Resepubl Ic of the Fheklitiprrine &S Court of Tax Appeals Aue Zoom Crtre Caltex, Inc. vs. Oe Commissioner of Customs

DECISION

2 - by petitioner under protest allegi n g overpayment beca•..c~e water and o t her substances technically kn own as Botto• Sediment or Basic Sedi ment and Water <BSW> in th included in the On or abo lt July 7, 1982 a. simi l ar s hi p ment Port of Bat nga ex

S / S

"OTTO MILLER" c:on gn d als o to petitioner.

It was d oel&~ed ~nde r Entry No. 204/82 nd petitioner h ad t o pay d u t i e s b d aqain on gross actual receipts in the amount of P119, ~ 7 2 ,319.00.

Sai d payment wa s lik e w i~ e prote sted conte n d in g overpayment since "SSW " were incll.~d e d in the lll5~es s m ent . On or about July 17, 198 2 another s hipment of crude oil arri v ed at the Port of Batangas ex S/S/

"BUBI YAN"

consigned aqain to petitioner. I t was declared under Ent ry No.

2 93/82.

The same was a5se~sed a n d pe titJnnc' rai d dut ie s based on gross actual receipt-;

in the Amount of P60, 769,367.00.

Al so , pay 111ent of said .::~. mo•mt w,"\ c:.

protested since " S S W" wer e i n cl•..cded in the assess ment. Re•pondent had assessed custo•s duties on petitioner based on a Memorandum dated Jan uary 26, 1971 of the Acting Commissioner of Cust o111 s wh ich 327 ..

-· 3 - directed the a sses s ment of d•Jtie c; and taxes based in actual gro ss barrels recei ved which i nclude Bottom Sediment or Basic Sedimen t ~nd Wat.Pr .

The Memorandum read ~:

MEMORANDUM TO

The Collect or• of C t.IGt om~ Port nf M~n i l .

Po t ,f R .~ I-A t~rp•r.;

Subpar t of LimAy, Bata~n "Ef fecti v e Febr •.tar y 1, 19.71 , Customs duties and taxE>s on importations of crude oil shall be based on the gross actual rec~ipts without ded ucting the BSW as has b e en pt~eviously dlJne.

"In determ i ning the ft~eight, the am ount i n dicat\od in t.he b ill of loading or a s c e t~t i f i e d b y the s h i p a q en t s h a 1 1 b~ used as basi c: .

Ho we ver~ , if it is found by the examiner that the actual r"cef.pt is mot~e than the manife sted we ight, the frei~ht shall be adjusted A~cordinqly.

"PltHl lH!' se P t o . it that all the per5onnel concerned in your respective port~ Are informe d of these in~tructio n5.

( F.lf!lO ) ) ROLANDO 8. GEOTINA Act inq Com m i 1u i oner of CtJ5t oms" Petitioner assails the Memorandum as null and void f o r having been issued contrary to Section 3502 of the Tariff and Customs Code <T & CC> which "Section 350'='. Application of E5tablished R•.tlinq or Decision. A t~uling or decis ion of the Commissioner of Cu~tom5 which dPtermines the construction or applicat ·on n f a ny pt~ovision of law 32~

- 4 - decr9eing forf~itur~ nf imported articl es or impo sing cuc;t o me; d•Jties, fines , fees nd . pprtdfHAl, t1:1nrl which changes any Misting establ1shed appraisal, int erpr t tion or rr~ctice shall not take P.f'f' r.:t unti.

i'\P·e t., thrity (30> day s pub l ic not ice e; hed 1 nve h~f'n given in th fcwm of publ lSi te d cust om s decision. Wh r.

such ul'n 01., tler.io;i.nn fnvot.,s the ta)(paye~>" !!

sti'\ l l bec ome effecti ve imm d tely."

