Pilipinas Shell Petroleum Corporation vs. Commissioner of Customs

A petition filed with the Court of Tax Appeals that assails the cancellation of tax credit certificates used to pay customs duties, and that raises issues of payment and collection rather than a protest against a liquidation or assessment of duties, does not fall within the CTA’s exclusive appellate jurisdiction under Section 7 of Republic Act No. 1125; the original assessments, having been settled and not protested, are final and beyond the CTA’s review.

Shell is a domestic corporation that imported petroleum and its by-products. In 1997 and 1998, it paid assessed customs duties and internal revenue taxes using TCCs transferred for value by several Board of Investment-registered companies. The transfers were processed and approved by the One Stop Shop Inter-Agency Tax Credit and Duty Drawback Center, a body composed of the Department of Finance, the Bureau of Internal Revenue, the Bureau of Customs, and the BOI. By letter dated November 3, 1999, the Center informed Shell that the TCCs were cancelled pursuant to EXCOM Resolution No. 03-05-99 after a post-audit investigation revealed that the original grantees had fraudulently secured the TCCs; no finding was made regarding Shell’s participation in the fraud. The Center required Shell to pay the corresponding amounts to the BIR and BOC. The Commissioner of Customs subsequently issued demand letters and, in 2002, filed three collection cases against Shell in the Regional Trial Court of Manila.

• Importations and Payment with TCCs: Shell imported petroleum and by-products in 1997 and 1998; customs duties and internal revenue taxes were assessed. Shell settled these liabilities using TCCs transferred to it for value by BOI-registered companies. The transfers were processed by the transferors and approved by the One Stop Shop Inter-Agency Tax Credit and Duty Drawback Center, a body comprising the DOF, BIR, BOC, and BOI. Both the BIR and BOC accepted the TCCs as valid payment.

• Cancellation of the TCCs: In a letter dated November 3, 1999, the Center, through the Secretary of Finance, informed Shell that it was cancelling the TCCs pursuant to EXCOM Resolution No. 03-05-99. The Center stated that a post-audit investigation revealed the TCCs had been fraudulently secured by the original grantees who thereafter transferred them to Shell; no finding was made on Shell’s participation in the fraud. Shell, on the same day, sent a letter objecting to the cancellation and arguing why the TCCs should not be cancelled. The Center did not act on Shell’s letter.

• Demand and Collection Efforts: On November 19, 1999, the Commissioner of Customs sent a letter requiring Shell to replace the amount of ₱209,129,141.00 equivalent to the cancelled TCCs, declaring the official receipts previously issued null and void ab initio. Shell responded on December 23, 1999, maintaining that the cancellation violated due process and that fraud had not been established. Three years later, in 2002, the Commissioner’s Deputy for Revenue Collections Monitoring Group, Atty. Gil Valera, sent three collection letters dated February 15, February 20, and April 12, demanding payment of specific amounts within five days and warning that failure would constrain the BOC to initiate legal action; each letter was labelled the “last and final demand.” Shell replied to the first two letters. Before it could reply to the April 12 letter, it received on April 23, 2002 the summons in one of three collection cases filed by the Commissioner against Shell before the RTC of Manila. The complaints were similarly worded and were signed by Atty. Valera.

• CTA Petition and Contentions: On May 23, 2002, Shell filed a Petition for Review with the CTA challenging the collection efforts for lack of legal and factual basis. It raised the following issues: genuineness of the TCCs; violation of due process in the cancellation; whether bare allegations of fraud could sustain collection; whether fraud could prejudice an innocent purchaser for value; estoppel against the government; and whether the TCCs, having been utilized, were functus officio. The Commissioner moved to dismiss on the ground of prescription, arguing that Shell’s petition was filed beyond the 30-day period counted from receipt of the collection letters. Shell invoked Yabes v. Flojo and argued that the filing of the collection cases was the appealable decision, making the petition timely. The CTA denied the motion to dismiss.

• Timeliness and Nature of Appealable Decision: Shell argued that its CTA petition was filed within the 30-day reglementary period, which should be counted from April 23, 2002—the date it received the summons in one of the collection cases—not from receipt of the collection letters. It relied on Yabes v. Flojo where a collection complaint filed in court was treated as the final decision of the Commissioner open to CTA review. Shell maintained that the collection letters, signed merely by a deputy, did not constitute a “decision of the Commissioner of Customs” appealable under Section 7 of R.A. No. 1125.

