Sanly Corp. v. Court of Tax Appeals

SPECIAL FOURTH DIVISION [CA-G.R. SP No. 62729. September 22, 2003.] SANLY CORPORATION and ERA RADIO AND ELECTRICAL SUPPLIES , petitioner , vs . THE COURT OF TAX APPEALS and the HON. SECRETARY OF FINANCE , respondent . D E C I S I O N BERSAMIN , L . P , J p : This petition for review (Rule 43) is an appeal from the decision of the Court of Tax Appeals (CTA) promulgated on October 17, 2000, which declared the forfeiture of the goods seized and detained for alleged violation of customs law; and the resolution promulgated on December 15, 2000, which denied the petitioners' motion for reconsideration , in C.T.A. Case No. 5927 entitled Sanly Corporation and Era Radio and Electrical Supplies v. Hon. Secretary of Finance. The antecedents follow. At around 3:15 pm on February 3, 1998, surveillance operatives of the National Bureau of Investigation-Cordillera Administrative Region (NBI-CAR) and the Economic Intelligence and Investigation Bureau (EIIB) intercepted a .Mitsubishi Canter van with plate no. UTA 994, belonging to Era Radio and Electrical Supplies (Era). At the time, the van contained 249 cartons of AGFA Photo supplies, i.e ., papers, films, cameras and office equipment which were owned by Sanly Corporation (Sanly). At the time, the van was delivering the AGFA photo supplies to a photo shop in Baguio City. TcIHDa The NBI-CAR agents asked Victor Tupaz, the sales manager of Sanly, to present the proof of payment of customs duties and taxes on the articles. Tupaz could present only 4 invoices from the Jose Reyes Marketing, showing Sanly's purchase of the items thereat, but no customs receipts were produced. Thus, the NBI-CAR agents seized the van and the AGFA photo supplies and brought them to the NBI-CAR compound in Baguio City. The operation was mounted upon the complaint of the Photokina Marketing Corporation. Upon arrival of the Economic Intelligence Investigation Bureau (EIIB) representatives at the NBI-CAR compound, an inventory of the seized articles was jointly conducted by NBI and EIIB. Following the making of the inventory, but on the same day, the Sub-Port Collector of Customs, PEZA, Baguio City issued a warrant of seizure and detention for the articles (WSD 01-98) and the vehicle (WSD 01-98-A) respectively for alleged violation of Sec. 2530 (f) and (m-5), in relation to Secs. 2536 and 3601, all of the Tariff and Customs Code , as amended, and for alleged violation of Sec. 2530 (k), in relation to Secs. 2536 and 3601, all of the same code. The petitioners filed a claim for the release of the articles and the vehicle in the Legal Department of the Bureau of Customs. 1 Photokina Marketing Corporation (Photokina) was allowed to intervene but only to help the Government establish the probable cause in the forfeiture of the articles seized. and the vehicle. On June 10, 1998, Valentin Tolentino, Sub-Port Collector of Baguio City, ordered the release of the articles and the van to the claimants, petitioners herein, 2 upon his finding that while the Government established that the apprehension and seizure was due to the failure of the claimants to show the necessary customs documents at the time of the apprehension, the claimants were able to satisfactorily show, through affidavits, that the seized articles were locally acquired from the Jose Reyes General Merchandise, which, in turn, had acquired the articles from the importer, HMR Philippines Corporation, which had paid the necessary customs duties on the seized articles. The Sub Port Collector went on to state in his decision that: From the foregoing narration of facts, testimonies and exhibits offered in evidence, it is crystal clear that the Agfa photo papers in question have passed through a customshouse and have legally left the jurisdiction of the Bureau of Customs. It follows therefore that there exists no legal ground to hold them any longer under customs custody. 