CALTEX (PHILIPPINES) INC., PETITIONER, VS. ACTING COMMISSIONER OF CUSTOMS, RESPONDENT.

Pursuant to Department of Finance Order No. 22 dated May 19, 1960
(effective April 25, 1960), the Bureau of Customs, in converting the value of
importations from dol­lars to pesos, added to the peso value the 25% margin fee
imposed by Republic Act 2609, for purposes of determining the customs duties
and special import tax due on said shipments.

Alleged in this case are two causes of action:

First Cause of
Action

Caltex (Philippines)
Inc. (hereinafter called Caltex for short) imported
crude oil through the port of Batangas during the period
from November 14, 1960 to April 12, 1961.  For the various shipments of crude oil Caltex paid to the Bureau
of Customs the sums of P1,231,081.00 and P2,235,788.00 as customs duty and special
import tax, res­pectively.  Without the margin fee being added to
the peso value of the crude oil, Caltex would have
been liable only for P995,897.00 as customs duty an P1,809,911.00 as spe­cial import tax.

Second Cause of
Action

From August 27, 1960 to April 22, 1961 Caltex
received 14 shipments of various articles entered through the port of Davao.  For the shipments it paid to the Bureau of Customs P18,897.33 in customs
duty, and P24,556.82 in special
import tax.  Sans the margin fee, the
customs duty and special import tax would have been only P15,193.13 and
P19,784.77, respectively.

Contending, in both Instances, that the 25% margin should not be
considered in converting the value of the importations from dollars to pesos
for purposes of impos­ing customs duty and special import tax due thereon, Cal­tex filed formal protests with the Collectors of Customs
of Davao and Batangas, and
claimed the difference in the total amount of P669,537.25.  Both Collectors denied the pro­tests.  Appeals to the Commissioner of Customs proved
fu­tile, hence Caltex went to the Court of Tax
Appeals, which court rendered the following judgment on May 25, 1965:

“WHEREFORE, judgment is hereby rendered dismissing the
petition for review, with costs against the petitioner.”

Caltex timely appealed to this Court
from said judg­ment, raising the issue of whether or not the Bureau of Customs
correctly added the margin fee of 25% to the peso value of the importations for
purposes of determining the customs duty and special import tax due
thereon.  Stated differently, the
question is, should the tax base of the customs duty and special import tax
include the 25% margin fee?

Caltex supports the negative for two
reasons, namely, (1) that the 25% margin is not among the items enumerated in
Section 201 of the Tariff and Customs Code and Section 3 of Republic Act 1394 which constitute the value of im­ported
articles for purposes of imposing the customs duty and special import tax; and
(2) that the margin fee is not a part of the conversion rate of our currency.

The Commissioner of Customs admits that the margin fee does not constitute a part of the value of
the impor­tations in question as provided for in Section 201 of the Tariff and
Customs Code and Section 3 of
Republic Act 1394, but maintains, sustained by the Court of Tax Ap­peals, that
it (margin fee) is part of the rate of exchange.

The view of the Commissioner of Customs and the Court of Tax
Appeals that the margin fee is part of the rate of exchange must be sustained.

Section 204 of the Tariff and Customs Code provides that for the
assessment and collection of import duty upon imported articles and for other
purposes, the value and prices thereof quoted in foreign currency shall be
conver­ted into the currency of the Philippines at the current rate of exchange or value specified or published, from time to time,
by the Central Bank of the Philippines. 
The phrases “current rate of exchange” and “value
specified or published, from time to time, by the Central Bank” do not
necessarily mean the par value of the peso as fixed by Section 1 of the Coinage
Act of March 2, 1903 of the United States Congress.  They mean the value of the peso as fixed by
the Central Bank regardless of the par value of the peso under the Coinage Act
of 1903.

At the time the Coinage Act was enacted – March 2, 1903 – the
value of a particular gold currency was prin­cipally determined by, and
dependent upon, its gold point content. 
No direct control was exercised by governments over exchange rates: But
as foreign exchange transactions progressed through the years the different trading
coun­tries gradually became less dependent upon the “gold point”
system and shifted to “controlled” exchange rates which is an
intermediate classification unfixed by gold points but controlled to some
extent by government action.^[1]
Con­trol by government action of the exchange rate was the motivating factor
when our own Congress provided for a built-in authority in Section 74 of Republic Act 265 to the Central
Bank to establish a uniform margin on foreign exchange.

