Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 42204 January 21, 1993

HON. RAMON J. FAROLAN, JR., in his capacity as Commissioner of Customs, petitioner,
vs.
COURT OF TAX APPEALS and BAGONG BUHAY TRADING, respondents.
The Solicitor General for petitioner.
Jorge G. Macapagal counsel for respondent.
Aurea Aragon-Casiano for Bagong Buhay Trading.

ROMERO, J.:
This is a petition for review on certiorari which seeks to annul and set aside the decision of the Court
of Tax Appeals dated December 27, 1974 (CTA Case No. 2490) reversing the decision of the
Commissioner of Customs which affirmed the decision of the Collector of Customs. 1
The undisputed facts are as follows:
On January 30, 1972, the vessel S/S "Pacific Hawk" with Registry No. 170 arrived at the Port of
Manila carrying, among others, 80 bales of screen net consigned to Bagong Buhay Trading (Bagong
Buhay). Said importation was declared through a customs broker under Entry No. 8651-72 as 80
bales of screen net of 500 rolls with a gross weight of 12,777 kilograms valued at $3,750.00 and
classified under Tariff Heading No. 39.06-B of the Tariff and Customs Code 2 at 35% ad valorem. Since
the customs examiner found the subject shipment reflective of the declaration, Bagong Buhay paid the
duties and taxes due in the amount of P11,350.00 which was paid through the Bank of Asia under Official
Receipt No. 042787 dated February 1, 1972. Thereafter, the customs appraiser made a return of duty.
Acting on the strength of an information that the shipment consisted of "mosquito net" made of nylon
dutiable under Tariff Heading No. 62.02 of the Tariff and Customs Code, the Office of the Collector of
Customs
ordered
a
re-examination of the shipment. A report on the re-examination revealed that the shipment consisted
of 80 bales of screen net, each bale containing 20 rolls or a total of 1,600 rolls. 3 Re-appraised, the
shipment was valued at $37,560.00 or $10.15 per yard instead of $.075 per yard as previously declared.
Furthermore, the Collector of Customs determined the subject shipment as made of synthetic
(polyethylene) woven fabric classifiable under Tariff Heading No. 51.04-B at 100% ad valorem. Thus,
Bagong Buhay Trading was assessed P272,600.00 as duties and taxes due on the shipment in
question. 4 Since the shipment was also misdeclared as to quantity and value, the Collector of Customs
forfeited the subject shipment in favor of the government. 5
Private respondent then appealed the decision of the Collector of Customs by filing a petition for
review with the Commissioner of Customs. On November 25, 1972 the Commissioner affirmed the
Collector of Customs. 6 Private respondent moved for reconsideration but the same was denied on
January 22, 1973. 7

