CTA Case No. 4597 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY PHILIPPINE CASINO OPERATORS CORPORATIOn. Petltioner, COMMISSIONER OF CUSTOMS, th= C.T.A. CASE NO. 45<}7 --� e .) � P�..c��-.� c-r-;"�1"1'.--+l t�J:.: t"�r .1-.... Promu).:ated : MAY 2 8 1997 _ X- - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X DECISiON Cu::trrrns_. dater:l 12 FebnB.ry 1991, in Seizure Identification No. .' "WHEREFGRE.. finding no reversible error in tlte Dedsi(.�n::; :::1_ppea.1E:-(1 irorn.. the (lecree of forfeiture rJga.inst the importations subject of this proceedings sll�)iJ.ld b(?,. as it L:. lwrBbv AFFIIUvmD. I SO ORDERED."

DECISIOH- C.I.A. CASE HO. 4:)97 -2 - The facts surrounding this case are as follows: Petitioner, Philippine Casino Operators Corporation (PCOC for l)revity), is a private domestic corporation duly organized and existing under the laws of the Philippines. On 5 July 1977, petitioner entered into a Contract to Operate, with tile Philippine Amusements and Gaming Corporation (PAGCOR for short), as concessionaire in charge of the management of the casinos in the country. Sometime in 1901, a certain lvlr. Constancio D. Francisco, �� allegedly representing Pi�.GCOR, "Nrote a letter to the Minister of Finance on 12 June 1901, requesting for an auti10rity to secure the release of various equipment, t3.x-free and duty-free, under the provisions of P.D. No. 1067-B, and at tile same time requested for an endorsement addressed to the Commissioner of Customs and tile Collector of Customs, South Harbor, Manila, to allow tile release of said goods. For the periods 19&2 t;) 19;34, petitioner made various importation of goods, equipments and vehicles vvith the auti10rity .' and approval of Pi...GCOR for tl1e sole and exclusive use of tile casinos. The subject shipments were classified as tax-free importa.tion by tlH Chief of the Finance Revenue Service and by the Chief of the Tax Exempt Industries Division, acting for tile Commissioner of Customs, and therefore tl1e imported articles .. Here released from the Bureau of Customs without t11e need of paying any ta1t and duties. r- .-, .

DECISIOH- C.T.A. CASE HO. 4597 -3 - In 193<3, tlle Bureau of Custmns received an Affidavit executed, on 13 May 193<3, by one Proebel A. G. Cafe (p. 66, Folder 5, Customs records), whose name and signature was later erasecl for unkno-vvn reasons, informing tlle Bureau of his alleged personal knowledge regarcling various importation of goods, equipments and vehicles made by PAGCOR. The ownership was allegedly u�ansferred to PCOC, herein petitioner, a private entity which is not exempt from taxes and duties. On the basis of tJ1is Affidavit, an investigation was " conducted by the Customs Intelligence and Investigating Service of llie Bureau of Customs and a Memorandum Report, dated 2 7 February 1989, willi the attached "Building Machineries & Equipments Inventory", was prepared recommending the issuance of a Warrant of Seizure and Detention for the approval of the Commissioner of Customs, pertinent portion of which reads as follows: "The \lice-President \.vas a certain }�ilL .' Constantino Francisco, vvhose name apparently does not appear in the roster of PAGCOR Executives. However. taking a close scrutiny of all available . records/evidences in our possession, it turns out tJ1at his signature appears in all u�ansactions which have something to do with PAGCOR, specifically on these very vit3.1 importations. The trutJ1 of the matter is that t11e PCOC, .v. hich is a private entity contracted by PAGCOR to handle tlw operations of tl1e casino, was the real consignee of the said importations. It is.. therefore becoming evident from tl1e foregoing lliat the PCOC, being a private entity and appearing to be sole and real consignee of said