3 On November 9, 1998, or after the lapse of 30 days as required under Sec. 2313, Tariff and Customs Code (TCCP), as amended, the decision was remanded to the District Collector of San Fernando, La Union by the Office of the Commissioner of Customs for the reason that Customs Memorandum Order (CMO) No. 7-91 required the proposed decision of the Sub-Port collector which would result in the release of the goods seized to be signed by the District Collector of Customs. The petitioners sought a reconsideration of the remand, stating that, one , the decision of the Sub-Port collector was already final and executory pursuant to Sec. 2313, TCCP, due to the lapse of 30 days; and two , CMO 7-91 was null and void for its non-filing in the UP Law Center as required by Secs. 3 and 4, Chapter 2, Book VII, E. O. No. 292, also known as the Administrative Code of 1997. Ultimately, on November 9, 1998, the District collector issued his Fifth (5th) Indorsement, reforwarding the case folders to the Office of the Commissioner with the suggestion that all the controversial issues in the decision be taken up in the process of automatic review. But the Commissioner of Customs returned the records to the District collector with the directive for the latter to decide the case within 10 days from receipt. District collector Ernesto Urbano of the Port of San Fernando, La Union rendered a decision dated December 8, 1998, 4 finding that claimants were not able to prove that taxes and duties were duly paid on the articles seized, discrediting the affidavits given by Jose M. Reyes and HMR Philippines Corporation, the bases of the decision of Tolentino, due to the failure of the affiants to confirm them, and then disposing as follows: WHEREFORE, in view of the foregoing, this Office hereby ORDERS and DECREES that the two hundred forty nine (249) boxes of Agfa photo papers subject of this seizure proceedings be, as they are hereby declared FORFEITED in favor of the government, the same to be disposed of in the manner provided for by law. The claimant is hereby ordered to return the same goods to this Port for disposition upon proper identification, otherwise, the bond posted for the release shall be forfeited in favor of the government. Let copies of this Decision be furnished to the claimant and other parties concerned for their information and guidance. Both Photokina and the petitioners filed their respective motions for reconsideration. On January 26, 1999, the District collector denied the motion for reconsideration of the petitioners. The petitioners then appealed to the Office of the Commissioner of Customs from the decision and order of the District collector. On April 15, 1999, Deputy Commissioner Emma M. Rosqueta rendered a decision, 5 the decretal portion of which states: WHEREFORE, in light of the foregoing, the Decision and Order of the District Collector of the Port of San Fernando, La Union, dated December 8, 1998 and January 28, 1999, respectively, is hereby REVERSED and SET ASIDE. The 249 rolls of Agfa photo paper, cameras, films, batteries and the vehicle used in transporting the same, the Mitsubishi Canter with Plate No. UTA-994, are hereby ordered released, subject to proper identification of its rightful owners/claimants. Let this decision be elevated to the Secretary of Finance for automatic review pursuant to Section 2313 of the TCCP, as amended. In turn, the Secretary of Finance issued on May 10, 1999 a 3rd Indorsement, 6 by which he ruled: Premises considered, the decision of the Collector of Customs is hereby affirmed. The 249 boxes of Agfa photo papers, cameras, films, batteries and the vehicle used in transporting the same, Mitsubishi Canter with Plate No. UTA-994 are hereby ordered forfeited in favor of the government for violation of Section 2530 (f) in relation to Section 2536 and 3601 of the Tariff and Customs Code of the Philippines. IDaEHS The petitioners filed a timely appeal from the resolution of the Secretary of Finance in the Court of Tax Appeals, which, on October 17, 2000, issued its decision, 7 holding as follows: IN THE LIGHT OF ALL THE FOREGOING, We hereby DENY the instant petition and the Indorsement of the Respondent Secretary of Finance dated May 10, 1999 is hereby UPHELD. Accordingly, the 249 rolls of Agfa photo papers, cameras, films, batteries and the vehicle used in transporting the same, the Mitsubishi Canter With Plate No. UTA-994, are hereby ORDERED FORFEITED in favor of the government for violation of Section 2530 (f) in relation to Section 2536 and 3601 of the Tariff and Customs Code of the Philippines. Likewise, the surety bond earlier posted for the provisional release of the subject vehicle is FORFEITED in favor of the government. Aggrieved, the petitioners then appeal by petition for review (Rule 43), upon the following errors: 8 I THE RESPONDENT COURT ERRED IN NOT DECLARING THE SEARCH AND SEIZURE AGAINST THE PETITIONERS' RES CONDUCTED BY THE NBI-CAR AGENTS, WITHOUT THE AUTHORITY FROM THE COMMISSIONER OF CUSTOMS PURSUANT TO SECTION 2536 OF THE TARIFF AND CUSTOMS CODE, AS ABSOLUTELY ILLEGAL AND VIOLATIVE OF THE EXISTING CUSTOMS AND OTHER RELATED LAWS AND REGULATIONS