G.R. No. 163055 June 11, 2014
THE COMMISSIONER OF CUSTOMS & THE DISTRICT COLLECTOR OF CUSTOMS FOR THE PORT OF ILOILO, Petitioners, vs. NEW FRONTIER SUGAR CORPORATION, Respondent.

FACTS

Respondent New Frontier Sugar Corporation, a domestic corporation, entered into a contract for the importation of 15,000 metric tons of raw sugar from Thailand. The shipment arrived at the Port of Iloilo on October 4, 1995. The Customs and Intelligence & Investigation Service (CIIS) issued an Alert Order on December 6, 1995, recommending a Warrant of Seizure and Detention (WSD) against the shipment for violating Joint Order No. 1-91 (which implements the Comprehensive Import Supervision Scheme or CISS) due to the lack of a Clean Report of Findings (CRF) from the pre-shipment inspector, Societe Generale de Surveillance (SGS). Respondent explained that the failure to secure the CRF was unintentional, resulting from miscommunication with the seller’s agent in Thailand. The District Collector tentatively released the shipment upon respondent’s request and the posting of a security check. Subsequently, the SGS Manila Liaison Office issued the required CRF on January 18, 1996. A three-man hearing body created by the Commissioner of Customs recommended initiating seizure proceedings against the security. The Commissioner approved this with modifications, ordering a demand for payment of a 20% penalty of the landed cost for failure to undergo pre-shipment inspection. Respondent filed a Motion for Reconsideration, which was denied. The Bureau of Customs deposited the security check on April 2, 1996, before the lapse of the 10-day grace period given to respondent to pay the penalty, prompting respondent to order a stop payment. The Collector then demanded payment of the penalty and withheld respondent’s subsequent sugar shipment. Respondent filed a Petition for Review before the Court of Tax Appeals (CTA).

ISSUE

Whether the imposition of a 20% penalty on the imported shipment for lack of a pre-shipment Clean Report of Findings was valid.

RULING

The Supreme Court DENIED the petition and AFFIRMED the decisions of the Court of Tax Appeals and the Court of Appeals. The imposition of the 20% penalty was invalid. The Court held that the subsequent issuance of the CRF by SGS on January 18, 1996, cured the initial deficiency. Since the purpose of the CISS and the pre-shipment inspection—to verify the quality, quantity, and value of the goods—was ultimately satisfied by the issuance of the CRF, the basis for the penalty ceased to exist. The Court further ruled that there was no valid seizure proceeding as no Warrant of Seizure and Detention was ever issued, violating respondent’s right to due process. The automatic seizure provision under the rules could not apply because the CRF was eventually issued. The deposit of the security check before the expiration of the grace period was improper. The withholding of the subsequent shipment was also unjustified as there was no final, demandable penalty at that time.