CTA Case No. 3869 (Decision)

COURT OF TAX APP E ALS DUE:ZON C: X T V CALTEX <PHILI PPI NES}, INC. , Petit i. oner , - - ver~Jus C.T.A. CASE NO. 3869 COMMISSIONER OF CUSTOMS, Re 5pon dent. - - - - - - - - - - - )(- ~� �- )( DE C I D 1'.1 l;hP. dec i si on of t h e Commi s s i oner o f Customr; dat e d Octobe r~ 23 , 1 984, wh i c h a ff it~med th at of the Col l ector of Custo111s dated De cembe r 19, 198:1 d:ismissinq the p t~ o tes t s ccue <S d o c ke t e d as 37 /R ;~ , 41/82, 1 / 83 , 3/83 , 4/8 3 , 5/83 , 6/83, 8 / 8 3 , 10/83, 12 / 83, 13/83, 14/83, 15 /83, 16/83, 1 7 /8 3, 1A / FL3 , 19/83 an d 20 /83 . On or about np ~~ i l i, ~ . 1 48 .~ a s hip ment of crude o i l de s crib e d a s "At��.~h i an L1 qht/Mectium Mix Special and Arabian Heavy " a t~ t~ i ved at t h e Por t of B<:\tangas eK S/S "TEXACO PANAMA " . . It was declared under Ent ry No. 163/83. Th e Bat an gas Custo111s Co 11 ector Afl!!H!t99ed the said s hipment based on actual gross barrel rece i ved b y net i t i oner in the amount of P97,697 ,143.00 as d u t j es d ue wh ich am ount was paid 32h

DECISION CTA CASE NO. 3869 2- by petitioner under protest allegi n g overpaym ent beca�..c~e water and o t her subs tances technically kn own as Botto� Sediment or Basic Sedi ment and Water <BSW> in th included in the On or abo lt July 7, 1982 a. simi l ar s hi p ment Port of Bat nga ex S / S "OTTO MILLE R" c:on gn d als o to petitioner. It was d oel&~ed ~nde r E ntry No. 204/82 nd petitioner h ad t o pay d u t i e s b d aqain on gross actual receipts in the amount of P119, ~ 7 2 ,319.00. Sai d payment wa s lik e w i~ e prote sted conte n d in g overpayment sin ce "SSW " were incll.~d e d in the lll5~es s m ent . On or about July 17, 198 2 another s hipment of crude oil arri v ed at the Po rt of Batangas ex S/S/ "BUBI YAN" co nsigned aqain to petitio ne r. I t was declared under Ent ry No. 2 93/82. The sa me was a5se~sed a n d pe titJnnc' rai d du t ie s based on gross actual receipt-; in the Amount of P60, 769,367.00. Al so , pa y 111ent of said .::~. mo�mt w,"\ c:. protes ted since " S S W" we r e i n cl�..cded in the assess ment. Re�pondent had assessed custo�s duties on petitioner based on a Memorandum dated Jan uary 26, 1971 of the Acting Commissioner of Cust o111 s wh ich 327

.. DECISION CTA CASE NO. 3869 -� 3 - directed the a sses s ment of d�Jtie c; and taxes based in actual gro ss barrels recei ved which i nclude Bottom Sediment or Ba sic Sedimen t ~nd Wat.Pr . The Memorandum read ~: MEMORANDUM TO The Collec t or� of C t.I Gt om~ Port nf M~n i l . Po t , f R .~ I-A t~rp�r.; Sub pa r t of LimAy, Bata~n "E f fe cti v e Febr �.tar y 1, 19 .71 , Customs duties and taxE>s on importations of crude oil shall be based on the gross actual rec~ipts without ded ucting the BSW as has b e en pt~eviously dlJne. "In determ i ning the ft~eight, the am ount i n dicat\od in t.he b ill of loading or a s c e t~t i f i e d b y the s h i p a q en t s h a 1 1 b~ used as basi c: . Ho we ver~ , i f i t i s found by the examiner that the actual r"cef. pt is mot~e th an the manife sted we ight, the frei~ht shall be adjusted A~cordinqly. "PltHl lH!' se P t o . it that all the per5onnel concerned in your respective port~ Are informe d of these in~tructio n5. ( F.lf!lO ) ) ROLANDO 8. GEOTINA Act inq Com mi 1u i oner of CtJ5t oms" Petitioner assails the Memorandum as null and void f or having been issued contrary to Section 3502 of the Tariff and Customs Code <T & CC> which "Section 350'='. Application of E5tablished R�.tlinq or Decision. A t~uling or decis ion of the Commissioner of Cu~tom5 which dPtermines the construction or applicat �on n f a ny pt~ovision of law 32~