From the Commissioner of Customs, private respondent elevated his case before the Court of Tax
Appeals. Upon review, the Court of Tax Appeals reversed the decision of the Commissioner of
Customs. It ruled that the Commissioner erred in imputing fraud upon private respondent because
fraud is never presumed and thus concluded that the forfeiture of the articles in question was not in
accordance with law. Moreover, the appellate court stated that the imported articles in question
should be classified as "polyethylene plastic" at the rate of 35%ad valorem instead of "synthetic
(polyethylene) woven fabric" at the rate of 100% ad valorem based upon the results conducted by
the Bureau of Customs Laboratory. Consequently, the Court of Tax Appeals ordered the release of
the said article upon payment of the corresponding duties and taxes. (C.T.A. Case No. 2490). 8
Thereafter, the Commissioner of Customs moved for reconsideration. On November 19, 1975, the
Court of Tax Appeals denied said motion for reconsideration. 9
On August 20, 1976, private respondent filed a petition asking for the release of the questioned
goods which this Court denied. After several motions for the early resolution of this case and for the
release of goods and in view of the fact that the goods were being exposed to the natural elements,
we ordered the release of the goods on June 2, 1986. Consequently, on July 26, 1986, private
respondent posted a cash bond of P149,443.36 to secure the release of 64 bales 10 out of the 80
bales 11 originally delivered on January 30, 1972. Sixteen bales 12 remain missing.
Private respondent alleges that of the 143,454 yards (64 bales) released to Bagong Buhay, only
116,950 yards were in good condition and the 26,504 yards were in bad condition. Consequently,
private respondent demands that the Bureau of Customs be ordered to pay for damages for the
43,050 yards 13 it actually lost. 14
Hence, this petition, the issues being; a) whether or not the shipment in question is subject to
forfeiture under Section 2530-M subparagraphs (3), (4) and (5) of the Tariff and Customs Code; b)
whether or not the shipment in question falls under Tariff Heading No. 39.06-B (should be 39.02-B)
of the Tariff and Customs Code subject to ad valorem duty of 35% instead of Tariff Heading No.
51.04-B with ad valorem of 100% and c) whether or not the Collector of Customs may be held liable
for the 43,050 yards actually lost by private respondent.
Section 2530, paragraph m, subparagraphs (3), (4) and (5) states:
Sec. 2530. Property Subject to Forfeiture Under Tariff and Customs Law. Any
vehicle, vessel or aircraft, cargo, article and other objects shall, under the following
conditions be subjected to forfeiture:
xxx xxx xxx
m. Any article sought to be imported or exported.
xxx xxx xxx
(3) On the strength of a false declaration or affidavit or affidavit
executed by the owner, importer, exporter or consignee concerning
the importation of such article;
(4) On the strength of a false invoice or other document executed by
the owner, importer, exporter or consignee concerning the importation
or exportation of such article; and.
(5)
Through any
other
practice
or
device
contrary
to law by means of which such articles was entered through a
custom-house to the prejudice of government. (Emphasis supplied).

Petitioner contends that there has been a misdeclaration as to the quantity in rolls of the shipment in
question, the undisputed fact being that the said shipment consisted of 1,600 rolls and not 500 rolls
as declared in the import entry. We agree with the contention of the petitioner. In declaring the weight
of its shipment in an import entry, through its customs broker as 12,777 kilograms when in truth and
in fact the actual weight is 13,600 kilograms, an apparent misdeclaration as to the weight of the
questioned goods was committed by private respondent. Had it not been for a re-examination and
re-appraisal of the shipment by the Collector of Customs which yielded a difference of 823
kilograms, the government would have lost revenue derived from customs duties.
Although it is admitted that indeed there was a misdeclaration, such violation, however, does not
warrant forfeiture for such act was not committed directly by the owner, importer, exporter or
consignee as set forth in Section 2530, paragraph m, subparagraph (3), and/or (4).
In defense of its position denying the commission of misdeclaration, private respondent contends
that its import entry was based solely on the shipping documents and that it had no knowledge of
any flaw in the said documents at the time the entry was filed. For this reason, private respondent
believes that if there was any discrepancy in the quantity of the goods as declared and as examined,
such discrepancy should not be attributed to Bagong Buhay. 15
Private respondent's argument is persuasive. Under Section 2530, paragraph m, subparagraphs (3)
and (4), the requisites for forfeiture are: (1) the wrongful making by the owner, importer, exporter or
consignees of any declaration or affidavit, or the wrongful making or delivery by the same persons of
any invoice, letter or paper all touching on the importation or exportation of merchandise; and (2)
that such declaration, affidavit, invoice, letter or paper is false. 16
In the case at bar, although it cannot be denied that private respondent caused to be prepared
through its customs broker a false import entry or declaration, it cannot be charged with the wrongful
making thereof because such entry or declaration merely restated faithfully the data found in the
corresponding certificate of origin, 17certificate of manager of the shipper, 18 the packing lists 19 and the
bill
of
lading 20 which
were
all
prepared
by
its
suppliers abroad. If, at all, the wrongful making or falsity of the documents above-mentioned can only be
attributed to Bagong Buhay's foreign suppliers or shippers.
With regard to the second requirement on falsity, it bears mentioning that the evidence on record,
specifically, the decisions of the Collector of Customs and the Commissioner of Customs, do not
reveal that the importer or consignee, Bagong Buhay Trading had any knowledge of any falsity on
the subject importation.
Since private respondent's misdeclaration can be traced directly to its foreign suppliers, Section
2530, paragraph m, subparagraphs (3) and (4) cannot find application.
Applying subparagraph (5), fraud must be committed by an importer/consignee to evade payment of
the duties due. 21 We support the stance of the Court of Tax Appeals that the Commissioner of Customs
failed to show that fraud had been committed by the private respondent. The fraud contemplated by law
must be actual and not constructive. It must be intentional fraud, consisting of deception willfully and
deliberately done or resorted to in order to induce another to give up some right. 22 As explained earlier,
the import entry was prepared on the basis of the shipping documents provided by the foreign supplier or
shipper. Hence, Bagong Buhay Trading can be considered to have acted in good faith when it relied on
these documents.
Proceeding now to the question of the correct classification of the questioned shipments, petitioner
contends that the same falls under Tariff Heading No. 51.04 being a "synthetic (polyethylene) woven
fabric." On the other hand, private respondent contends that these fall under Tariff Heading No.
39.06 (should be 39.02), having been found to be made of polyethylene plastic.
Heading No. 39.02 of the Tariff and Customs Code provides:

