Secretary of Finance v. Oro Maura Shipping Lines

EIGHTH DIVISION [CA-G.R. SP No. 64644. August 26, 2002.] THE SECRETARY OF FINANCE , petitioner , vs . COURT OF TAX APPEALS (CTA) and ORO MAURA SHIPPING LINES , respondents . D E C I S I O N DACUDAO , J p : Petition for review of the March 29, 2001 decision of the Court of Tax Appeals in C.T.A. Case No. 6112, setting aside the January 8, 1999 verdict of the then Secretary of Finance Edgardo B. Espiritu, which directed the re-assessment of the value of the vessel M/V "Haruna," ex: Shin Shu Maru No. 8 based on its entered value without allowance for depreciation. As found by the Tax Court, the relevant antecedents are as follows: "On November 24, 1992, the Maritime Industry Authority (MARINA, for brevity) authorized the importation of one (1) unit vessel, M/V 'HARUNA', ex: Shin Shu Maru No. 8 under a Bareboat Charter for a period of five (5) years from its actual delivery to the charterer. The original parties to this agreement were Haruna Maritime S.A., represented by Mr. Yoji Morinaga of Panama, and Mr. Guerrero G. Dajao, Proprietor and Manager of GLORY SHIPPING LINES, the charterer. On December 29, 1992, the Department of Finance in its 1st Indorsement allowed the 'temporary registration of foreign owned vessel under charter to the Philippine Nationals' . . . and the 'release of the subject vessel may be allowed without the payment of duties and taxes, subject, however, to the conditions imposed under the letter of the Maritime Industry Authority dated November 24, 1992,' and subject further to posting of a `bond in an amount equal to 150% of the duties, taxes and other charges due thereon conditioned . . . for the re-exportation thereof upon the termination of the charter period but not to extend beyond the year 1999 as provided for under the last paragraph of Sec. 1 of P.D. No. 1711, amending P.D. No. 760, otherwise, duties and taxes due thereon shall be collected . . .' "On March 16, 1993, herein charterer posted an Ordinary Re-Export Bond No. C (9) 121818 in the amount of P1,950,000.00 in compliance with the requirement imposed by the Department of Finance conditioned for the re-exportation of subject vessel within a period of one (1) year from March 22, 1993, or in case of default, to pay customs duty, tax and other charges. On March 22, 1993, the M/V 'HARUNA' arrived in the Sub-Port of Mactan and Import Entry No. 120-93 was filed with a dutiable value of P6,171,092.00 and with an estimated customs duty and tax amounting to P1,296,710.00. "On May 10, 1994, or almost two (2) months after the re-export bond expired on March 22, 1994, Charterer Dajao sent a Letter of Guarantee to the Customs Collector guaranteeing `to renew our Re-Export Bond on vessel, M/V 'HARUNA' on/or before May 20, 1994, otherwise duties and taxes on said vessel will be paid by Glory Shipping Lines, Inc. . . . "On October 21, 1994, Petitioner applied with the MARINA to import the subject vessel M/V 'HARUNA Glory' from Haruna Maritime S.A. of Panama, with a proposed acquisition cost of PHP1,100,000. Said request was granted by MARINA to Petitioner through a letter dated December 5, 1994, stating therein that the acquisition cost is considered reasonable. "On December 13, 1994, Kariton and Company, on behalf of Petitioner, requested the Department of Finance (DOF) to allow them to pay the duties and taxes due on the vessel with the information that said vessel was earlier entered duty and tax free under the Bareboat Charter Agreement. The Department of Finance then referred the letter of Kariton and Company to the Commissioner of Customs for appropriate action, per its 1st Indorsement dated December 13, 1994. The Commissioner of Customs, in turn, in his 2nd Indorsement dated December 14, 1994, referred the 1st Indorsement of the Department of Finance to the Collector of Customs, Port of Manila. On the basis of the foregoing indorsements, Import Entry No. 179260 was filed by Kariton and Company on behalf of Petitioner at the Port of Manila which accepted the declared value of the vessel at PHP1,100,000.00. Based on the said value, the assessed duties and taxes, as computed by the appraiser, amounted to PHP149,989.00 which was duly paid by Petitioner per BCOR No. 50245666 dated January 4, 1995. "On April 22, 1996, the Collector of Mactan sent a demand letter to the charterer demanding settlement