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Commissioner of Customs v.

Philippine Phosphate Fertilizer Corporation
G.R.NO. 144440, September 1, 2004

Facts: Respondent Philippine Phosphate Fertilizer Corporation (Philphos) is a domestic
corporation engaged in the manufacture and production of fertilizers for domestic and
international distribution. Its base of operations is in the Leyte Industrial Development Estate, an
export processing zone. It is also registered with the Philippine Export Zone Authority (PEZA).
The manufacture of fertilizers required Philphos to purchase fuel and petroleum products for its
machineries. The fuel supplies are secured domestically from local distributors, in this case,
Petron Corporation which imports the same to which Philphos reimburses the corresponding
customs duties and taxes the former paid to the Bureau of Customs. Philphos sought of October
1991 to June 1992. it pointed out that being an enterprise registered with the export processing
zone, is entitled the claim for refund in a letter dated 04 January 1993. A Petition for Review was
filed with the Court of Tax Appeals (CTA) assailing the denial of the refund and which eventually
affirmed by the Court of Appeals (CA).

Issue: Whether Philphos is entitled to a refund of duties and taxes under the law.

Ruling: Sec.17 of the EPZA (now PEZA) Law particularizes the tax benefits accorded to duly
registered enterprises. It states:

SEC. 17 Tax Treatment of Merchandize in the Zone. – “(1) Except as otherwise provided
in this Decree, foreign and domestic merchandise, raw materials, supplies, articles, equipment,
machineries, spare parts and wares of every description except those prohibited by law, brought
into the Zone to be sold, stored, broken up, repacked assembled, installed, sorted, cleaned,
graded, or otherwise processed, manipulated, manufactured, mixed with foreign or domestic
merchandise or used whether directly in such activity, shall not be subject to customs and
internal revenue laws and regulations nor to local tax ordinances, the following provisions of law
to the contrary notwithstanding.” (Italics mine.)

The cited provision certainly covers petroleum supplies used, directly or indirectly, by
Philphos to facilitated its production of fertilizers, subject to the minimal requirement that these
supplies are brought into the zone. The supplies are not subject to customs and internal
revenue laws and regulations, nor to local tax ordinances. It is clear that Sec.17 (1) considers
such supplies exempt even if they are used indirectly, as they had been in this case. Since
Sec.17(1) treats these supplies for tax purposes as beyond the ambit of customs laws and
regulations, the arguments of the Commissioner invoking the provisions of the Tariff and
Customs Code must fail. Particularly, his point that the importation of the petroleum products by
Petron was deemed terminated under Sec. 1202 of the Tariff and Customs Code, and that the
termination consequently barred any future claim for refund under Sec. 1603 of the same law is
misplaced and inconsequential. Moreover, the cited provisions of the Tariff and Customs Code if

