G.R. No. L-22212. August 30, 1968
FARM IMPLEMENT & MACHINERY CO., PETITIONER, VS. COMMISSION OF CUSTOMS, RESPONDENT.
SANCHEZ, J.:
Petitioner sought the entry, duty-free, of 118 bags of zinc oxide
dry pigment. The Customs Collector took petitioner’s
importation out of the area in which the
Bell Trade Act, also known as the
Philippine Trade Act of 1946,[1] operates; and directed seizure and forfeiture of the shipment upon the
ground of fraudulent misdeclaration within the
meaning of Section 1363 (m)-3, (m)-4, and
(m)-5 of the Revised Administrative Code.
The Customs ComÂmissioner affirmed. The Tax Court sustained. Hence, this appeal.
First to the facts. On December 27, 1953, the shipment arrived in Manila from New York per SS “Pioneer Mail” consigned by
P.J. Rhodes & Co. of San Francisco, California,
the supplier, to petitioner. These goods
in packages marked “Made in U.S.A.”
were manufactured by New Jersey Zinc Sales
Co. at its factory in Palmerton, Pennsylvania. They were entered as “United States articles”
free of customs duty under the provisions of Section 311 of the Bell
Trade Act.
Upon examination, customs
officers observed the presence of red
labels on all packages. Convinced
because of this that the raw
materials of the goods in question were imported into the United States and were placed under bond until
the finished product was re-exported,
the customs authorities concluded that said goods were subject to 20% duty pursuant to Section 8,
No. 59(c) of the Philippine Tariff Act of 1909. On June
22, 1954, petitioner paid under protest the customs duties in the
sum of P360.00 and advance sales tax of
P31.50 or a total of P391.50.[2] And on July 3, 1954, the Customs Collector at consignee’s
behest released the shipment upon bond of Plaridel
Surety and insurance Co., Inc. in the sum of
P3,815.00, the value of the goods.[3] The goods having been decreed forfeited, the Collector of Customs called
upon bondsman and consignee to pay the amount of this bond.
Return of P391.50 and the
nullification of the forfeiture are sought herein by petitioner.
1. From the factual setting, we go to the law. Section 311 of the Bell Trade Act – the
applicable statute – reads:
“SEC. 311. FREE ENTRY OF UNITED STATES ARTICLES.
During the period from the day
after the date of the enactment of this Act to July 3, 1954, both dates inclusive, United
States articles entered, or withdrawn from
warehouse, in the Philippines
for consumption shall be admitted into the Philippines
free of ordinary customs duty.”
The term “United states
article” is defined in paragraph (a) (5), Section 2 of the same
Bell Trade Act. We quote:
“(5) The term ‘United
States article’ means an article which is the product of the United
States, unless, in the case of an article
produced with the use of materials imported into the United States from any foreign country (except the Philippines) the aggregate value of such imported materials at the time of importation into the United States was
more than twenty per centum of the value of
the article imported into the Philippines, the value of such article to
be determined in accordance with, and as of the time provided by, the customs
laws of the Philippines in effect at the time of importation of such
article. x x x.”
Contemplated in the statutory definition of the term “United
States article” are two groups of tax-free products, namely: (1) those
produced in the United States which are “wholly of the growth,
product or manufacture of the United States”;[4]
and (2) those produced in the United States,
“with the use of materials imported into the United States (except
from the Philippines) the aggregate value” of which “at the time of
importation into the United States” does not exceed twenty per
centum of the value of the article exported to the Philippines, as determined
by our customs laws. As a fill-in, Rule 3(a), Section 3 of the
Philippine Tariff Act of 1909, now Section 201 of the Tariff and Customs
Code, provides: “Whenever imported merchandise is
subject to an ad valorem
rate of duty, the duty shall be assessed upon the actual market value or
wholesale price of such merchandise, as bought and sold in usual wholesale
quantities, at the time of exportation to
the Philippine Islands, x x x.”
