CTA Case No. 5265 (Decision)

( -- 1-\.EPUDLIC OE' 'I'liE PLII.:.:;_, =-: COUP..T OF 'I'hX ;::..'? : .'.. .:.. :.:. QUI:.:ZGN CD.'Y NESTLE PHILIPPINES, INC .. , C. T. A. C7\;i�: no. 5265 Petition8r, - versus - TriE CO:Ht!ISSIONER OF CUSTOMS AND Promu:I')L.ttccl: CO.t:�1tHSSIONER OF INTEilliAJ, REVENUE, \0 Respondents. JUL 1 0 'ZOOO (..> -� . X- - - - - -- - -- - -- - -- - --�------- -----�---��; - __;, DECISION This is a claim for refund filed uy Pc.:i i. L�.iur:�:J� on July 11, 1995 against Respondent::; in tltc i19CJIC<:Jutc a:ltOlmt of .P3, 415, 5 31. 0 0, allegedly reprcscn t in<J d11 t.Le:.; a11d tc:::�c:.; unlawfully assessed and collected en it:.; C.i. vc importations of skimmed and instonl: itti.'l k: po�"'d'-:r \�:hich arrived at the Manila Interna tioJL l Con L.a i i t'.:Cr ( "MICP" for brevity), Port of Manila, d\lrin!J Lhc pc r j ud September 1992 up to March 1993. Petitioner is a domestic corporJtion duJ.y or<JnizeJ and existing under and by yirtue of PhiLi.ppinc 1.::;;:;, �.v::.L:I1 office address at Jade Building, 335 Sen. Cj_l ,J. ruyc.t t Avenue Extension, Makati City, tvlctro H.::!nil.J. 1U15

DECISION - C.T.A. CASE NO. 5265 -2 - regular importer of milk and mil k products and i engoged in the manufacture, processing, distribution ond sale of processed, manufactured and formulated milk ond milk products. The case at bar is an off s hoot of five prolct cases filed by Petitioner with the Di.strict Colleclor of Customs of MICP on the much hj.gher valuation arrived at by the Societe Generale de Surveillonce for short)1 in its Clean Report of findinu. hcre.inaJ'tcr referred to as "CRF"2, which were duly i._� ;suc:cl on cuch c�f aforesaid importations vs a vis their ncLu ..il invoice value . Pursuant to the provisions of Par<:<Jr<tr�h J:V-�i�h.l. J ; of Customs Memorandum Order No. 3 9-92, qucs 1: ion:> surrouncli ng the SGS-CRFs' higher valuation wen then arrx�alcd by Petitioner to the Bureau of Customs-sc:::; Jn1port Vdludti :)n and Classification Committee, heretofr)r(:! cnllr.:.J us thr.; "Commit tee", under the Off ice of Eesponclcn t Coi'lin.i. :::;.�:-;ion,:r A multinational entity autho ri z e d by tl1c Covc:::..-mncnt p to , insp ect 1 through a ColllprcLcn::..i ve Ll(X-'J:t Su ervision Service, the quality, rF.t.J.nt: y, p::ice and dutiable v<J.lue of goods destined Lor il;�:.,rt._�ttjon into the Philippines 1 as well CJ.S to ve:;:�_; Lr L he classification and tariff rate of such good::.� under the Tariff and Customs Code of the j�hLL; J"'J_':inc:J Joint Order No. 1-911 as amended is:;ue:d b' tLc Department of Finance1 Department of 'l'r,,..:: o;1el Industry and t he Bangko Sentral ng L'i_Ii_pilku:;. An inspection report issued by SGS on it>lpm:ted <JOO(h; entering Philippine customs territory. lUlt.J

r DECISION - C.T.A. CASE NO. 5265 -3 - of Customs ("COC", for short). Pe ti ti oner was convJ.nccd that pursuant to Section 201 of the Tariff and Customs Code of the Philippines ("Code" for brevity), the i:>.voicc value should be the basis of the dutioble valu12 of i< �- shipment of goods and not on the much hi0hcr Ct\l:'s' . In the meantime that the Committee was ::;:till deliberating on said appeals, Petitioner's :.:;L_i_i;lTLnt::; 1-:ere tentatively liquidated and released in acconlo.nce v; i :�.11 Customs Memorandum Order Nos. 51-92 and 12-03. The Committee later on issued V.Jri;::.us n.::_;oJ_u:_: n:_: __ modifying the valuations provided in th12 oriCJii-IlL' l c:::��' based on "EEC3 domestic price as publi s h e d in Juropc lc::;.,; normal cash discount". It turned out, ho�.Jcvcr, th.:"tl-_ LlJc modified valuations were still much higher thun the invoice value. Nonetheless, the District Collector of Customs relied eventually on such rev isecl vo.luc:l:ion:> :in making a recomputation of additional dut.i.c::; and L:;t;-:'-:: on the above mentioned importations, v:hich Pcti Lioncr JXl. d under p:so,test. A comparison of the invoice value wi th lhut o[ the amended valuations of the SGS a,,_.J well the corresponding time of filing of protest nd dJtc ond Refers to "European Economic Community " lUl'i''