OF THE CONSTITUTION. II THE RESPONDENT COURT ERRED IN AFFIRMING THE THIRD INDORSEMENT ISSUED BY THE RESPONDENT SECRETARY OF JUSTICE DESPITE THE LATTER'S FAILURE TO ESTABLISH PROBABLE CAUSE TO WARRANT THE ORDER OF FORFEITURE OF THE SUBJECT RES . The sole decisive issue to be resolved in this appeal is, therefore, whether or not the seizure of the articles and the vehicle was done in accordance with law. As the corollary of such issue, the respondent submits the question of "whether or not the seized goods and vehicle are subject to forfeiture for violations of Sections 2530 (f) and (m) and 2530 (K), respectively, in relation to Sections 2536 and 3601 of the Tariff and Customs Code." The appeal is meritorious. It is undisputed that the NBI-CAR operatives conducted the search and seizure of the articles and the vehicle without any warrant for that purpose; and that the warrant of seizure and detention for the articles (WSD 01-98) and the vehicle (WSD 01-98-A) were issued only afterwards. It is also undisputed that the search and seizure were not priorly authorized in writing by the Commissioner of Customs. We hold that under such undisputed circumstances the search and seizure cannot be sustained. The Commissioner of Customs has the exceptional power to exercise police authority in the enforcement of the Tariff and Customs Code, 9 including the conduct of search and seizure even without warrant. But such empowerment does not extend to other officials, whether of the Bureau of Customs or of other government agencies. Sec. 2203, Tariff and Customs Code, authorizes officials of other government agencies such as the Armed Forces of the Philippines, the Philippine National Police, the National Bureau of Investigation, and the Economic Intelligence and Investigation Bureau to effect searches, seizures and arrests. 10 However, such other government agencies should have " prior authorization in writing " from the Commissioner of Customs to "demand evidence of payment of duties and taxes on foreign articles openly offered for sale or kept in storage, and if no such evidence can be produced, such articles may be seized and subjected to forfeiture proceedings." This prerequisite is expressly provided for in Sec. 2536, Tariff and Customs Code , to wit: Sec. 2536. Seizure of Other Articles . The Commissioner of Customs and Collector of Customs and/or any other customs officer, with the prior authorization in writing by the Commissioner , may demand evidence of payment of duties and taxes on foreign articles openly offered for sale or kept in storage, and if no such evidence can be produced, such articles may be seized and subjected to forfeiture proceedings; Provided, however, That during such proceedings the person or entity for whom such articles have been seized shall be given the opportunity to prove or show the source of such articles and the payment of duties and taxes thereon. The authority granted under Sec. 2203, Tariff and Customs Code , should be exercised only in accordance with Sec. 2536, Tariff and Customs Code, supra . Accordingly, while searches and seizures done by the Commissioner of Customs may be effected without warrant , the searches and seizures to be done by persons other than the Commissioner of Customs should only be with the prior written authorization of the Commissioner of Customs. Sec. 2203 itself expressly states that such other officials may effect searches, seizures and arrests conformably with the provisions of the Tariff and Customs Code and "when authorized by the Commissioner (of Customs)." Truly appropriate and relevant is the observation made by the Hon. Ernesto D. Acosta, Presiding Judge of the Court of Tax Appeals, in his well-written dissent from the decision on appeal, thus: . . . if the officials of the Bureau of Customs need prior written authorization under Section 2536, with more reason the agents of the EIIB or NBI need the same for the enforcement of the law to be valid, effective and binding. The situation under Section 2536 is exactly the situation in the instant case. The EIIB-NBI agents demanded evidence of payment and duties and taxes on foreign articles openly offered for sale but Petitioner at that moment could not produce the desired documents . The law clearly requires prior authorization in writing by the Commissioner of Customs in this situation for which the seizure agent fails. 