DECISIOB- C.I.A. CASE BO. 4597 -4 - importations, was not authorized by law to avail of tax-free importations for such articles. It is indeed, unfortunat-e t11at the anomalous importations of tlw said articles by PCOC have deprived the government of its much neecled revenues to enhance its economic development or specifically tf) be utilized for otl1er productive activities. In addition thereto, the Provident Int.ernal Resources Corporation (PIRC), another entity Nhich was also headed by Mr. Edv?ard Marcelo, with Mr. Constancio Francisco acting in the capacity as Mr. Marcelo's assistant, is tlle ovvner of the land and building where tlle said casino building is now. It could be adduced tlal t about 90% of such import:l.tions are liouse(l/installed in the said l)uilding. XXX XXX XXX. In vievv hereoC it is respectfully pra;red tl1at a Warrant of Seizure and Detention be issued against t11e unauthorized importations of tl1e Philippine Casino Operators Corporation (PCOC)." As a result thereof, a '.r.rarrant of Seizu.re and Detention No. 89-092 was issued by the District Collector of Customs, Port of .\ Manila, on 6 March 1989, it appearing that the articles import.ed were allegedly subject to forfeiture under Section 2 530(f) and (1) 1, 3, 4 and 5 of the Tariff and Customs Code, as amended. The .iVarrant of Seizure and Det.ention was served on petitioner on 8 March 1989 in the Provident Int.ernational Resource Corporation [PIRC] (Old Ca.sino) Building situat.ed along the Ninoy Aquino, Sucat, Para1iaque "';ren: said articles are locat.ed. Majority of the it.ems consist of heavy equipments so inst.ead of confiscating them

DECISION- C_T _A_ CASE HO_ 497 -5- the satne wete merely sealed of inside the premises. Some items in t11e Inventory Lists have been ordered dropped or excluded for t11ey have already been consumed and/or no longer in its possession. Several hearings were conducted by the Bureau of Customs regarding Seizure Identification No. 69-092 entitled Republic of the� Philippines v. Various importations allegedly of PAGCOR located inside PIRC Building, Philippine Casino Operators Corporation, Claimant. j It is t11e position of the prosecution tlmt the importations were never authorized by PAGCOR and therefore the 0\�1/nership thereof does not belong to PAGCOR. Moreover, the tax exemption privileges of PAGCOR does not extend to PCOC who is the real owner of tlle articles imported. To support its claim, t11e prosecution pointed that the alleged representative of PAGCOR, Mr. Constancio Francisco, Officer in Charge of PAGCOR, who made representations for and in bel1alf of PAGCOR in requestlng for tax .' and duty free exemptions in t11e Ivlinistry of Finance, is not actually an officer or employee of PAGCOR nor v\o'aS he in anyway connected with the firm. A Certification to t11is effect, dated July 6, 198 7, vi/3.S signed by lvlrs. Florencia B. Aguas, Managing Head, Personnel and Administration Departn1ent of PAGCOR. To show tllat the various importation were for PCOC and not PAGCOR, the prosecution presented documents to prove that it was PCOC who moved for t11e release of the articles seized by the Presidential Commission on Good Government (PCGG). In sum, the prosecution

DECISIOB- C.T.A. CASE llO. 4597 -6 - -.'.v ants to show that the imported articles were released through fraudulent means and by misrepresent:ttion without the proper payment of taxes and duties by PCOC thus v'larranting the forfeiture of tlle articles. Moreover, the exemptions of P GCOR A ... ... does not extend to PCOC a private entity. The claimant (PCOC) on the other hand, averred that tile importations were authorized by PAGCOR by virtue of the Contracts to Operate l)etween PAGCOR and PCOC which provides in par. 2(e) - that "(t)he CONCESSIONAIRE shall be authorized in � behalf of the FRANCHISEE to acquire, lease personal property and to procure eiti1er local or imported equipment and facilities from foreign sources as may be required in tile casino operations;" for t11e sole and exclusive use of the (asinos operated and managed by PCOC. After hearing the sides of boti1 parties, the District Collector of Customs, ort of Manila, rendered a Decision, dated 22 February 1990, finding the articles imported eiti1er belonging to PCOC or PIRC and not to PAGCOR. The exemption of PAGCOR as franchise holder does not extend to its concessionaires even though tile articles imported are to be used exclusively for tile casinos it operates. The claimant failed to present tlle specific grant of exemption to confer to it the same privileges given by laN to PAGCOR. The Contract to Operate did not in any vv'ay transfer these privileges to PCOC since tax exemptions are intnmsferrable and unassignable. Thus, the articles sealed in the

