Commissioner of Customs v. Oilink International Corp.

SIXTEENTH DIVISION [CA-G.R. SP No. 68125. September 29, 2003.] COMMISSIONER OF CUSTOMS , petitioner , vs . OILINK INTERNATIONAL CORPORATION , respondent . D E C I S I O N TOLENTINO , A . G . , J p : The instant Petition for Review 1 assails the decision 2 of the Court of Tax Appeals dated July 9, 2001 and its resolution dated November 21, 2001 in CTA Case No. 5918 entitled "Oilink International Corporation vs. Commissioner of Customs." The facts of the case may be chronicled as follows: The petitioner Commissioner of Customs is the head of the Bureau of Customs, a government agency under the Department of Finance, principally tasked with the enforcement of our customs laws. Respondent Oilink International Corporation (OILINK, for brevity) is a corporation duly existing by virtue of the laws of the Philippines with principal office at Mariveles, Bataan. EIASDT On September 15, 1966, Union Refinery Corporation (URC, for brevity) was established pursuant to the Corporation Code of the Philippines. In the course of its business undertakings, particularly within the period of 1991 to 1994, it imported species of oil products to supply the fuel requirements of various companies in the Philippines. On January 11, 1996, the petitioner OILINK was incorporated primarily for the purpose of manufacturing, importing, exporting, buying, selling or otherwise dealing in, at wholesale and retail of petroleum, oil, gas and of any and all refinements and by-products thereof. URC and OILINK have interlocking directors at the time when the latter started its undertaking as a business entity. In applying for and in expediting the transfer of the operator's name for the Customs Bonded Warehouse (CBW) operated by URC, a letter dated January 15, 1996 was sent by Ms. Esther Magleo, then Vice-President and General Manager of URC, manifesting that the URC and OILINK have the same board of directors and that OILINK is 100% owned by URC. 3 On March 4, 1998, District Collector of the Port of Manila Oscar Brillo sent a demand letter to URC's taxes and duties for its oil imports which arrived at the Port of Lucanin, Mariveles, Bataan, sometime between January 6, 1991 and November 7, 1995. 4 On April 16, 1998, District Collector Oscar Brillo sent another demand letter to URC obliging it now to pay the reduced amount of PhP 289,287,486.60 for alleged non-payment of the value added tax, special duties and taxes, and excise taxes for the years 1991-1995. 5 On April 23, 1998, Atty. Gustilo, then counsel for URC, in response to the letter of demand, sought for the landed computations of the tax assessments and challenged the inconsistencies therein. 6 On November 25, 1998, then Customs Commissioner Pedro C. Mendoza sent a demand letter to URC, directing the latter to pay the amount of PhP119,223,541.71 representing URC's Special duty, VAT, and Excise Tax which it failed to pay at the time of the release of its 17 oil shipments which arrived in the Sub-port of Mariveles from January 1, 1991 to September 7, 1995. 7 On December 21, 1998, then Customs Commissioner Mendoza sent another demand letter to URC requiring it to pay deficiency taxes in the reduced amount anew of PhP99,216,580.10. 8 On December 23, 1998, immediately upon his assumption of office, Customs Commissioner Nelson Tan sent another demand letter to URC affirming the assessment of Commissioner Mendoza in the amount of PhP99,216,580.10. 9 On January 18, 1999, Ms. Esther Magleo, then still a member of URC, sent a letter to Commissioner Tan denying the liability and insisted that only PhP28,933,079.20 be paid as a compromise payment. 10 On March 26, 1999, Commissioner Tan wrote URC a letter denying the proposal of Ms. Magleo and directed URC to pay PhP99,216,580.10. 11 On May 24, 1999, URC President, Manuel Co, wrote another letter to the petitioner agreeing to pay the total sum of PhP94,216,580.10 with the initial amount of 28,264,974.00 to be taken from the collectibles of OILINK from the NPC, the remaining balance to be paid in monthly installments for a period of three (3) years with corresponding post-dated checks as security and other available tax credits in the future. 12 On July 2, 1999, Commissioner Tan sent a FINAL LETTER OF DEMAND addressed to URC and OILINK stating that the total liability amounted to 138,060,200.49. 