DECISION CTA CASE NO. 3869 - 4- decr9eing forf~itur~ nf imported articl es or impo sing cuc;t o me; d�Jties, fines , fees nd . pp rtdfHAl, t1:1nrl which cha nges any Misting establ1shed appraisal, int erpr t tion or rr~ctice shall not take P.f'f' r.:t unti. i'\P� e t., thrity (30> day s pub l ic not ice e; hed 1 nve h~f'n given in th fcwm of publ lSi te d cu st om s decision. Wh r. such ul'n 01., tler.io;i.nn fnvot.,s the ta)(paye~>" !! sti'\ l l bec ome effecti ve imm d tely." fmnds the Memora ndum as having been issu d mer e ly for reasons of expediency in the three portl!J ment � oned and "to er~c:;e whatevet., doubts there �ay be to parties concerned" on the tax � contseq�.utnces of impot., ta ti ons of cr ude oil. That "�im i l.arly, by the subject Memorandu111 responde n t Commis sionet' of Custo111s did not rendet., rt..tl :l. ng or de cis ion in t ' nnt empl a t1on of Section 3502 of the Tariff and C1.1 st om s Code." We agree tha t th P c; a:id Memot.,andum does not constitute a ru ling. More pr operly, th e Memorandum should be defined a Ot., t' egulat ion promulgated b y the Commiss ioner for the effective enforcement of the provisi on of the T&CC, in contratst to a ruling wh ich proceeds fro111 an inquiry froM a taxpayer in the construction or application Still, we cannot conform to the opinion of respondent that und er Secti on 203 of the T&CC, the 32~

DECISION CTA CASE NO. 3869 - 5- Memorand�Jm wou ld be _jttstified. The pet't i nent portion of thi~ ~it~ rl Rnrti nn provides: " 8ectton .~� o.:; . l�lenen�� a l Rules on CliU f!df i a t ion Th e intet'pt' etat ion and ~pplication of the provisions of this � Code t'elating to the classification of artic l~ � i~ported into the Philip p i nes !lhall be govern ed by the following princ-iples: )()()( ><X X )()()( Rul� 2. <b) nny t'e fet' ence in a heading or subheMrling to a material or !f tJbstance shall include a t'eference to Mixtures or combinations of that material or s u b s t an c e w i t h p_t tHu:�____. .!!.l~.t._Y...r:_!_~_.!_�____Q r '!'~_bflt~D..P-~J!.� Any t' efet'e nce to articles of a g i ven material ot' substance shall include a refere nce to articles consisting wholly or partly of such Material or substance. The cla!lsification of art icl es consisting of More tha n one material or substance shall be accordinq to th~ principles of Rule 3. <Under ~corinq ~upplie d) Rule ~. Wh~n articles a r P rri~a facie c la s.,.ifiAblP. 11ndet' two ot' mm' e headinRS o r subhe <1di ngs, or i mpot' ted in f' ft t ~ con s i s t i n q o f s e v era 1 at' t i c 1 e s , clat~sificat ion sh a l l be effected as follow~: } ( ) 0( )()()( ( b ) !'1J_~~ !-ll' t .. i.:\ D.g___Q oJ.~.P_Q_!;__i_t._~--~_r_t._~-~-!__g_~ t:th.i.J;h___!;_QJJSJ _s1;____ p ~ d \_f_f e~_~_n.!,____l!l_at. erj.-~-l~_QJ: ~.MiP.tL.~t:'_'-- ll!_f-'Q e up q f _q_i f.f):~r.:-~_n_t____~Q. IW5l_fl_~_llj;...�. . ~n_ct._ .J!h_:i,__�;_h_____�_~_D!1.9..t be cl~~s i fi ed by rttference to "3 (a)" shall be classified s if they consic;ted of the material or COMpo ne nt whi ch ni ~s t he art'cles their e ~ sent ial charac t~r , insofar as this cr i t e r :1. on i s a p p 1 i cab 1 e " � <U n d e r s cor in g !Jupplied) 330

DECISION CTA CASE NO. 3869 - f; - Pet iti oner would imp i)' t:h i'l t t h e "BSW" would fi t as the "other " ma tters anrl c;qbstances" refet~t~e d to in par agraph~ (b) of Rule s 2 and 3. that ~he It is clarified unrler Rule 3 (b) appl ication of Secti.on 2 03 is .pre mised on the condition that before artic les can be classified as forming part of th e e c;se ntial article, the other article &ho u ld be a "compo site" part or "c omponent " of the essential Articl ~. This i s c lear from the phrase which consist of di fferent materials or are made of It appears that basic aedimen t and watet~ not "co111ponents" or "comp o'!d tet~~" of cr llrl fl ni 1. "Crude o il" ha s been defined in P.D. No. 87 <which promulga ted thE> Oil Ex p 1 ot~at ion and Deve l opment Act of 1972 ) a nd before this, the Petro le u m Act of 19 49 as " o i 1 i n i t s nat ur a 1 s t at e before the same has been refined or otherwise It doe s not inc lude sand x x x water and foreign substances" ; and "oil in its natural state before the sa�e had been refined or otherwise treated, but excluding water and foreign ~ub~tances", respectively . ( 33 .1