17(1). petitioner has manufactured several product lines. respectively. to be manufactured into finished products for subsequent exportation to principals abroad. night gown. a report was issued stating that the subject shipments contained cotton fabrics with three (3%) percent spandex for shirting and fleece textile materials. It is. issued a Memorandum requiring the 100% examination of all shipments consigned to petitioner on its transfer/release from the piers to CBW No. in the course of its operations and on three (3) different occasions in 1999. for the provision does not limit the tax exemption only to direct taxes. swim wear. 1991.579. The Inspection Report concluded that these articles are not normally used for the manufacture of brassieres and/or lace. South Harbor. granted two licenses to import tax and duty-free materials and accessories for re- exportation. while Entry No. In the same Inspection report. 46297-99 and 46269-99 were examined at pier 3. 13. On August 31. shirts.20. petitioner was authorized to import “FABRICS/YARNS/LEATHERS/SUBMATERIALS” from various foreign principals with a total value of US$4.472. Since the start of its operations. obviate many of the benefits granted by Sec. 1999. Mr. 39. Inspector Rodolfo Alfaro submitted a report stating that the shipments under Entry Nos. This Memorandum was prompted by the Indorsement of the Warehouse and Assessment Monitoring Unit (WAMU) which recommended the examination of the subject shipments by the examiner of the Warehouse and Assessment Division (WAD) for alleged misdeclaration. 1999.Under these licenses. During the year 1999. 44780-99 was examined inside the Bonded Manufacturing Warehouse of petitioner. knitted blouse and apparel products. with the limitation that these licenses do not entitle the manufacturer to import finished and semi-finished goods. ladies dresses.related to Sec. and cut-piece goods. cut-to- panel/knit to shape materials.R. Manila. if upheld. 17(1) of the EPZA Law would significantly render the argument strained and. G-39. issued by the Garments and Textile Export Board (GTEB). for the Bra and Lace Division of petitioner. Commissioner of Customs vs Gelmart Industries G.00 and $2. authorized to operate a Bonded Manufacturing Warehouse (BMW).771. likewise. nylon stockings.No 169352 Feb. 2009 Facts: Petitioner is a corporation primarily engaged in the manufacturing of embroidery and apparel products for the export market. received consignments of various textile materials and accessories from its supplier.308. Thereafter. It is. likewise. On August 20. as evidenced by the Certification dated January 16. is the only operational division. Alfaro recommended that the Import License of petitioner be verified to determine if the subject shipments should be seized for violation of existing Customs Rules and Regulations. It started manufacturing embroidered handkerchiefs’ branched out to infants’ and children’s wear. After the inspection. petitioner. pajama. G-39. which according to the BOC. brassieres and intimate ladies’ underwear. CBW No. then Commissioner of Customs Nelson Tan. . BMW No.

Various accessories and supplies On September 14. Polyester. In the instant Petition dated October 4. It also ordered the release of respondent’s importation subject to the condition that the correct duties. The CTA reversed the decree of forfeiture issued by petitioner and lifted the latter’s WSDs. The shipments . Various types of yarns and threads. taxes. 1999. wool and other synthetic or natural piece-good c. INC. 2001 was filed by petitioner with the District Collector of Customs on January 12. cotton and other natural or synthetic piece-goods b. 4 and 5 of the TCCP. cut-to-panel/knit to shape materials. 2001 in order to protest the seizure orders issued by the BOC. it was discovered that petitioner was operating the Bra and Lace Division as well as the Auxiliary Division. polyester. It was likewise found that only machineries for the two divisions exist and that there were no facilities for the other lines of products. in fact. respective representatives from the GTEB and the BOC conducted an ocular inspection of the Bonded Manufacturing Warehouse of petitioner. 2001. Various types of staple fibers (synthetic and natural) f. In a Decision dated August 9. During the ocular inspection. 48468 and 77-99 are the current licenses being utilized by GELMART INDUSTRIES PHILS. as amended. a certification was likewise issued by the Garments/Textile Mfg. Various drystuffs and chemical g. A Memorandum dated January 10. and cut-piece goods. fees and other charges shall be paid the BOC. and cotton fabrics with 3% spandex skirtings. All types of leather and synthetic leathers d. and which was received by petitioner on August 20. fleece textile materials. to wit: a. through the Office of the Solicitor General. 077-99. petitioner. a Certification was issued by the GTEB.. On September 6. 1999. petitioner’s Corporate Secretary and in-house counsel requested the GTEB for a Certification to clarify the description of “FABRICS/YARNS/LEATHERS/SUBMATERIALS” or the articles petitioner is authorized to import based on its License No. nylon. 2005.” which covers fabrics/yarn/leathers sub materials but “does not entitle the manufacturer to import finished and semi-finished goods. In a letter dated September 3. acrylic. 2001. Bonded Warehouse Division-Port of Manila (GTMBWD-POM) that “Import License Nos. 100% polyester polar fleece. argues that the subject shipments were misdeclared as “100% polyester knitted fabrics” and “100% cotton knitted fabrics” when they were. 1999. the District Collector of Customs ordered that the shipments be forfeited in favor of the government for alleged violation of Section 2530 paragraphs (f) and (l) subparagraphs 3. certifying petitioner’s license to import the following raw materials. Non-woven fabrics and similar items e.

