SECRETARY OF FINANCE v. ORO MAURA (PAT) 2. The Dept.
of Finance (DOF) in the 1st Indorsement, allowed the temporary
July 15, 2009 | Brion, J. | Estoppel of the government
Petitioner: Secretary of Finance
Respondents: Oro Maura Shipping Lines
SUMMARY: Glory imported the M/V Haruna and was allowed temporary registration
and tax and duty free release but it was required to pay a bond. Eventually, when the re-
export bond expired, the Mactan Collector wanted Glory to pay the duties and taxes that
were due. But these were never paid by Glory even despite several demands. Glory,
without knowledge of the Mactan Collector, sold the vessel to Oro and Oro applied for an
authority to import, but this time, the duties and taxes were lower (Php 1.1 million and
around Php 149k) as compared to that owed by Glory. And when the Mactan Collector
found out about this, they demanded Oro to pay what Glory owed. But Oro didn’t pay the
amount owed by Glory, but instead paid on the basis of what the Manila Collector and the
MARINA assessed (the lower amount). This made the Mactan Collector ordered for
seizure of the vessel against Oro. But the Cebu District Collector reversed the decisions of
the Mactan Collector, saying that Oro was not a party to the fraud. Commissioner of
Customs also affirmed this and when elevated to the SOF, the SOF likewise affirmed but
ordered for a re-assessment without the depreciated value, so Oro filed for a MR but was
denied. When elevated to the CTA and the CA, they said that the assessment by the
Manila Collector had already become final and conclusive and the demands made by the
Mactan Collector was already way beyond the 1 year period allowed. Hence, this petition.
The issues in this case are: (1) whether the SOF may order the re-assessment of taxable
transactions and (2) is whether or not the State is estopped from collecting. The SC held
that the SOF may indeed order the re-assessment in that the principle of estoppel finds no
application against the State when it acts to rectify the mistakes of its agents and officials.
This ensures the efficient conduct of the affairs of the State without any hindrance on the
part of the government from implementing laws despite prior mistakes or even illegal acts
of its agents shackling government ops and allowing others to profit from official error or
misbehavior. In addition, it is axiomatic that government cannot and must not be estopped
particularly in matters involving taxes since taxes are the lifeblood of the nation through
which government agencies continue to operate and with which the State effects its
functions for the welfare of its constituents. Thus, it should be collected without
unnecessary hindrance or delay.
DOCTRINE: The principle of estoppel finds no application against the State when it acts
to rectify the mistakes of its agents and officials. This ensures the efficient conduct of the
affairs of the State without any hindrance on the part of the government from
implementing laws despite prior mistakes or even illegal acts of its agents shackling
government ops and allowing others to profit from official error or misbehavior. Taxes are
the lifeblood of the nation and their prompt and certain availability is an imperious need.
FACTS:
1. Marina authorized the importation of the M/V Haruna (vessel) under a
Bareboat Charter for 5 years from its actual delivery to the charterer.
a. Parties to the agreement were: Haruna Maritime with Mr. Morinaga as
rep and Glory Shipping Lines (Glory) represented by Mr. Dajao, the
charterer.
registration of the vessel and its tax and duty-free release to Glory. The
Bureau of Customs (BOC) also required Glory to post a bond in the amount
equal to 150% of the duties, taxes, and other charges.
3. Glory posted an Ordinary Re-Export Bond for Php 1,952,000 conditioned
on the re-export of the vessel or in case of default, to pay taxes amounting
to Php 1,296,710.
a. The vessel arrived in Mactan and the dutiable value was Php 6,171,092
and estimated customs duty as Php 1,296,710.
4. The re-export bond of Glory expired and Glory sent a Letter of Guarantee to
the Collector of the Port of Mactan (Mactan Collector) guaranteeing to
renew the Re-Export Bond.
5. But Glory never complied with the Letter of Guarantee and never paid
duties and taxes despite demands by the Mactan Collector.
6. Unknown to the Mactan Collector, Glory offered to sell the vessel to Oro
Maura Shipping Lines (Oro).
a. Oro already applied for an Authority to Import the M/V Haruna with
MARINA, pegging the acquisition cost to Php 1.1 million and
MARINA granted this request.
b. Eventually the vessel was sold to Oro without Haruna Maritime and
Glory informing the Mactan Collector.
7. Kariton, the company representing Oro, inquired with the DOF if it could
pay the duties and taxes due on the vessel with the info that the vessel was
acquired by Glory through a Bareboat Charter to be released under a re-
export bond.
8. Kariton filed an Import Entry with the Port of Manila and the Collector of
Manila (Manila Collector) accepted the declared value of Php 1.1 million
and assessed duties and taxes amounting to only Php 149,989.
