THIRD DIVISION
[G.R. No. 215051. September 30, 2020.]
7107 ISLANDS SHIPPING CORPORATION, petitioner, vs.SECRETARY OF FINANCE, respondent.
NOTICE
Sirs/Mesdames :
Please take notice that the Court, Third Division, issued a Resolution dated September 30, 2020, which reads as follows: CAIHTE
"G.R. No. 215051 (7107 Islands Shipping Corporation v. Secretary of Finance). — This Petition for Review on Certiorari1 under Rule 45 assails the Decision 2 dated April 1, 2014 of the Court of Tax Appeals (CTA) En Banc in C.T.A. EB Case No. 912, which affirmed the Decision 3 dated March 6, 2012 of the CTA Second Division finding without merit the petition filed by 7107 Islands Shipping Corporation assailing the order of the Secretary of Finance for the forfeiture of M/V Coco Explorer 2 also known as the 7107 Islands Cruise.
Facts of the Case
In a Letter 4 dated August 31, 2007, Consuelo Pausanos, the country representative of C&C Marine A/S Denmark informed the District Collector of the Port of Batangas that Panamanian vessel owned by it, M/V Coco Explorer 2 (the Vessel), would arrive on September 4, 2007 and would stay the Port of Batangas for minor repairs. 5
On September 4, 2007, the vessel arrived at the Port of Batangas from Thailand as evidenced by the Oath on Entering Vessel from Foreign Port 6 executed by the ship captain. On September 24, 2007, C&C Marine A/S entered into a Memorandum of Agreement 7 for the sale of the vessel with Esteban Tajanlangit (Tajanlangit), representative of the buyer, 7107 Islands Shipping Corporation (petitioner), for the price of US$1,800,000.00. Petitioner is a corporation still to be formed at the time of the execution of the Memorandum of Agreement. 8
On November 15, 2007, upon petitioner's full payment of the purchase price, a Bill of Sale was executed where C&C Marine A/S conveyed 100% shares in the vessel to petitioner. On November 27, 2007, the vessel secured a Clearance of Vessel to a Foreign Port 9 from Port of Batangas to sail to Mariveles, Bataan for repairs. From Bataan, the vessel was brought to the Port of Manila allegedly for further repairs and upgrading. The vessel arrived at the Port of Manila on December 26, 2007 without any clearance from the Bureau of Customs (BOC). 10
On January 17, 2008, the Chief of Run After the Smugglers (RATS) Group of the Bureau of Customs (BOC) issued a Subpoena Duces Tecum/Ad Testificandum11 served upon petitioner. On January 25, 2008, Tajanlangit, with his counsel and representatives from OROPHIL Shipping International Co., Inc., the company engaged by Tajanlangit to manage and market the vessel as a cruise ship, appeared during the investigation conducted at the RATS office. 12
On February 25, 2008, petitioner secured its Certificate of Incorporation from the Securities and Exchange Commission (SEC). On March 3, 2008, petitioner filed an application for authority to acquire the vessel from the Maritime Industry Authority (MARINA). 13
On March 4, 2008, the District Collector of the Port of Manila issued a Warrant of Seizure and Detention (WSD) for the vessel for having been illegally imported in violation of Section 2530 (f) and (1) (5) of the Tariff and Customs Code of the Philippines (TCCP). The WSD was implemented by the RATS Group on March 6, 2008. 14
On March 19, 2008, petitioner moved for the quashal of the WSD which was granted by the District Collector of the Port of Manila on May 23, 2008. This ruling was affirmed by the Commissioner of Customs on August 21, 2008. 15
On automatic review however, the Secretary of Finance reversed and set aside the ruling of the District Collector of the Port of Manila and ordered the forfeiture of the vessel in his 1st Indorsement dated September 17, 2008. On reconsideration, the Secretary of Finance denied the same. 16
Hence, on July 30, 2009, petitioner appealed the Secretary of Finance's adverse ruling to the CTA in Division. Petitioner also prayed for a Temporary Restraining Order (TRO) and/or preliminary injunction to enjoin the Secretary of Finance from enforcing the forfeiture order. 17 In a Resolution dated November 11, 2009, the CTA in Division denied the prayer for TRO because the seizure of the vessel has already been implemented by the Secretary of Finance. Hence, it has become fait accompli. The CTA in Division also denied the prayer for the release of the vessel pendent lite because of the existence of prima facie fraud. 18
Trial before the CTA in Division ensued. Petitioner alleged before the CTA in Division that the entry of the vessel in the Port of Batangas was for repairs only. Since the vessel is not an item of importation, it should not be subjected to the formalities of customs import clearance. 19 Petitioner also insists that the payment of applicable customs duties and taxes is required only after the approval of its application for Authority to Acquire Vessel through Importation/Outright Purchase by the MARINA. 20
The CTA in Division found the claims of petitioner to be unmeritorious. In its Decision 21 dated March 6, 2012, the CTA in Division denied the Petition for Review filed by petitioner and concluded that the order for forfeiture of the vessel is proper. 22 aScITE