First. “A party adversely affected by a decision or ruling of the CTA en banc may file with the Supreme Court a verified petition for review on certiorari pursuant to Rule 45 of the 1997 Rules of Civil Procedure” as ordained under Sec. 9282. no motion was filed by petitioner to seek the reconsideration of the assailed decision of the CTA. Under Sec. respondent points out that the instant petition questions the decision of a division of the CTA in contravention of Republic Act No.” In turn. Moreover. the Court is . Sec.A. No. Petitioner vaguely suggests that filing a petition for review with the CTA en banc would have been futile because the assailed decision was concurred in by three (3) associate justices. Petitioner also asserts that although respondent is allowed to subcontract a portion of the manufacturing process (involving the subject shipments). Sec. 9282 (R. the subject shipments which allegedly consisted of regulated items violated or exceeded the import permits of respondent. Respondent avers that petitioner does not have standing to appeal the judgment of the CTA as it had been declared in default by the latter. No. respondent claims that the goods contained in the subject shipments correspond to the articles described in the import entries and are covered by respondent’s import licenses. the instant petition allegedly raises factual questions beyond the province of the Court to review. this procedure was not followed by petitioner and no adequate explanation was offered to justify his disregard of the rules. On the contrary. The decision of the CTA had allegedly attained finality as petitioner failed to move for the reconsideration thereof or to file a petition for review with the CTA en banc. 9 of R. Again. 9282. order or decision of a Division of the CTA may file a motion for reconsideration or new trial before the same Division of the CTA within fifteen (15) from thereof…” In this case. “…A party adversely affected by a ruling. “x x x A party adversely affected by a resolution of a Division of the CTA on a motion for reconsideration or new trial may file a petition for review with the CTA en banc.A. 12 of R. the rules allegedly allow it to perform a portion of the manufacturing process within its premises while the other processes to complete the finished products are permitted to be done through sub-contractors.A. No. 2503 of the Tariff and Customs Code. 9282). On the substantive issues. In its Comment dated February 10. Held: Petitioner had indeed committed procedural missteps on his way to this Court. Third. 11 of the same law provides that. which provides that this Court exercises appellate jurisdiction over en banc decisions or rulings of the CTA. Hence. 2. Further.were allegedly correctly forfeited in favor of the government in accordance with Sec. 2006. Second. Respondent insists that the GTEB rules do not prevent it from engaging the services of sub-contractors. it violated the rules of the Garment and Textile Export Board (GTEB) and the Bureau of Customs which allegedly allowed respondent to subcontract only a small or incidental portion of the manufacturing process. Rule 4 of the Revised Rules of the Court of Tax Appeals reiterates the exclusive appellate jurisdiction of the CTA en banc relative to the review of decisions or resolutions on motion for reconsideration or new trial of the court’s two (2) divisions in cases arising from administrative agencies such as the Bureau of Customs.

(PPOC). 077-99 dated May 13. exclusive appellate jurisdiction over which is vested in the CTA en banc. Commissioner of Customs vs CTA. 1999 and Import License No. a Thai company. Petitioner’s failure to file a motion for reconsideration of the assailed decision of the CTA First Division. The goods contained in the subject shipments undoubtedly fall under the category of raw materials which respondent is authorized to import under the licenses which it had indubitably obtained prior to the importation of the subject shipments. 171516-17 Feb. it shipped ten (10) twenty-foot containers of refined sugar to LIFFC. and cut-piece goods. 1999. We cannot overlook the fact that respondent had been granted two licenses to import tax and duty-free materials and accessories for re-exportation under License to Import No. Nonetheless. that the order of default against petitioner (which had not been lifted) did not result in depriving him of standing to file a petition for review. These import licenses authorize respondent to import “FABRICS/YARNS/LEATHERS/SUBMATERIALS” from various foreign principals with the limitation that these licenses do not entitle respondent to import finished and semi-finished goods. the procedural infirmities and insubstantial legal argumentation in the petition combine to defeat petitioner’s claim. 048468 dated July 7.without jurisdiction to review decisions rendered by a division of the CTA. In sum. Las Islas Filipinas Food Corp. Nos. however. there is no basis for the forfeiture of the subject shipments on the ground of misdeclaration. It should be noted at this juncture. Pat-Pro Overseas Company. As such. or at least a petition for review with the CTA en banc. appointed LIFFC as its “exclusive offshore trading. G. Pursuant to this appointment.R. cut-to-panel/knit-to shape materials. 2004. Necessarily. let it be reiterated that the instant petition is so procedurally flawed that its outright denial is warranted.13 2009 Facts: Respondent Las Islas Filipinas Food Corporation (LIFFC) owned and operated an industry-specific customs bonded warehouse catering to food manufacturers. all the arguments professed by petitioner on the validity of the seizure. detention and ultimate forfeiture of the subject shipments have been foreclosed. On February 20. invoking the latter’s exclusive appellate jurisdiction to review decisions of the CTA divisions. storage and transfer facility” in the Philippines for its local and foreign transshipment operations. .Among the conditions for its establishment and operations was securing an import allocation from the Sugar Regulatory Administration (SRA) every time it imported sugar for its clients. rendered the assailed decision final and executory. Ltd.