39.02 Polymerisation and copolymerisation products (for example, polyethylene,

polytetrahaloethylene, polyisobutylene, polystyrene, polyvinyl chloride, polyvinyl
acetate, polyvinyl chloroacetate and other polyvinyl derivatives, polyacrylic and
polymethacrylic derivatives, coumaroneindene resins).
The principal products included in this heading are:
(1) Polymerization products of ethylene or its substitution derivatives, particularly the
halogen derivatives.
Examples of these are polyethylene, polytetrafluro-ethylene and polychlorotrifluroethylene. Their characteristic is that they are translucent, flexible and light in
weight. They are used largely for insulating electric wire. 23
On the other hand, Tariff Heading No. 51.04 provides:
51.04. Woven fabrics of man-made fibers (continuous) including woven fabrics of
monofil or strip of heading No. 51.01 or 51.02.
This heading covers woven fabrics (as described in Part [I] [C] of the General
Explanatory Note on Section XI) made of yarns of continuous man-made fibers, or of
monofil or strip of heading 51.01 and 51.02; it includes a very large variety of dress
fabrics, linings, curtain materials, furnishing fabrics, tyre fabrics, tent fabrics,
parachute fabrics, etc. 24 (Emphasis supplied)
To correctly classify the subject importation, we need to refer to chemical analysis submitted before
the Court of Tax Appeals. Mr. Norberto Z. Manuel, an Analytical Chemist of the Bureau of Customs
and an Assistant to the Chief of the Customs Laboratory, testified that a chemical test was conducted
on the sample 25 and "the result is that the attached sample submitted under Entry No. 8651 was found to
be made wholly of Polyethylene plastic." 26
A similar result conducted by the Adamson University Testing Laboratories provides as follows:
The submitted sample, being insoluble in 10% sodium carbonate; hydrochloric acid,
glacial acetic acid, toluene, acetone, formic acid, and nitric acid, does not belong to
the man-made fibers, i.e., cellulosic and alginate rayons, poly (vinyl chloride),
polyacrylonitrile, copolymer or polyester silicones including Dolan, Dralon, Orlin,
PAN, Redon, Courtelle, etc., Tarylene, Dacron; but it is a type of plastic not
possessing, the properties of the man-made fibers. 27 (Emphasis supplied)
Consequently, the Court of Tax Appeals, relying on the laboratory findings of the Bureau of Customs
and Adamson University correctly classified the questioned shipment as polyethylene plastic taxable
under Tariff Heading No. 39.02 instead of synthetic (polyethylene) woven fabric under Tariff Heading
51.04, to wit:
While it is true that the finding and conclusion of the Collector of Customs with
respect to classification of imported articles are presumptively correct, yet as matters
that require laboratory tests or analysis to arrive at the proper classification, the
opinion of the Collector must yield to the finding of an expert whose opinion is based
on such laboratory test or analysis unless such laboratory analysis is shown to be
erroneous. And this is especially so in this case where the test and analysis were
made in the laboratory of the Bureau of Customs itself. It has not been shown why
such laboratory finding was disregarded. There is no claim or pretense that an error
was committed by the laboratory technician. Significantly, the said finding of the
Chief, Customs Laboratory finds support in the "REPORT OF ANALYSIS" submitted
by the Adamson University Testing Laboratories, dated September 21, 1966. 28

