Pilipinas Shell Petroleum Corporation vs. Commissioner of Customs

In the absence of fraud, the government's right to claim that imported articles are deemed abandoned under Sections 1801 and 1802 of the Tariff and Customs Code of the Philippines (TCCP) and to collect the dutiable value thereof is subject to the one-year prescriptive period for finality of liquidation under Section 1603 of the same Code, counted from the date of final payment of duties; consequently, the government's action to collect the dutiable value of the importation filed beyond this period is barred by prescription.

Pilipinas Shell Petroleum Corporation is a domestic corporation engaged in the business of importing crude oil, processing it into finished petroleum products, and distributing these products. In April 1996, Shell imported 1,979,674.85 U.S. barrels of Arab Light Crude Oil through the vessel Ex MT Lanistels. The shipment arrived in the Philippines on April 7, 1996, and was discharged from the vessel into Shell's oil tanks at its privately owned wharf in Batangas City on April 10, 1996. On April 16, 1996, Republic Act No. 8180 (the "Downstream Oil Industry Deregulation Act of 1996") took effect, reducing the tariff duty on imported crude oil from ten percent (10%) to three percent (3%).

• On April 7, 1996, Pilipinas Shell's importation of 1,979,674.85 U.S. barrels of Arab Light Crude Oil arrived in the Philippines via the vessel Ex MT Lanistels.
• The shipment was discharged from the carrying vessel into Pilipinas Shell's oil tanks at its privately owned wharf in Tabangao, Batangas City on April 10, 1996.
• Republic Act No. 8180 took effect on April 16, 1996, reducing the tariff duty on imported crude oil from ten percent (10%) to three percent (3%).
• On May 23, 1996, or forty-three days from the date of discharge, Pilipinas Shell filed the Import Entry and Internal Revenue Declaration (IEIRD) and paid import duties amounting to P11,231,081.00, computed at the reduced rate of three percent (3%).
• On August 1, 2000, Pilipinas Shell received a demand letter dated July 27, 2000 from the Bureau of Customs assessing deficiency customs duties of P120,162,991.00, representing the difference between the old rate of ten percent (10%) and the three percent (3%) rate paid.
• On October 29, 2001, or more than five years after payment, Pilipinas Shell received another demand letter from the Commissioner of Customs demanding payment of P936,899,885.90, representing the total dutiable value of the 1996 importation, alleging that the goods were deemed abandoned in favor of the government by operation of law due to the failure to file the IEIRD within the thirty-day period under Section 1301 of the TCCP.
• Pilipinas Shell protested both demand letters, arguing that the claims had already prescribed and lacked factual and legal basis.
• The Bureau of Customs filed a civil case for collection before the RTC of Manila on April 11, 2002, prompting Pilipinas Shell to file a Petition for Review with the CTA.
• The CTA First Division found that Pilipinas Shell committed fraud based on a Memorandum dated February 2, 2001 issued by the Customs Intelligence and Investigation Service, which was never formally offered in evidence during the trial.

• The right of the Bureau of Customs to claim against Pilipinas Shell has already prescribed under Section 1603 of the TCCP, which provides that entries and settlement of duties become final and conclusive after one year from the date of final payment of duties in the absence of fraud; since Pilipinas Shell paid the duties on May 23, 1996, the government's demands in 2000 and 2001 were filed beyond the one-year period.
• No fraud was committed by Pilipinas Shell; the Memorandum dated February 2, 2001, which served as the basis for the finding of fraud, was never presented, authenticated, marked, identified, nor formally offered in evidence, rendering it inadmissible.
• Even if the Memorandum were admitted, it does not constitute clear and convincing proof of fraud, as Pilipinas Shell was entitled to the reduced three percent (3%) rate under Republic Act No. 8180 and did not gain any undue advantage from the delay.
• The filing of an advance Import Entry Declaration (IED) and payment of advance duties demonstrated an absence of intent to abandon the shipment and constituted good faith.
• The government did not suffer any revenue loss since all tariff duties were paid; to allow collection of the entire dutiable value would constitute unjust enrichment and violate due process.
• The ruling in Chevron Philippines, Inc. v. Commissioner of the Bureau of Customs is distinguishable because fraud was established in that case, whereas no fraud exists here; thus, the notice requirement under Section 1801 of the TCCP should apply.
• The imposition of the penalty violates international law under the Revised Kyoto Convention, which prohibits substantial penalties for errors without fraud or gross negligence.