of their liability in the amount of P1,950,000.00 with the Bureau for failure to re-export the chartered vessel within the period specified in the re-export bond. Again, on June 21, 1996, the Customs Collector sent another demand letter reiterating the previous demand to pay the said amount representing unpaid customs duties, taxes and other charges. On March 10, 1997, another demand letter was sent to the charterer by the same Collector, this time with a handwritten annotation of Charterer Dajao made at the left lower portion with the markings 'ALAN LIM c/o Oro Mauro Shipping, Cagayan de Oro City.' But on or about the month of April 1996, the Bureau of Customs, through an intelligence report, discovered that the subject vessel had been sold to Alan Lim of Oro Maura Shipping Lines in Cagayan de Oro City. Thus, on November 5, 1997, a demand letter was sent by Atty. Simplicio Jorgio, Chief of the Mactan Customs Law Division to Mr. Alan Lim of Oro Shipping Lines demanding payment of duties, taxes and other charges due on the vessel. For failure of Mr. Alan Lim to pay the duties, taxes and other charges, a Warrant of Seizure and Detention No. 17-98 was issued by the Mactan Customs Collector on August 10, 1998, against the vessel for violation of Section 2530 (1-3, 4 and 5) of the Tariff and Customs Code of the Philippines. SEHTAC "On September 23, 1998, a decision was rendered by the Collector of Customs, Sub-port of Mactan forfeiting the vessel in favor of the Government of the Republic of the Philippines. The decision of forfeiture was appealed by Petitioner to the District Collector, Port of Cebu who, on December 1, 1998, reversed the decision of the Collector, Sub-port of Mactan. "On December 14, 1998, the Commissioner of Customs found the decision of the District Collector, Port of Cebu to be meritorious and recommended its approval to the Respondent. On January 8, 1999, herein Respondent rendered the questioned decision, the dispositive portion of which states: 'Upon review of the records of the case we find the decision under review to be in accordance with the evidence presented. Accordingly, said decision is hereby affirmed pursuant to 2313 of the Tariff and Customs Code, as amended, as recommended by that Bureau. However, a reassessment of the value of the vessel should be made based on the entered value thereof without allowance for depreciation in accordance with the ruling of this Department contained in a letter dated 28 February 1991, copy attached, mandating in effect the application of Sections 204 and 205 of the Tariff and Customs Code, as amended.' "Through a letter dated April 6, 2000, Respondent, through his Assistant Secretary, denied with finality Petitioner's request for a reconsideration of the above decision." 1 Aggrieved, private respondent Oro Maura Shipping Lines elevated the case to the Court of Tax Appeals: this, on March 29, 2001, handed down the assailed decision, decretally disposing of the controversy, thusly "WHEREFORE, in view of all the foregoing, this Court finds the instant petition meritorious and in accordance with law. Accordingly, the 4th Indorsement dated January 8, 1999 is hereby SET ASIDE and the decision of the District Collector, Port of Cebu dated December 1, 1998 in CEBU SI No. 16-98, which was affirmed by the Commissioner of Customs ordering the release of M/V HARUNA in favor of the Petitioner, ORO MAURA SHIPPING LINES, in C/A No. 17-98 is hereby UPHELD. "SO ORDERED. "AMANCIO Q. SAGA "Associate Judge" "I CONCUR: "ERNESTO D. ACOSTA "Presiding Judge." 2 Hence, this petition for review where petitioner Secretary of Finance maintains that: "The Court of Tax Appeals committed grave errors of fact and law that would warrant the reversal of the decision appealed from in that: "I. The Court of Tax Appeals gravely erred in not holding that the Secretary of Finance has the authority to order the assailed re-assessment. "II. The Court of Tax Appeals gravely erred in not holding that the questioned re-assessment is valid and legal." 3 The petition will not prosper. We find it pertinent to say, at the outset, that while the petitioner Secretary of Finance has correctly asserted that in any case involving the assessment of duties, the authority to make the final review of the decision therein is reposed on the Secretary of Finance, still, it must be borne in mind that any party aggrieved by the decision of the Secretary of Finance may appeal to the Court of Tax Appeals. 