( DECISION - C.T.A. CASE NO. 5265 -4 - amount of payments on the five ( 5) i1npor l:a tions arc hereunder enumerated, to wit: I. MICP PROTEST CASE No. 394-93 fil0d on Dec.22, 1993 Skimmed Milk Powder Medium l!i<Jh lk:al from Ireland CONSUMPTION ENTRY NO. 72626-93 Paid under BOC O.R. # 43159S1, dJtcd December 22, 1993 INVOICE SGS lr 783. Sfu':mt_ __2_, ?1-_QLCi/il; Invoice Value 4281059.20 530,582.40 Insurance 612.00 0.()0 Freight Other Charges 201100.00 1 G : ::' 2 J . 'J ':! Total US$ Invoice 20,160.00 469,231.20 :!2_c__?__j_:__i __ S91 Ol:J. CJ Total in Peso 1117311718.16 1 3 I :_, 7 G ' s 8 3 . / ) Customs Duty 1,1731.85 1,_,__]1.-'_"�. _;; ( Taxable Value 11,731,718.46 13, :nGI sso. 79 Bank Charges 14,644.G5 Customs Duty 171 170.7 �1 Brokerage 1,1731171.85 Customs Stamps 14,837.12 11 3 (YI I G J 8 ' :J J IPF 31.50 1�1,83"/.12 250.00 Wharfage 51992.50 Jl.SO Arrastre 16JOO. 00 250.00 5,992.50 ?g"' 2 l G = � _ _ _ __ Amqu,nt Subject to 10% Value l\clcled 1\_t>:: 12,956,866.38 151120,09.83 1,295,686.G4 1.2,902.SO Difference P 247,216.34 Plus difference of 22�1,487.03 471,70J.OO Customs Duty Total Amount Paid: P

DECISION - C.T.A. CASE NO. 5265 -5 - II. MICP PROTEST CASE No. 393-93 fild on December 29, 1993 Skimmed Milk Powder - Tl, ' 1� J. l '� ' ' �- from Ireland dJtd CONSUMPTION ENTRY NO. 70050-93 Paid under BOC O.R. # 41UL0G7, December 22, 1993 INVOICE SGS Invoice Value 142,062.15 176,087.03 Insurance 203.11 0.00 Freight Other Charges 6,770.2:) ::; , '1 0 5. 38 Total US$ Invoice 6,690.60 155,726.11 -?_:_'Q 1::;;,?.12.1]1 Total in Peso 3,903,274.95 '1, ., ]_ 7, ::, �14 . u 0 Customs Duty 390,327.'1 ____ j}_1. -L'I!. ,11 Taxable Value 3,903,274.95 1 '' r �� .-. -) Bank Charges 4,879.09 .>I \..<.Jl.; � . --' Customs Duty Brokerage 390,327.19 �1 '/ 1 . -; 5 �1 . 'j j_ Customs Stamps 6,346.22 IPF 31.50 31.0 Wharfage 250.00 250.00 Arrastre 1,997.50 1,)97.0 5 400.0Q '=itoJ Qjl__: _Q0 Amount Subject to 10% Value Added TJ:<: 4,312,506.75 5,209,220.G?. 431,250.68 520,922.06 Difference P 89,G71.33 Plus difference of p 81,126.92 'customs Duty p 171,090.30 Total Amount Paid: III. MICP PROTEST CASE No. 329-93a illcd on July 16, 1993 Instant Milk Powder 28% from Denmark CONSUMPTION ENTRY NO. 22713-93 Paid under BOC O.R. # 4 2 6292 3 7 , daLd July 14, 1993 10ld

