COMMISSIONER OF CUSTOMS, PETITIONER, VS. COURT OF TAX APPEALS, LAS ISLAS FILIPINAS FOOD CORPORATION AND PAT-PRO OVERSEAS CO., LTD., RESPONDENTS.

Commissioner of Customs versus Court of Tax Appeals, Las Islas Filipinas Food Corporation and Pat-Pro Overseas

The Case

This is a petition for certiorari brought by the Commissioner of Customs against the Court of Tax Appeals, Las Islas Filipinas Food Corporation, and Pat-Pro Overseas Company, Limited. The Commissioner asks the Supreme Court to annul a series of tax court resolutions that allowed the release, under a surety bond, of ten containers of refined sugar seized at the Port of Manila. The case matters because it fixes the boundary between the customs officer's power to release seized goods on bond and the absolute statutory bar on release when there is prima facie evidence of fraud in the importation.

Procedural History

The Collector of Customs issued a warrant of seizure and detention, and later the Collectors of both customs districts ordered the shipment forfeited in favor of the government for want of a sugar import allocation. On appeal, the Commissioner of Customs affirmed the forfeiture decisions. The respondents then elevated the matter to the Court of Tax Appeals by petition for review. Before the tax court, the respondents moved to release the cargo for exportation upon filing of a surety bond. Over the Commissioner's opposition, the tax court granted the motion and ordered release subject to a continuing surety bond, and it denied reconsideration. After several resolutions holding the release in abeyance for noncompliance, the shipment was finally released when the respondents complied with the conditions. The Commissioner then came to the Supreme Court on a petition for certiorari, and the Court issued a temporary restraining order enjoining the challenged resolutions.

Facts

Las Islas Filipinas Food Corporation operated an industry-specific customs bonded warehouse catering to food manufacturers. One of the conditions for its operation was securing an import allocation from the Sugar Regulatory Administration every time it imported sugar for its clients. In February 2004, the Thai company Pat-Pro Overseas Company, Limited appointed the corporation as its exclusive offshore trading, storage, and transfer facility in the Philippines, and pursuant to that appointment shipped ten twenty-foot containers of refined sugar to Manila.

The shipment arrived in April 2004. Because the corporation failed to present an import allocation from the Sugar Regulatory Administration, the shipment became the subject of an alert order. A decree of abandonment was later issued for failure to file an import entry, and a warrant of seizure and detention followed, in view of the Sugar Regulatory Administration's advice that no import allocation had been granted. The respondents moved to quash the decree of abandonment, but the motion was denied for having been filed out of time.

On appeal, the Commissioner of Customs found that the respondents had not been informed of the abandonment proceedings, set aside the decree, and ordered seizure and forfeiture proceedings instead. The Republic then instituted those proceedings, contending that the sugar was imported without an import allocation and should be forfeited. The respondents insisted that the sugar was merely transshipped for temporary storage while a buyer was sought abroad, so no allocation was needed. The Collectors ordered forfeiture, and the Commissioner affirmed. It was in the course of the appeal to the tax court that the respondents sought release of the cargo on bond, which the tax court allowed.

Issues

• Whether or not the Court of Tax Appeals committed grave abuse of discretion in ordering the release of the seized shipment of refined sugar under a surety bond despite the absence of an import allocation from the Sugar Regulatory Administration.
• Whether or not the shipment was a mere transshipment for temporary storage, such that no importation took place and no import allocation was required.

Applicable Provisions

Section 2301 of the Tariff and Customs Code of the Philippines governs the release of seized property on bond and provides:

Section 2301. Warrant for Detention of Property-Cash Bond. Upon making any seizure, the Commissioner shall issue a warrant for the detention of the property; and if the owner or importer desires to secure the release of the property for legitimate use, the Collector shall, with the approval of the Commissioner of Customs, surrender it upon the filing of a cash bond, in an amount fixed by him, conditioned upon the payment of the appraised value of the article and/or any fine, expenses and costs which may be adjudged in the case: Provided, That such importation shall not be released under any bond when there is prima facie evidence of fraud in the importation of the article: Provided, further, That articles the importation of which is prohibited by law shall not be released under any circumstances whatsoever: Provided, finally, That nothing in this section shall be construed as relieving the owner or importer from any criminal liability which may arise from any violation of law committed in connection with the importation of the article.