9. Mactan Collector discovered that the vessel had been sold so they sent Oro
demand letter for the unpaid customs duties of Glory and when Oro failed
to pay, the Mactan Collector filed for seizure proceedings of the vessel in
accordance with the Tariff and Customs Code, ordering the said forfeiture
after finding that Glory and Oro defrauded the government.
10. The Cebu District Collector (CDC) reversed the Mactan Collector’s
decision on the basis that Oro was not a party to the fraud and that with
regard to appraisal, the value given by the Manila Collector was proper.
11. The Commissioner of Customs also affirmed the decision of the CDC.
12. When the matter was elevated to the Secretary of Finance (SOF), he
affirmed the Commissioner’s recommendation but ordered a re-assessment
of the vessel based on the entered value. Oro filed MR, denied.
13. Oro filed a Petition for Review with the CTA and the CTA granted it.
14. SOF filed a review with the CA, but the CA affirmed the findings of the
CTA and said that the assessment made by the Manila Collector has already
become final and conclusive and that the Mactan Collector demanded
payment way beyond the 1 year period allowed. SOF filed MR, denied.
15. Hence, this petition.

ISSUE/S:
1. WON the SOF can order a re-assessment of taxable transactions. – YES.
2. WON the State is estopped. – NO.
HELD: WHEREFORE, we REVERSE the decision of the CA and REINSTATE
WITH MODIFICAITON the ruling under Former Secretary Espiritu’s 4 th
Indorsement. The re-assessment shall be based on the unpaid assessment by the
Mactan Collector against Oro, made on the basis of M/V Haruna’s entered value,
without allowance for depreciation, but including other taxes and charges due.
Seizure proceedings shall proceed in due course unless the unpaid customs duties,
other taxes and charges are duly paid. Costs against the petitioner.
RATIO:
On whether the SOF can order a re-assessment of taxable transactions
1. The Mactan Collector found out that Oro defrauded the BOC.
a. Although the rule is that factual findins when affirmed by the CA are
generally conclusive, the SC can delve into such when there are
palpable errors or the findings are attended by arbitrariness.
b. SC found that the CTA and CA overlooked and misinterpreted factual
circumstances.
2. The following were the facts that the CTA and the CA overlooked:
a. 1st phase: the original tax and duty-free entry.
i. The vessel had a declared dutiable value of Php 6,171,092 and
estimated customs duty of Php 1,296,710; none of these were paid
despite demand.
b. 2nd phase: Glory offered to sell the vessel to Oro.
i. Oro filed for authority to import based on the proposed acquisition
of Php 1.1 million and MARINA granted, taking into consideration
wear and tear.
ii. There was already bad faith on the part of Oro considering that
they disregarded the demand letters of the Mactan Collector.
iii. Oro also knew of the status of the vessel and also joined Glory in
evading payment.
c. 3rd phase: Kariton asked DOF if it could pay the duties and taxes due on
the vessel.
i. They paid the duties and taxes based on what the Manila Collector
gave and the lower appraisal of MARINA.
d. 4th phase: Mactan Collector filed for seizure proceedings when they
found out about the sale and fraud.
3. There was fraud in this case on the basis of the following:
a. Valuation was originally pegged at Php 6,171,092 and when Oro
wanted to import it as well, the acquisition cost was only Php 1.1
million.
b. So over a year and a half, the declared value decreased by 80%. In
addition, the taxes due also decreased from 1,296,710 to Php 149,989.
c. Based on Sec. 2503 of the Tariff and Customs Code, there is already a
prima facie evidence of fraud if there is an undervalution of more than
30%.
d. In addition, the TCCP doesn’t state that the depreciated value of an
imported item can be used as basis to determine dutiable value (since
they gave the 1.1 assessment based on wear and tear).
e. And even assuming that depreciated value can be considered, 80% is
just too much.
On whether the State is estopped
1. Estoppel generally finds no application against the State when it acts to
rectify mistakes, errors, irregularities, of its officials and agents.
a. This ensures efficient conduct of affairs of State without any
hindrance.
b. Rule holds true even if the rectification prejudices parties who had
received benefits.
2. Based on Chevron Phils v. Commissioner: Taxes are the lifeblood of the
nation. Tariff and customs duties are taxes constituting a significant
portion of the public revenue which enables the government to carry
out the functions it has been ordained to perform for the welfare of its
constitutents. Hence, their prompt and certain availaibility is an
imperative need and they must be collected without unnecessary
hindrance.
Other notes
1. When Oro bought the vessel from Glory, the obligation to pay the BOC had
already attached to the vessel and the non-renewal of the re-export bond
made this liability due and demandable. The subsequent transfer did not
extinguish this liability.
2. Even though Oro paid the customs duties assessed by the Manila Collector,
this did not extinguish the lien since it had already attached to the vessel and
they paid something different from what they owed.