G.R. No. 208465 - Bureau of Customs vs. Bush Boake Allen , Inc.

Case Summary (G.R. No. 208465)

Factual Background

Bush Boake Allen (Phils.), Inc. is a Board of Investments-registered manufacturer and trader of chemical fragrances and flavors that imported raw materials and goods. For certain importations, it was assessed customs duties and taxes totaling P2,462,650.00 by the Bureau of Customs. On April 11, 1996, Filipino Way Industries, Inc. assigned Tax Credit Certificate (TCC) No. 004334 to Bush Boake as payment for chemicals supplied. The TCC had been issued by the One-Stop-Shop Tax Credit and Duty Drawback Center (the Duty Drawback Center) of the Department of Finance on March 19, 1996, purportedly as refund or tax credit equivalent to P2,462,650.00.

Duty Drawback Center, Issuance and Cancellation of the TCC

The Duty Drawback Center was created by Administrative Order No. 266 on February 7, 1992, to provide a simplified and harmonized system for processing tax credits and duty drawbacks, and its composition included representatives from the Department of Finance, the Board of Investments, the Bureau of Customs, and the Bureau of Internal Revenue. The Center processed and issued TCC No. 004334 in favor of Filipino Way Industries, Inc., but a later post-audit by the Center found that the export declarations and bank credit memos submitted for the TCC were forged and that Filipino Way Industries, Inc. no longer existed. Consequently, the Center canceled TCC No. 004334 on September 26, 2001.

Use of the TCC and Demand by the Bureau of Customs

Respondent utilized the assigned TCC to settle its customs duties and tax liabilities with the Bureau of Customs. After the Center’s post-audit cancellation of the TCC, the Bureau of Customs demanded payment from Bush Boake for the unpaid duties and taxes. Upon Bush Boake’s refusal to pay, the Bureau of Customs filed a complaint for Collection of Sum of Money with damages before the Regional Trial Court of Manila.

Trial Court Proceedings and Judgment

Bush Boake filed a third-party complaint against Filipino Way Industries, Inc., which later defaulted for failure to plead. On March 5, 2007, the Regional Trial Court rendered judgment for the Bureau of Customs, holding Bush Boake liable for unpaid customs duties amounting to P2,462,650.00 with interest, and dismissed Bush Boake’s counterclaim. The trial court found that Bush Boake failed to prove that it was a transferee of the TCC in good faith and for value.

Court of Appeals Decision

On appeal, the Court of Appeals, Special Twelfth Division, reversed the RTC. The appellate court concluded that Bush Boake was a transferee of TCC No. 004334 in good faith and for value. The Court of Appeals relied heavily on this Court’s ruling in Pilipinas Shell Petroleum Corporation v. Commissioner of Internal Revenue and gave weight to the Duty Drawback Center’s prior verification and approval of the TCC’s validity at the time of the transfer. The appellate court held that Bush Boake could not be unjustly prejudiced by the fraud of the transferor and therefore could not be legally required to pay again the tax covered by the TCC.

Petition, Parties’ Contentions and Defenses

The Bureau of Customs filed the present petition, contending that the acceptance of the worthless TCC did not constitute valid payment because the Bureau received no money and thus respondent’s obligation remained outstanding under Article 1231 of the Civil Code. Petitioner argued that Bush Boake was not a transferee in good faith and for value, distinguishing Pilipinas Shell on facts and asserting that petitioner proved Filipino Way Industries, Inc. was a nonexistent entity and that documents were forged. Petitioner warned that if mere approval by the Center sufficed to establish transferee good faith, then numerous collection cases involving fraudulently issued TCCs would be dismissed. Respondent countered that the petition was defective for omission of certain attachments, insisted the case was a tax case whose resolution depended on the TCC’s validity, and maintained that it relied reasonably upon the TCC’s issuance and the Center’s verification and approval, having accepted the assignment as payment of obligations.

Issues Presented

The Court stated the issues as: (1) whether acceptance by the Bureau of Customs of the worthless TCC produced the effect of a valid payment that extinguished respondent’s obligations; (2) whether respondent is a transferee in good faith and for value who may not be unjustly prejudiced by the transferor’s fraud; and (3) whether respondent is liable to pay again the customs duties and taxes covered by the canceled TCC.