• Pilipinas Shell's failure to file the IEIRD within the non-extendible thirty-day period under Section 1301 of the TCCP resulted in implied abandonment of the imported crude oil under Section 1801(b) of the same Code.
• By operation of law under Section 1802 of the TCCP, the abandoned articles automatically became the property of the government ipso facto; thus, when Pilipinas Shell withdrew and consumed the oil, it appropriated government property and became liable for the total dutiable value.
• The existence of fraud, as found by the CTA based on the February 2, 2001 Memorandum, exempts the claim from the one-year prescriptive period under Section 1603 of the TCCP.
• The government's action is not for assessment and collection of taxes but for the recovery of the value of abandoned goods that belong to the government by operation of law; therefore, Section 1603 does not apply.
• The presence or absence of fraud is irrelevant to the liability for payment of the dutiable value of abandoned goods consumed by the importer.

• Procedural Issues:
  • Whether the Court of Tax Appeals gravely erred in considering the Memorandum dated February 2, 2001 as evidence of fraud despite the document never having been formally offered in evidence by the Bureau of Customs.
• Substantive Issues:
  • Whether the imported crude oil was deemed abandoned under Sections 1801 and 1802 of the Tariff and Customs Code of the Philippines due to the failure to file the IEIRD within the thirty-day period.
  • Whether the government's claim for the dutiable value of the allegedly abandoned importation has prescribed under Section 1603 of the Tariff and Customs Code of the Philippines.
  • Whether fraud was sufficiently proven by clear and convincing evidence to exempt the claim from the prescriptive period.

• Procedural:
  • The Court of Tax Appeals erred in considering the Memorandum dated February 2, 2001 as evidence to establish fraud committed by Pilipinas Shell.
  • Under Section 34, Rule 132 of the Rules of Court, the court shall consider no evidence which has not been formally offered; the purpose for which the evidence is offered must be specified.
  • Documents merely attached to the records of the case but not formally offered in evidence cannot be given any evidentiary weight; the mere fact that a document is identified and marked as an exhibit does not mean it has been offered as part of the evidence.
  • The Bureau of Customs failed to formally offer the Memorandum during the trial, and the Court of Tax Appeals could not take judicial notice thereof motu proprio without violating Pilipinas Shell's right to object.
• Substantive:
  • Section 1603 of the TCCP provides that when articles have been entered and final adjustment of duties made, such settlement of duties becomes final and conclusive upon all parties after the expiration of one year from the date of final payment of duties, in the absence of fraud or protest.
  • Since no fraud was established by clear and convincing evidence, the liquidation of Pilipinas Shell's import entry became final and conclusive on May 24, 1997, one year after the final payment of duties on May 23, 1996.
  • The government's demands dated July 27, 2000 and October 29, 2001 were filed well beyond the one-year prescriptive period; thus, the claim is barred by prescription.
  • Sections 1801 and 1802 of the TCCP, which provide for implied abandonment and transfer of ownership to the government, must be read in relation to Section 1603; the right to claim abandonment and recover the dutiable value is subject to the one-year prescriptive period in the absence of fraud.
  • The ruling in Chevron Philippines, Inc. is distinguishable because fraud was established in that case, whereas here, the absence of fraud renders the claim prescribed.

• Finality of Liquidation (Section 1603, TCCP) — Provides that entries and settlement of duties become final and conclusive upon all parties after one year from the date of final payment of duties in the absence of fraud or protest; this serves as a statute of limitations to protect taxpayers from stale claims and harassment.
• Implied Abandonment (Sections 1801-1802, TCCP) — Failure to file the import entry within the thirty-day non-extendible period results in deemed abandonment, transferring ownership ipso facto to the government; however, this doctrine is subject to the prescriptive period under Section 1603 when no fraud is proven.
• Formal Offer of Evidence — Under Section 34 of Rule 132 of the Rules of Court, evidence not formally offered is excluded and rejected; mere attachment to court records without formal offer is insufficient to establish facts, particularly allegations of fraud.
• Fraud in Tax Cases — Defined as actual and intentional fraud consisting of deception willfully done to evade tax; it is never presumed and must be established by clear and convincing evidence, not merely preponderant evidence or administrative findings.
• Stare Decisis — The doctrine of adhering to precedents applies only when the material facts are substantially identical; it does not apply when a critical element (such as the presence of fraud) is absent in the subsequent case.