The CTA in Division clarified that there was importation in contemplation of the law when the vessel arrived at the Port of Batangas on September 4, 2007. The CTA in Division emphasized that Section 1202 of the TCCP provides that importation begins when the carrying vessel or aircraft enters the jurisdiction of the Philippines with intention to unload therein. Hence, mere intent to unload is sufficient to commence an importation. 23
The CTA in Division found that there was intent to unload when the vessel entered the Port of Batangas. It was found that notwithstanding the declaration of the captain that the vessel entered the country for purposes of repair, the repairs were not done during the entire time that the vessel was docked in the Port of Batangas. If the intention of C&C Marine A/S was only to dock the vessel in the Port of Batangas for repairs, then the same should have been started. On the contrary, the vessel was sold to Tajanlangit merely 20 days from its arrival to the Philippines. Notably, the vessel sailed to Bataan and then to Manila. It was only when the vessel was in Mariveles, Bataan and already owned by petitioner that repairs were actually done. The CTA in Division also observed that Tajanlangit had inspected the vessel twice before its arrival in the Philippines. Since the vessel entered the Port of Batangas as an imported article to be purchased by petitioner, customs duties and taxes should have been paid. Additionally, the vessel, as an imported article, should have entered through a customhouse at the port of entry. 24
The CTA in Division did not give credence to petitioner's claim that its liability to pay customs duties arises only after its application for registration with the MARINA was approved. The CTA in Division states that importation happens upon entry of dutiable article from foreign port to the Philippines. Therefore, the customs duties and taxes should have been paid at the time of importation. 25
Citing the Tariff and Customs Code of the Philippines (TCCP), the CTA in Division states that any article the importation or exportation of which is effected or attempted contrary to law or any article sought to be imported through any other practice or device contrary to law by means of which such articles were entered through a customhouse to the prejudice of the government, would be subject to forfeiture. Here, since the vessel was imported without passing through a customhouse and without proper documentation and payment of applicable customs duties, taxes and charges, therefore, it was imported contrary to law. 26
The CTA in Division concedes that a foreign vessel may enter the country for repairs and after 20 days become the subject of sale, as this is part of the business decision, however, the series of events that transpired prior to the seizure of the subject vessel show intent on the part of petitioner to deprive the Government taxes due on its importation, to wit: (1) in addition to the fact that the alleged intent to repair was defeated by evidence on hand, it bears stressing that notwithstanding the purchase of the vessel in September 2007, there was no attempt to comply with the legal formalities and regulations of the MARINA and BOC; (2) the filing of an application for an authority to acquire vessel on March 3, 2008 appears only as an afterthought on the part of petitioner as a result of the subpoena issued by the RATS dated January 21, 2008; (3) while petitioner's application for authority to acquire vessel was pending before the MARINA, it registered itself with the Subic Bay Freeport Zone for tax exemption; (4) on February 4, 2009, petitioner finally executed an import entry and internal revenue declaration declaring itself as the importer of the vessel but with a notation, "tax and duty free importation under R.A. No. 7227"; and (5) it was only when petitioner was registered with the Subic Bay Freeport Zone, under the assumption that it is free from taxes, that it decided to declare its importation of the vessel — almost two years from the arrival of the vessel in the country. 27
The CTA in Division was convinced that the aforesaid events would lead a reasonable man to conclude that they were meant to circumvent the requirement of paying duties over imported vessel. 28
Petitioner filed a motion for reconsideration where it contends the vessel's right of innocent passage. However, the same was denied in a Resolution dated June 6, 2012. According to the CTA in Division, the passage of a foreign vessel through the territorial sea is said to be innocent so long as it is not prejudicial to the peace, good order or security of the coastal state. The right of innocent passage cannot be invoked when there is violation of the coastal state's customs laws. 29 DETACa
Aggrieved, petitioner elevated its case to the CTA En Banc. In a Decision 30 dated April 1, 2014, the CTA En Banc affirmed the ruling of the CTA in Division.
