ASG Law

Category: Import and Export

  • Customs Forfeiture in the Philippines: Illegal Removal of Goods & Buyer Beware

    Customs Forfeiture Trumps Good Faith Purchase: Illegally Removed Goods Can Be Seized Even from Innocent Buyers

    TLDR: This case clarifies that Philippine customs authorities retain the right to seize goods illegally removed from their custody, even if those goods are later sold to an innocent buyer. Forfeiture occurs at the moment of illegal removal, retroactively invalidating any subsequent transactions. Buyers of goods originating from customs auctions or warehouses must exercise extreme diligence to ensure legality and avoid forfeiture.

    CARRARA MARBLE PHILIPPINES, INC., PETITIONER, VS. COMMISSIONER OF CUSTOMS, RESPONDENT. G.R. No. 129680, September 01, 1999

    INTRODUCTION

    Imagine a business purchasing equipment, believing it acquired the machinery legally and in good faith. Then, authorities arrive, seizing the equipment due to violations committed years prior, by a completely different entity. This scenario, while alarming, is precisely what Carrara Marble Philippines, Inc. faced in this landmark Supreme Court case. The case highlights a critical aspect of Philippine customs law: the government’s unwavering right to forfeit goods illegally removed from customs custody, regardless of subsequent sales or claims of good faith purchase. This legal principle has significant implications for businesses involved in importing, purchasing auctioned goods, or dealing with items that may have originated from customs warehouses. The central question in this case was whether the Bureau of Customs retained jurisdiction to seize and forfeit machinery that had been illegally removed from its custody, even after it was allegedly sold to a third party and installed in their factory.

    LEGAL CONTEXT: TARIFF AND CUSTOMS CODE & FORFEITURE

    Philippine customs law, primarily governed by the Tariff and Customs Code (TCC), grants broad powers to the Bureau of Customs to regulate and control imported goods. A key aspect of this power is the concept of forfeiture. Forfeiture is the government’s right to take ownership of goods due to violations of customs laws. This case hinges on specific provisions of the TCC, particularly Section 2530, which outlines various grounds for forfeiture. Section 2530 (e) of the TCC is directly relevant, as it states that articles are subject to forfeiture if they are:

    “Removed contrary to law from any public or private warehouse under customs supervision.”

    This provision is designed to prevent the illegal withdrawal of goods from customs control, ensuring that proper duties and taxes are paid. Another crucial section is 2536, empowering customs officers to demand proof of duty payment for foreign articles offered for sale or storage. Failure to provide such evidence can lead to seizure and forfeiture. Section 2535 of the TCC further clarifies the burden of proof in forfeiture cases, stating:

    “In all proceedings in the Court of Tax Appeals or elsewhere, arising under the provisions of this Act or other laws administered by the Bureau of Customs, the burden of proof shall be upon the claimant or possessor of the thing seized.”

    This means that once the Bureau of Customs establishes probable cause for forfeiture, the burden shifts to the claimant (like Carrara Marble in this case) to prove the legality of their possession. Importantly, the concept of ‘termination of importation’ is also relevant. Section 1202 of the TCC defines when importation is deemed terminated:

    “Importation is deemed terminated upon payment of the duties, taxes and other charges due upon the articles, or secured to be paid, at the port of entry, and the legal permit for withdrawal shall have been granted, or if the articles are free of duties, taxes and other charges, then they have legally left the jurisdiction of the customs.”

    While Carrara Marble argued that importation had terminated with the auction sale, the Supreme Court clarified that termination of importation does not automatically extinguish the Bureau of Customs’ jurisdiction, especially when illegal acts like unlawful removal from a warehouse are involved.

    CASE BREAKDOWN: THE MISSING MACHINERY AND FORFEITURE

    The story begins with a public auction conducted by the Bureau of Customs in 1987. Among the lots for sale was Lot 15, described as “marble processing machine and grinding machine, rusty and in junk condition.” Engr. Franklin Policarpio won the bid for Lot 15. However, when Policarpio took delivery, he discovered two key pieces of machinery were missing: a Special Circular Saw and a Diamond Sawing Machine. Policarpio’s investigation led him to Carrara Marble Philippines, Inc. in Lipa City, Batangas, where he found the missing machinery installed in their compound.

    The Bureau of Customs, upon receiving this information, initiated seizure and forfeiture proceedings against the machinery found at Carrara Marble. The Bureau alleged violations of Section 2536 (non-payment of duties) and Section 2530[e] (illegal removal) of the TCC. Carrara Marble defended itself by claiming it had purchased the machinery locally from a certain Jaina Perez years before, presenting notarized deeds of sale from 1985 and 1986. They argued they were buyers in good faith and unaware of any import irregularities. Policarpio intervened, asserting his ownership as the rightful buyer from the auction sale.

    The Collector of Customs declared the machinery forfeited, a decision upheld by the Commissioner of Customs. Carrara Marble then appealed to the Court of Tax Appeals (CTA), which also ruled against them, affirming the forfeiture and ordering the delivery of the machinery to Policarpio. The Court of Appeals (CA) further affirmed the CTA’s decision. The Supreme Court then reviewed the case. The Court highlighted the undisputed fact that the machinery was part of Lot 15, auctioned by Customs, and that it went missing *before* delivery to Policarpio and was later found at Carrara Marble’s premises. The Supreme Court emphasized the factual findings of the CTA and CA, which are generally accorded great weight.