DEC I SI ON CTA CASE NO. 3869 - 7- Th e t"e appeat"s to be n o conf l ict between the de fi n iti on & gi ven by t h e c i t e d laws and the de osct"iption of oil" in the Tari f f Cla �9 i 1'ieat1on Headin~ of . the T&CC. Th e headin g ''T. H. e7. C:.'l9 ~�tr-ol�1.'"' o il s a n d o 11. � obt in d from bit um i no us min e r al s , ~Y' !Jdtl (a) fm" use as f Itt 1 o 1 s for the g ne~a i n o f el etrie pow er 10~ (b) 2 0~ It is also p pt�� o p~� i ate to note t hat Mi nist r y of En~ r gy Memora n dum Circular No . 82-07-36 wi th its iMp l em e nt :l ng 111emorC1ndum hac; ct el i 111 i t P.d t he measure of v olu me of c r ude oil to b e: "2. !'he volu me o f c r ud e oil s hall be the net re c e ived v o l w1u~ At 60 F as determine by the duly Authorized &urveyor$ i n coordina tion with th e receiving o i l o mpa n y. The b ottom, sediment, and water c ontent as e&tabli�hed by PNOC's suppliers and other allowable deduct i en s, e. g. free water in the delivering tanker, shall be subtracted ft"om t he gross received voluMe to arrive at t he n e t received voluMe." <Annex "B- 1"> It is not a�i s s to add th e n ote o f petitioner that the said �in istry was then responsible for the i�portat ion and allocation of crude o i 1 for the country. furt her contends that the 33?

DECISION CTA CASE NO. 3869 - 8- Memorand um o f Janua ry 26, 1971 v iolat es Section 201 of the T&CC. Section 201 provides ~s follows: "Sect i on 2 o1� o_f ________ ~ ~J,;_~ ft..._________ P_!:!.t.l.~_g_J__~_ ~-~l_,_ U!_. - The ciutiable value of an iMported article subject to an a d valoreM � rat e of duty s hall b e based on the hoMe con �umption val u or price <excluding internAl excise taxes> of sa111e, like or similar article s , a s bought .and sold or offered for sale freely in the usual wholewale quantities in the ordinary course of trade, in the principal market s of the country from where expor ted on the date of exportation to the Philippines, or where there is none on such date, then on the ho111e con~Htm pt ion value or price nearest to the date of exportation incltJding the value of all c ontainers, coverings and or packi n gs of any kind and all other costs, c harges and expen ses incident to placing the article in a condition ready for ship111ent to the Philippine5 , plus ten <lO,C.) per cent of such consu111ption value or price . .. Ih~ h!H� .~--~Q_l'}_~ _t,LI!!_Qt i g n value or price y_rtd.~_r_ -~.!::tL~----?.-~~_t _ i_q_n ____~_b_~_!_!___g_~___ih~__v._~_t~_,iL _.9.r. P.t~J-~t_____g_~�J_~~E?.c;t ...... __ j rt______t 1:1~---------~ o n.~~Jii.r...,_ ~-QJliJ!I .!r.J6. l~_l..______:t_ r a c.t !'? . ____QT-_ _ �_~-~-~----i n ~-9 i c:;_~. Wh~re there ex istG a reasonable doubt as to the value O l' Pntry, the correct dt.ttiable value of the ar�t )c le shall be a~~~ rtained from the reports of the ~evenue ~ttach R or Co mmercial Attache (Foreiqn Trade Pt�om ntion Attache >, pursuant to Repub lic Act Numbere d Fifty- Four Hundred a nd Sixty-Six or other Ph i lippine dipl omatic off i c e rs and fro� such other info rmation that May be available to the Bureau of Custo ms . FroM the dat e thus gathered, the Co111111 iss i oner of Cust o�s shall ascertain and establish the hoMe consuMption value of articles exported to the Philippines and shall publi sh s uch lists of values fro111 timP. to t ime.