Jurisdictional Posture and Governing Statutes

The Court first addressed jurisdiction. The complaint for collection was filed in 2002, prior to the 2004 enactment of Republic Act No. 9282, which amended Republic Act No. 1125. Under the pre-amendment Section 7 of RA 1125, the Court of Tax Appeals exercised exclusive appellate jurisdiction over decisions of the Commissioner of Customs on matters enumerated in Section 7(2), thereby not encompassing tax collection suits. The Court explained that under the Judiciary Reorganization Act and Section 19(6) of Batas Pambansa Blg. 129 the Regional Trial Court exercised original jurisdiction over cases not within the exclusive jurisdiction of any other tribunal. The Court relied on precedent in Pilipinas Shell Petroleum Corporation v. Republic and related Shell decisions to hold that collection suits to recover unpaid duties after cancellation of TCCs are within the RTC’s jurisdiction because they do not involve decisions of the Commissioner of Customs in the tax protest sense under Section 7(2) of RA 1125 or Section 2402 of the TCCP.

Effect of RA 9282 and Filing in the Wrong Appellate Forum

The Court observed that Republic Act No. 9282, enacted in 2004, amended Section 7 to give the Court of Tax Appeals exclusive original and appellate jurisdiction over tax collection cases, and specifically conferred exclusive appellate jurisdiction on the Court of Tax Appeals over

Case Syllabus (G.R. No. 208465)

Parties and Procedural Posture

BUREAU OF CUSTOMS filed a complaint for collection of sum of money against BUSH BOAKE ALLEN (PHILS.), INC. arising from unpaid customs duties and taxes.
The complaint for collection was filed in 2002 before the enactment of Republic Act No. 9282.
The Regional Trial Court, Branch 20, Manila rendered a Decision dated March 5, 2007 in favor of BUREAU OF CUSTOMS.
BUSH BOAKE ALLEN (PHILS.), INC. appealed to the Court of Appeals, which rendered a Decision dated November 29, 2012 granting the appeal.
The Court of Appeals denied the Bureau of Customs' motion for reconsideration by Resolution dated August 5, 2013.
BUREAU OF CUSTOMS filed a petition for review with the Supreme Court seeking annulment of the Court of Appeals' Decision and Resolution.
The Supreme Court granted the Petition, annulled and set aside the Court of Appeals' Decision and Resolution for lack of jurisdiction, reinstated the RTC Decision, and ordered BUSH BOAKE ALLEN (PHILS.), INC. to pay P2,464,650.00 with six percent interest from the filing of the complaint.

Key Factual Allegations

BUSH BOAKE ALLEN (PHILS.), INC. is a Board of Investments-registered manufacturer and importer of chemical fragrances and flavors.
The Bureau of Customs assessed customs duties and taxes against BUSH BOAKE amounting to P2,462,650.00 for certain importations.
Filipino Way Industries, Inc. was issued Tax Credit Certificate No. 004334 by the One-Stop-Shop Tax Credit and Duty Drawback Center on March 19, 1996, purportedly as refund for taxes and/or duties equivalent to P2,462,650.00.
On April 11, 1996, Filipino Way Industries, Inc. assigned TCC No. 004334 to BUSH BOAKE as payment for chemicals supplied.
BUSH BOAKE used TCC No. 004334 to settle its customs duties and tax liabilities with the Bureau of Customs.
A post-audit by the Duty Drawback Center revealed that the TCC had been fraudulently issued, that export declarations and bank credit memos were forgeries, and that Filipino Way Industries, Inc. no longer existed.
The Duty Drawback Center canceled TCC No. 004334 on September 26, 2001, after which the Bureau of Customs demanded payment from BUSH BOAKE.
Filipino Way Industries, Inc. was declared in default in the third-party complaint for failing to file a responsive pleading.

Issues

The first issue was whether the Bureau of Customs' acceptance of the allegedly worthless TCC used by BUSH BOAKE produced the effect of a valid payment that extinguished BUSH BOAKE's obligations.
The second issue was whether BUSH BOAKE was a transferee in good faith and for value who may not be unjustly prejudiced by the fraud of the transferor in procuring TCC No. 004334.
The third issue was whether BUSH BOAKE was liable to pay again the customs duties and taxes covered by the cancelled TCC No. 004334.

Contentions

BUREAU OF CUSTOMS contended that acceptance of the TCC did not amount to valid payment because it received no money and that the obligation remained under Article 1231 of the Civil Code.
BUREAU OF CUSTOMS further asserted that BUSH BOAKE failed to prove good faith and value in the acquisition of the TCC and that the facts here differ materially from Pilipinas Shell Petroleum Corporation v. Commissioner of Internal Revenue.
BUSH BOAKE contended that the Petition was defective for not attaching material documents and that the case is essentially a tax case because its liability depends on the validity of the TCC.
BUSH BOAKE further argued that it acquired the TCC in good faith and for value because the Duty Drawback Center issued and verified the TCC and approved its assignment to BUSH BOAKE.

Trial Court Ruling

The Regional Trial Court found that BUSH BOAKE failed to prove that it was a transferee of TCC No. 004334 in good faith and for value and rendered judgment for BUREAU OF CUSTOMS in the amount of P2,462,650.00 with six pe