• Lack of Authority of Deputy Commissioner: Shell contended that even if the collection letters were treated as a decision, they could not be attributed to the Commissioner because Atty. Valera’s delegated authority under CMC No. 27-2001 and CMO No. 40-2001 was invalid, and he was further restrained by an injunctive writ issued by the RTC of Manila on August 27, 2001 and by a Temporary Restraining Order issued by the CA on April 4, 2002.

• Due Process, Fraud, and Innocent Purchaser: Shell maintained that the TCC cancellation was effected without due process, that fraud had not been sufficiently proven, and that as an innocent purchaser for value, it should not be prejudiced by any fraud committed by the original grantees.

• Prescription: The Commissioner countered that Shell’s CTA petition was filed beyond the 30-day period provided by law because the collection letters, which contained a clear demand and a warning of legal action, constituted the final decision of the Commissioner on the matter. The period should be counted from Shell’s receipt of those letters, rendering the petition time-barred.

• Valid Delegation of Authority: The Commissioner argued that Atty. Valera was duly authorized to issue the collection letters under CMC No. 27-2001, which delegated authority on tax credit and transfer matters, and to sign and file civil complaints under CMO No. 40-2001. The collection letters and the collection suits were therefore valid exercises of the Commissioner’s power.

• Finality of Assessment: Implicit in the Commissioner’s position was that the original assessment of Shell’s customs duties had become final and that the subsequent communications merely enforced the collection of sums already due.

• Jurisdiction of the CTA: Whether Shell’s Petition for Review with the CTA involved a “decision of the Commissioner of Customs” in a tax protest case within the exclusive appellate jurisdiction of the CTA under Section 7 of R.A. No. 1125 and Section 2402 of the Tariff and Customs Code.

• Nature of the Commissioner’s Action: Whether the collection letters or the filing of the collection suits constituted the appealable decision from which the 30-day period to appeal to the CTA should be reckoned.

• Effect of Deputy’s Authority: Whether the alleged lack of authority of Atty. Valera to issue the collection letters and file the collection suits affected the CTA’s jurisdiction or the validity of the proceedings below.

• Jurisdiction of the CTA: The CTA lacked jurisdiction over Shell’s petition because it did not involve a tax protest case. Under Section 2402 of the Tariff and Customs Code, a tax protest case is a protest against the liquidation of import entries—a process akin to an assessment under the National Internal Revenue Code. Shell’s import tax liabilities had long been computed and ascertained in the original assessments, and Shell settled them with TCCs. No protest had been filed against those assessments; thus they became final and incontestable. The letters from the Center and the Commissioner merely reissued the original assessments because the TCCs used as payment had been cancelled. Shell’s petition before the CTA questioned the validity of the TCC cancellation, a decision made by the Center—not a ruling of the Commissioner on a protest. The issues Shell raised concerned payment and collection (genuineness of TCCs, due process in cancellation, fraud, estoppel, functus officio), none of which constituted a tax protest case within the CTA’s appellate jurisdiction. As the CTA had no jurisdiction over decisions of the Center, Shell’s remedy against the cancellation should have been a certiorari petition before the regular courts, or alternatively, Shell could raise the fact of payment as a defense in the collection cases before the RTC, consistent with Shell v. Republic.

• Nature of the Commissioner’s Action: Because the case did not involve a tax protest that the CTA could review, it was unnecessary to determine which act—the collection letters or the filing of the collection suits—triggered the period to appeal. The jurisdictional defect rendered the prescription question moot.

• Effect of Deputy’s Authority: Any question regarding Atty. Valera’s authority to issue the collection letters and institute the collection suits was irrelevant in light of the conclusion that the CTA had no jurisdiction over the petition. Likewise, the injunction against Atty. Valera could not be invoked to enjoin the collection of unpaid taxes properly due from Shell.

• Finality of Customs Assessments — An assessment of customs duties that is not protested and is settled by the taxpayer becomes final and incontestable, and is beyond the reach of any subsequent protest proceeding, administrative or judicial. Where an assessment has become final and executory, a suit for its collection is akin to an action to enforce a judgment; no inquiry can be made into the merits of the original assessment (Dayrit v. Cruz).