The CTA En Banc concurred with the CTA in Division that there was already importation when the vessel entered the Port of Batangas on September 4, 2007. The act of importation commences from the time the carrying vessel or aircraft enters the Philippine territory and the carrying vessel or aircraft unlades or intends to unlade the article or goods in the Philippines in accordance with Section 1202 of the TCCP. Mere intent to unload an article is sufficient to commence an importation. Petitioner's argument that Section 1202 does not apply to vessels is misplaced. 31
Like the CTA in Division, the CTA En Banc is also not convinced that the entry of the vessel in the Philippines on September 4, 2007 was only for the purpose of repair. As established in the record, the repair of the vessel was made while it was anchored in Bataan and not when it first arrived in the Port of Batangas. 32
The CTA En Banc also noticed in paragraph 5 (b) of the Memorandum of Agreement entered into by the parties for the sale of the vessel, that the purpose of the voyage of the vessel to the Philippines from Thailand was to effect its delivery to petitioner, to wit:
5. Notices, Time and place of delivery.
a) x x x
b) The Vessel shall be delivered and taken over safely afloat at a safe and accessible berth or anchorage in the Seller's option at the Port of Batangas, Philippines. 33 (Emphasis removed)
The CTA En Banc observed that the memorandum of agreement merely put into writing the terms and conditions of the sale transaction involving the vessel. The sale was not a spur of the moment decision but has been well-thought of. In fact, Tajanlangit inspected the vessel twice in Thailand in 2006, a year before it arrived in the Philippines. Hence, it is apparent that petitioner planned of importing the vessel but at the same time evaded the payment of duties and taxes pursuant to such importation. 34
The CTA En Banc also concluded that the forfeiture of the vessel is in accordance with the law for having been imported without payment of customs duties and taxes. 35
On reconsideration, 36 the CTA En Banc still denied the motion and additionally discussed that the prayer of petitioner to conduct the public auction of the vessel through open bidding or viva voce cannot be granted because the Rules and Regulations in the Conduct of Public Auction and Negotiated Sale provides that sealed bids shall be submitted in the public auction of seized property. 37
Still aggrieved, petitioner filed this Petition for Review on Certiorari dated December 11, 2014.
Petitioner insists that there was no importation when the vessel first entered Philippine territory on September 4, 2007 because Section 1202 of the TCCP does not apply to vessels. Petitioner believes that Section 1202 only pertains to cargo imported to the country on board a carrying vessel that enters the Philippines with intention to unload the cargo here. 38
Petitioner claims that different set of requirements should be complied in the importation of a vessel, viz.: (1) the buyer of the foreign vessel must apply for an Authority to Import if the vessel is still out of the country or an Authority to Purchase if the vessel is already in the country; (2) once approval has been granted by the MARINA, the buyer is given 90 days to have the sale consummated and a copy of the Deed of Sale or Memorandum of Agreement be submitted to MARINA; (3) MARINA will require the buyer to comply with all documentary requirements for the registration of the vessel; (4) a copy of the Approved Authority to Import/Purchase by MARINA is forwarded to the BOC for it to be aware that a vessel has been authorized to be imported and that the BOC shall issue a clearance; (5) a Certificate of Ownership and Certificate of Vessel Registry will be issued by the MARINA after all the documents have been complied and submitted to MARINA. 39
Petitioner insists that the vessel upon entry to the Philippines did not require the filing of an Import Entry Declaration or payment of taxes and duties because the vessel was engaged in foreign trade and not an item of importation subject to the imposition of duties and taxes. 40
Petitioner also asserts that the vessel entered the Philippine territory only in order for repairs to be made on it. 41 Petitioner denies that it has agreed for the purchase of the vessel long before its arrival in the Port of Batangas. The truth of the matter, according to petitioner is that, it decided to purchase the vessel only after its arrival in the Philippines because the original owner thereof offered it at a much lower price than before. 42
Petitioner maintains that the CTA's circumstantial findings of fraud are not supported by substantial evidence on record. 43 Petitioner's contention that it was not yet liable for customs duties and taxes at the time the vessel entered the Philippine ports is based on the rules issued by the MARINA. According to petitioner, the vessel only becomes subject of taxes and duties after MARINA declares it to be seaworthy and approves its importation. 44 HEITAD