r DECISION - C.T.A. CASE NO. 5265 -6- INVOICE: :..:c:.) Invoice Value 160,454.110 0.00 Insurance 249.60 G,026.C'J Freight Other Charges 5,777.20 7, �; :?}__:_?:_Q Total US$ Invoice 0.00 2"/1,1:J8.0'J 166,481.20 Total in Peso 4,236,946.S1 G, 001, 'J'Jl. 31 Customs Duty 847 389.31 J_Jg_o_L}G- ---� Taxable Value 4,236,946.51 I 1 G , 9 0 1 , 9 . 31 Bank Charges 5,296.18 8,627.19 Customs Duty 847,389.31 1, 3 8 0 , 3 J 8 . : G i, l}vJ. CLJ Brokerage 7,408.68 Customs Stamps 53.00 J.CJ IPF 250.00 Wharfage 2,397.00 ',3J7.00 9 1 rl "[;;_> . 0 0 ;=:Arrta=sre,9 912.00 Amount Sub j ect to 10% Value Added '1'";-:: 5,109,652.71 8,J11,0J7.74 510,965.27 831,103.77 Difference -P 320,139.00 Plus difference of Customs Duty -P 533,008.95 853,147.:5 Total Amount Paid: p IV. MICP PROTEST CASE No. 334-93 filed on July 16, 1993 Instant Milk Powder 28% from Dcnmrk CONSUMPTION ENTRY NO. 22711-93 ''Paid under BOC O.R. 1F 42629212, dated July 14, 1993 INVOICE GS L 5 s 8.54J o.::1 CJ _ :'=.c�_G_0.:o.I\Lt-l �1 Invoice Value 160,454.40 257,4118.00 Insurance 249.60 0.00 Freight 5,777.20 6,02G.G0 100

DECISION - -7 - C.T.A. CASE NO. 5265 --0- .00 Other Chc:trges 166,481.20 Total US$ Invoice Total in Peso 4,236,916.511 1 / ::.--- "J<_. n . ...J(,r, ..,. I Customs Duty _ _-11 ' , _ '' . 811, 39 .Jl Taxable Value Bank Charges 4,236,916.5�1 6, 901, 0Jl. 39 Customs Duty 5,296.18 8 , () 2 "/ . 'J '.; Brokerage Customs Stamps 847,389.31 1, 3Go, :5'.!0. u IPF 7,408.63 7, �los . c, 8 Wharfage 53.00 Arrastre 250.00 !.!3. .00 2,397.00 250.00 9 912.00 2,397.00 . 9, :t7g_Q_ Amount Subject to 10% Value Added Ta:-:: 5,109,652.71 8,311,0J7.G2 510,965.27 831,103.78 Difference .p 320,138.00 Plus difference of Customs Duty -P 5 3 3 , 0 0 ; . : "/ Total Amount Paid: p. V. MICP PROTEST CASE No. 3Jtl-03o LiJ�-:.'d c,n July 16, 1993 Instant Milk Powder 28% from Dcnmork CONSUMPTION ENTRY NO. 22715-03 Paid under BOC O.R. # 42629221, doted July 11, 1993 INVOICE sc:. Invoice Value 200,568.00 321,810.3 Insurance 312.00 Freight 7,S33.00 Other Charges 7,221.60 Total US$ Invoice 0.00 9 r 6::., �] . J : O.O.J 208,101.60 338,99"/.','0 Total in Peso 5,296,185.72 8, 6 27 r 11 91.47 Customs Duty 1, 059,237.].4 J __ L7;�:2 f_!l2_8:2 Taxable Value 5,296,185.72 8, G27, :J91. ,1�1 lU.i

DECISION - C.T.A. CASE NO. 5265 -8- Bank Charges 6, 620 . 2 3 ]_I] r / j 'J :j � Cue>toms Duty 1, 059,237 .1'1 ] f 7 ! - I I; 1 : ) � ,- ) Brokerage 8,732.TJ : . I _, . I : Customs Stamps 53.00 . G ;) If'F 20.00 Wharfage 2,99G.2S ;:,'J...0.:'.J Arrastre==12, 390__Q=Q==-'- __\2L} Q_ . Q Amount Subject to 10% Value Added T0x: 6,386,4G5.07 10, 3R, 10C.10 Difference 638,646.51 J I 038, 8]_(). G1 �1 00 r 1 7 3 . 00 -P- Plus difference of Customs Duty -P 666, 2C1. l')_ Total Amount Paid: GRAND TOTAL OF AMOUNT PAID/ -P3, t2:'.5, ):?0. "/II. (FOR REFUND) : Concommittant with the protests, Pe;t_i_tion�r filed with Respondent Commissioner of Appellate Division on July 3, 1995, a V/.L-_Lt.Lcn cl : u.t for refund of value added taxes paid, supra, corrc::;;;or,._!_tnr-; Lo each of the five importations in volv e d herein wl1ich, separately, were paid either on July 14, 1993 or December 22, 1993. A few days later, that is on July 11, 1905, an.J without- 'awaiting the decision of the District Collector of Customs on the protests, Petitioner :Ciled the in:__;tant Petition for Review before this Court allegedly based on Respondents' inaction or sllence for almost ti�:o ( 2) years of its claims for refund of excess dutie nd value-added taxes. 102