• CTA Jurisdiction over Customs Decisions — Under Section 7 of R.A. No. 1125, in relation to Section 2402 of the Tariff and Customs Code, the CTA’s exclusive appellate jurisdiction over decisions of the Commissioner of Customs is limited to rulings in administrative tax protest cases (i.e., protests against the liquidation of import entries) and seizure cases. A “liquidation” is the final computation and ascertainment by the collector of duties on imported merchandise, based on official reports and the collector’s determination of the applicable rate of duty. A petition that assails the cancellation of TCCs used as payment and raises payment and collection issues does not fall within this jurisdiction; it cannot be treated as a tax protest case.

• Remedy Against Cancellation of TCCs — A taxpayer aggrieved by the Center’s cancellation of tax credit certificates may seek relief through a certiorari petition before the regular courts. Where the government files collection suits, the taxpayer may raise the validity of the payment as a defense in those civil proceedings and is not required to pursue a tax protest case that is not available.

• “A tax protest case, under the TCCP, involves a protest of the liquidation of import entries. A liquidation is the final computation and ascertainment by the collector of the duties on imported merchandise, based on official reports as to the quantity, character, and value thereof, and the collector’s own finding as to the applicable rate of duty; it is akin to an assessment of internal revenue taxes under the National Internal Revenue Code where the tax liability of the taxpayer is definitely determined.”

• “None of these letters, however, can be considered as a liquidation or an assessment of Shell’s import tax liabilities that can be the subject of an administrative tax protest proceeding before the respondent whose decision is appealable to the CTA. Shell’s import tax liabilities had long been computed and ascertained in the original assessments, and Shell paid these liabilities using the TCCs transferred to it as payment.”

• “As the CTA has no jurisdiction over decisions of the Center, Shell’s remedy against the cancellation should have been a certiorari petition before the regular courts, not a tax protest case before the CTA.”

• “[A] suit for the collection of internal revenue taxes, where the assessment has already become final and executory, the action to collect is akin to an action to enforce the judgment. No inquiry can be made therein as to the merits of the original case or the justness of the judgment relied upon.” (Quoting Dayrit v. Cruz)

• Yabes v. Flojo, G.R. No. L-46954, July 20, 1982 — Relied upon by Shell for the proposition that a collection complaint may be considered the final decision of the Commissioner appealable to the CTA. The Court did not apply the ruling because the present case did not involve a tax protest matter.

• Shell v. Republic of the Philippines, G.R. No. 161953, March 6, 2008 — Followed; the Court reiterated that under similar circumstances Shell’s appropriate forum is the collection cases before the RTC, where it may raise payment as a defense.

• Dayrit v. Cruz, G.R. No. L-39910, September 26, 1988 — Applied; the Court cited its ruling that a collection suit on a final and executory assessment is akin to an action to enforce a judgment, and the merits of the assessment cannot be re-examined.

• Section 7, Republic Act No. 1125, as amended — Defines the CTA’s exclusive appellate jurisdiction over “Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other money charges, seizure, detention, or release or property affected, fines, forfeitures or other penalties in relation thereto.” Read together with Section 2402 of the TCCP, this jurisdiction covers only decisions rendered in tax protest proceedings or seizure cases, not collection demands following a cancelled payment.

• Section 2402, Tariff and Customs Code of the Philippines — States that a party aggrieved by a ruling of the Commissioner “in any matter brought before him upon protest or by his action or ruling in any case of seizure” may appeal to the CTA. This provision limits CTA review to administrative tax protests against liquidations and to seizure matters.

• Customs Memorandum Circular No. 27-2001 and Customs Memorandum Order No. 40-2001 — Referenced by the parties regarding the delegation of authority to Deputy Commissioner Atty. Valera; the Court found the delegation irrelevant because the case did not involve a decision of the Commissioner in a tax protest.

LEONARDO A. QUISUMBING (Chairperson), CONSUELO YNARES-SANTIAGO (designated additional member per Special Order No. 645), MINITA V. CHICO-NAZARIO (designated additional member per Special Order No. 658), TERESITA J. LEONARDO-DE CASTRO (designated additional member per Special Order No. 635).