fmnds the Memora ndum as having been issu d mer e ly for reasons of expediency in the three portl!J ment · oned and "to er~c:;e whatevet., doubts there •ay be to parties concerned" on the tax contseq•.utnces of impot.,tati ons of crude oil. That "•im i l.arly, by the subject Memorandu111 responde n t Commis sionet' of Custo111s did not rendet., rt..tl :l.ng or decis ion in t' nnt empl a t1on of Section 3502 of the Tariff and C1.1 st om s Code." We agree that th P c; a:id Memot.,andum does not constitute a ru ling. More properly, th e Memorandum should be define d a Ot., t' egulat ion promulgated b y the Commiss ioner for the effective enforcement of the provisi on of the T&CC, in contratst to a ruling wh ich proceeds fro111 an inquiry froM a taxpayer in the construction or application Still, we cannot conform to the opinion of respondent that und er Secti on 203 of the T&CC, the 32~ •

Memorandum would be justified. The pertinent portion of this cited Section providess "Section 203. General Rules on Classification ~- The interpretation and application of the provisions of this Code relating to the classification of articles imported into the Philippines = shall be governed by the following principles: :

xxx XH xX Rule &. (b) Any reference in a heading or subheading to a material or substance shall include a reference to mixtures or combinations of that material ‘or substance with other. materials or substances. Any reference to articles of a given material or substance shall include a reference to articles consisting wholly or partly of = § such material or substance. The Classification of articles consisting of more than one material or substance shall be according to the principles of Rule 3&3. (Underscoring supplied) Rule 3. When articles are prima facie classifiable under two or =more headings or subheadings, or imported in sets consisting of several articles, Classification shall be effected as followss xx xR xKK (b>) Mixture and composite articles which consist of different materials or which are made up of different components and which cannot be classified by - reference to "S3(a)" shall be classified as if they consisted of the material or component which nives the articles their essential character, insofar as this criterion is applicable". (Underscoring supplied) 33N - f; - Pet iti oner would imp i)' t:h i'l t t h e "BSW" would fi t as the "other" matters anrl c;qbstances" refet~t~e d to in par agraph~ (b) of Rule s 2 and 3. It is clarified unrler Rule 3 (b) that ~he appl ication of Secti.on 2 03 is .pre mised on the condition that before artic les can be classified as forming part of th e e c;sential article, the other article &ho u ld be a "compo site" part or "component " of the essential Articl ~.

This i s c lear from the phrase which consist of di fferent materials or are made of It appears that basic aedimen t and watet~ not "co111ponents" or "comp o'!d tet~~" of cr llrl fl ni 1. "Crude o il" ha s been defined in P.D.

No.

87 <which promulgated thE> Oil Ex p 1 ot~at ion and Deve l opment Act of 1972 ) a nd before this, the Petro le u m Act of 1 9 4 9 as " o i 1 i n i t s nat u r a 1 s t at e before the same has been refined or otherwise It doe s not inc lude sand x x x water and foreign substances" ; and "oil in its natural state before the sa•e had been refined or otherwise treated, but excluding water and foreign ~ub~tances", respectively . ( 33 .1

- 7 - Th e t"e appeat"s to be n o conf l ict between the defi n iti on & gi ve n by t h e c i t e d laws and the de osct"iption of oil" in the Tari f f Cla§9 i 1'ieat1on Headin~ of. the T&CC. Th e headin g ''T. H. e7. C:.'l9 ~•tr-ol•1.'"' o 11. • obt in d from bit um i no us ~Y' !Jdtl o il s a n d min e r al s , (a) fm" use as f Itt 1 o 1 s for the 10~ g ne~a i n o f el etrie power (b) 20~ It is also p pt·· o p~· i ate to note t hat Mi nist r y of En~ r gy Memora n dum Circular No . 82-07-36 wi th its iMp l em e nt :l ng 111emorC1ndum hac;

ct el i 111 i t P.d t he measure of v olu me of c r ude oil to b e: "2.

!'he volu me o f c r ud e oil s hall be the net re c e ived v o l w1u~ At 60 F as determine by the duly Authorized &urveyor$ i n coordin a tion with th e receiving o i l o mpan y.

