid the deficiency, it did so under protest and filed a formal letter with the Collector of Customs, and another with the Commissioner of Internal Revenue for refund of excess VAT paid. The BIR and the BOC did not act upon Nestle's claim for refund within the reglementary period, compelling it to institute a petition for tax refund with the Court of Tax Appeals, anchored on Department of Justice (DOJ) Opinion No. 37, Series of 1992 that the dutiable value of an imported product is its fair market value its wholesale price in the principal markets of the exporting country which can be markets outside the country of manufacture or origin. Nestle's claim was dismissed by the CTA on the ratiocination 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 declare in the entry, the correct dutiable value of the article shall be ascertained from the reports of the Revenue Attache or Commercial Attache (Foreign Trade Promotion Attache), pursuant to Republic Act No. 5466 or from other diplomatic officers and such other sources of information that may be available to the Bureau of Customs ( Commissioner of Customs vs. Procter and Gamble Phil., Mfg., Corp. , 169 SCRA 693). Thus, the consular and commercial invoice can in no way be conclusive on the government ( Caltex (Philippines), Inc. v. Court of Appeals , G.R. No. 140781, July 10, 1998). Stated otherwise, while the provision of Section 201 TCCP prescribes the rule that the home consumption value of the imported article shall be the value or price declared in the commercial, consular, trade or sales invoice, the same should be applied in case the correctness of such value or price declared in the invoice is contaminated with reasonable doubt. xxx xxx xxx This Court believes that the value or price established by the SGS and Collector of Customs is more appropriate. The Collector of Customs has ascertained and established that the SGS-CRP is not without basis. The Court acquiesce with Respondent COC's stance that the Fair Market Value (FMV) of the subject imported articles consists of the actual price as per seller's final invoice to the Philippine importer plus the restitution paid to the exporters according to the European Economic Community agreements (Exh. 1), because this is the price existing in the domestic market in the country of supply, of the imported article based on same, like or similar articles, as bought and sold or offered for sale freely in the usual wholesale quantities in the ordinary source of trade, in the principal markets on the date of exportation to the Philippines. The subsidy given by the EEC to its exporters makes the price of the imported articles lower than that of the price in the domestic market of the exporters. Thus, the subsidy given by the EEC should form part of the Home Consumption Value of the imported article. The SGS valuation of its CRFs in effect created a reasonable doubt as to the truthfulness and accuracy of the value or price of the imported article declared in the entry, hence, it is not error for the Respondent COC to disregard the invoice value and use instead the FMV of the imported article per seller's invoice value and use instead the FMV of the imported article per seller's invoke plus the restitution/refund paid to the exporters as the true and correct home consumption value . . . " . (Emphasis Supplied). Petitioner's motion for reconsideration of the dismissal of its petition was denied by the CTA, hence, the present petition for review under Rule 43 of the 1997 Rules of Court Procedure. Nestle argues that the Philippine customs authorities did not conclusively establish the existence of a European subsidy on milk and how it pulls down the selling price of imported milk coming from EEC countries; and that even assuming that such export subsidy existed, Philippine customs authorities should not exclude Filipino importers from benefiting from a foreign country's liberal policy towards its exporters. The petition fails. Factual findings of the CTA are generally not disturbed on appeal when supported by substantial evidence and in the absence of gross error or grave abuse of discretion ( Commissioner of Internal Revenue v. B.F. Goodrich Phils., Inc. , 303 SCRA 546 [1999]). And so are those of administrative bodies such as the Customs-SGS Import Valuation and Classification Committee (BOC-SGS-IVCC) so long as they are supported by substantial evidence ( Transglobe International, Inc. v. Court of Appeals , 302 SCRA 57, 68 [1999] citing Reno Food Inc. v. NLRC , 249 SCRA 379 [1995]). No reason is appreciated why the CTA findings must now be disturbed. It is unusual for foreign suppliers to sell their products to foreign countries at prices lower than their domestic prices, given the additional costs attendant to exportation like freight, insurance, and wharfage costs which in the normal course of business are passed on to the buyer. Even if the prices reflected in the sales invoices covering the importations are higher than the published BOC price list of commodities; as claimed by Nestle, it is not fair to tie the hands of Philippine taxing authorities from imposing a higher valuation on imported articles, for the price of commodities in international trade is always changing. Section 201 of The Tariffs Customs Code of the Philippines (TCCP) in fact provides that upon reasonable doubt as to the accuracy of the declared value of an article in the consular or commercial invoice, the Commissioner of Customs may determine its fair market value from other available and more reliable sources ( Commissioner of Customs v. Procter & Gamble Philippine Manufacturing Corp ., 169 SCRA 693 [1989]). While effective January 1, 2000, the dutiable value of an imported article subject to ad valorem rate of duty is its "transaction value" which is the price actually paid or payable for the goods when sold for export to the Philippines plus other costs (Section 201 of TCCP, as amended by Republic Act No. 8181), Nestle's importations were made before January 1, 2000, however. As for the claim for tax refund: Tax refunds are in the nature of tax exemptions and as such they are regarded in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming them, like Nestle ( Commissioner of Internal Revenue v. S.C. Johnson and Sons, Inc. , 309 SCRA 402 [1999]). WHEREFORE, the petition is hereby DENIED. SO ORDERED. Villarama, Jr. and Del Castillo, JJ . , concur.