in an order dated September 21. in a decision dated February 4. surrender it upon the filing of a cash bond. The Commissioner opposed the said motion on the basis of Section 2301 of the TCCP which provides: Section 2301. 2005 and February 16. In decisions dated February 14. with the approval of the Commissioner of Customs. Warrant for Detention of Property-Cash Bond. 2004). an import allocation from the SRA was unnecessary. asserted that the refined sugar was merely transshipped to the Philippines while PPOC was looking for a buyer in the international market. because respondents imported the refined sugar without securing an import allocation from the SRA. On appeal. 2005 and February 16. On April 20. 2005 decision of the Commissioner. the Collectors held that because LIFFC did not secure an import allocation from the SRA. 2004 order to the Commissioner of Customs asserting that they were deprived of due process. 2004. he set aside the decree of abandonment and ordered the institution of proceedings for seizure and forfeiture. – Upon making any seizure. 2005. respondents filed a motion to release cargo for exportation upon filing of a surety bond. conditioned upon the payment of the appraised value of the article and/or . They ordered its forfeiture in favor of the government. On April 15. 2004. They insisted that an import allocation from the SRA was unnecessary inasmuch as the refined sugar was sent to the Philippines only for temporary storage and warehousing and would be shipped eventually to PPOC’s final buyer. 2005. the Collector of Customs issued a warrant of seizure and detention on July 27. On August 16. in an amount fixed by him. the shipment should be forfeited pursuant to Section 2530 (f) and (1)-5 of the Tariff and Customs Code of the Philippines (TCCP). on the other hand. the Commissioner shall issue a warrant for the detention of the property. Respondents appealed the September 21. the motion was denied (for being filed out of time as the decree of abandonment had already attained finality on August 3. Because LIFFC failed to present an import allocation from the SRA. After reviewing the evidence on record. 2004 in view of the SRA’s advice that no import allocation had been granted to LIFFC. 2004. It contended that. the Commissioner found that respondents were not informed of the abandonment proceedings. the Commissioner affirmed the decisions of both Collectors. respondents appealed to the Court of Tax Appeals (CTA) via petitions for review contending that the Commissioner erred in affirming the February 14. 2005. 2005 decisions of the Collectors. a decree of abandonment was issued due to LIFFC’s failure to file an import entry. On July 16. Thus. the Republic instituted proceedings for the seizure and forfeiture of respondents’ importation. 2005. However. Thereafter. Thus. Respondents. the Collector shall. The shipment of refined sugar arrived in Manila on April 24. and if the owner or importer desires to secure the release of the property for legitimate use. the shipment became subject of Alert Order. the shipment was an illegal importation of refined sugar. LIFFC and PPOC (respondents) moved to quash the decree of abandonment. 2004. They alleged that they were never notified of the issuance of the decree of abandonment. Pursuant to the February 4.