4 Thus, provides Section 2315 of the Tariff and Customs Code: "SEC. 2315. Supervisory Authority of Commissioner and Secretary of Finance in Certain Cases . If any case involving the assessment of duties, the Collector renders a decision adverse to the Government, such decision shall be automatically elevated to, and reviewed by, the Commissioner, and if the Collector's decision would be affirmed by the commissioner, such decision shall be automatically elevated to, and be finally reviewed by, the Secretary of Finance: Provided, however, That if within thirty (30) days from receipt of the record of the case by the Commissioner or by the Secretary of Finance, as the case may be, no decision is rendered by either of them, the decision under review shall be final and executory: Provided, further, That any party aggrieved by either the decision of the Commission or of the Secretary of Finance may appeal to the Court of Tax Appeals within thirty (30) days from receipt of a copy of such decision. For this purpose, Republic Act numbered eleven hundred and twenty-five is hereby amended accordingly. "Except as provided in the preceding paragraph, the supervisory authority of the Secretary of Finance over the Bureau of Customs shall not extend to the administrative review of the ruling or decision of the Commissioner in matters appealed to the Court of Tax Appeals." We are in full accord with the ruling of the Tax Court that the assessment made by the Customs Collector of the Port of Manila on the subject vessel had already become final and conclusive upon all parties pursuant to Sections 1407 and 1603 of the Tariff and Customs Code. While Oro Maura Shipping Lines paid the assessed duties on January 4, 1995, the Port Collector of Mactan demanded payment of additional duties and taxes from said private respondent only on November 5, 1997, or more than one year from the time private respondent made the final payment of the duties. The laws in point read: "SEC. 1407. Readjustment of Appraisal, Classification or Return . Such appraisal, classification or return as finally passed upon and approved or modified by the Collector shall not be altered or modified in any manner, except: "(a) Within one year after payment of the duties, upon statement of error in conformity with Section seventeen hundred and seven hereof, approved by the Collector. "(b) Within fifteen days after such payment upon request for reappraisal and/or reclassification addressed to the Commissioner by the Collector, if the appraisal and/or classification is deemed to be low. "(c) Upon request for reappraisal and/or reclassification, in the form of a timely protest addressed to the Collector by the interested party if the latter should be dissatisfied with the appraisal or return. "(d) Upon demand by the Commissioner of Customs after the completion of compliance audit pursuant to the provisions of this Code. (R.A. 9135, April 27, 2001)" "SEC. 1603. Finality of Liquidation . When articles have been entered and passed free of duty or final adjustments of duties made, with subsequent delivery, such entry and passage free of duty or settlements of duties will, after the expiration of one year, from the date of the final payment of duties, in the absence of fraud or protest, be final and conclusive upon all parties, unless the liquidation of the import entry was merely tentative." Also, we are unable to agree with petitioner that Sections 1407 and 1603 are restrictions applicable only to importers "which bar them to request a re-appraisal of duties for purposes of abatement or refund," and to Collector of Customs, "restraining him to unilaterally modify or alter previously approved appraisals." The law is explicit, Sec. 1603 states: ". . . such entry and passage free of duty or settlements of duties will, . . ., be final and conclusive upon all parties ." As so well put by the Tax Court: "If it was meant to bind only the importer and the Collector of Customs, it could have easily provided so. Moreover, if there is no such limitation under the law, then settlements of duties, even in the absence of fraud, can never attain finality, to the prejudice of the importer who can be perpetually assessed if the duties paid are later on found to be erroneous." 