13 On July 8, 1999, Mr. Manuel Co wrote then Customs Commissioner Tan requesting for complete findings of facts and law in support of the assessment contained in the July 2, 1999. 14 Likewise on the same date, OILINK sent a letter protesting the assessment not being the proper party liable for the assessed deficiency taxes. cISDHE On July 12, 1999, after receiving the July 8, 1999 letter of Mr. Manuel Co, then Customs Commissioner Tan wrote the former a letter with a detailed computation as to how the amount of tax liability was arrived at. The Commissioner likewise stressed that the Bureau of Customs would not issue any clearance to OILINK unless the demanded amount of PhP138,060,200.49 representing the latter's tax liability be first paid and a performance bond be posted by URC/OILINK to secure payment of any adjustment that may result from the BIR review on VAT, excise tax, special duties, penalties, etc. Marking the petitioner's July 2, 1999 and July 12, 1999 letter to be FINAL, the respondent, on July 30, 1999, pursuant to Section 2402 of the Tariff and Customs Code (TCCP), as amended, and Section 7 of R.A. 1125 otherwise known as "An Act Creating the Court of Tax Appeals", instituted an appeal to the Court of Tax Appeals and the same was docketed as CTA Case No. 5918. The action sought to nullify, for having been issued without authority and with grave abuse of discretion tantamount to lack of jurisdiction, the shifting of the tax imposition from URC to the respondent OILINK. On July 9, 2001, the CTA rendered the assailed decision declaring as null and void the assessment of the petitioner, the decretal portion of which reads: "IN THE LIGHT OF ALL THE FOREGOING, the petition is hereby GRANTED. The assailed assessment issued by the Respondent against herein Petitioner OILINK INTERNATIONAL CORPORATION is hereby declared NULL and VOID. SO ORDERED. " 15 Aggrieved by the aforesaid findings of the CTA, the petitioner seasonably filed a motion for reconsideration. Consequently, in a resolution issued on November 21, 2001, the CTA denied the motion for lack of merit. Hence, this instant petition which hinges on the asseverations that: I THE COURT OF TAX APPEALS GRAVELY ERRED IN HOLDING THAT IT HAS JURISDICTION OVER THE SUBJECT MATTER OF THE INSTANT PETITION. II THE COURT OF TAX APPEALS GRAVELY ERRED IN HOLDING THAT THE INSTANT PETITION STATES A CAUSE OF ACTION. III THE COURT OF TAX APPEALS GRAVELY ERRED IN HOLDING THAT PETITIONER CANNOT LAWFULLY PIERCE THE VEIL OF CORPORATE FICTION IN THE CASE AT BAR. The petitioner maintains that the Court of Tax Appeals has no jurisdiction over the case at bar. In support thereof, the petitioner cited the provisions of Section 7 of R.A. 1125 , as amended, the pertinent portion of which is quoted as follows: "Sec. 7. Jurisdiction. xxx xxx xxx (2) Decisions of the Commissioner of Customs involving liability of customs duties, fees or other money charges; seizure, detention or release of property affected; fines, forfeitures or other penalties imposed in relation thereto; or other matters arising under the customs law or other law or part of law administered by the Bureau of Customs." The aforecited provision, however, according to the petitioner, must be read in conjunction with Section 2402 of the Tariff and Customs of the Philippines which explicitly provides: "Section 2402 Review by the Court of Tax Appeals. The party aggrieved by a ruling of the Commissioner in any matter brought before him upon protest, or by his action or ruling in case of seizure may appeal to the Court of Tax Appeals, in the manner and within the period prescribed by law and regulation." Based on the foregoing pertinent provisions of law, the petitioner submits that the final demand letter dated July 2, 1999 of then Customs Commissioner Tan is not a "ruling" or "decision" being contemplated by either Section 2402, Tariff Code, or Sec. 7(2), R.A. 1125 considering that the demand by the petitioner for the payment of the tax deficiency or liability of URC/OILINK did not arise from or is not related to any protest or seizure proceedings duly filed with and decided by the proper Collector of Customs. The petitioner invokes as authority the Supreme Court's ruling in Acting Collector of Customs vs. Court of Tax Appeals , 16 thus: CDEaAI "When the case does not involve disputed assessment or payment of duties and taxes, subject of detention or seizure