In its Comment 45 dated May 29, 2015, the Secretary of Finance through the Office of the Solicitor General (OSG) defends the decision of the CTA in stating that there was fraudulent importation of the subject vessel. The OSG asserts that the totality of circumstances surrounding the case indubitably show that in order to evade compliance with importation laws and payment of appropriate taxes, petitioner tried to make it appear as if the entry of the vessel into the Philippines was only for repair and that there was no previous agreement as regards the purchase when in truth, even before the vessel came to the country, there was already an agreement for its purchase. 46
The OSG also states that the vessel docked in the Port of Batangas without an import entry but only an oath by the ship captain declaring that the vessel entered the country only for repairs. However, the falsity of the declaration is clear because the Ports of Call of the ship captain shows that the purpose of the voyage to the Philippines was for delivery. This is further bolstered by the terms of the memorandum of agreement that the vessel shall be delivered upon its arrival in the Philippines. 47
The OSG does not subscribe to petitioner's claim that the payment of customs taxes and duties shall accrue only upon MARINA's grant of an authority to import. The determination of when importation begins and when it ends as well as the determination of when a vessel is liable for customs duties are not within the mandate and powers of MARINA but the BOC. 48
Lastly, the OSG states that the prayer of petitioner for the release of the vessel is rendered moot with the approval of the CTA En Banc of the Secretary of Finance's motion to sell the vessel through public auction. 49
Petitioner filed its Reply 50 dated April 8, 2016 reiterating its arguments set forth in the petition.
Ruling of the Court
After a perusal of the records of the case, this Court resolves to deny the Petition for Review on Certiorari for failure of petitioner to show that the CTA in Division and En Banc committed a reversible error in affirming the order of forfeiture of the vessel issued by the Secretary of Finance.
Section 1202 of the TCCP, the law in effect at the time the events of this case transpired, describes when importation begins and when it ends, as follows:
Section 1202. When Importation Begins and Deemed Terminated. — Importation begins when the carrying vessel or aircraft enters the jurisdiction of the Philippines with intention to unlade therein. Importation is deemed terminated upon payment of duties, taxes and other charges due upon the articles, or secured to be paid, at a port of entry and the legal permit for withdrawal shall have been granted, or in case said articles are free of duties, taxes and other charges, until they have legally left the jurisdiction of the customs. (Emphasis supplied)
As stated by the CTA, mere intent to unload in the Philippines consummates importation. 51 Intent is a state of mind. Hence, in order to determine whether there was intent on the part of petitioner to import the vessel when it arrived in the Philippines on September 4, 2007, there is a need to examine the acts of petitioner before, during, and after the arrival of the vessel in the Port of Batangas.
Petitioner claims that the vessel docked in the Port of Batangas on September 4, 2007 only for purposes of repair. 52 However, it is established that it was only in Mariveles, Bataan and only when the vessel was already owned by petitioner that repairs commenced. 53 If it were true that the vessel merely entered the territory of the Philippines for repairs, then repairs should have been undertaken as soon as the vessel arrived in the Port of Batangas.
This inconsistency, coupled with the fact — which even petitioner admits — that Tajanlangit already inspected the vessel in Thailand one year prior to its arrival in the Philippines in order to facilitate its purchase, 54 militates against the claim that the Philippines is not the final destination of the vessel. As observed by the CTA in Division and En Banc, petitioner only filed an application for authority to acquire the vessel on March 3, 2008 or six months from the arrival of the vessel in the Port of Batangas. 55 It was only on February 4, 2009 or almost two years from the arrival of the vessel that petitioner executed an Import Entry and Internal Revenue Declaration with a notation that it was a tax and duty free importation. 56
Verily, these actions taken by petitioner point to the conclusion that they were meant to circumvent the requirement of paying duties over the imported vessel at the time of its importation on September 4, 2007. Petitioner made it appear as if the entry of the vessel was only for repair when in truth and in fact, there was already an agreement for its purchase, and its arrival in the Philippines was already for its delivery.