2. We now address ourselves to the mechanics of customs law application. A known characteristic of our revenue
statutes is that exemption from payment thereunder
must be construed strictly. And this, we
hasten to add, is in line with the general rule that everyone must bear his
share of the expenses of the Government.[5]
Accordingly, one who claims the privilege of exemption has the burden of proof.[6]
3. In this backdrop, we examine consignee’s evidence. Its posture is that the zinc oxide dry
pigment was “wholly of the growth, product
or manufacture of the United States.”[7] It presented two documents: (1) the sworn certificate of origin dated
November 18, 1953 signed by R.R. Mynderse of P.J. Rhodes & Co., the supplier, that “the articles covered by this product of
United States origin are wholly of the growth, product or manufacture of
the United States” and
that “[no] foreign materials other than those of the Philippines were used at any stage in the manufacture or
production of such articles”;[8]
and (2) a verified certificate dated February 18, 1954 of Robert G. Kenly, vice president of the New Jersey Zinc Sales Co.,
manufacturer, “having knowledge of the facts,” that “the
118 bags” of zinc oxide in question ”were produced in the United
States.”[9]
The Tax Court denying
probative value to the two documents expressed itself in the following
terms:
“The certificate of origin signed R.R. Mynderse of P.J. Rhodes & Co., the exporter of the shipment in question, is not a satisfactory
showing that said article is wholly of the growth, product or manufacture of the United States, and that
no foreign materials other than those of the Philippines
were used at any stage in the manufacÂture
or production of the same because, in the absence of a contrary proof, a shipper which did not manufacture or produce the article cannot be presumed to have knowledge of the source of the
raw materials used in the manufacture of said article. The sworn
statement of Robert G. Kenly, Vice President
of the manufacturing company, to the effect
“that the 118 bags of XX-4 zinc oxide exported to the Philippine Islands in November, 1953 under
bond x x x were produced in
the United States’ does not certify
as to the source of the raw materials. The fact that the zinc oxide in question was produced
in the United States does not give rise to the preÂsumption that the raw materials used therein were
obtained from sources within the United States.”[10]
We find ourselves unwilling to
downgrade the Court of Tax Appeals’ legal conclusions just recited. Indeed, it is not enough that the zinc oxide was manufactured in the United States. To enter the Philippines duty-free, the zinc oxide must
either be (1) wholly of the
growth, product or manufacture of the United States; or (2) produced in the United States with the use of
materials imported therein in part
or in whole (except from the Philippines) provided the value of the raw
materials imported “at the time of importation into the United States” does not exceed
“twenty per centum of the value of the articles imported into the
Philippines,” as determined by our
customs laws. The sworn certificate of
an employee of the supplier really is not determinative of the
exemption. Be holds office in San Francisco, California, located on the
opposite side of the North American
continent, more than 2,000 miles distant from the place of
manufacture. By itself, that certificate
would prove nothing. It is hearsay. The sworn declaration of the vice president of the New Jersey Zinc Sales Co., the
manufacturer, fares no better.
All that was certified to therein was that the zinc oxide was “produced” in the United States. Absent therefrom is a categorical
statement that the zinc oxide was wholly of the growth, product or manufacture of the United States; or
that said zinc oxide was made in the
United States with the use of materials imported into the United States (except from the Philippines) the value of which, reckoned as of the time of
importation thereof into the United
States, does not exceed 20% of the value – according to our customs laws
– of said finished product at the time of exporÂtation to the Philippines.
Certainly, the foregoing
evidence does not make out a duty-free case under Section 311 of the
Bell Trade Act.
4. Not that there is mere lack of evidence here. Evidence there is that at least
part[11]
of the materials used in the manuÂfacture of zinc oxide here involved was
actually imported into the United States. To be
recalled at this point is the red label pasted on each of the packages containing the zinc oxide. This label reads:
“U.S. CUSTOMS
Transportation
Entry No. 01987
From
Palmerton to New York
This package is Under Bond and must
be Delivered Intact to the Chief Officer of
the Customs at New
York.