The b ottom, sediment, and water c ontent as e&tabli•hed by PNOC's suppliers and other allowable deduct i ens, e. g. free water in the delivering tanker, shall be subtracted ft"om t he gross received voluMe to arrive at t he n e t received voluMe."

<Annex "B- 1"> It is not a•i s s to add th e n ote o f petitioner that the said •in istry was then responsible for the i•portat ion and allocation of crude o i 1 for the country.

furt her contends that the 33?

- 8 - Memorand um o f January 26, 1971 v iolat es Section 201 of the T&CC.

Section 201 provides ~s follows: " Sect i o n 2 o 1 • ~ ~J,;_~ ft... _________ o_f_ _ ______ P_!:!.t.l.~ _g_J__~_ ~-~l_,_ U!_. - The ciutiable value of an iMported article subject to an a d valoreM rat e of duty s hall b e based on the hoMe con •umption val u or price <excluding internAl excise taxes> of sa111e, like or similar article s , a s bought .and sold or offered for sale freely in the usual wholewale quantities in the ordinary course of trade, in the principal market s of the country from where expor ted on the date of exportation to the Philippines, or where there is none on such date, then on the ho111e con~Htm pt ion value or price nearest to the date of exportation incltJding the value of all c ontainers, coverings and or packi n gs of any kind and all other costs, c harges and expen ses incident to placing the article in a condition ready for ship111ent to the Philippine5 , plus ten <lO,C.)

per cent of such consu111ption value or price . Ih~ .. h!H• .~--~Q_l'}_~ _t,LI!!_Qt i gn value or price y_rtd.~_r_ -~.!::tL~----?.-~~_t __ i_ q_ n ____ ~_b_~_!_! ___ g_~ ___ ih~ __ v._~_t~ _,iL _.9.r.

P.t~J-~t _____ g_~£J_~~E?.c;t ...... __ j rt_ _____ t 1:1~ ---------~ o n.~~Jii.r. .. ,_ ~-QJliJ!I .!r.J6. l~_l.._ _____ :t_ r a c.t !'? . ____ QT-_ _ §_~-~-~----i n ~-9 i c:;_~. Wh~re there ex istG a reasonable doubt as to the value O l' Pntry, the correct dt.ttiable value of the ar•t )c le shall be a~~~ rtained from the reports of the ~evenue ~ttach R or Co mmercial Attache (Foreiqn Trade Pt•om ntion Attache >, pursuant to Republic Act Numbered Fifty- Four Hundred a nd Sixty-Six or other Ph i lippine dipl omatic off i c ers and fro• such other information that May be available to the Bureau of Custo ms . FroM the dat e thus gathered, the Co111111 iss i oner of Cust o•s shall ascertain and establish the hoMe consuMption value of articles exported to the Philippines and shall publi sh s uch lists of values fro111 timP. to t ime. •

- 9 - When th e d ut iable va l ue provided for i n the pr ecedi n g pa ragraph s c annot be l.!l4Certa ined for failur e of t he importer to prod uce th e d ocum e nt s mentioned in the ~ e c ond paragraph nr where there exi s t s a rea•onabl e doubt ~ ~ t o dutiab l e value of the i mported a r tic le decl ared in the entry, it sha ll be t he do mestic wholesale .-. ~ ell i n g pr i ce of such or similar articl e i n Manila or other p t~ inci pal mat'kets in the Phili p p i n es on the dat e of the duty become payab l e on the art icle under a ppraiso n~e nt, in th e usual wholesale quan t it i e s a n d in t he ordinary course of t r ade, mi n •..ts - (a ) Twenty ( 2 0" ) pet' c ent t h e t~ eo f for expe nses; and (b~ Duties and taxes paid thereon. u <Und e rscor ing supplied> I t has been held b y t he Supreme Court <Co••issioner of Custo•s v. Procter & Ga•ble Phils., G. R.