proceedings in the Bureau of Customs, the same does not come within the appellate jurisdiction of the Court of Tax Appeals." The contention of the petitioner fails to persuade. We resolve the instant controversy in the light of the High Court's pronouncement in Commissioner of Internal Revenue vs. Isabela Cultural Corporation , 17 where it was held thus: "Lastly, jurisprudence dictates that a final demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment. In Commissioner of Internal Revenue vs. Ayala Securities Corporation , 18 this Court held: "The letter of February 18, 1963 (Exh. G), in the view of the Court, is tantamount to a denial of the reconsideration or protest of the respondent corporation on the assessment made by the petitioner, considering that the letter is in itself a reiteration of the demand by the Bureau of Internal Revenue for the settlement of the assessment already made, and for the immediate payment of the sum of P758,687.04 in spite of the vehement protest of the respondent corporation on April 21, 1961. This certainly is a clear indication of the firm stand of petitioner against the reconsideration of the disputed assessment, in view of the continued refusal of the respondent corporation to execute the waiver of the period of limitation upon the assessment in question. This being so, the said letter amounts to a decision on a disputed assessment and, therefore, the court a quo did not err in taking cognizance of this case." Moreover, our jurisprudence is replete with cases that shed light on the jurisdiction of the Court of Tax Appeals. In Ollada vs. Court of Tax Appeals , the High Court illuminated thus: "Note that the law gives the Court of Tax Appeals exclusive appellate jurisdiction to review the decisions of the Collector of Internal Revenue, the Commissioner of Customs, and the provincial or city Boards of Assessment Appeals. Note also that in defining the cases that may be reviewed the law begins by enumerating them and then adds a general clause pertaining to other matters that may arise under the National Internal Revenue Code, the Customs Law and Assessment Law. This shows that the "other matters" that may come under the general clause should be of the same nature as those that have preceded them applying the rule of construction known as ejusdem generis . In other words, in order that a matter may come under the general clause, it is necessary that it belongs to the same kind or class therein specifically enumerated. Otherwise, it should be deemed foreign or extraneous and is not included." By the same token, the Supreme Court made a similar ratiocination in the case of Acting Collector of Customs vs. Court of Tax Appeals , which is also cited by the petitioner. It was held thus: "It will be noted that final sentence "or other matters arising under the Customs Law or other law or part of law administered by the Bureau of Customs" comes after an enumeration of the class of cases cognizable by the Court of Tax of Appeals, namely, those involving liability for customs duties, fees or other money charges, and by the doctrine of ejusdem generis , in order that the "other matters arising under the Bureau of Customs" "may come within the jurisdiction of the Court, they should involve also liability for payment of money to the Government." Notably, the Supreme Court, in the cases abovecited, ruled that the Court of Tax Appeals did not have jurisdiction considering that the cases do not involve liability for customs duties, fees or other money charges. Conversely, following the same line of reasoning, the case at bar is very much within the purview of the jurisdiction of the Court of Tax Appeals since it is undisputed that what is involved herein is the respondent's liability for payment of money to the Government as evidenced by the demand letters sent by the petitioner. Hence, the Court of Tax Appeals did not err in taking cognizance of the petition for review filed by the respondent. The petitioner likewise insists that for failure of the respondent to allege certain jurisdictional facts in the petition for review will render it dismissable for lack of cause of action. SAHITC We find the petitioner's submission untenable. The principle of non-exhaustion of administrative remedy is not an iron-clad rule for there are instances that immediate resort to judicial action may be proper. Verily, a cursory