5 Nor can we subscribe to petitioner's thesis that since fraud has been committed in the case at bench, the duties assessed on the subject vessel can never become final and conclusive upon the parties. We cannot sense merit in petitioner's assertion that it is not material whoever committed the fraud and "in what stage of the importation the fraud was committed." In Aznar v. Court of Tax Appeals , 6 as reiterated in Farolan, Jr. v. Court of Tax Appeals , 7 the Supreme Court clarified that the fraud contemplated by law must be actual and constructive. It must be one that is intentional with the sole object of evading payment of the duties due. It consists of deception willfully and deliberately done or resorted to in order to induce another to give up some right. 8 The fraud alluded to by herein petitioner cannot be ascribed to private respondent since it was not the one that failed to renew the re-export bond or to pay the duties and taxes on M/V Haruna on March 22, 1994. What is more, it was not shown in the forfeiture decision of the Port Collector of Mactan that private respondent had knowledge of the said infractions of the charterer Glory Shipping Lines. Illuminating are the following findings of the District Collector, Port of Cebu, viz.: "It would seem that the observation of the Port Collector of Mactan is correct. The acts of Haruna Maritime S.A. and Glory Shipping Lines in selling the vessel to Oro Maura Shipping Lines on December 2, 1994 without informing/notifying the Collector of the Port of Mactan after the re-export bond had expired and after Mr. Guerrero Dajao of Glory Shipping Lines had obliged upon himself and committed to the Bureau of Customs on May 10, 1994 to renew the re-export bond or pay the duties and taxes due on the vessel on or before May 20, 1994, and the continued failure and/or refusal of Glory Shipping Lines to acknowledge receipt of the demand letters (Exh. 'G', 'H', and 'I') sent to them by the Port Collector of Mactan with the intent to evade payment of duties and taxes due on the subject vessel, even to my mind, constitute bad faith and fraud upon the Bureau of Customs. "These fraudulent acts and bad faith on the part of the charterer/seller, however, have been unjustly imputed by the Mactan Customs Collector to the herein buyer Oro Maura Shipping Lines. But this office believes that fraud should only be made attributable to the one who has caused and contributed it, and in this particular situation, it should be attributed to Glory Shipping Lines represented by Mr. Guerrero Dajao but certainly not against Oro Maura Shipping Lines. ScAIaT "It would be unjust and unfair to similarly place the buyer in the same position as the seller who is liable for machination in evading his legal obligation by not renewing the re-export bond or paid the duties and taxes due on the vessel. This office finds no legal nor factual basis in attributing to Oro Maura Shipping bad faith nor fraudulent acts in the acquisition of the subject vessel. "The contention of the Port Collector of Mactan that herein appellant knew that the vessel was 'imported thru bareboat charter and was temporarily released by the Port of Mactan without the payment of the duties and taxes that was already due at the time of the sale and such facts was so stated in the Deed of Definite Sale' has not been satisfactorily explained in the Decision and has no leg to stand on. The Deed of Definite Sale (Exh. '1') does not state that it was temporarily released from the Port of Mactan without payment of duties and taxes and that re-export bond had already expired nor had not been renewed by the seller. On the contrary, what was clearly stated in the Deed of Definite Sale was: ' For and in consideration of the sum of One Million and One Hundred Thousand (P1,100,000), Philippine currency, BY THESE PRESENTS, the VENDOR hereby definitely sells, cedes, transfers and conveys the above-described motor vessel, together with the radio communications equipments installed on board said vessel and with the Office of Glory Shipping Lines, Cebu City, and other equipments and apparatus, necessary for the safe navigation of said vessel, to the VENDEE, his heirs and assigns, free from all liens and encumbrances . ' By virtue of the aforesaid sale, the BAREBOAT CHARTER PARTY AGREEMENT between the VENDOR and G.G. Dajao, of Glory Shipping Lines, Cebu City, has long