No.

56705, Jan .

31, 1 9 8 9 ' 1 6 9 SCRA 6 93 ), interpreting Section 2 0 1, thats "Fro 111 th e f ot' eg o i ng provisions of t he s tat ute <Sect i on 20 1> , the t' e c ~n be no que s t i on th a t a s a g en e t~ a 1 t~ u 1 e , t h e home cons umpt i on value or price of a n imported arti c le s ubject to an ad valo r em rate of duty sha ll be the va l ue or price declared in th e c on s ular , c ommerc ial, trade or sale invoi c e . However , wh ere there exists a rea•onable doubt as to the value or price of the i•ported a r ti cl e declared in the entry, the correct d utiable value of the Revenue At tac he or Commerci al Attache <Fore i gn T de Pr om otion Att ache> pursuant to Rep u bli c Act Numbet' P.d F i ft y-Four Hundr ed and Si xty- Six or other diplo ma t ic office r~ and from such other i nformation that may be a va i lable to the Bur eau of C•Js toms . "

' - 10 - Evidence is on the side of petitioner showing that i t had paid for the crude oil based on the net barrel~.

Pricing and billing of purchases of crude ba§ed on net barrels is the practice in the ordinary course ~f trade. This is confirmed ~y no le•• than the acts of the local oil co•pany, Philippine National Oil Company <PNOC> when it billed petitioner net of BSW <Annex "C" of Reply Me111orandu111, Invoice No. 08346 >. Petitioner through the attachment& in its Reply Memorandu• of December 22, 1989 also submitted evidence that PNOC itself i§ a beneficiary of the practice of valuing crude The foreqoinq evid~nce. howe ver, are so ught to be rendered ineffective by re~po ndent by mere all•.tsion to an alleged Ministt~y of Finance ruling of June 21, 1979 based on the infot~mation that the unit price of crude oil is pet~ •_mit barrel at 42 u.s.

gallon• per unit barrel.

We find this allegation that a unit barrel is pegged at 42 U.S. gallon• of no weight in the light of petitioner's evidence clearly showing how the definition ' of crude oil and the ~ea s ure of its volume is applied in practice by business entities involved in the oi 1 trade.

It is recognized that the consular or co111mercial invo:l.ce s not conclusive upon the

11 government and that when ~here is reasonable doubt referP.nce to other soLn~ ces for the value of the article •ay be pursued. Although the law presumes that official duty has been regularly performed, the a fot~esaid t~ epot~ t of the Finance Official, is belied by evidence that petitionet~ had submitted. We considet~ that, based on the facts gathered fro• this case, the commercial invoices presented have not been discredited or impeached by respondent and should be given evidentiary value in the absence of better evidence from respondent. We find another argument by petitioner convincing - That to assess it of duties based on gro!59 barrels would, effectively, cause it to pay duties on art ic 1 es it had not pm~chased in the first place.

Thus , we agree that as far as the Botto• Sediment and Water are concerned there is no taxable transaction.

There is ~estimony that "BSW" is destined to be thrown away <t.s.n, Apt~ il 14, 1986, pp. 21 & 22).

The duty being ad valore•, the sa•e cannot be Made to attach to something which has no value.

WHEREFORE, the petition is GRANTED.

Re•pondent should and is hereby ordered to refund or credit to petitioner the following a•ounts:

33h

- 12 - P212,959.00 under Entry No. 163/823 P7359, 385. 00 under Entry No. 204/82; PS3e, 732.00 under Entry No. 293/82.

S0 ORNERED.

Quezon City, Metro Manila, Auqust 1992.

, —_—a CONSTANTE £4. ROAQUIN ssociate Judne WE CONCURs RE idinn J Cue, Coan be ERNESTO D. ACOSTA Associate Jucdqe cEeErRTIF I CATION I hereby certify that this clecision was reached after due consultation among the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. (

SOQ RE

Presiding Midne Court of Tax Appeals 3a?