    Crucially, the Supreme Court stated:

    “Based on the findings of the CTA, the subject machineries were liable to forfeiture under customs law. Upon demand for evidence of payment of duties and taxes, petitioner failed to present receipts. What it presented were two notarized deeds of sale executed in 1985 and 1986 between petitioner as buyer and Jaina Perez as seller.”

    The Court found Carrara Marble’s evidence insufficient to overcome the presumption of illegal removal and non-payment of duties. The alleged seller, Jaina Perez, never appeared to testify, and the deeds of sale predated the auction and were not linked to any legitimate customs transaction. The Supreme Court further clarified the retroactive effect of forfeiture:

    “The forfeiture of the subject machineries, therefore, retroacted to the date they were illegally withdrawn from Customs custody. The government’s right to recover the machineries proceeds from its right as lawful owner and possessor thereof upon abandonment by Filipinas Marble. Such right may be asserted no matter into whose hands the property may have come, and the condemnation when obtained avoids all intermediate alienations.”

    The Court concluded that Carrara Marble’s claim of good faith purchase was irrelevant because Jaina Perez had no valid title to transfer. The illegal removal from customs custody had already triggered forfeiture, extinguishing any rights Perez might have purported to convey.

    PRACTICAL IMPLICATIONS: DUE DILIGENCE IS KEY

    The Carrara Marble case serves as a stark warning: purchasing goods, even in good faith and with seemingly valid documentation, does not guarantee ownership if those goods were illegally removed from customs custody. This ruling has significant practical implications for businesses and individuals in the Philippines:

    • Buyers Beware at Auctions: Winning an auction from the Bureau of Customs does not automatically guarantee delivery of all items listed in the lot if items are missing prior to actual delivery to the winning bidder. While the winning bidder in this case was protected, subsequent purchasers from other sources are not necessarily afforded the same protection.
    • Verify Source and Documentation: Businesses must conduct thorough due diligence when purchasing equipment or goods, especially if there’s any indication they might be imported or originate from customs warehouses. Demand clear and verifiable documentation tracing the goods back to legitimate importation and duty payment.
    • Good Faith is Not Enough: The concept of a ‘buyer in good faith and for value’ offers limited protection in customs forfeiture cases when the root of the issue is illegal removal from customs custody. The government’s right to forfeit trumps subsequent transactions.
    • Customs Jurisdiction is Broad: The Bureau of Customs’ jurisdiction over imported goods extends beyond the point of auction sale, especially when illegal activities like warehouse removal are involved. Termination of importation in the context of duty payment doesn’t negate customs authority to pursue forfeiture for prior illegal acts.

    Key Lessons from Carrara Marble vs. Commissioner of Customs

    • Illegal Removal = Forfeiture: Removing goods from customs custody without proper legal processes triggers immediate forfeiture, with retroactive effect.
    • Due Diligence is Crucial: Always verify the legal origin and customs clearance of goods, especially those potentially linked to importation or customs auctions.
    • Good Faith Purchase – Limited Defense: Good faith purchase may not protect you against customs forfeiture if the goods were illegally removed from customs control.
    • Government’s Forfeiture Power is Strong: The Bureau of Customs has robust powers to enforce customs laws, including forfeiture, to protect government revenue and prevent fraud.

    FREQUENTLY ASKED QUESTIONS (FAQs)

    Q1: What does “forfeiture” mean in customs law?

    A: Forfeiture is the legal process by which the government takes ownership of goods because of a violation of customs laws. In essence, the goods become government property.

    Q2: What are common grounds for customs forfeiture in the Philippines?

    A: Common grounds include illegal importation, smuggling, misdeclaration, undervaluation, and, as highlighted in this case, illegal removal of goods from customs custody.

    Q3: If I buy something from a local seller, am I responsible for checking its import history?

    A: While you are not automatically responsible, exercising due diligence is highly advisable, especially for high-value items or equipment that are commonly imported. If there are red flags or suspicions about the item’s origin, it is prudent to investigate further and request documentation.

    Q4: What kind of documentation should I look for to verify legal importation?

    A: Look for import permits, official receipts of duty and tax payments from the Bureau of Customs, and certificates of origin if applicable. Consulting with a customs lawyer is recommended for complex transactions.

    Q5: What happens if I unknowingly buy goods that are later forfeited?

    A: Unfortunately, as illustrated by the Carrara Marble case, even good faith purchasers can lose their goods to forfeiture. Your recourse might be to pursue legal action against the seller for breach of warranty or fraud, but recovering the goods from the government may be difficult.

    Q6: Can I compromise or settle a customs forfeiture case?

    A: Section 2307 of the TCC allows for compromises in certain cases. However, compromise is not always allowed, particularly when the violation involves prohibited importations or when release is contrary to law, as the Collector of Customs argued in this case.

    Q7: Is winning a bid at a Customs auction a guarantee of ownership?

    A: Generally, yes, for the specific items delivered. However, as seen in this case, if items are missing *before* delivery to the winning bidder, issues can arise. The winning bidder in this case was ultimately protected and entitled to the machinery, but the case highlights potential complexities.

    Q8: What should I do if I suspect goods I purchased might be subject to customs forfeiture?

    A: Immediately seek legal advice from a lawyer specializing in customs law. Do not attempt to hide or dispose of the goods, as this could worsen your situation. Transparency and cooperation with authorities, guided by legal counsel, are crucial.

    ASG Law specializes in Customs and Tariff Law, and Import/Export Regulations. Contact us or email hello@asglawpartners.com to schedule a consultation.