Under Section 1202 of the TCCP.The Commissioner basically contends that the CTA committed grave abuse of discretion when it disregarded Section 2301 of the TCCP and ordered the release of respondents’ shipment of refined sugar. we issued a temporary restraining order enjoining the implementation of the said resolutions. 2005 resolution within 10 days. manifest. the whole or part of a bill (not less than one package) may be entered for immediate exportation under bond. That such importation shall not be released under any bond when there is prima facieevidence of fraud in the importation of the article: Provided. 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. – Where an intent to export the article is shown by the bill of lading. there was prima facie evidence of fraud in the importation of refined sugar.” Since fraud is a state of mind. that the articles arriving in the Philippines are destined for transshipment. Section 2103 of the TCCP provides: Section 2103. 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. importation takes place when merchandise is brought into the customs territory of the Philippines with the intention of unloading the same at port. bank guaranty or bond in an amount equal to the ascertained duties. no exportation thereof shall be permitted except under entry for immediate exportation under irrevocable domestic letter of credit. dissembling and any unfair way by which another is cheated. invoice. (emphasis supplied) The Commissioner argued that the shipment could not be released inasmuch as respondents had no import allocation from the SRA. Section 2301 of the TCCP states that seized articles may not be released under bond if there is prima facie evidence of fraud in their importation. In a resolution dated July 12. taxes and other charges. 2006. 2005. further. Articles Entered for Immediate Exportation. the release of the shipment was held in abeyance for several months as respondents failed to comply with the conditions imposed by the said resolution. Unless it shall appear by the bill of lading. However. Thus. That articles the importation of which is prohibited by law shall not be released under any circumstances whatsoever: Provided. or other satisfactory evidence. its presence can only be determined by examining the attendant circumstances. cunning. The Commissioner moved for reconsideration but it was denied. An exception to this rule is transit cargo entered for immediate exportation.any fine. The CTA ordered respondents to comply with the July 12. finally. the CTA granted the motion and ordered the release of the shipment subject to LIFFC’s filing of a continuing surety bond. 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 includes all surprise. expenses and costs which may be adjudged in the case: Provided. invoice. trick. On March 20. Held: We grant the petition. manifest or other satisfactory evidence. .

19. This not only negated any intent to export but also contradicted LIFFC’s representation. for brevity) is an employees' trust maintained by the employer. and the production of proof of lading of same beyond the limits of the Philippines. (c) the imported articles are directly transferred from the vessel or aircraft designated as a constructive warehouse to the exporting vessel or aircraft and (d) an irrevocable domestic letter of credit. the bill of lading clearly denominated “South Manila. in the sum of P11. entitled "Commissioner of Internal Revenue vs. dated 15 December 1986. taxes and other charges is submitted to the Collector (unless it appears in the bill of lading. the following must concur: (a) there is a clear intent to export the article as shown in the bill of lading." which affirmed the Decision of the latter Court. 4) CIR vs. (b) the Collector must designate the vessel or aircraft wherein the articles are laden as a constructive warehouse to facilitate the direct transfer of the articles to the exporting vessel or aircraft. 20426. in CA-G. 3888.R. Importation therefore took place and the only logical conclusion is that the refined sugar was truly intended for domestic consumption. 1959. The Plan as submitted was approved and qualified as exempt from income tax by Petitioner Commissioner of Internal Revenue in accordance with Rep. Philippines” as the port of discharge. While respondents insist that the shipment was sent to the Philippines only for temporary storage and warehousing. bank guaranty or bond shall be released.R. the irrevocable domestic letter of credit. to provide retirement. cargo manifest or other satisfactory evidence. 1990. SP No. seeks a reversal of the Decision of respondent CA. 27. None of the requisites above was present in this case. GCL Retirement Plan.302. dated Aug. 95022 207 Scra 487 Petitioner. Private Respondent. manifest or satisfactory evidence that the articles are destined for transshipment). represented by its Trustee-Director and the Court of Tax Appeals. GCL Inc. 4917. Act No. There is no dispute with respect to the facts. No. imposed pursuant to Presidential Decree No. Moreover. invoice. Upon the exportation of the articles. (Sec. disability and death benefits to its employees. For an entry for immediate exportation to be allowed under this provision. pension. the shipment was unloaded from the carrying vessel for the purpose of storing the same at LIFFC’s warehouse. CA . GCL Retirement Plan (GCL. ordering a refund. ISSUE: Are school’s retained earnings tax-exempt? . bank guaranty or bond in an amount equal to the ascertained duties. to the GCL Retirement Plan representing the withholding tax on income from money market placements and purchase of treasury bills.. invoice. G. in Case No.