DECISIOH- C.T A. CASE HO. 4597__ -7- premises of � PIRC were ordered forfeited in favor of tJ1e government. On appeal to tlle Commissioner of Customs, the respondent Commissioner rendered a Decision, dated 12 February 1991, coniirming tlle order of forfeiture and affirming tile decision of the District Collector of Customs, Port of Manila. PCOC was served a copy of the respondent's Decision on 13 March 1991. On 19 March 1991 PCOC filed a Motion for Reconsideration which was later arnended on 1 flpril 1991. Without waiting for the resolution of its motion for reconsideration as amended, petitioner filed its appeal vl!ith tllis Court on 12 April 1991 seeking for the reversal of the Decision of respondent, dated 12 February 1991, and declaring tlle forfeiture to be null and void. The issue to be resolved is wheti1er or not tile imported articles forfeited by respondent in favor of tile government are exempt from tile payment of t:lxes and duties. Respondent maintains ti1at the tax exempting privileges of .' PAGCOR as provided for under its Franchise is intransferable and unassignable because exemptions from taY&-S are strictly construed and an exemption cannot be claimed unless granted by tile express provision of law. Petitioner contends that by virtue of its Contracts to Operate with PAGCOR, tile tax exemption privileges of PAGCOR extend to it pursuant to P.D. No. 1067-B, as amended by P.D. No. 1399, 2 June 197&, pertinent portion of which provides as folloNs:

DECISIOH- C.I.A. CASE HO_ 4597 -a - �section 4_ EXEMPTIONS_ - ( 1) .Duties_. l.iixes and t'f.ber imposL on importau.,.ns.. - All importations of equipment. vehicles. autK>mobiles. boats, ships, barges, aircraft and such other gambling paraphernalia. including accessories or related facilities. for the sole and exclusive use of t11e casinos. t11e proper and efficient management and administration thereof. and such other clubs, recreation or amusement places to be established under and by virtue of this Franchise shall be exempt from tl1e pavment of duties. taxes an<l ot11er impost'j, including all kinds of fees. levies. or charges of any kind or nature. XXX XXX. (2) Income and ot.ber taxes.. - (a) Franchise Holder: XXX XXX XXX. (b) Others: The exemption herein granted for earnings derived from the operations conducted un<jer the franchise, specifically from t11e payment of any tax. income or otllert;,qise. as t,;..l. ell as any form of charges. fees or levies. shall inure to the benefit of and extend to corporation/s. association/s, .' agency/ies, or incliviclual/s with whom tl1e Fra.nchisee has any contractual relationship in connection V�rith the operations of the casino/s authorized to be conducted under the franchise and to those recervmg cornpensation or other remuneration from the Franchise Holder as a result of essential facilities furnished ancl./or technical services rendered to the Franchise Holder." (Emphasis Ours.) vVe agree 'Nitll petitioner. As a matter of fact, tlle subsequent codification and amendments of P.D. Nos. 1067-A,

DECISION- C.T.A. CASE HO. 4597 -9- 1067-B, 1067-C, 1.399 and 1632, relative to the franchise and pm..vers of Pi�i!COR, enacted under P.D. No. 1&69, 11 July 1983, the following tax exemption privileges of PAGCOR and its concessionaires still retna.in, as provided under Section 13 thereof, to wit: �sEC. 13. Exemptions.. - ( 1) Cust..,ms dut.ies_. taxes a.od other Impc.1sts o.o imporl3tio.os. - All importations of equipment, vehicles, automobiles, boats, ships, barges, aircraft � and such other gambling paraphernalia, including accessories or related facilities, for the sole and exclusive use of the casinos, the proper and eiiicient management and administration tlwreof, ancl such ot11er clubs, recreation or amusernent places to be establishecl under and by virtue of this Franchise shall t>e exempt from the payment of all l(inds of customs duties, taxes and other imposts, including alll(inds of fees, levies, or charges of any kind � or nature, -vvhetller National or Local. XXX XXX XXX. (2) I.o.-:.1me a.od ot.ber taxes. - (a) .' Franchise Holder: XXX XXX X X X. (b) Others. The exemption herein granted for earnings deri"ved from U1e operations conducted u.nder tlw franchise s�peciiically from the payrnent of any tax, income or otherwise, as well as any form of charges, fees or levies, shall inure to t11e l)enefit of and extend to corporation(s), association(s), agency(ies), or individual(s) vvith whom the Corporation or operator has any contractual relationship in connection with the operations of the casino(s) aut110rized to be conducted under t11is Franchise and to those receiving compensation or