DECISION CTA CASE NO. 3869 - 9- ' When th e d ut iable va l ue provided for i n the pr ecedi n g pa ragra ph s c annot be l.!l4C erta ine d for failur e of t he importer to p rod uce th e d oc um e n t s mentio ned in the ~ e c ond p aragraph n r where there exi s t s a rea�ona bl e doubt ~ ~ t o dutiab l e value of the i mported a r tic le decl ar ed in the entry, it sha ll be t he do mestic wholesale .-. ~ ell i n g pr i ce of such or similar arti cl e i n Manila o r other p t~ inci pal mat'kets in the Phili p p i n es on the dat e of the duty become payab l e on the art icle under a ppraiso n~e nt, in th e usual wholesale quan t it i e s a nd in t he ordinary course of t r ade, mi n �..ts - (a ) Twenty ( 2 0" ) pet' c ent t h e t~ eo f for expe n ses; and (b~ Duties and ta xes paid thereon. u <Un d e rsc o r ing supplied> I t has been held b y t he Supreme Court <Co��issioner of Custo�s v. Procter & Ga�ble Phils., G. R. No. 56705, Ja n . 31, 1 9 8 9 ' 1 6 9 SCRA 6 93 ), interpreting Section 2 0 1, thats "Fr o 111 th e f ot' eg o i ng provisions of t he s tat ute <Sect i on 20 1> , the t' e c ~n be no que s t i on th a t a s a g en e t~ a 1 t~ u 1 e , t h e home cons umpt i on value or price of a n imported arti c le s u b ject to an ad valo r em rate of duty sha ll be the va l ue or price declared in th e c on s ula r , c omme rc ial, trade or sale invoi c e . Howeve r , wh e re there exists a rea�onable doubt as to the value or price of the i�ported a r ti cl e declared in the entry, the correct d utiable value of the Revenue At tac he or Comme rci al Attache <F or e i gn T de P r om o tion Att ache> pursuan t to Rep u b li c Act Numbet' P.d F i ft y-F our Hund r ed and Si xty - Six or other diplo ma t ic office r~ and from such other i nformation that may be a va i lable to the Bur eau of C�J s toms . "

DECISION CTA CASE NO. 3869 - 10 - Evidence is on the side of petitioner showing that i t had paid for the crude oil based on the net barrel~. Pricing and billing of purchases of crude ba�ed on net barrels is the practice in the ordinary course ~f trade. This is confirmed ~y no le�� than the acts of the local oil co�pany, Philippine National Oil Company <PNOC> when it billed petitioner net of BSW <Annex "C" of Reply Me111orandu111, Invoice No. 08346 >. Petitioner through the attachment& in its Reply Memorandu� of December 22, 1989 also submitted evidence that PNOC itself i� a beneficiary of the practice of valuing crude The foreqoinq evid~nce. howe ver , are so ught to be rendered inef fective by re~po ndent by mere all�.tsion to an alleged Ministt~y of Finance ruling of June 21, 1979 base d on the infot~mation that the unit price of crude oil is pet~ �_mit barrel at 42 u.s. gallon� per unit barrel. We find this allegation that a unit barrel is pegged at 42 U.S. gallon� of no weight in the light of petitioner's evidence clearly showing how the definition ' of crude oil and the ~ea s ure of its volume is applied in practice by business entities involved in the oi 1 trade. It is recognized that the consular or co111mercial invo:l.ce s not conclusive upon the

DECISION CTA CASE NO. 3869 11 government and that when ~here is reasonable doubt referP.nce to other soLn~ ces for the value of the article �ay be pursued. Although the law presumes that official duty has been regularly performed, the a fot~esaid t~ epot~ t of the Finance Official, is belied by evidence that petitionet~ had submitted. We considet~ that, based on the facts gathered fro� this case, the commercial invoices presented have not been discredited or impeached by respondent and should be given evidentiary value in the absence of better evidence from respondent. We find another argument by petitioner convincing - That to assess it of duties based on gro!59 barrels would, effectively, cause it to pay duties on a r t ic 1 es i t had not pm~chased in the first place. Thus , we agree that as far as the Botto� Sediment and Water are concerned there is no taxable transaction. There is ~estimony that "BSW" is destined to be thrown away <t.s.n, Apt~ il 14, 1986, pp. 21 & 22). The duty being ad valore�, the sa�e cannot be Made to attach to something which has no value. WHEREFORE, the petition is GRANTED. Re�pondent should and is hereby ordered to refund or credit to petitioner the following a�ounts: 33h

DECISION CTA CASE NO. 3869 - 12 - P2129 959.00 u nder Entry No. 163/82; P759.3B5.00 under Entry No. 204/8 2 ; P532 9 732 . 00 under Entt~y No . 293/82. SO ORDERED. ~ � ROAQUIN WE CONCUR: Q~Q(~ ERNESTO D. ACOSTA ~lssoci. ~le J1..1dqe CE RT I F I CAT I 0 N I CP.t't i fy that this cler:ision was reached afte r due co 1l su .Ltat1o n a mo nq the membet��s of thP Cot_wt of T a H � (~ p f1 P n J s in accordance with Sf'!c tion L?., ArticlP VIII of the Con!".tit:ut; ion. ~~ r: n 11 r t n f T A- H (.) p [1 P. A l ~ 3:i7