In Secretary of Finance v. Oro Maura Shipping Lines, the Supreme Court ruled that the Secretary of Finance can order a re-assessment of imported goods even after an initial assessment has been made, especially when there is evidence of fraud, misdeclaration, or undervaluation that deprived the government of rightful customs duties. This decision emphasizes that the finality of an assessment can be set aside if there are indications of deceitful practices aimed at circumventing proper tax obligations. It underscores the government’s power to rectify errors and collect legitimate taxes, even if it means revisiting previously settled assessments, thus protecting public revenue.

Hidden Values: Can the Government Reopen a Closed Import Assessment?

This case began with the importation of a vessel, M/V “HARUNA,” by Glory Shipping Lines under a bareboat charter agreement. Initially, the Department of Finance allowed a tax and duty-free release subject to MARINA conditions, and Glory Shipping Lines posted a re-export bond. However, Glory Shipping Lines later sold the vessel to Oro Maura Shipping Lines (respondent) without notifying the Collector of the Port of Mactan. Oro Maura then sought to pay duties on the vessel based on a lower appraised value, leading to a dispute over the correct assessment and whether the Secretary of Finance could order a re-assessment.

The legal framework centers around Sections 1407 and 1603 of the Tariff and Customs Code of the Philippines (TCCP), which generally provide for the finality of customs assessments after one year from the date of final payment, absent fraud or protest. However, the Supreme Court emphasized that this limitation does not restrict the Secretary of Finance or the Commissioner of Customs from exercising their supervisory powers to re-assess goods and collect deficiency duties, particularly when there is a strong indication of fraud. This is rooted in the principle that the government cannot be estopped from correcting mistakes and collecting rightful taxes, even if previous assessments were erroneous.

Building on this principle, the Court scrutinized the facts and found compelling evidence of fraud. The vessel’s declared value drastically decreased by approximately 80% within a short span of 19 months, raising serious questions about the accuracy of the declared values and the motivations behind the sale. Section 2503 of the TCCP provides that an undervaluation of more than 30% is prima facie evidence of fraud.

Section 2503. Undervaluation, Misclassification and Misdeclaration of Entry. – When the dutiable value of the imported articles shall be so declared and entered that the duties, based on the declaration of the importer on the face of the entry, would be less by ten percent (10%) than should be legally collected… a surcharge shall be collected from the importer…Provided, That an undervaluation of more than thirty percent (30%) between the value declared in the entry, and the actual value… shall constitute a prima facie evidence of fraud

The Supreme Court also found the respondent complicit in the scheme, noting that it was aware of the vessel’s conditional entry under a re-export bond and still proceeded with the purchase without notifying the Port of Mactan, where the original duties were outstanding. Furthermore, the Court highlighted that the depreciated value of an imported item is not a basis for determining its dutiable value under Section 201 of P.D. No. 1464, the Tariff and Customs Code of 1978. Given that the re-export bond had expired without renewal, the Court stressed that the obligation to pay customs duties had already attached to the vessel. Section 1204 of the TCCP provides in this regard:

Section 1204. Liability of Importer for Duties. – Unless relieved by laws or regulations, the liability for duties, taxes, fees and other charges attaching on importation constitutes a personal debt due from the importer to the government which can be discharged only by payment in full… It also constitutes a lien upon the articles imported which may be enforced while such articles are in custody or subject to the control of the government.

To sum, the Supreme Court reversed the Court of Appeals’ decision, reinstating the Secretary of Finance’s order for re-assessment. The Court held that when a tax lien had attached to the vessel, the subsequent transfer of ownership did not extinguish the duty to pay, emphasizing that tariff and customs duties are crucial for public revenue and must be collected efficiently.

FAQs

What was the key issue in this case?	The key issue was whether the Secretary of Finance had the authority to order a re-assessment of an imported vessel’s value after an initial assessment had already been made and duties paid. This hinged on whether fraud was involved in the vessel’s importation.
What is the significance of Section 1603 of the TCCP in this case?	Section 1603 of the TCCP generally provides that customs duty settlements are final after one year, unless there is fraud. The Court ruled that fraud existed, negating the finality provision.
What constituted fraud in this case?	The Court found that there was evidence of undervaluation and misdeclaration because the vessel’s declared value decreased drastically (80%) within a short period, which triggered the prima facie evidence of fraud under Section 2503 of the TCCP.
Can the depreciated value of an item be used to determine its dutiable value?	No, the Supreme Court clarified that the depreciated value of an imported item cannot be used as the primary basis for determining its dutiable value. The cost should be based on market price.
Is the government bound by mistakes of its officials in customs assessments?	No, the Court emphasized that the government is generally not bound by the errors or missteps of its officials. This ensures the effective collection of taxes.
What is a tax lien, and how did it apply to this case?	A tax lien is a claim or charge on property for the payment of a debt or duty. In this case, a tax lien attached to the vessel, meaning the obligation to pay customs duties remained with the vessel even after its sale.
What factors should be considered when re-assessing imported goods?	The re-assessment must be based on the vessel’s entered value at the time of original assessment, but shall not include depreciation allowance and including other applicable charges
Does change of ownership change the application of tax lien in imported goods?	No, transfer of the imported goods shall not change the fact that a tax lien is in place and shall not extinguish the liability attached to the goods. The government still has the right to collect from it regardless of the transfer.
In cases of discrepancies between original declarations and final importations of goods, which port prevails?	In the event of discrepancy, the port wherein the original declaration was filed or processed would have the proper tax lien since such constitutes jurisdiction on the imported goods until finality.

Ultimately, this case serves as a potent reminder that transparency and accurate declarations are paramount in import transactions. The decision reaffirms the government’s resolve to prevent revenue loss stemming from deceitful schemes, ensuring a fair and just application of customs regulations.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Secretary of Finance v. Oro Maura Shipping Lines, G.R. No. 156946, July 15, 2009