r DECISION - C.T.. CASE NO. 5265 -9- At bu.r, Pcti tioner rei teru. tc.s iL, u:): ;, �,/ i J i" I (��, L 1 c l' t. � - rrovisions of S ec t ion 201 of the� Ccc:'-'- . 1 i: '" the invoice vu.lue reflec ts the currccL :-.:__; ,: of the imported article and shauld tI 1 c r c r� c, J: c l ''' l. ' t_; : "- principal basis of determining its dutiJblc value. Petitioner contends that before tile in voJ cc \',t] l�..: ::_:.:; disregarded, just like what the Dlstrit CollecLor of Customs did in this case, it mu0t be cst.�_tbJj shecl L r:..,L that reasonable doubt exists u.s to tlJc v.:t: luc or pr.i c c.-t the imported article declared in Ute e11Lry; th ..: L: .:; i_t..-: c reasonable doubt has be en u. sec r t.:; in eel, Lo reports from commercial attachc0' or o Ll1er j_r, r:�oJ.io.: Lion must be shown to have been observed in C�)ilj_r.s ou 1.: v: i :_ h the latest dutiable value; and finally, citing tlie case of Commissioner of Customs vs. Cour t of Tax 1\ppeal.s, 161 SCRA 376 at pp. 381-382 [1988] such ncH dutLtGJ.e val..1e should have been priorly published. It is the perceived analysis of the PctiLicr;c:r Lktt Respondent COC has failed to comply vJith e1ny of til�:: three requisdtes aforestated. as to the correctness of the d c clara t ion !t ...l0 n c t b ,:-:; c 11 established there being no 11 alcrt no l.i.cc 11 i:::; ; l1Ccl a �J :.1 i. n._; t the imported articles or any showin<J as to ho;J tJ-.c ::c;: ; ascertained and established its CRF vul uc of t!v:: i.mpo.r: cd

DECISION - C.T.A. CASE NO. 5265 - 10 - articles, or where and when such SGS' values VJC.n:: published. Petitioner strongly ta k e s issue aiJ<.d n t. L�! iC s .a l u :; and activities of the SGS as foll0\v3, to 1-1 i L: The respondent's reliance on SG::i valuations of imported articles is mi s p L1 c c J. SGS is not exempt from complyin0 wilh lhe requirements of the law. In iact, SGS co.nnot be above the law. Moreover, unlike government employee::;: urd agency, SGS does not enjoy Lhe lcijal presumption of regularity in the performJncc of its functions, being a privat nnd forciJn owned enterprise with officers nnd employees not covered by the Civil Service lavJ. As such it must show competent proof o::; to he,�; j_ 1:. arrived at its own valuations on the :.;..tbject importations. As it is, SGS bases and data sources are unknown. The methodology used, if any, is improper. Its scheme of mathemo tically adding to the invoice cost any ar.1ount 1�1hich purportedly corresponds to subsidy of CuLopcn countries being extended lo their e:.,:por i_ LrlCJ companies, is highly anomalous, one! bcrL:f t of legal and factual basis. This i:.:; so bcc:<<L::;�.:;: ' Firstly, it .hos not been established as to whe the r there VJc.1:::; really such European sub::;:icly, V>'Lo grants the subsidy, who <He Ute recipients, what forms of subsidy and kinds of benefit, who enjoy:.;. them, .how much money was invol vc'-1, how it off-set the selling price, and how much corresponds e xac tJ y for e.:.h.:h. exported dairy product, how ws it

r DECISION - C.T.A. CASE NO. 5265 - 11 - computed, what are the sources of the data being used, and how reliable those data; are Secondly, the supposed ESC subsidy, if any, must have been the result of competitive export prici;-;g following the universal law of supply and demand - mainly an inventive to sustain a country's dairy indutry, increase its foreign exchngc inflows, and achieve a favor.::blc balance of trade. As aptly observed by the Secretary of Justice, thus: "Contemporary history shows that economic progress of nations are achieved mainly by relying more on international trade than the development of the domestic market for the products of their agriculture and industry. Among the reasons for this is a developing country's need for foreign exchange and the desire to achieve a favorable balance of trade." (Department of Justice's Opinion No. 3 �;, Series of 1992); Thirdly, government subsidy 1s not a valid reason to increase dutiable value as the law explicitly provides the basis of dutiable v alue �which is the cost or fair market value. And, the phrase "fair market value" had been defined as the price at which one is willing to sell, would sell, and a person willincr Lo buy, would buy, both being familiar with all the facts, and the seller not being forced to sell or the buer forced to buy." (French Dry Cleanincr 102G