On the third issue, we opine that the Bureau of Customs cannot be held liable for actual damages
that the private respondent sustained with regard to its goods. Otherwise, to permit private
respondent's claim to prosper would violate the doctrine of sovereign immunity. Since it demands
that the Commissioner of Customs be ordered to pay for actual damages it sustained, for which
ultimately liability will fall on the government, it is obvious that this case has been converted
technically into a suit against the state. 29
On this point, the political doctrine that "the state may not be sued without its consent," categorically
applies. 30 As an unincorporated government agency without any separate juridical personality of its own,
the Bureau of Customs enjoys immunity from suit. Along with the Bureau of Internal Revenue, it is
invested with an inherent power of sovereignty, namely, taxation. As an agency, the Bureau of Customs
performs the governmental function of collecting revenues which is definitely not a proprietary function.
Thus, private respondent's claim for damages against the Commissioner of Customs must fail.
WHEREFORE, the decision of the respondent Court of Tax Appeals is AFFIRMED. The Collector of
Customs is directed to expeditiously re-compute the customs duties applying Tariff Heading 39.02 at
the rate of 35% ad valorem on the 13,600 kilograms of polyethylene plastic imported by private
respondent.
SO ORDERED.
Gutierrez, Jr., Bidin, Davide, Jr. and Melo, JJ., concur.

(DIGEST) basis lang

Farolan vs CTA
Facts:
S/S Pacific Hawk vessel with Registry No. 170 arrived on January 30, 1972 at
the Port ofManila carrying among others, 80 bales of screen net consigned to
Baging BuhayTrading (Baging Buhay). The import was classified under Tarif
Heading no. 39.06-B of theTarif and Customs Code at 35% ad valorem.
Bagong Buhay paid the duties and taxesdue in the amount of
P11,350.00.The Office of the Collector of Customs ordered a re-examination
of the shipment uponhearing the information that the shipment consisted of
mosquito net made of nylonunder Tarif Heading No. 62.02 of the Tarif and
Customs Code. Upon re-examination, itturns out that the shipment was
undervalued in quantity and value as previouslydeclared. Thus the Collector
of Customs forfeited the shipment in favor of thegovernment.Private
respondent filed a petition on August 20, 1976 for the release of the
questionedgoods which the Court denied. On June 2,1986, 64 bales out of
the 80 bales werereleased to Bagong Buhay after several motion. The
sixteen remaining bales weremissing. The respondent claims that of the
143,454 yards released, only 116,950 yardswere in good condition and
the rest were in bad condition. Thus, respondents demandsthat the Bureau of
Customs be ordered to pay for damages for the 43,050 yards itactually lost.
Issue:
Whether or not the Collector of Customs may be held liable for the 43,050
yardsactually lost by the private respondent.
Held:
Bureau of Customs cannot be held liable for actual damages that the
privaterespondent sustained with regard to its goods. Otherwise, to
permit
privater e s p o n d e n t ' s c l a i m t o p r o s p e r w o u l d v i o l a t
e t h e d o c t r i n e o f s o v e r e i g n immunity. Since it demands that

the Commissioner of Customs be ordered to pay for actual damages it

sustained, for which ultimately liability will fall on the government, it
isobvious that this case has been converted technically into a suit against
the state.
On this point, the political doctrine that state may not be sued without its
consent,
categorically applies. As an unincorporated government agency without
any separate judicial personality of its own, the Bureau of Customs enjoys im
munity from suit. Alongwith the Bureau of Internal Revenue, it is invested
with an inherent power of sovereignty,namely taxation. As an agency, the
Bureau of Customs performs the governmentalfunction of collecting
revenues
which
is
defined
not
a
proprietary
function.
Thus
privaterespondents claim for damages against the Commissioner of Customs
must fails