CTA Case No. 29 (Decision)

____. .. REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS MANILA EST ANISLAO LEU'l'Eh.IO , C. 'I' . /$ ,. 0 SE NO . 29 Petitioner , - versus - THE 001\'TI'iiiSSIONBR OF CUSTDr!JS , Respondent . x- - - - - - - - - - - - - - -x DHCISI OfJ On u~ust 7 , 1954, 792 crates of onions arrived at the port of I.tanila , from Kobe, Japan, on board the S .s . "Yamah.aru JJ~arun unde~ Import Entry No . 63655 and consi~ned to Estanislao Leuterio, the petitioner in this case . There is no dispute � between the parties that this iijportation from Japan i nvolves no dollar r emittance . (Par . 3 of Petition for heview , and par. 1 of nsvve r) . 'I'he cargo has a manifest value of :&950 . 40 and the Bur <"au of Customs app rais ed the said importation at ~2,944 . 96 or P5 , g89 . 92 for v~hich the petitioner paid the sum of 1 , 159 . 51 as cust oms dutias and sales tax . The shipment of 792 crate s of onions was found not covered by a bank r elease certificate as r equired by paragraph 14 of Central Bank Circular No . 44, and v~as therefore seized by the customs officials as property subject to forfeiture under cus- toms laws. Subse quently , the Acting� Collector of Cudoms for the Port of' f>~anila instituted seizure and forfeiture proceedings a p-ainst the 792 crates of onions for viola�t.ion of Central Bank Circular Nos . 44 and 45 in r elation to section 1363 (f) of the � Revised Administrative Code , and also for violation of Executive Order No . 328 .

DECLSION - C.T. A. CASS NO . 29 - 2- On ugust 12, 1954, the petitioner r equested for the release of the said 792 crates of onions upon the presenta- tion of a surety bond under the provisions of sections 1374 and 1377 of the Revised Administrative Code, but the Acting Collector of Customs denied the said request in vie�w of the instructions of the Office of the President to the effect that onions illegally imported shall only be r eleased throu~h re- demption undl3r section 1388 of the Revised Administrative Code after the importation has been declared forfeited in favor of the government through seizure proceedings . In viev; of the denial of the request of the petitioner to release the shipment under bond, and due to the perishable nature of the onions , the petitioner , on u~ust 27 , 1954, the date set for the hearing of the forfeiture proceedings, tendered payment under protest of the redemption price of the said ~oods under section 1388 of the Revised Administrative Code . On August 28 , 1954, the Acting Collector of Customs , after due hearin~ , declared forfeited in favor of the Republic of the Philippine s , the 792 crates of onions . On the same date , the .. petitioner paid under protest the amount of 'P'32, 579 . 49 under Of- ficial Receipt No . 49752 as redemption price and the 792 crates of onions were forthwith surrendered to the petitioner. On September 6, 1954, the petitioner appealed the decision of the Acting Collector of Customs to the Commissioner of Cus- toms who held that since the 792 crates of onions were not duly provided �with the requisite banlc release certificate , their im- portation was effected in violation of para~raph 14 of Central Bank Circular No . 44 which provides : ...

DECISION - O. T. A. CASE NO . 29 - 3- u14. No item of import shall be releas ed by the Bureau of Customs without the presentation of a release certificate issued by the Central Bank or any Authorized Bank in a form prescribed by the Monetary Board . u The respondent Commissioner of Cu stoms therefore affirmed the decree of forfeiture on the above-mentioned ground , and his decision is now the subject of the present petition for review . As stated by counsel for the respondent, the issues in this case could be narrowed into two . ;rhey are: (l) Has the Cen�~ra1 Bank of the Philippines , by virtue of Circular Nos . 44 and 45, the power to regulate imports which do not involve the sale of foreign exchange?; and (2) What is the proper and legal redemption price of the 792 crates of onions? Now , what are these Central Bank Circular Nos . 44 and 45? Central Bank Circular No . 44 (49 O. G. , No . 6, P � 2189) is entitled the "Guiding Principles Governing the Licensing of ll'oreign Exchange for the Payment of' Imports . " It was promul- gated on June 18, 1953 by the Monetary Board of the Central Ban.k of the Philippines pursuant to section 1 of Central Bank Circu- lar No . 20 , (47 O. G., No . 11, P � 5567) dated December 9 , 1949 . Central Bank Circular No . 20 is known as the ttRestrictions on Gold and lt"'oreign Exchange Transactionstt which was issued by the Monetary Board of the Central Bank of the Philippines pursuant _ to the provisions of Republic Act No . 265 (Central Bank Act). Central Bank Circular No . 45 (49 O . G~No . 6 , p . 2191) dated June 25 , 1953, requires any person or entity tho intends to import or receive goods from any foreign country for which no foreign exchange is required or v~iJ.J. be required of the �

DECISION - C . 'l' . A. CASE; NO .. zj- - 4- banks , to apply for license from the l'iionetary Board to autho- rize such imports . This circular i'Uas also issued by the Mone- tary Board of the Central Bank of the Philippines pursuant to Cen�tral Bank 0ircular No . 20 and other circulars and notifica- tions issued in pursuance thereto . 'l'he petitioner maintains that Republic Act No . 650 expired on July 1, 1953 by its own limitations and therefore cannot be the legal basis for the Central Bank of the Philippines to con- trol imports , and that even the most liberal interpretation and construction of Republic Act No . 265 will not show that the said law authorizes the Central Bank of the Philippines to control imports involving no dollar remittance and to order the forfeiture of merchandise imported without a bank release certificate as in the case at bar . On the other hand , the respondent , in his ansv~er to the petition for review , contends that Republic Act No . 650 autho- rizes the Ct.mtral Bank of the Philippines to control the impor- tation of commodities into the Philippines , and that Central Bank Circular Nos . 44 and 45 vvere issued pursuant to law, particularly sections 2 (c) , 14, 64 and 66 of Republic Act No . 265 , the Charter of the Central Bank of the Philippines . Later , in his memoran- dum submitted in support of his case , the respondent cited sec- tion 74 of Republic set No . 2~5 , as the fundamental source of the a.uthority of the Central Bank of the Philippines to regulate and control importations for which no foreign exchange is required as in the instant case. We agree with the petitioner . 'fhe claim of the respondent that Republic Act No . 650 , otherv-vise knovvn as "lm Act to Regulate

DECISION - C .'r . ll. . C ,~:E NO . 29 - 5- Imports and for Other Purposes , 11 authorizes the Central Bank of the Philippines to control imports deserves no merit . Sec- tion 21 of the said Republic "'ct No . 650 provides: ttSec . 21 . This Act shall take effect until June 30 , 1953 , unless sooner repealed or amended b~{ Coniji;ress . n It is very clear therefore that Republi c Act No . 650 ceased to be effective ~ J2.!:0Pio vir:ore on J�uly 1 , 1953 , and cannot be the ultimate source of leGal authority of the Central Bank of the hilippines to regulate the importation of commo- di ties into the Phil~ppines . The contention of the respondent that Central Bank Cir- cular Nos . 4L~ and 45 were issued pursuant to Republic ct No . 265 in order to govern importations which do not involve the sale of forei('n exchange is likewise untenable . 'i'le have care- fully s crutinized each and every provision of th6 Central Bank ct, v1i.th parti.cular emphasis on the sections cited hy the respondent , and v<Je are fully convinced that under its Charter , the Central Jank of the Philippines has no power or authority to issue re~ulations governing imports which do not involve the sale of foreign exchange . 1ti.e have also examined thE' explanatory note of House Bill No . 1704 (nov<J Lepublic Act No . 265) and the Congressional EErcord of the IIousfl of '.presentative's (Vol. II: , Los . 45 to 55) on the discussion of the Charter of the Central Bank of the Phil- ippines, and we have found that there vJas not the sli":htest intE:.ntion on the part of the Congress of the Philippines to authorize the Central Bank of the hilippincs to issue re:;;ulu., tions governin&; imports which do not require forei~n t>xchan~e .

DECISION - C. T . li . CAS� ]0 . Z9 - 6- In fact , 11 in normal times , the Dank ( Central Bank of the Phil- ippines) will merel~r keep i tsl:'!li' informed of' exchant;e opera- t ions of banks , maintain an orderly exchange market , and ensure that the banks do not sp;;culate in forei gn exchange � 11 (Expla- natory ITote of Ho11.se 13ill No . 1704, now "S.epub'ic bOt J�o . 2&5 . ) Furthermore , we take judicial notice oi' the fact that on February 4, 1955 , Con~rcssmen Celestino G. Juan , JoQquin R. Roces , Emilio P . Cortez, Floro S . Crisologo , Erasmo R. Cruz , Samuel l" . Reyes and Isidro G. Kintanar , conscious of' the lack of' autB.ority on the part of the Central Dank o:� the .fhilippines to issue regulations gove:;:'ning imports �which do not involve the sale of fore it;n exchange, filed 1-Iouse ~ill 1w . 2899 , ,.. nti tled 11 An ct uthorizin~ The Central Bank of the hilippines to Issue :;legulations Governi::-1�.: Imports �, hich Do 1wt Involve '.L'he S.ale of' :foreiG,n Exchant;e , and Providint.; Penalliies l~'or Viola- tions of Such Re~ulations , by ~mendinfi: S0ction 74 of H.epub1ic ct Nu . 265 . n On l"ebruary 21 , 1955 , the Committee on Commerce and Industry of the House of l~epresentatives , reported House Bill i~o . 2839 to the Honse with j:.he r acommandationn that the said bill be approved 'IJIJi thout any runendment . (1-Ious e Committee Rep ort No . 1050 . ) s stated in its explanatory note , the bill pr opose s t o authorize the Central Bank of the Philippines to regulat e imports VJhich do not involve the sale of forai~;n exchange be - cause imports fo r vJhich no fore i gn exchan~e is required or will be rflquired are in practice f r equently paid for through the blackmarket , and the import of goods paid throu~h the bla ck- market is an (Vas i on of' the payment of the special excise tax J