• "The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens; to the Government because tax officers would be obliged to act promptly in the making of assessment, and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latter's real liability, but to take advantage of every opportunity to molest peaceful, law-abiding citizens."
• "Fraud is never presumed and the burden of proof to establish lies in the person making such allegation since every person is presumed to be in good faith."
• "Sections 1301, 1801, and 1802 of the TCCP have been rendered inoperable by reason of the lapse of the period stated in Section 1603 of the same Code."
• "The rationale of strict compliance with the non-extendible period of thirty days within which import entries must be filed are as follows: (a) to prevent considerable delay in the payment of duties and taxes; (b) to compel importers to file import entries and claim their importation as early as possible under the threat of having their importation declared as abandoned and forfeited in favor of the government; (c) to minimize the opportunity of graft; (d) to compel both the BOC and the importers to work for the early release of cargo, thus decongesting all ports of entry; (e) to facilitate the release of goods and thereby promoting trade and commerce; and (f) to minimize the pilferage of imported cargo at the ports of entry."

• Chevron Philippines, Inc. v. Commissioner of the Bureau of Customs — Distinguished; the Court held therein that the existence of fraud was sufficiently established, which justified the application of implied abandonment and the inapplicability of the prescriptive period, whereas in the present case, no fraud was proven.
• Aznar v. Court of Tax Appeals — Cited for the definition of fraud in tax cases as actual and intentional, consisting of deception willfully done to evade tax, and that negligence is not equivalent to fraud.
• Dizon v. Court of Tax Appeals — Cited for the rule that the formal offer of evidence is not a mere procedural technicality and that failure to formally offer evidence is fatal to the party's cause.
• Heirs of Pedro Pasag v. Parocha — Cited for the distinction between the identification of documentary evidence and its formal offer, emphasizing that documents merely marked but not formally offered cannot be treated as evidence.

• Section 1301, Tariff and Customs Code of the Philippines (TCCP) — Requires imported articles to be entered within thirty days, non-extendible, from the date of discharge of the last package from the vessel.
• Section 1603, TCCP — Provides for the finality of liquidation one year from the date of final payment of duties in the absence of fraud or protest.
• Section 1801, TCCP — Defines abandonment (express and implied) and provides that failure to file an entry within thirty days after due notice results in deemed abandonment.
• Section 1802, TCCP — Provides that abandoned articles shall ipso facto be deemed the property of the Government.
• Section 3611(c), TCCP — Defines fraud as a material false statement or act committed knowingly, voluntarily, and intentionally.
• Rule 132, Section 34, Rules of Court — Mandates that the court shall consider no evidence which has not been formally offered.
• Republic Act No. 8180 — The Downstream Oil Industry Deregulation Act of 1996, which reduced tariff duties on imported crude oil.

• Justice Velasco, Jr. — Concurred with the ponencia, emphasizing that the doctrine of stare decisis does not apply because the factual circumstance of fraud, which was present in Chevron, is absent in the present case; noted that the Bureau of Customs' failure to formally offer the Memorandum dated February 2, 2001 as evidence is a fatal procedural defect that precludes any finding of fraud.

• Justice Peralta (joined by Justice Jardeleza) — Argued that the government's claim is not for tax assessment under Section 1603 but for the recovery of the value of abandoned goods which became government property ipso facto under Section 1802; contended that Section 1603 applies only to the liquidation of duties and not to the government's right of ownership over abandoned articles; maintained that the presence or absence of fraud is irrelevant to the liability for payment of the dutiable value of abandoned goods consumed by the importer; urged adherence to the precedent established in Chevron Philippines, Inc.