DECISION - C.T.A. CASE NO. 5265 - 12 - Co. v. Commissioner of In t:ernal Revenue, C.C.A. Ga. 72 F .2d 16 -;) Fourthly, to add-up such government subsidy to the cost or price is incongruous v1i"Lh international laws on sovere i g nt y of nations. For, in effect, herein respondents without any sanction of law, is taxing and penalizin0 Filipino importers and consumers on account of the foreign nations' liberality to their traders, even when the granting of subsi dy by foreign countries is a matter of government policy in the exercise o[ their respective sovereignty, which is beyond the control of importing countries; Ineluctably, there is no va l icl reason to impose a higher dutiable value on the subject importations. The SGS valuations relied upon by the Customs Collector were made arbitrarily without the requisite publication, one! .:ue unjust, illegal, bereft of proper basis, and were done in gross contravention of the law. (Memorandum for the Petitioner, pp. 9-11) On his part, Respondent coc ripostes, in hL_, memorandum that Petitioner is not entitled to the rfund of the additionally imposed duties and taxes which were paid under protests. He contends that while he ag reed with Petitioner's stance that the home consumption value of imported article should be the value or price decl0rcd in the consular, commercial', trade or sales invoice, the same should not apply in the case at lx.1r ino.much as there exist a reasonable doubt as to the corr ectn e ss of 1CJ2t)

DECISION - C.T.A. CASE NO. 5265 - 13 - the value or price of the imported article clcclorcd -'-n the entry. As such, he concludes tho.t the! corl-ccl dutiable value of the article should be L.h� v.__, ill�! recomm8nded by the SGS in its Clean Report of l�'incLLn\J:-.> which was adopted by the Collector of Customs and not the invoice value declared by Petitioner in it:J con:JL;mpthm entries. Respondent COC explains that SGS is an international firm of good reputation which services the PhLlippJnc government, hired purposely to provide it wi tl1 the rct.1. home consumption value or price of CJOOds imported into the country for Tariff and Customs purpose:;. lie emphasizes that under Joint Order No. 1-91, SGS volution is merely recommendatory in nature and is not conclus i vc upon the Bureau of Customs. However, once the Collector of Customs adopts the CRF value as endorsed by the Customs Examiner/Appraiser, he believes that it is no longer considered a mere SGS-CRF value, but for tariff and customs purposes, such value is deemed the officio.l customs value of articles and any party, incluclinCJ the ' importer, who questions said valuation has the burden of proving that the same is wrong or arbitrary vs a vis its presumption of regularity, .citing the case of Coca -Co.Ia Export Corporation vs. The Commissionc.r of II, t.erna l. Revenue , G.R. No. L-23604, March 15, 1974, 56 SCR/1 5, il:J

DECISION - C.T.A. CASE NO. 5265 - 14 - cited in the case of Commissioner of Customs vs. Court of Tax Appeals, 195 SCRA 12. Respondent COC recalls that during the proceedings at the Committee, it was established that the ba0is of .SGS value was the actual price, per seller's (exporter') invoice, plus the restitution paid to the exporters according to the EEC agreements, viz., ECC Regu l a t i on llo. 804/68, dated June 27, 1968. Based on this i;1formation, he contends that his Bureau is correct in adopting ;c::) recommended value as the true and correct price of Uh; goods in issue, most especially that Section 201 of the Code speaks of home consumption value or pn cc OcL on imported article based on some, like or siilar Jrticlc, as bought and sold or offered for sale fEccly lil tlte usual wholesale quantities in the ordinary course of trade, in the principal markets on the date of exportation to the Philippines. Respondent coc further elaborates that the intervention by the European Governments in the ordinary course of trade between the seller/exporter and the removed the clement of ', buyer/importer has ln effect freedom being ordained by Section 201. He quips that the policy by the EEC of restituting/refunding the supplier in Europe with export subsidy has created two regimes of pricing in their community, one for the domestic m.:ul:ct 1U2o

DECISION - C.T.A. CASE NO. 5265 - 15 - in the country of supply, and the other, e1 much lmvcr price for those intended for export. Prescinding from the above, a br i e f interlude into the history of this case is noteworthy. r<.ccord::; show that upon a motion to dismiss filed by nesponclcnt COC, the latter was dropped as an indispens<J.ble p<J.rty in th, case at bar on the ground of prematurity/le1ck of jurisdiction, there being no decision of tLe Di:trict:. Collector of Customs as yet, much more by herejn rzespondent COC. As regards Respondent Com;nic::>ionc1 of Intern<J.l Revenue, he was maintained as a pcrty litig<..:il in view of the near expiry of the two-yc<J.r period within which refund of taxes paid may be availed of, as p rov iJ�_:c! under Section 230 of the applicable Tax Code ( C'l'l\ Resolution, dated December 4, 1995). As events would unfold, however, ftJe decided to reinstate Respondent COC as main party litigant to herein case (CTA Resolution, dated August 21, 1998) after realizing that the determination of the i n s te1 nt refund being .sought by Respondent Commissioner of Int ern e1 l Revenue for value added taxes, which is fixed at the rate of 10% of the value of the imported goods, is dependent upon the final valuation �arrived at Ly RespondC?.nt COC. With the latter not joined as a litigant, procedur<J.l due lus