11 The participation of the EIIB in the search and seizure effected by the NBI operatives without prior written authorization from the Commissioner of Customs did not cure the illegality. While the EIIB then had the " primary responsibility for anti-smuggling operations in all land areas and inland waters and waterways outside the areas of sole jurisdiction of the Bureau of Customs " under Memorandum Order No. 225 issued by President Aquino, the sad fact remains that the EIIB did not even initiate the search and seizure, having entered the picture only to conduct the inventory jointly with the seizing NBI operatives. IDAEHT The belated issuance of the warrants of seizure and detention, which appeared to have been served on the petitioners only on February 5, 1998, some 2 days after the seizure, accented the illegality of the search and seizure, rather than cured it. To authorize the search and seizure, there must either be a judicial warrant or the prior written authority issued by the Commissioner of Customs. If the rule were otherwise, there would be nothing to prevent the commission of abuses by just any law enforcement agency or its officials who would run roughshod over hapless businessmen and other people in the guise of enforcing the Tariff and Customs Code and allied laws. As the result of the foregoing, the seizure and forfeiture proceedings against the petitioners have lost their legal basis. The seizure and forfeiture could only be done against the petitioners upon the proper and valid issuance of the warrants of seizure and detention which, herein, was an impossibility due to lack of probable cause. The failure of Tupaz, the sales manager of Sanly, to produce the proof of payment of customs duties and taxes on the articles could not be the probable cause, for the NBI operatives had no right to so demand unless priorly authorized in writing by the Commissioner of Customs. 12 Verily, no probable cause existed prior to and at the time of the search and seizure. The unreasonable search and seizure should not result into the forfeiture of the property of the petitioners, for, thereby, the transgressions of the NBI operatives would be unduly rewarded. Not only that, since doing so will easily trample the constitutional rights of the petitioners to due process of law under Sec. 1, Art. III, and to the protection from unreasonable searches and seizures under Sec. 2, Art. III, both of the 1987 Constitution. WHEREFORE, the PETITION FOR REVIEW is GRANTED. The DECISION of the COURT OF TAX APPEALS promulgated on October 17, 2000 and the RESOLUTION promulgated on December 15, 2000 in C.T.A. Case No. 5927 entitled Sanly Corporation and Era Radio and Electrical Supplies v. Hon. Secretary of Finance are REVERSED AND SET ASIDE, and a new DECISION is hereby ENTERED, dismissing the forfeiture proceedings against the petitioners and ordering the release to the petitioners of the 249 boxes of AGFA photo papers, cameras, films, batteries and the vehicle, particularly described as Mitsubishi Canter with Plate No. UTA 994. SO ORDERED. Asuncion and Gozo-Dadole , JJ. , concur. Footnotes 1. SPB Seizure Identification No. 01-98 entitled Republic of the Philippines v. Sanly Corporation and/or Victor Tupas, P. Tuazon St. Cubao, Quezon City ; and SPB Seizure Identification No. 01-98-A entitled Republic of the Philippines v. ERA Radio and Electrical Supply, #237-239 P. Tuazon, Quezon City. 2. Rollo, pp. 5060. 3. Rollo, pp. 60. 4. Rollo, pp. 6164, Decision dated December 8, 1998 signed by Atty. Ernesto D. Urbano. 5. Rollo, pp. 6578, Decision, dated April 15, 1999, signed by Emma M. Rosqueta. 6. Rollo, p. 49. 7. Rollo, pp. 2547. 8. Rollo, pp. 910. 9. Sec. 23, (2) Chapter 4, E.O. 292 (Administrative Code of 1987). 10. Sec. 2203, Tariff and Customs Code, which provides: Section 2203. Persons having Police Authority. For the enforcement of the tariff and customs laws, the following persons are authorized to effect searches, seizures and arrests conformably with the provision of said laws: a. Officials of the Bureau of Customs, districts collectors, police officers, agents, inspectors and guards of the Bureau of Customs; b. Officers of the Philippine Navy and other members of the Armed Forces of the Philippines and national law enforcement agencies when authorized by the Commissioner; c. Officials of the Bureau of Internal Revenue on all cases falling within the regular performance of their duties when the payment of internal revenue taxes are involved; Officers generally empowered by law to effect arrests and execute processors of courts, when acting under the direction of the Collector. 11. Rollo , pp. 4516. 12. Sec. 2536, Tariff and Customs Code, supra.