– WARNING –
Two years imprisonment or $5000.00 fine or both, is the penalty for
unlawful removal of this package or any of its
contents.”[12]
Why were those stickers
attached to the packages of zinc oxide? The April 2, 1954 letter of G.S. Peffall,
Assistant Collector of Customs at Philadelphia, to the manufacturer, the New Jersey Zinc
Sales Co., furnishes the ready answer.
That letter reads:
“Reference is made to your letter of March 31, 1954 (SJacobsen: LVM), in respect to 118 bags zinc oxide produced in your class 7
Smelting and Refining Warehouse established
under the Customs Regulations and
Section 312 of the Tariff Act of 1930.
This shipment was x x x consigned to the Collector of Customs, New
York, the port of exit for final destination, Manila,
P.I.
You request an explanation from this office why red stickers were
attached to the bags of zinc oxide.
In reply you are informed that the customs regulations provide that
red stickers or labels should be used as a precautionary measure to insure
that the merchandise is delivered to the
Collector of Customs at a port
of exit for exportation to a
foreign country. x x x.”[13]
In brief, the above-quoted
letter gives us the following: (1) the 118
packages of zinc oxide were produced in a smelting and refining warehouse established
pursuant to Section 312 of the United States
Tariff Act of 1930; (2) that said packages were
withdrawn from the smelting and refining warehouse and transported to New York
as the port of exit for exportation to
Manila; and (2) that the red stickers were precisely placed to insure delivery of the
same merchandise intact to the
Collector of Customs of New York, “for exportation”. While no explicit statement was made
in said letter as to the actual origin of the raw materials, nonetheless, it
mentions Section 312 of the United States Tariff Act of 1930. And a reading of said Section 312 under whose provisions the smelting and
refining warehouse at Palmerton was established, would show that the
zinc oxide in controversy may have been produced either from wholly imported
raw materials, or from materials of home – together with foreign –
production. Section 312 says:
“The works of manufacturers engaged in smelting or refining,
or both, of ores and crude metals, may, upon
the giving of satisfactory bonds, be
designated as bonded smelting warehouses.
Ores or crude metals may be removed from the vessel or other
vehicle in which imported or from a bonded warehouse, into
a bonded smelting warehouse without the payment of duties thereon, and there
smelted or refined, or both, together with
ores or crude metals of home or
foreign production: Provided,
That the bonds shall be charged with a sum
equal in amount to the regular duties
which would have been payable on such
ores and crude metals if entered for consumption
at the time of their importation, and the several
charges against such bonds shall be canceled upon the exportation
or delivery to a bonded manufacturing
warehouse established under section 1311 of this title of a quantity of the same kind of metal equal to the quantity of metal producible from
the smelting or refining, or both, of the dutiable metal contained in such ores or crude metals, due allowance
being made of the smelter wastage as ascertained
from time to time by the Secretary of the Treasury: Provided further, That the said
metals so producible, or any portion thereof may be withÂdrawn for
domestic consumption or transferred to a bonded customs warehouse
and withdrawn therefrom and the several charges
against the bonds canceled upon the payment of the duties
chargeable against an equivalent amount of ores or crude metals from which said
metal would be producible in their condition as imported: x x x.”[14]
The gist of the United States statute just quoted is that imported ores or materials were allowed to be released to
bonded smelting or refining warehouses without first
paying the corresponding import duties
thereon for purposes of their manufacture into some other finished products. No duty would subsequently
be collected thereon if the finished
product is exported.
However, if such finished product is released for local consumption then
duties are collected.
The foregoing amply explains
the appearance of United States customs
red labels pasted on the packages. They
were placed by the customs
authorities to show that those packages were “Under Bond”.