DECISION - C.T.A. CASE NO. 5265 - 16 - process simply proscribes Us from mok:LniJ any di: t�,;nl;t to review the valuations he has made. Fortunately also, this Cour t ' s .:JCCJUi:;_i_ U <)Jl (, L jurisdiction over the person of Respondent coc .,.L.'.:. :> supported by the Honorable Supreme Court':._; pronouncc:mcr.L in the case of Commissioner of Custcm.s and Co:�,:,-:.:;J.. .:;:::;::.o.l.: of Internal Revenue vs. Court of Tax Appcal.s &d PJntc3 Products, Inc., G.R. No. 82618, March 16, 1989, Resolution, ibid. ) where it was decreed tha l tl 1e ta:-:pc; ycr need not wait indefinitely for a dc.:ecision of the Collector or Commissioner of Customs which moy or may nul be forthcoming und which he has no les::l d 'J t to c;-:pe'- t. A fortiori, this Court reversed its pt�,v:Lous rc;o_ll:U_ot1 in order to conform with such j urisprudcnce es t<.lbli:::;hcd by the Highest Court. Going back to the main discussion, We observe that based on the joint stipulation of facts of the Petitioner and Respondent COC, the following are the issues involved in the case at bar, to wit: , '1. Whether or not SGS' valuations are arbitrary and unjust; and, 2. Whether or not Petitioner is entitled to refund of the additionally imposed duties and taxes which were paid under protests. After a meticulous analysis of the prccedin<J fc..tcts, the argumentation of the parties and the luws und 1U30

DECISION - C.T.A. CASE NO. 5265 - 17 - jurisprudence in point, We rule in favor of lc:-;p,-�l"'cclcr�.[ :_;' COC and Commissioner of Internal Rc�vcnuc . For easy understanding, the p rov i : i o n :..; o[ s-�:: L();l ;.(1; of the Code are hereby reproduced in toto, to wit: Sec. 201. Basis of Dutiabc Fa.L:c. The dutiable value of an imported articl subject to an ad valorem rate of duty shall be based on the cost (fair market value) of same, like or similar articles, as boug!lt and sold or offered for sale freely in the u::.;el wholesale quantities in the ord i n ar y course of trade in the principal markc::t3 of Lh�..: exporting country on the date of c:-:portation to the Philippines (excluding internal c:�.:�.:::i:..;c taxes to be remitted or rebated) or here there is none on such date, then on the co0 t (fair market value) nearest to the cid tc of exportatio'n, including the Vdluc of tllc containers, coverings and/or pacLin<J:.:; of uLy kind and all other expenses, costs a11d ch-:r.: cJcs incident to placing the article in a condition ready for shipment to the Philippines, and freight as well as insurance premium covering the transportation of such articles to the port of entry in the Philippines. Where the fair market value or price of the article cannot be ascertained thereat or where there exists a reasonable doubt a:..; to the fairness of such value or price, then the fair market value or price in the principal market in the country of manufucture or origin, if it is not the country of Cw exportation, or in a third country with Lhc same stage of economic development as country of exportation shall be used. When the dutiable value of the articl�..:: cannot be ascertained in accordance wj l.h Lhc preceding paragraphs or where there cxi:..; ts a 1031

DECISION - C.T.A. CASE NO. 5265 - 18 - reasonable doubt as to the cost (fair m0rkct value) of the imported article declorcd i11 Lc entry, the correct dutiable value Gf L:1c article shall be asccrtoincd by LL Commissioner of Customs from the rcpo.1: <_:-; o t.: the Revenue or Commercial Attache ( Fore.LlJll Trade Promotion Attache), pursuant to Republic Act Numbered Fifty-four Hundred and Sixty-six or other Philippine diplomatic officcr3 or Customs Attaches and f rom such olhcr information that may be available to the Bureau of Customs. Such values shull be published by the Commissioner of Cu :; tom3 from time to time. When the dutiable value cannot be ascertained as provided in the preceding paragraphs, or where there exist Ll rcasonJblc doub t as to the dutiable value of the iEtporL�:;J article declared in the entry, it ha l l be the domestic wholesale selling price of su ch or similar article in Manila or other principal markets in the Philippines on t}1e dulc tlhc duty become payable on the arlicle under appraisement, on the usuul wholsale quantities and in the ordinary course of trade minus (a) not more than twenty-five (25) per cent thereof for expenses and prof i l s ; and (b) duties and taxes paid thereon." (As amended by E.O. 156.) The issues at bar being intertwined, a common discussion thereof is in order. A reading of the above� quoted provisions of Section 201 would unquestionably show that as a general rule, the home consumption value or price of an impor tee! a r ti cle 1032

