CALTEX (PHILIPPINES), INC., PETITIONER, VS. COURT OF APPEALS AND COMMISSIONER OF CUSTOMS, RESPONDENTS.

Caltex versus Court of Appeals and Commissioner of Customs

The Case

This is a petition for review brought by Caltex, an oil company, against the Court of Appeals and the Commissioner of Customs. Caltex imported crude oil in 1982 and was assessed ad valorem duties computed on the gross actual receipts, without deducting the basic sediment and water, known as BSW, contained in the oil. Caltex protested, insisting that the BSW should first be removed from the dutiable weight. The case matters because it settles two things a reviewee must carry: first, that an unpublished customs memorandum which increases duties cannot be upheld, and second, that the dutiable value of imported goods is the home consumption value shown in the invoice, subject to the sworn declarations in the Import Entry permit, and that BSW, being a natural part of crude oil, is not deducted.

Procedural History

Caltex timely protested the assessments before the Collector of Customs, but the protests were disregarded in a decision dated December 19, 1983. Caltex elevated the matter to the Commissioner of Customs, who affirmed the Collector in a decision dated October 23, 1984. Caltex then filed a petition for review with the Court of Tax Appeals, which on August 9, 1991 ruled in its favor and reversed both the Collector and the Commissioner, ordering a refund or credit of the amounts assessed. The Commissioner of Customs disagreed and filed a petition for review with the Court of Appeals, which on February 12, 1992 set aside the decision of the Court of Tax Appeals and reinstated the ruling of the Commissioner of Customs. Caltex moved for reconsideration, which the Court of Appeals denied in a resolution dated March 19, 1992. Caltex then came to the Supreme Court by petition for review.

Facts

Caltex, a corporation engaged in the oil industry, imported on various dates in 1982 light and medium mix special oil and heavy crude oil. The Collector of Customs assessed ad valorem duties on three importations: 97,697 pesos and 14 centavos for the shipment that arrived on April 10, 1982; 119,572 pesos and 32 centavos for the shipment that arrived on June 7, 1982; and 60,769 pesos for the shipment that arrived on July 19, 1982.

The assessments rested on a memorandum dated January 26, 1971 issued by the then Acting Commissioner of Customs, which directed that customs duties and taxes on the importation of crude oil be based on the gross actual receipts without deducting the BSW, a departure from the previous practice. Caltex protested on the ground that the BSW content should have been deducted before imposing the ad valorem duties.

Before the Supreme Court, Caltex submitted sales invoices from its seller in Saudi Arabia showing a net barrel computation, that is, crude oil without BSW. But the Import Entry permit it had filed with the Collector of Customs showed the opposite: the BSW contents were not deducted in the purchase price. The Commissioner of Customs had never denied that the 1971 memorandum was unpublished.

Issues

• Whether or not the unpublished memorandum of the Acting Commissioner of Customs, which increased the imposable duties on oil importations, may be upheld.
• Whether or not the basic sediment and water should be deducted from the gross actual receipts in determining the imposable ad valorem duties.
• Whether or not the Court of Appeals erred in not dismissing outright the petition for review for failure to serve a copy on Caltex within the fifteen-day period under Circular No. 1-91 in relation to Circular No. 28-91.

Applicable Provisions

Section 3502 of the Tariff and Customs Code provides:

Section 3502. Application of Established Ruling or Decision. A ruling or decision of the Commissioner of Customs which determines the construction or application of any provision of law decreeing forfeiture of imported articles or imposing customs duties, fines, fees and surcharges and which changes any existing established appraisal, interpretation or practice shall not take effect until after thirty days public notice shall have been given in the form of a published customs decision. When such ruling or decision favors the taxpayer it shall become effective immediately.

This provision requires publication before a customs ruling that changes an established appraisal or practice may take effect, and it is the basis for the Court's holding that the unpublished memorandum cannot be upheld.

Section 1301 of the Tariff and Customs Code provides:

Persons Authorized to Make Import Entry. Imported articles must be entered in the customhouse at the port of entry within five days from the date of discharge of the last package from the vessel either by the importer, being holder of the bill of lading, by a duly licensed customs broker acting under authority from a holder of the bill or by a person duly empowered to act as agent or attorney-in-fact for each holder; Provided, That the Collector may grant an extension of not more than five days: Provided, further, That where the entry is filed by a party other than the importer, said importer shall himself be required to declare under oath and under the penalties of falsification or perjury that the declarations and statements contained in the entry are true and correct: Provided, finally, that such statements under oath shall constitute prima facie evidence of knowledge and consent of the importer of violation against applicable provisions of this Code should the importation turn out to be unlawful or irregular.

