Corporate Rehabilitation Tax Waiver: CTA Has Exclusive Jurisdiction Over Customs Duty Disputes

The Supreme Court has clarified an important point for companies undergoing corporate rehabilitation: disputes over tax and customs duty waivers under the Financial Rehabilitation and Insolvency Act (FRIA) must be brought before the Court of Tax Appeals (CTA), not regular trial courts. The ruling in Steel Corporation of the Philippines v. Bureau of Customs (G.R. No. 220502, February 12, 2018) reinforces the CTA's exclusive jurisdiction over all tax-related matters and serves as a reminder that procedural rules are applied liberally to serve substantial justice.

The Case Background

Steel Corporation of the Philippines (STEELCORP) filed for corporate rehabilitation in 2006 before the Regional Trial Court (RTC) of Batangas City. The court issued a Stay Order that suspended all claims against the company. When Republic Act No. 10142 (FRIA) took effect in 2010, STEELCORP sought to avail of Section 19, which waives taxes and fees due to the national government and local government units upon issuance of a Commencement Order.

The Bureau of Customs (BOC) initially approved the waiver of import duties and taxes on STEELCORP's raw material shipments. However, the Department of Finance (DOF) disapproved this recommendation, ruling that the Stay Order was not equivalent to a Commencement Order under FRIA, and that the waiver did not cover post-commencement importations.

The Procedural Dispute

STEELCORP filed a complaint for injunction before the RTC of Balayan, Batangas, seeking to stop the BOC and BIR from collecting taxes and customs duties. The RTC initially issued injunctive relief but later dissolved it, ruling that the case should have been brought before the CTA. The Court of Appeals affirmed this ruling.

The Supreme Court's Ruling

The Supreme Court denied STEELCORP's petition, affirming that the CTA has exclusive appellate jurisdiction over customs and tax disputes. Under Section 7 of Republic Act No. 1125, as amended by Republic Act No. 9282, the CTA has exclusive jurisdiction to review decisions of the Commissioner of Customs involving liability for customs duties, and decisions of the Secretary of Finance on customs cases elevated for automatic review.

The Court emphasized that jurisdiction over the subject matter is conferred only by law and cannot be waived or conferred by the consent of the parties. Since STEELCORP's claim fundamentally involved the validity of tax and customs duty assessments, the proper remedy was an appeal to the CTA, not an injunction suit before the RTC.

Liberal Application of Procedural Rules

On the procedural issue, the Court applied the principle of substantial compliance. While the government's motions had technical defects in their notices of hearing—one was set on Good Friday, another beyond the ten-day period—the Court ruled these were cured because STEELCORP was given ample opportunity to oppose them. The Court cited Section 6, Rule 1 of the Rules of Court, which mandates liberal construction of procedural rules to secure a just, speedy, and inexpensive disposition of cases.

Practical Takeaways

• Companies undergoing corporate rehabilitation should note that the tax waiver under Section 19 of FRIA does not automatically shield them from customs duty assessments; disputes over such waivers are tax matters within the CTA's exclusive jurisdiction.
• When contesting tax or customs assessments, follow the proper appellate route under the National Internal Revenue Code and the Tariff and Customs Code—do not file injunction suits before regular courts.
• The CTA has the authority to issue injunctive writs to restrain tax collection, including the power to dispense with bond requirements in appropriate cases.
• Minor procedural defects in motions may be excused if the adverse party had a meaningful opportunity to be heard; courts favor substantial justice over technicalities.
• Jurisdiction cannot be conferred by agreement or estoppel; always verify the proper forum before filing an action.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.