r DECISION - C.T.A. CASE NO. 5265 - 19 - subject to an ad valorem rate of duty sh<1ll be llle v.:i: lttc or price declared in the consular, commercial, trc.;dc o.c sales invoice. As an exception, however, \�ihcrc U1e;. c exists a reasonable doubt as to the value or price of tll...: imported article declared in the entry, the correct dutiable value of the article shall be asc�;rtuincc: frcin the reports of the Revenue Attache or Commercial ht. L1che (Foreign Trade Promotion Attache), pursuant to l\cpubl i c Act Numbered Fifty four hundred and sixty-six, or froll1 other Philippine diplomatic officers c::1d such oL her information that may be available to the LuJ.:-c-Ju of Customs. Clearly speaking, consular, sales, Lrade or commercial invoices are not binding upon the governraen 1-. In the case of Caltex (Philippines) , Inc. vc. . Court of Appeals, 292 SCRA 273, G.R. No. 140781, July 10, 1::9l, the Honorable Supreme Court, citing the case of im Qui VG . Collector of Customs, 23 Phil. S09 (lJJ.2) 1 pronounced, thus: , � Our conclusion is premised on the fct that sales, commercial or consular invoices are not conclusive on the government. Our customs laws should not be at the mercy of imporL:<.:r: s who may avail of schemes and other <1rr<1ngements to lower and reduce� the face value of tlL articles covered by such invoices. Notev:orthy is the fact that: "If the customs authorities were bound by the invoice value, it is evident that they would be, to a considerable extent, 1U30

DECISION - C.T.A. CASE NO. 5265 - 20 - at the mercy of foreign merchants and importers. The purpose of Congress in providing for an appraiser was to prevent fraud upon the customs, and thus protect the revenues of the Government." Verily, the authority of Respondent COC to resort lo other means of ascertaining fair market value in the event that reasonable doubt exists on the invoice value is manifest from the provisions of Section 201 and in our j urisprudence. Fortunately, there is no dis.:HJ:recmc::n t: among the parties on this point of law. However, what presents as the very pith of herein controversy by the parties is the factual qucs ticn of whether or not there exists an actual reasonable doubt on the invoice value as found by the District Collector of Customs based upon the findings of SGS. Petitioner is convinced that such reasonable doubt l. -, bereft of factual basis. As stated above, it asserts that there was no "alert notice" ever issued on its shipments; and that there was neither any showing as to how SGS ascertained and established the CRF values of the questiorretl goods nor where and when such values were published in accordance with Section 201 of the Code. Altogether, Petitioner accuses Respondents' coc and Commissioner of Internal Revenue of grav2 abuse of 1U3't

DECISION - C.T.A. CASE NO. 5265 - 21 - discretion, without or in excess of jurisdiction uncl in gross violation of the law. We are not swayed by Petitioner's ra tiocini tJ.on. In Our opinion, the much higher valuations of SGS has, in effect, created a well-meaning reosonable doubt on the truthfulness and accuracy of the value or price of the imported article declared in the entry. Hence, it is no error for the District Collector of Customs to disregard the invoice value and adopt instead ClS the foir mu rkct value or the true and correct home consumption volue, the Committee's recommendation of invoice volue plus Lhc restitution/refund paid to the sellers/exporters. \-<lith this rationale, the necessity of "alert notice" as insisted by the Petitioner is immateriol already. We agree with Respondent coc that SGS is an international firm of good reputation. The singular fact that it has been chosen and awarded by the Government of contract services to specifically inspect and provide real values/prices of products imported into the country for tar f and customs purposes is proof enough of its competence and expertise in that particular field. With regard to the findings of SGS itself, Respondent COC has convincingly shown before this Court thClt ECC has been subsidizing its export products by way of refunds which effectively created two regimes of pricing in their 1u35

DECISION - C.T.A. CASE NO. 5265 - 22 - community, one for the domestic market j n the; counlr.y of supply, and the other, a much lower pd_cc for Ll,.__ ,;_;,:; intended for export (Article 17 of r.:r;c Rognl.:t�---�-o�.l ,_, . 804/68, dated June 27, 1968; Exhibits 2-d and 2-c!-2}. r,; it works, the price difference between the two rcgime3 is covered by an export refund. In this way, EC exporter are able to quote lower competitive prices for e:-:ports while their domestic prices are variedly much hi0her. Under the foregoing circumstance, Respondent COC is correct in saying that Petitioner's invo ic e value, \�ihich has been the beneficiary of EEC government :c;ubs.ici', 1::; not the true and correct home COn:SU!T!ption v.:1l:;c contemplated under Section 201 of the Code. that the invoice value does not represent goods or articles that have been bought "freely" in the ordinary course of trade in the principal markets of the exporting country. ' A close scrutiny of the provisions of Section 201 of the Code would indeed disclose that dutiable value should be based on articles bought and sold or offered for sale "freely" in the ordinary course of trade in the prir:cil_:al markets of the exporting country on t he dc.ttc of exportation to the Philippines. This being the case, the Comrnittee comrnitted no reversible error in adj ustinc:J the invoice value to EEC domestic prices. 1U38

