ACTING COMMISSIONER OF CUSTOMS, PETITIONER, VS. WISE & COMPANY, INC., AND HONORABLE COURT OF TAX APPEALS, RESPONDENTS.

Acting Commissioner of Customs versus Wise and Company

The Case

This is a petition brought by the Acting Commissioner of Customs against Wise and Company, Incorporated, seeking the reversal of a decision of the Court of Tax Appeals that had ordered the refund of customs duties the company claimed it had overpaid. The dispute is a pure question of customs valuation: on what basis must the Bureau of Customs compute the dutiable value of an imported article subject to an ad valorem duty? The case matters because it fixes, in plain terms, that the dutiable value is the home consumption value declared in the consular invoice, and that the cost, insurance and freight purchase price may not be substituted for it absent a reasonable doubt properly established and pursued through the channels the law prescribes.

Procedural History

Wise and Company paid the assessed duties under protest before the Collector of Customs, who dismissed the protest for lack of merit. The company elevated the matter to the Commissioner of Customs, who affirmed the Collector's ruling. On appeal, the Court of Tax Appeals ruled in favor of the company, holding that the dutiable value is that declared in the consular invoice and not the home consumption value computed from the purchase price. The tax court ordered the refund of sixty one thousand one hundred ninety nine pesos as overpaid customs duties on the first two import entries, but denied refund on the third entry for failure to itemize the exact amount refundable and for failure to file a written claim with the Commissioner of Internal Revenue, who had not been made a party. The Commissioner of Customs then came to the Supreme Court by petition for review, and the Court affirmed the tax court.

Facts

Sometime in 1974, Wise and Company imported titanium dioxide from British Titan Product Company Limited of England in three shipments: ten pallets containing ten thousand kilos in paper bags under the first import entry, twenty five pallets containing twenty five thousand kilos under the second, and ten pallets containing ten thousand kilos under the third.

The customs appraiser assessed customs duties and advance sales tax of fourteen thousand three hundred ninety three pesos, fifty two thousand one hundred thirty one pesos, and nineteen thousand six hundred seventy four pesos on the respective shipments, using the home consumption value based on the cost, insurance and freight purchase price. The company paid under protest, insisting that the home consumption value should have been taken from the consular invoice.

The Collector of Customs dismissed the protest, and the Commissioner of Customs affirmed. The Court of Tax Appeals reversed in part, finding that the dutiable value was that declared in the consular invoice, and ordered a refund on the first two entries while denying it on the third. The Commissioner then brought the matter to the Supreme Court.

Issues

• Whether or not the appraisal of the imported titanium dioxide on the basis of the cost, insurance and freight purchase price, rather than the value declared in the consular invoice, was proper.
• Whether or not the customs appraiser could disregard the consular invoice value under Section 1405 of the Tariff and Customs Code without first establishing a reasonable doubt and resorting to the reports of the Revenue Attache or Commercial Attache as required by Section 201.

Applicable Provisions

Section 201 of the Tariff and Customs Code, as amended by Presidential Decree Number 34, provides:

SECTION 201. Basis of Dutiable Value. --The dutiable value of an imported article subject to an ad valorem rate of duty shall be based on the home consumption value or price (excluding internal excise taxes) of same, like or similar articles, as bought and sold or offered for sale freely in the usual wholesale quantities in the ordinary course of trade, in the principal markets of the country from where exported on the date of the exportation to the Philippines, or where there is none on such date, then on the home consumption value or price nearest to the date of exportation including the value of all containers, coverings and expenses incident to placing the article in a condition ready for shipment to the Philippines, plus (10) per cent of such home consumption value or price.

This is the governing rule on how the dutiable value is computed, and it anchors the entire controversy.

The same section continues:

The home consumption value or price under this section shall be the value or price declared in the consular, commercial, trade or sales invoice. Where there exists a reasonable doubt as to the value or price of the imported article declared in the entry, the correct dutiable value of the article shall be ascertained from the reports of the Revenue Attache or Commercial Attache (Foreign Trade Promotion Attache), pursuant to Republic Act Numbered fifty-four hundred and sixty-six or other Philippine diplomatic officers and from such other information that may be available to the Bureau of Customs.

This fixes the consular invoice as the primary basis and prescribes the only lawful route once a reasonable doubt arises.

The same section further provides:

From the data thus gathered, the Commissioner of Customs shall ascertain and establish the home consumption values of articles exported to the Philippines and shall publish such lists of value from time to time.

This imposes the publication duty that the Bureau failed to observe in this case.

Section 1405 of the Tariff and Customs Code, invoked by the petitioner, provides:

Appraisers shall, by all reasonable ways and means, ascertain, estimate and determine the value or price of the articles as required by law, any invoice or affidavit thereto or statement of cost, or of cost of production to the contrary notwithstanding, and after revising and correcting the reports of the examiners as they may judge proper, shall report in writing on the face of the entry the value so determined irrespective of whether such value is equal, higher or lower than the invoice and/or entered value of the articles.

This grants the appraiser ample leeway, but the Court held it does not license a departure from the criteria laid down in Section 201.

Ruling

On the first issue, the Court held that the appraisal on the basis of the purchase price was not proper. The law is clear and mandatory: the dutiable value of an imported article subject to an ad valorem duty is based on its home consumption value or price as freely offered for sale in wholesale quantities in the ordinary course of trade in the principal markets of the exporting country on the date of exportation, and that home consumption value is the value or price declared in the consular, commercial, trade or sales invoice. Only where there is a reasonable doubt as to the value declared in the entry may the correct dutiable value be ascertained from the reports of the Revenue Attache or Commercial Attache and other available information, and the Commissioner must publish lists of home consumption values from time to time.

On the second issue, the Court held that the petitioner's reliance on Section 1405 was untenable. No reasonable doubt was established as to the veracity of the consular invoice value, and the appraiser's supposed doubt was never explained. Even if it had been explained, recourse to the cost, insurance and freight purchase price was not the remedy the law provides; the remedy is recourse to the reports of the Revenue Attache or Commercial Attache. The Court noted the affidavits of the exporter's joint secretary attesting to the correctness of the declared home consumption value, the consular invoices duly certified by the Philippine Consul, and the failure to comply with the publication requirement. The appraisal was therefore arbitrary and not in accordance with Section 201. The Court also recalled its earlier ruling that even appraisal based on alert notices from finance attaches abroad was not a justifiable deviation from the invoice value, and stressed that administrative proceedings are not exempt from due process, which requires that a finding be supported by substantial evidence presented at the hearing or at least contained in the records or disclosed to the parties affected.

Doctrine

Under Section 201 of the Tariff and Customs Code, as amended, the dutiable value of an imported article subject to an ad valorem duty is its home consumption value, and that value is the price declared in the consular, commercial, trade or sales invoice. The cost, insurance and freight purchase price is no longer the basis of dutiable value. The appraiser's broad authority under Section 1405 does not authorize substituting the purchase price for the invoice value; a reasonable doubt must first be established and explained, and even then the correct value must be ascertained from the reports of the Revenue Attache or Commercial Attache and other available information, with publication of the lists of home consumption values. An appraisal that ignores these criteria is arbitrary and violates due process.

Disposition

The Supreme Court affirmed the decision of the Court of Tax Appeals, upholding the refund of sixty one thousand one hundred ninety nine pesos as overpaid customs duties on the first two import entries.

Remember This

Memorize the line: the dutiable value is the home consumption value declared in the consular invoice, and the cost, insurance and freight price is no longer the basis under Section 201 as amended. Examiners use this case to test the hierarchy of valuation bases and the limits of the appraiser's discretion under Section 1405.