examination of the factual milieu of the instant case indeed reveals that exhaustion of administrative remedy would be unavailing because it was the Commissioner of Customs himself who was demanding from the respondent payment of tax liability. In addition, it may be recalled that a crucial issue in the petition for review filed by the respondent before the CTA is whether or not the doctrine of piercing the veil of corporate fiction validly applies. Indubitably, this is purely a question of law where judicial recourse may certainly be resorted to. This brings to fore the principal question as to whether or not the petitioner may lawfully pierce the veil of corporate fiction of the respondent OILINK thereby treating it as a mere alter ego of URC. We rule in the negative. To begin with, in this jurisdiction, "we have held that the doctrine of piercing the veil is an equitable doctrine developed to address situations where the separate corporate personality of a corporation is abused or used for wrongful purposes. The doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation." 19 Similarly, in Philippine National Bank vs. Ritratto Group Inc., 20 the High Court had laid the test in determining the applicability of the doctrine of piercing the veil of corporate fiction, to wit: 1. Control, not mere majority or complete control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; 2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of statutory or other positive legal duty, or dishonest and, unjust act in contravention of plaintiff's legal rights; and 3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. After a painstaking and honest assessment of the records relative to this issue, we agree with the CTA when it found thus: "(I)n the case at bar, the said wrongdoing was not clearly and convincingly established by Respondent. He did not submit any evidence to support his allegations but merely submitted the case for decision based on the pleadings and evidence presented by petitioner. Stated otherwise, should the Respondent sufficiently prove that OILINK was merely set up in order to avoid the payment of taxes or for some other purpose which will defeat public convenience, justify wrong, protect fraud or defend crime, this Court will not hesitate to pierce the veil of corporate fiction by URC and OILINK." Indeed, the petitioner cannot just bank on the URC's January 15, 1996 letter to the Collector of Customs to the effect that the respondent is 100% owned by URC with similar shareholders and directors, in order to disregard the fiction of corporate entity. While it may be true that it was URC which brought the petitioner OILINK into the instant controversy, there is not enough evidence on record to prove that URC treated OILINK and itself as identical corporate entities which would justify the piercing of the corporate identity. "In the absence of proof that the corporation's separate and distinct personality was used as a protective shield for any wrongdoing, the general rule on corporate liability, not the exception, should be applied." 21 Elsewise, "to disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. It cannot be presumed." 22 All told, finding no reversible error committed by the Court of Tax Appeals when it granted the petition for review filed by the herein respondent, we shall not disturb its factual conclusions vis-a-vis the issues presented therein. WHEREFORE, the petition is DISMISSED for lack of merit. Accordingly, the decision and the resolution of the Court of Tax Appeals dated July 9, 2001 and November 21, 2001, respectively, in CTA Case No. 5918 are hereby AFFIRMED. SO ORDERED. Bello, Jr . and Brion , JJ . , concur. Footnotes 1. Rule 43 of the 1997 Rules of Civil Procedure, as amended. 2. Rollo , pp. 4562, Annex "A" of the Petition. 3. Rollo , p. 46, Annex "A" of the Petition, (DECISION of the Court of Tax Appeals in CTA Case No. 5918 promulgated July 9, 2001). 4. Ibid . 5. Id . 6. Ibid , p. 47. 7. Id . 8. Id . 9. Id . 10. Id . 11. Id . 12. Ibid , p. 48. 13. Id . 14. Rollo , p. 22 15. Rollo , p. 62, Annex "A" of the Petition. 16. G. R. No. L-8811 promulgated on October 31, 1957. 17. 361 SCRA 71, (2001). 18. 70 SCRA 204. 19. Umali vs. Court of Appeals , 189 SCRA 529. 20. 362 SCRA 216. 21. Soriano vs. Court of Appeals , 174 SCRA 195. 22. Complex Electronics Employees Association vs. NLRC , 310 SCRA 403.