DECISIOH- C T A __ _ CASE HO_ 4j97 - 10 - ot11er remuneration from t11e Corporation or operator as a result of essential facilities furnished and/or technical services rendered to the Corporation or operator. The fee or remuneration of foreign entertainers contracted by t11e Corporation or operatJ)r in pursuance of this provision shall be free of any t:tx... In a precedent case, involving the same parties, the Court had the occasion to rule that the tax exemption privileges of .j PAGCOR extends to corporations having contractual relations with PAGCOR, thus it was held: "It vv-as not disputed that petitioners, Philippine Casino Operators Corporation (PCOC) and Provident International Resources Corporation (PIRC), llacl contractual relations (EYJls. A and D for PCOC's Contracts to Operate and Exhs. B, C and E for PIRC's Contracts of Leases) with PAGCOR. It v1as also not disputed that uncler PI>. Nos. 1399 and 1869, PAGCOR was exempted fron1 any kind or form of tax, except a franchise tax oi 5% oi the gross revenues derived by PAGCOR. Such exemption was also .' extended to tllose entities having �contractual relationship in connection \�V"itll t11e operations of the casino/s...' x x x" (Philippine Casino Operators Corporation v_ Commr_ of Internal Revenue CTA Case No_ 4341; Provident International Resources Corporation v _ Commr_ of Internal Revenue CTA Case Nos_ 4341 and 4342 12 April 1995J vVllile it is a fact that the artides imported v.rere consigned in the name of petitioner still the same are not subject to taxes

DfC!SlO.!f - LI _A_ CAS:� llO_ '1597 11 - -� � � .:;. p ,\, .l... r..J l�-�-ct- R-.. . . t ... �-�--t- . --:-11.1.-'�-.l+ ,a- �nr"" pllI� J l ---l J �__.._ tll� t�':: tJ-:-. �-�4.T.-":;-.;1�-J..1' rT-1� t- �.,;..J 1-l;C':,: n1�� t�l- Vl� l lb-- . t;::.;:) \rj.f -. .,.11\.'_1 ... .. �-� .a::.. ezt(-:nd to PCOC and PIRC sine.:: both have c:ontractu3.1 relations ��;I,�.L- t-1-1 rr-,.-;..l JlJ-t.-_)R-. . Tl-lo--:- -:.�L-t�:'': 1' -. u�-� '-----�' od..t:.;-.I- Jt.�l t t.-til- at t"w:'l, 1. t-i1rrJ�ort_r�",;:�._��1 o":'t.t-ti�,v_1, c__,� .- :.e� 1� c...,e . ,r--:l In viel_,\l tlwr-eof. the articles imported by petitioner, as consign-ee t ;-�. - rr, J.l!...L' rl-� -�(--;� P. _, .-c.J..[ v "- .----} ,_,t.;-.' �l-I1;:.;.., ,rl ;-.:1' .: ..T. .�-� t -I1T1'J t ft�t'_J�t�I-1 t" ,,,.s ancl <--l ut1� :;:.c� �J'�- Hence, the .. �-:A.Jt:: ._. -- -� irnportJ.t.ion thereof are vaJid and legal. WHEREFORE, finding the petition t(l be meritorious the :::ane i::; hereby GRAN-j, TED_ Re!;:pondent's Decision da(l 12 FebPJ.arv 1 ()() 1 is llerebv,. set 8Side c:1.11cl the Decree of Forfeiture J �v�oid. spondent. is hereby ordered to release in favor of pet.1ti<>ner all J.rticle:::; previously sealed and forfeited by the fonner under :.:e1zure Identific:J.tion No. 89-092 (Custorns Case Nc). 91-04). No ((;::t of suit SO ORDERED_ .' I I I CONCUR: I ,.-.J ' D ERNESTO A .. OSTA

DfC!Sint! - C.LA._ CASE NO. 1:)97 - 12 - CERTIFICATION I hreby certify that thL:; dedsion Has reached after due :J.�->/)rdance Vlitll Se..:.tion 13.. Article 'li I I of the Constitution. L(Q..o ERNESTO D. ACOSTA .' ... .