A margin levy on foreign exchange is a form of ex­change control
or restriction designed to discourage im­ports and encourage exports, and
ultimately “curtail any excessive demand upon the international
reserve”^[2]
in or­der to stabilize the currency. 
Originally adopted to cope with balance of payment pressures, exchange
restrictions have come to serve various purposes, such as limiting non­essential
imports, protecting domestic
industry – and when combined with the use of multiple currency rates – provid­ing
a source of revenue to the government, and are in many developing countries
regarded as a more or less inevitable concomitant of their economic development
programs.^[3]
The different measures of exchange control or restriction co­ver different
phases of foreign exchange transactions, i.e., in quantitative restriction, the
control is on the amount of foreign exchange allowable.  In the case of the margin levy, the immediate
impact is on the rate of foreign
ex­change; in fact, its main function is to control the ex­change rote without
changing the par value of the peso as fixed in the Bretton
Woods Agreement Act.  For a member nation
is not supposed to alter its exchange rate (at par value) to correct a merely
temporary disequilibrium in its balance
of payments.^[4] By
its nature, the margin levy is part of the rate of exchange as fixed by
the government.

The legality of the
imposition of the margin levy in relation to the so-called Bretton
Woods Agreement Act and the Central Bank Act has been sustained by Us in
Chamber of Agriculture and Natural Resources of the Philippines vs. Central Bank, L-23244, June 30,
1965.  The argument therefore that its imposition
insofar as it would affect the rate or exchange of our currency has no legal effect is of no moment.  It is reassuring to note that as a matter of policy, the International Monetary
Fund has not outlawed the adoption of exchange restrictions but recognized that
the elimination of such restrictions will
take some time.^[5] Moreover, the goal in imposing the margin
levy – to stabi­lize our currency – is
the very same objective being under­taken by the International Monetary
Fund as provided for by Article IV, Section
4(a) of the Articles of Agreement of the International Monetary Fund.  The margin levy, as contemplated by the
following provision in Section 1 of Republic Act 2609:

“In implementing the provisions of this Act, along with other monetary, credit and fiscal measures to stabilize
the economy, the monetary authorities shall take steps for the adoption of a
four-year program of gradual decontrol.”

is not permanent and will eventually be done away with as soon as fundamental
disequilibrium in the monetary posi­tion of the country is corrected.

As to the contention that
the margin levy is a tax on the
purchase of foreign exchange and hence should not form part of the exchange
rate, suffice it to state that We have already held the contrary for the reason
that a tax is levied to provide
revenue for government operations, while the proceeds of the margin fee are
applied to strengthen our country’s international reserves.^[6]

With respect to the
special import tax, Republic Act 1394 does not specify the rate of exchange to
be used in its determination.  It is observed however that Section 3 of
Republic Act 1394 which provides for the tax base upon which it could be
computed is similar to Section 201 of the Tariff and Customs Code which
provides for the tax base upon which customs duties are imposed, and that both
provisions have the same source – Rule
13(a) of the Philippine Tariff Act
of 1909.  Both provisions are in pari materia and should therefore be construed and applied si­milarly, in the sense that for
purposes of reckoning the special import
tax due on the imported articles in ques­tion, the value
of said
articles expressed in foreign cur­rency
should be converted at the current rate of exchange which includes the margin levy of 25%.

WHEREFORE, the judgment appealed from is
affirmed.  With costs against petitioner.

SO ORDERED.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Ruiz Castro, Angeles, and Fernando,
JJ., concur.

^[1]
Bach, ECONOMICS, 3rd Ed., Prentice Hall,
p. 706.

^[2]
See Section 1, R.A. 2609.

^[3]
See
INTERNATIONAL MONETARY FUND, Fourth Annual Report on Exchange Restrictions, pp. 2 to 10, cited in UNITED NATIONS (REPORT OF THE SECRETARY GENERAL, The
International Flow of Private Capital, 1946?1952, p. 52).

^[4]
Chandler, THE ECONOMICS OF MONEY
AND BANKING, Harper & Brothers, p. 426.

^[5]
Id., p. 430.

^[6]
Chamber of Agriculture & Natural Resources of the Phi­lippines v. Central Bank, L-23244, June 30, 1965.