DECISION - � C. T. A. Ci!SE NO . 29 - 7- on forei~n . exchanr;,;e provided for in Republic ct Ho . 6,01 , as amended . The r e spondent Commissioner of Cu stoms, in his lon&; and exhaustive memorandum vJhich v1as submitted to support his stand that the Central Bank of the Philippines has the power to regulate the importation in que::;tion, relied solely and en- tirely on section 74 of Republic Act No . 265, �which provides: IlSee -. 74 . Emergency restrictions on exchange operations . --Hotwithstanding the provisions of the third paracraph of the precedii1_g s e ction , in order to protect the intt:ornational reserve of the Central Bank durinli: an exchange crisis and to give the Monetary Board and the Government time in wpich to take constructive measures to combat such a crisis , the Iv,onetary Board, �with the concurrence of at least five of its members , and V'ith the approval of the Pr.ssident of the Philippines, may temporarily suspend or restrict sales of exchange by the Central Bank and may subject all transactions in gold and forei gn exchange to license by the Central !:lank . 'l'he adoption of the mergency measures authorized in thi�s section shall be subject to any executive and international agreements to which the Republic of the Philippines is a party �11 This is the same section v'lhich is sought to be amended by House Bill No . 2889 , in order to give the Central Bank of the Philip- pines , the povJer or authority which the r e sp ordent Commissioner� of Cu2toms argues the said Ce.ntral Bank is alraady in possession . To our mind , the filing of House Bill No . 2889 by responsible and distinguished members of the Congress of the Philippines , and its subsequent consideration and ~ubmission by the Committee on Commerce and Ir:dustry to the House of Representatives with the - recommendation that the said bill be approved �without any amend- ment is a ~ood index that the contention of the respondent has no support in law .

DECISION - C.T . A. C&E'�. NO . 29 - 8- It is our considered opinion that the Central Bank of the Phil ippines , has no power to issue Central Bank Circular Nos . 44 and �45 in order to rer;ulate imports vJhich do not in- volve the sale of forei gn exchan,e , and vJe , therefore , de clare the said circulars as without force and effect insofar as it ii OVern imports for vJhi ch no forei i;n exchan&;e is required or will be required . Considerin" the view we have taken on the first issue of the controversy, it be comes unnecessary for us to decide the second issue . However�, in order to settle once and for all this lecal question as to what is the proper and legal r edemp- tion price in case of r6demption of forfeited p�roperty under section 1388 of the Revised .u.dministrative Code , as amended , we quote hereunder a pertinent portion of our Resolution of September 28, 1954 in C.'f . i> . Case No . 7, entitled "Soria Trading vs . Commissioner of Cus toms 11 : "The only question at issue in the present motion , therefore , is vJhether th~ phrase 11appraised value" as used in section 1388 of the Revised dministrative Code , is intended to mean the i_nyoice value of the seized articles or the ~tual locgl market value , for the purpose of fixin~ the redemption price which the petitioner should pay if it desires to obtain the re- lease of its ~oods pending the final outcome of its appeal . "We hold that the redemption price that should be paid by petitioner is the present local market value of the seized articles which is P8 , 226 . 00 and not its invoice value of 4, 238 . 70 . The latter amount was assessed by the Collec,tor of Customs of 1\ianila only for tax purposes and not as a basis for rdemption. 11 X X X X X 1~\ioreover , if we are to adopt the theory of peti- tioner ' s counsel to the effect that the r edemption price should be the invoice value of the seized arti- cles and not its actual market value , the dan5:er of

DECISION - C. T . A. CASE NO . 29 - 9- imported articles being subjected to seizure and forfeiture for violation of section 1363 of the Re- vised Administrative Code would no longer serve as an effective deterrent to unscrupulous importers . ttempts to defraud the Government of l~wful duties and taxes through misdeclaration , undervaluation, false declarations and other fraudulent devices to evade payment of customs duties and taxes would certainly increase a hru1dred fold . Unscrupulous importers would take gr eater risks knowing fully well that if their fraudulent device is discovered by the Bureau of Customs , all they have to do to obtain the r elease of their importations is to pay its invoice value and then sell the goods in the open market most probably still �with a margin of profit although not as much had the fraud not been detected . As a matter of fact , even if the importer �were to sell the seized goods at a little less than double its invoice value, he would still r edeem the articles at its invoice value to reduce his losses ." Therefore , in the case at bar, if the importation in ques- tion was validly and le~ally forfeited in favor of the Govern- ment , the proper redemption price would be 32, 579 .49, itE ll.�.:!~13�\1 loeaL!J!.1a!ket value and not its invoice value or ap- praised value for tax purposes in the amount of 5, 889 .92 as contended by counsel for the petitioner . IN VIEW 01" THB FOHEGOTI\G , the r esp ondent Commissioner of Customs is hereby ordered to refund to the petitioner the sum of �'32, 579 . 49 representing the r edemp tion price of the 792 crates of onions , and is hereby further ordered to r ef rain from en- forcing Central Bank Circular Nos . 44 and 45 insofar as it re- gulates imports '~hich do not� involve the sale of foreign exchan~e . Let a copy of this decision be sent to the Central Bank of the Philippines for its information and iuidance . Vii thout pro- nouncement as to costs . Manila , ipril 18, 1955 .