The argument of petitioner that the payment of import duties shall be made only after the MARINA granted them an authority to import 57 is specious. Section 100 of the TCCP 58 is clear that all articles when imported from the foreign country into the Philippines shall be subject to duty upon each importation. The liability to pay customs duties at the time of importation is required by the TCCP itself which is being implemented by the BOC and not under the regulatory power of the MARINA.
We agree with the CTA in Division and En Banc that the forfeiture of the vessel is proper because fraud attended its importation in the country. As established, petitioner failed to pay the required customs duties and taxes at the time of the importation of the vessel on September 4, 2007. Fraud as a state of mind need not be proved by direct evidence but may be inferred from the circumstances and actions of petitioner.
Lastly, the CTA En Banc already granted the motion of the Secretary of Finance to sell the vessel through public auction. 59 Petitioner did not object thereto but only prayed that the auction be done through open bidding. This was thumbed down by the CTA En Banc in its Resolution dated October 28, 2015 for being violative of the Rules and Regulations in the Conduct of Public Auction and Negotiated Sale. By virtue of this, petitioner can no longer pray for the release of the vessel to it as this has become moot upon grant of the motion for the sale of the vessel through public auction.
WHEREFORE, the Petition for Review on Certiorari is DENIED. The Decision dated April 1, 2014 and the Resolution dated October 3, 2014 of the Court of Tax Appeals in C.T.A. EB Case No. 912 are AFFIRMED. ATICcS
SO ORDERED."
By authority of the Court:
(SGD.) MISAEL DOMINGO C. BATTUNG IIIDivision Clerk of Court
Footnotes
1.Rollo, pp. 50-93.
2. Penned by Associate Justice Esperanza R. Fabon-Victorino, with the concurrence of Presiding Justice Ramon G. Del Rosario and Associate Justices Juanito C. Castañeda, Jr., Erlinda P. Uy, Caesar A. Casanova, Cielito N. Mindaro-Grulla, Amelia R. Cotangco-Manalastas, and Ma. Belen M. Ringpis-Liban; id. at 100-125.
3. Penned by Associate Justice Juanito Castañeda, Jr., with the concurrence of Associate Justices Caesar A. Casanova and Cielito N. Mindaro-Grulla; id. at 240-256.
4.Id. at 415.
5.Id. at 8.
6.Id. at 136.
7.Id. at 137-144.
8.Id. at 8.
9.Id. at 145.
10.Id. at 8-9.
11.Id. at 149.
12.Id. at 9.
13.Id.
14.Id.
15.Id. at 10.
16.Id.
17. Petition for Review; id. at 219-220.
18.Id. at 10-11.
19.Id. at 225-226.
20.Id. at 224-225.
21.Supra note 3.
22.Rollo, p. 256.
23.Id. at 247.
24.Id. at 247-248.
25.Id. at 249-250.
26.Id. at 250-252.
27.Id. at 253-255.
28.Id. at 255.
29.Id. at 121-124.
30.Supra note 2.
31.Rollo, pp. 114-120.
32.Id. at 118-119.
33.Id. at 119.
34.Id. at 119-120.
35.Id. at 121.
36. Motion for Reconsideration with Motion to Set for Hearing; id. at 284-305.
37. Resolution dated October 3, 2014. Penned by Esperanza R. Fabon-Victorino, with the concurrence of Presiding Justice Roman G. Del Rosario and Associate Justices Juanito C. Castañeda, Jr., Lovell R. Bautista, Caesar A. Casanova, Cielito N. Mindaro-Grulla and Amelia R. Cotangco-Manalastas; id. at 33-35.
38.Id. at 63.
39.Id. at 64-65.
40.Id. at 69.
41.Id. at 71.
42.Id. at 72.
43.Id. at 77.
44.Id. at 85.
45.Id. at 627-658.
46.Id. at 641.
47.Id. at 644.
48.Id. at 650.
49.Id. at 654-656.
50.Id. at 817-832.
51.Supra note 2 at 115.
52.Rollo, p. 70.
53.Id. at 8-9.
54.Id. at 119-120.
55.Supra note 3 at 254; supra note 2 at 122.
56.Supra note 3 at 254; supra note 2 at 123.
57.Rollo, p. 79.
58. Section 100. Imported Articles Subject to Duty. — All articles, when imported from any foreign country into the Philippines, shall be subject to duty upon each importation, even though previously exported from the Philippines, except as otherwise specifically provided for in this Code in other laws.
59.Supra note 2.