DECISION - C.T.A. CASE NO. 5265 - 23 - It is to be noted that Respondent COC has onck:avorr.:lc: to prove somehow the basis for tLc valuations, despite the procedural rule U1,:.:t rJ_._,...;c_; the onus probandi on the importer to not only prove L 1C contrary and overcome the presumption of corrcctnc::>:> of customs valuation but also to shov1 that the fi<J1J_-e.:;: declared by him are in fact true and correct (Coc<::l.-Co:Lc Export Corporation vs. The Commissioner of In tc :.:n:tl Revenue, 56 SCRA 5, as cited in Corru:nission<.-:!:r of Cu; ::c:::.:; vs. Court of Tax Appeals, 195 SCRA 12). Likewise, We disagree with Pc:titioner l- 1 " -1- _llG L Respondent COC 1 s valuation are arbitrary and unj u:::,t for failing to comply with the requisite publiction ut the new dutiable value. Without any qualm or quibble, We are certain tho.t Section 201 of the Code does not require prior publication of new dutiable value before it can serve the basis of assessment of customs duty and taxes. l\s aptly e,xplained by the Honorable Supreme Court in the case of Commissioner of Customs vs. Procter and G:t."!'.ble Philippines Manufacturing Corp., 169 SCRA 693, We quote: "The posture taken by private respondent is untenable. A reading of Section 201 of the Tariff and Customs Code aforeci ted shows that where there exists reasonable doubt u.s to the 1U3'( �

DECISION - C.T.A. CASE NO. 5265 - 24 - value or price of the imported article declared in the entry, the correct dutiable vlue of the article shall be ascertained from the reports of the Revenue Attache or Commercial l\llache (Foreign Trade promotion Attache) x x x or other Philippine diplomatic officers and from such other information that may be av ai l a b l e to the Bureau of Customs.' This is what is cCllled the "established" or "information" value. Such value shall be the home consumption vclue of the imported article which shall be the subject of customs duty and taxes. The same article then provides: From the data thus gathered, the Commissioner of Customs shall e10ccrtaln a11d establish the home consumption vulu:s oL articles exported to the Philippines and hll publish such lists of values from time to time (Sec. 201 of the TCCP) The law does not provide that it is on J :/ after the "established" or "informal ion" v.:.tl uc is "published" that such home consumption valle may be the basis of assessment of the customs duty and taxes. On the contrary, it is explicitly provided that upon reasonable doubt as to the accuracy of the declared value of tLc article in the consular or commercial invoic ., the Commissioner of Customs may determir:.e it::; home consumption value from other available and more reliable sources which "establishcJ" or "information" value shall then be the ba:sis of the imposition of the customs duty and taxes. The', publication of said "established or "information" value is not a prereqc:i:::;ite before it may be the basis of the imposition of customs duty and taxes. Conversely, i l' s non publication is no obstacle to the asessmcnt ct customs duty and taxes based un sucll "established" or "information" value. '1'hc publication is intended as guide in UJe assessment of future shipment of sj m LJ '-'r 1u3o

DECISION - C.T.A. CASE NO. 5265 - 25 - articles. While such published value of on imported article is reliable, ncverthelc::;:>, j n the absence of the same, the Commi :.ston�:;r ot Customs may establish said value from oth::r sources as above provided by l.:1w." Altogether, We find the actions t.l ken }.J './ Committee and the District Collector of Custom:::; lo lJ.c; just, proper and in accordance with law. Accorclin<Jly, herein claim for refund is found to be without bo3js in fact and in law. WHEREFORE, in view of the foregoing, the inst111t Petition for Review is hereby DENIED for lack of rnc::it. No pronouncement as to costs. SO ORDERED. WE CONCUR: I Ch: Q lQ y{,__ I ERNESTO D . �ACOSTA Presiding Judge

DECISION - C.T.A. CASE NO. 5265 - 26 - CERTIFICATIO:\ I hereby cert ify t hat t he above decision was reached after due consul t a t ion wit h t he members of the Co u rt of Tax Appeals in accordance wit h Sect ion 13, Article VIII of t he Cons t i t u t ion. EHNES'l'O D. Icc:_, .cl\. PresiJinCJ Judge ',