G.R. No. L-23604. March 15, 1974.
THE COCA-COLA EXPORT CORPORATION, petitioner, vs. THE COMMISSIONER OF INTERNAL REVENUE, and THE COLLECTOR OF CUSTOMS, MANILA, as Deputy of the Commissioner of Internal Revenue, respondents.

FACTS

Petitioner Coca-Cola Export Corporation, a New York-based subsidiary of The Coca-Cola Company, supplied Coca-Cola concentrate to the exclusive Philippine bottler, San Miguel Brewery, Inc. Under an established procedure, the concentrate was sold by the manufacturer to the petitioner’s New York office at $1.634 per kilo. The New York office then shipped and invoiced the same concentrate to its Philippine branch at the identical price. Finally, the Philippine branch sold the concentrate to San Miguel at $7.70 per kilo pursuant to their Bottler’s Agreement. From 1951 to 1957, the advance sales tax was computed based on the consular-certified import invoice value of $1.634 per kilo.
The dispute arose when, beginning February 1957, the respondent Collector of Customs, as agent of the Commissioner of Internal Revenue, shifted the tax base. For a specific 1958 importation, petitioner paid tax based on the $1.634 value. Respondents, however, assessed a deficiency tax by using a computed net selling price of $6.70 per kilo (the $7.70 selling price to San Miguel less an allowance for expenses and profit). Petitioner paid the deficiency under protest and sought a refund, leading to this case.

ISSUE

Whether the “import invoice value” for computing the advance sales tax under Section 183(b) of the Revenue Code is conclusively the value appearing on the consular-certified invoice, or whether the government may determine a different, true value for taxation.

RULING

The Supreme Court affirmed the Court of Tax Appeals, ruling against the petitioner. The legal principle is that a consular-certified invoice value is not conclusive upon the government for tax assessment purposes. The customs authorities, in exercising their function to assess and collect lawful revenues, have the prerogative to determine the true and correct value of imported articles. Their valuation prevails unless shown to be based on a wrong principle or contrary to law.
The Court found that the invoiced price of $1.634 per kilo did not reflect the true value. This was a nominal, intra-company transfer price between the manufacturer, its wholly-owned subsidiary, and the subsidiary’s Philippine branch—entities effectively dealing with themselves. The stark disparity between this nominal cost and the $7.70 arm’s length selling price to an independent third party (San Miguel) demonstrated the invoice value’s inaccuracy. The transaction between the petitioner’s New York and Manila offices was not a true sale but a transfer within a single corporate structure. Therefore, the government correctly used the price in the subsequent arm’s length sale to San Miguel, as determined through administrative investigation, to ascertain the true “import invoice value” for tax computation. The appealed decision was affirmed.