Which means that no customs duties were actually paid in the United
States for the imported materials used in
the manufacture of the zinc oxide therein contained, as provided in the United
States Tariff Act. They “must be Delivered Intact to the
Chief Officer of the Customs at New York”
– the port of exit to the Philippines. And this,
obviously to prevent the articles (zinc oxide) from being diverted
in transit for home consumption and
thus avoid payment of the said duties on component raw materials imported into
the United States.
The net result is that the
certification of the Assistant Customs Collector
at Philadelphia tied up with the red labels proves that materials imported into the United States, were used – wholly or partly – in the manufacture of the zinc oxide
in dispute. And since there is no evidence that the
“aggregate value of such imported materials
at the time of importation into the United States” does not exceed 20% of the value of the finished product exported to the Philippines, as
aforesaid, then a clear case is made out by our customs authorities in
their refuse to allow entry thereof as duty-free.
In consequence, the prayer for
the refund of customs duty and advance sales tax in the total amount of
P391.50 cannot be granted.
5. We now dwell on the
forfeiture phase of the issues. Of course,
the Court of Tax Appeals correctly found that there was no justification to reverse the findings and conclusions of the Commissioner of Customs “that the 118 bags of
zinc oxide imported by petitioner into the Philippines
were not wholly of the growth, product or
manufacture of the United States“. But
then immediately followed the Tax
Court’s pronouncement that “[c]onsidering the above
finding, the goods in question are subject to forfeiture under Section 1363
(m)-3, (m)-4 and (m)-5 of the Revised Administrative Code.” The non sequitur is apparent.
Paragraphs (m)-3, (m)-4, and (m)-5, Section 1363 of the Revised Administrative Code, under which the
forfeiture decree is predicated, state:
“SEC. 1363. Property subject to forfeiture
under customs laws. – Vessels, cargo, merchandise, and
other objects and things shall, under the
conditions hereinbelow specified, be subject to forfeiture:
x x x
(m) Any merchandise the importation or exportation of which is
effected or attempted in any of the ways or
under any of the conditions hereinbelow
described –
(3) Upon the wrongful making by the owner, importer,
exporter, or consignee of any merchandise, or
by the agent of either, of false declaration or affidavit,
touching such merchandise and in connection
with the importation or exportation of the same.
(4) Upon the
wrongful making or delivery by the same person or persons, of any false
invoice, letter or paper touching such
merchandise and in connection with the importation or exportation of the
same.
(5) Upon the causing
or procurance, by the same person or persons, of any
merÂchandise to be entered or passed at any customhouse by any other
fraudulent practice, device, or omission by
means whereof the Government is or might be deprived
of its lawful duties on such merchandise.”[15]
Requisites for forfeiture
under subparagraphs (3) and (4) above-quoted
are: (1) the wrongful making by
the owner, importer, exporter or
consignee of any declaration or affidavit, or the wrongful making
or delivery by the same persons of any invoice, letter or paper – all touching on the importation or exportation of
merchandise; and (2) that such declaration,
affidavit, invoice, letter or paper is false. The consignee – petitioner here – caused to be
prepared the import entry or declaration.
But it cannot be charged with the wrongful making thereof. Such entry or declaration merely restated
faithfully the data found in the corresponding consular invoice and bill of
lading which in turn were prepared by the suppliers abroad. If any, the wrongful making or falsity of the consular invoice and/or bill of lading could only
be laid at the door of the foreign suppliers or shippers. They are
not the very persons enumerated in subparagraphs (3) and (4). Moreover, the evidence does not show – the
decision of the Tax Court is silent on this point – that the consignee or its
agent delivered to the customs
authorities the importation papers with knowledge of any falsity
thereof. Forfeiture will not lie.
To support forfeiture under
subparagraph (5), there must be fraud
on the part of the importer/consignee to evade payment of the duties
due.[16]
Nothing extant in the decision of the Court of Tax Appeals would tag petitioner with fraud.
For really there is none.
There is no evidence that the
consignee actually knew before hand that the goods in question did not constitute
United
States articles importable duty-free.