This provision makes the sworn declarations in the Import Entry permit presumptively true and correct, which is why the Court preferred the permit over the sales invoices.

Circular No. 1-91 provides:

5. HOW APPEAL TAKEN. Appeal shall be taken by filing a verified petition for review in six legible copies, with the Court of Appeals, a copy of which shall be served on the adverse party and on the court or agency a quo. Proof of service of the petition on the adverse party and on the court or agency a quo shall be attached to the petition.

This circular governs the service requirement for a petition for review, and the Court applied it with substantial compliance in mind.

Circular No. 28-91 provides:

A petition filed under Rule 45, or under Rule 65, or a motion for extension may be denied outright if it is not clearly legible, or there is no proof of service on the lower court, tribunal, or office concerned and on the adverse party in accordance with Section 3, 5 and 10 of Rule 13, attached to the petition or motion for extension when filed.

This circular allows outright denial for defective service, but the Court read it as permitting substantial compliance under justifiable circumstances.

Ruling

On the first issue, the Court held that the memorandum cannot be upheld. Issuances of an administrative agency have the force and effect of law, and when they are of general applicability, publication is necessary as a requirement of due process. The memorandum increased the imposable duties on oil importations, a departure from previous practice, and it interfered with the property rights of oil importers. Since it was never published, it cannot stand. The Court, however, mindful that the collections were made in reliance on the memorandum and that customs duties are the lifeblood of the nation, applied the doctrine that a declaration of nullity may have legal consequences, treating the invalid act as an operative fact. Caltex also knew of the memorandum, having imported under it from 1971 to 1982 without objection, and relief is denied to a litigant who has slept on his rights.

On the second issue, the Court held that the BSW should not be deducted. The dutiable value of an imported article subject to an ad valorem duty is based on its home consumption value, which is the price declared in the consular, commercial, trade or sales invoice. The Court quoted its earlier ruling:

The law is clear and mandatory. The dutiable value of an imported article subject to an ad valorem rate of 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 country from where exported on the date of exportation to the Philippines. That home consumption value or price is the value or price declared in the consular, commercial, trade or sales invoice.

But where the sales invoice and the Import Entry permit conflict, the permit prevails, because sworn statements before customs officials are conclusive and are admissions against interest. Caltex's permit included the BSW in the total purchase price, so the Collector did not err in imposing the twenty percent ad valorem duty on that basis. The Court also held that BSW is an integral part of crude oil, since water and sand are natural properties of crude oil, and no deduction is allowed for impurities except those not usually found in the goods.

On the third issue, the Court held that while the petition for review was not served on Caltex within the fifteen-day period, it was furnished the very next day, and this proximity may be pleaded as substantial compliance. The Court quoted its earlier ruling:

It is scarcely necessary to add that Circular No. 28-91 must be so interpreted and applied as to achieve the purposes projected by the Supreme Court when it promulgated that Circular. Circular No. 28-91 was designed to serve as an instrument to promote and facilitate an orderly administration of justice and should not be interpreted with such absolute literalness as to subvert its own ultimate and legitimate objective or the goal of all rules of procedure which is to achieve substantial justice as expeditiously as possible.

Doctrine

First, an administrative issuance of general applicability that increases customs duties must be published before it takes effect; without publication it violates due process and Section 3502 of the Tariff and Customs Code. Second, a declaration of nullity may have legal consequences, and the invalid act is treated as an operative fact where collections were made in reliance on it. Third, the dutiable value of an imported article subject to an ad valorem duty is its home consumption value, that is, the price declared in the sales invoice. Fourth, where the sales invoice conflicts with the Import Entry permit, the sworn declarations in the permit prevail as admissions against interest. Fifth, BSW is an integral part of crude oil and is not deducted from the dutiable weight. Sixth, procedural rules like Circular No. 28-91 admit of substantial compliance.

Disposition

The petition was dismissed and the decision of the Court of Appeals dated February 12, 1992 was affirmed, with no costs.

Remember This

Memorize this line: the dutiable value is the home consumption value in the sales invoice, but the sworn Import Entry permit prevails over the invoice, and BSW is part of crude oil. Examiners use this case for the publication requirement for administrative issuances and for the operative fact doctrine in customs taxation.