This is the provision the Court holds was disregarded by the tax court, because it bars release on bond where there is prima facie evidence of fraud.

Section 1202 of the same Code defines when importation begins and provides:

Section 1202. When Importation Begins and Deemed Terminated. Importation begins when the carrying vessels or aircraft enters the jurisdiction of the Philippines with intention to unlade therein. Importation is deemed terminated upon payment of duties, taxes and other charges due upon the articles or secured to be paid, at a port of entry and the legal permit for withdrawal shall have been granted, or in case said articles are free of duties, taxes and other charges, until they have legally left the jurisdiction.

This provision supplies the test the Court uses to conclude that importation in fact took place.

Section 2103 of the same Code, on articles entered for immediate exportation, provides:

Section 2103. Articles Entered for Immediate Exportation. Where an intent to export the article is shown by the bill of lading, invoice, manifest or other satisfactory evidence, the whole or part of a bill, not less than one package, may be entered for immediate exportation under bond. The Collector shall designate the vessel or aircraft in which the articles are laden constructively as warehouse to facilitate the direct transfer of the articles to the exporting vessel or aircraft. Unless it shall appear by the bill of lading, invoice, manifest, or other satisfactory evidence, that the articles arriving in the Philippines are destined for transshipment, no exportation thereof shall be permitted except under entry for immediate exportation under irrevocable domestic letter of credit, bank guaranty or bond in an amount equal to the ascertained duties, taxes and other charges. Upon the exportation of the articles, and the production of proof of lading of same beyond the limits of the Philippines, the irrevocable domestic letter of credit, bank guaranty or bond shall be released.

This is the exception the respondents invoke, and the Court finds that none of its requisites was present.

Ruling

On the first issue, the Court granted the petition and held that the tax court gravely abused its discretion. Section 2301 forbids release under bond when there is prima facie evidence of fraud in the importation. Fraud is a generic term embracing all multifarious means which human ingenuity can devise and which are resorted to by one individual to secure an advantage, and since fraud is a state of mind, its presence is determined by examining the attendant circumstances. Here the circumstances showed bad faith, if not outright fraud: the respondents insisted that no import allocation was necessary, yet they filed an application, albeit belatedly, with the Sugar Regulatory Administration for the shipment.

On the second issue, the Court held that importation had taken place and that the transshipment theory failed. Under Section 1202, importation takes place when merchandise is brought into the customs territory with the intention of unloading it at port. The exception is transit cargo entered for immediate exportation under Section 2103, whose requisites are a clear intent to export shown in the shipping documents, designation by the Collector of the carrying vessel as a constructive warehouse, direct transfer of the articles to the exporting vessel, and submission of an irrevocable domestic letter of credit, bank guaranty, or bond equal to the duties and charges. None of these requisites was present. The bill of lading denominated South Manila, Philippines as the port of discharge, which negated any intent to export and contradicted the corporation's representation. The shipment was unloaded from the carrying vessel for storage at the corporation's warehouse, so the only logical conclusion was that the sugar was truly intended for domestic consumption.

Doctrine

First, seized articles may not be released under bond where there is prima facie evidence of fraud in their importation, because Section 2301 of the Tariff and Customs Code makes that bar mandatory. Second, importation takes place when merchandise is brought into the customs territory of the Philippines with the intention of unlading it at port, and the mere storing of goods in a bonded warehouse after unloading is consistent with domestic consumption, not with transshipment. Third, the exception for transit cargo entered for immediate exportation under Section 2103 requires the concurrence of all its requisites, and the failure of any one of them means the goods are treated as imported. Fourth, fraud is a state of mind inferred from attendant circumstances, and conflicting statements and belated applications for a required allocation may themselves establish bad faith.

Disposition

The petition was granted; the challenged resolutions of the Court of Tax Appeals were reversed and set aside, the temporary restraining order was made permanent, and the tax court was ordered to expeditiously decide the seizure cases, with costs against the respondents.

Remember This

Memorize the rule that no seized importation may be released under bond when there is prima facie evidence of fraud, and that the transshipment exception under Section 2103 requires all four requisites to concur. Examiners use this case to test the interplay of Sections 1202, 2103, and 2301 of the Tariff and Customs Code, and to ask when a shipment is truly imported rather than merely transshipped.