In fact, as late as March 5,
1954,[17]
petitioner had to request in writing from its indentor,
F.E. Zuellig, Inc., for further evidence to bolster
the supplier’s (P.J. Rhodes Co.’s) certification upon which it relied for its
claim that the zinc oxide should be allowed
entry duty-free. This only goes to show
that right from the start, the importer was in good faith.
The red labels were attached
to the packages, it is true. But they were not sent here in advance with the
bill of lading. Their existence came to light only upon
notice thereof during the examination of
the merchandise by the customs authorities, but after the filing of
the entry.
And yet, these red labels
could not at once make the zinc oxide come
within the compass of dutiable articles under the Bell Trade Act.
For, at this end, it is well nigh impossible for the importer – unless informed before entry – to know
whether the value of the materials imported into the United States and which
entered into the manufacture of the
zinc oxide would go beyond the 20% limit set forth in the said Bell
Trade Act. And petitioner was not so
informed.
Upon the other hand, there is
the said certificate of origin sworn
to by the shipper’s employee to back up the entry. True, the certificate of origin is not competent evidence. But nothing in the decision of the Tax
Court would show that it is false either.
Nor could the consignee presume that it is. Reliance on that certificate of origin is a
mistake as a matter of law. But inspite of such a mistake,
the consignee could yet be considered to have acted in good faith.[18]
And then fraud is never presumed.
It must be proved.[19]
Failure of proof of fraud is a bar to forfeiture. The reason is that “forfeitures are not
favored in law and equity”.[20]
For the reasons given, the
judgment of the Court of Tax Appeals under review is hereby modified,
And judgment is hereby rendered –
(1) Reversing said judgment of
the Tax Court insofar as it declares the forfeiture of the 118 packages
of zinc oxide dry pigment, the subject of the suit;
(2) Declaring as cancelled and without force effect the bond
issued by Plaridel Surety and Insurance Co., Inc. to
secure the release of the said 118 packages of zinc oxide from customs custody to
petitioner; and
(3) Affirming said judgment insofar as it denies refund of the sum
of P391.50 paid for customs duty and advance sales tax.
No cost.
SO ORDERED.
Concepcion, C.J., Reyes, Dizon, Makalintal, Zaldivar, Castro, Reyes, Fernando, JJ., concur.
[1]
42 O.G. No. 5, p. 1011.
[2]
Customs Record, p. 34.
[3]
Customs Record, p. 45.
[4]
See: Certificate of origin in Consular
Invoice, Customs Record, p. 45.
[5]
Castle Bros., Wolf & Sons vs. McCoy, 21 Phil. 300, 306.
[6] Collector of Internal Revenue vs. Manila
Jockey Club, 98 Phil. 670, 676; Commissioner of Internal Revenue vs. Visayan Electric Co., G.R. No. L-22611, May 27, 1968, citing authorities.
[7]
Petitioner’s Brief, p. 22; Petition for Review, p. 5; Rollo
p. 5.
[8]
Customs Record, p. 45.
[9]
Customs Record, p. 29.
[10] CTA
Record, pp. 83-84.
[11] This, in terms of percentage, is undetermined.
[12] Customs Record, p. 41-A.
[13] Exhibit “2” for the consignee,
petitioner here. Customs Record, p. 30.
[14] 46 Stat. 692, 2 United States Code 2126; emphasis supplied. Also
partially quoted by the Tax Court, C.T.A. Record, p. 83.
[15]
Emphasis supplied.
[16] Li Tech San vs. Collector of Customs, 55 Phil,
482, 484.
[17]
Exhibit “3” for the consignee, Customs Record, p. 31.
[18] Kasilag vs. Rodriguez, 69 Phil, 217, 230-232.
[19] Republic vs. Ker & Company,
Ltd., G.R. No. L-21609, September 28, 1966.
[20]
Yu Phi Kim vs. Amparo, 86 Phil. 441, 446.