except: 1. Employees' trusts or benefit plans normally provide economic assistance to employees upon the occurrence of certain contingencies. stock bonus or profit-sharing plan of an employer for the benefit of some or all of his employees . It is an independent and additional source of protection for the working group. Otherwise. property used in the trade or business of the taxpayer and subject to depreciation allowance. If an employees' trust like the GCL enjoys a tax- exempt status from income. 3. death. taxation of those earnings would result in a diminution accumulated income and reduce whatever the trust beneficiaries would receive out of the trust fund. LINGAD Issue: Whether or not the properties in question which the petitioner had inherited and subsequently sold in small lots to other persons should be regarded as capital assets. now 53 [b]. property primarily for sale to customers in the ordinary course of his trade or business. What is more. This would run afoul of the very intendment of the law. . It provides security against certain hazards to which members of the Plan may be exposed. and 4. by virtue of the raison de'etre behind the creation of employees' trusts. particularly. any gain or loss relative thereto is an ordinary gain or an ordinary loss. stock in trade or other property included in the taxpayer's inventory. There can be no denying either that the final withholding tax is collected from income in respect of which employees' trusts are declared exempt (Sec. Tax Code). As thus defined by law. we see no logic in withholding a certain percentage of that income which it is not supposed to pay in the first place. CAPITAL ASSETS include all properties of a taxpayer whether or not connected with his trade or business. It is evident that tax-exemption is likewise to be enjoyed by the income of the pension trust. sickness. or disability. 4917. If the taxpayer sells or exchanges any of the properties above. real property used in trade or business. 56 [b].RULING: Yes. The application of the withholdings system to interest on bank deposits or yield from deposit substitutes is essentially to maximize and expedite the collection of income taxes by requiring its payment at the source. TUASON VS. old age retirement. it is established for their exclusive benefit and for no other purpose. “The tax imposed by this Title shall not apply to employee's trust which forms part of a pension. Under Section 34(b)(2) of the Tax Code. The tax-exemption privilege of employees' trusts. Act. only 50% of the net capital gain shall be taken into account in computing the net income.” And rightly so. if a gain is realized by a taxpayer (other than a corporation) from the sale or exchange of capital assets held for more than 12 months. GCL Plan was qualified as exempt from income tax by the CIR in accordance with Rep. the loss or gain from the sale or exchange of all other properties of the taxpayer is a capital gain or a capital loss. . springs from Section 56(b) (now 53[b]) of the Tax Code. as distinguished from any other kind of property held in trust. 2. .

this Court is of the view and so holds that petitioner's thesis is bereft of merit. They averred that their retirement benefits were exempt from income tax. all fair doubts will be resolved against him. In the case at bar. otherwise. petitioner's sales of the several lots forming part of his rental business cannot be characterized as other than sales of non-capital assets. provided that certain requirements are met. and IBC had no authority to withhold their salary differentials. Amarilla. Under the circumstances. In view of the familiar and settled rule that tax exemptions are construed instrictissimi juris against the taxpayer and liberally in favor of the taxing authority. Court of Appeals. property and other assets of the corporation are regarded as equity in trust for the payment of the corporate creditors. after a thoroughgoing study of all the circumstances. . This Court finds no error in the holding that the income of the petitioner from the sales of the lots in question should be considered as ordinary income. ScCEIA Under the trust fund doctrine. the sales concluded on installment basis of the subdivided lots do not deserve a different characterization for tax purposes. and this Court made a definitive ruling that retirement benefits are exempt from income tax. Commissioner of Internal Revenue v. it is the taxpayer's burden to bring himself clearly and squarely within the terms of a tax-exempting statutory provision. 42 IBC withheld the salary differentials due its retired employees to offset the tax due on their retirement benefits. The retirees thus lodged a complaint with the NLRC questioning said withholding. 301 SCRA 152 (1999).The Tax Code's provisions on so-called long-term capital gains constitutes a statute of partial exemption. the capital stock. The Labor Arbiter took cognizance of the case. In Intercontinental Broadcasting Corporation (IBC) v.