been terminated and extinguished .' "This is a clear manifestation of misrepresentation of facts of the charterer and not by the buyer-appellant, which, again cannot be attributed to Oro Maura Shipping. "True, repeated demands were made to pay the customs duties, taxes and other charges due on the vessel as shown by Exhibits 'G', `H' and 'L'. These are all demand letters dated April 22, 1996, June 21, 1996 and March 10, 1997, respectively, that were mailed and sent by the Customs Collector of Mactan to the charterer, GLORY SHIPPING LINES demanding fulfillment of its obligation. But these demand letters were all directed to the charterer, GLORY SHIPPING LINES and not to Oro Maura Shipping Lines. There was only one (1) single demand made and sent to the appellant, and that was on November 5, 1997, (Exh. 'K'). This office assumed that appellant ignored this demand letter for being moot and academic knowing fully well that his obligation had long been settled with the payment of customs duties and taxes with the Bureau of Customs in the Port of Manila on January 4, 1995 (Exh. '6'). "On the question of alleged inadequate payment of customs duty, tax and other charges, this office is convinced that the Bureau of Customs in the Port of Manila based on the legal documents presented to their office assessed and collected the rightful dues on the subject vessel. The Administrator of the Maritime Industry Authority (MARINA) Paciencio M. Balon, Jr., in his letter dated 05 December 1994, authorizing the importation of M/V 'HARUNA', had accepted its acquisition cost of P1,100,000.00, as being reasonable, taking into account the present condition of the vessel in 1994 and the depreciation for wear and tear (Exh. '2'). It is an established practice in the Bureau of Customs that when there is a doubt as to dutiable value of an imported vessel, specifically, USED ONE, or its dutiable value could not be properly ascertained, the Bureau would normally seek the assistance of MARINA because of that agency's special knowledge and expertise in the appraisal of used vessel. . . "The Customs Collector of the Port of Manila accepted the declared value of the vessel at P1,100,000.00 on the basis of this letter authority from MARINA, which was indorsed to that office by the DOF and the Commissioner of Customs thru the Chief Division (Exhs. '3' & '4'), and the assessed duty, tax and other charges due as computed by that office amounted to P149,989.00 which was paid by Oro Maura Shipping per BOC O.R. No. 50245666 dated January 4, 1995 (Exh. '6'). "There's no reason for this office to doubt the assessment made by the Port of Manila on the subject vessel, which in the absence of fraud or protest, which has not been substantially established in this case, becomes final and conclusive upon all parties after the expiration of one year from the date of final payment of duties pursuant to Section 1603 of the Tariff and Customs Code of the Philippines as amended. The Port of Mactan demanded payment of additional duties and taxes from the appellant only last November 5, 1997 (Exh. `K') which is more than one year since the final payment of duties and taxes in the Port of Manila on January 4, 1995 (Exh. '6'). The Port of Mactan has no authority to question this assessment which was made by co-equal body unless there is a proof that the assessment is highly unconscionable and without basis. There is no evidence on record documentary nor testimonial that the assessment made by the Port of Manila on the subject vessel was unconscionable and as a matter of fact, it was based on the authority to import issued by Marina (Exh. '2'), hence, no reason to disturb the same." 9 Against the foregoing backdrop, we find no cogent reason to overturn the challenged decision of the Tax Court. UPON THE VIEW WE TAKE OF THIS CASE, THUS, the petition at bench is hereby DISMISSED. Without costs in this instance. SO ORDERED. Reyes and Tolentino, JJ . , concur. Footnotes 1. Rollo , pp. 52-56. 2. Ibid ., p. 64. 3. Ibid ., p. 36. 4. Fundamentals of Taxation, by Hector S. de Leon, pp. 245-246, 11th Ed., 1993. 5. Ibid ., p. 63. 6. 58 SCRA 519. 7. 217 SCRA 298. 8. Transglobe International, Inc. v. Court of Appeals , 302 SCRA 57; Carrara Marble Phils., Inc. v. Commissioner of Customs , 313 SCRA 453; Commissioner of Customs v. Court of Tax Appeals , 328 SCRA 822. 9. Ibid ., pp. 83-86.