Home » Across Borders » Customs Demand Letters – Part II

OF late, the Office of the Customs Commissioner (OCOM) has been issuing numerous letters demanding importers to settle deficiencies in taxes and duties for past importations made in the last three years, with a warning that failure to settle the alleged underpayment will compel customs to hold the delivery or release of future importations as provided in Section 1508 of the Tariff and Customs Code of the Philippines (TCCP). The issuance of these assessment letters is in addition to the numerous demand letters being issued by the Liquidation and Billing Division (LBD) of the various collection districts and the Audit Notification Letters (ANLs) being issued by the OCOM through the Post Entry Audit (PEA) group.

In our article last March 12, 2007, we wrote that many importers were reportedly receiving demand letters from the various ports for payment of additional assessments on previous importations. While the LBD has been doing this for many years already on the ground that importations are only finally liquidated after 3 years from importation, recent events seem to indicate that more and more companies are receiving these demand letters, whether issued by the OCOM or by the LBD.

Issues During and Post Importation. In general, customs may raise valuation, classification and other related issues on importations, specifically upon filing of the import entries or after importation, in case of a post entry audit or receipt of a demand letter from the LBD. When such issues are legitimately raised during the process of importation and prior to the release of the imported articles from the custody and jurisdiction of customs, importers may elevate the matter before the Valuation and Classification Review Committee (CVCRRC). Rulings issued by the VCRC may be the subject of an appeal before the Central Valuation and Classification Review and Ruling Committee (CVCRRC).

When manifest clerical errors in the import entry declaration are discovered upon review by the LBD within the 3-year period before import entries are deemed finally liquidated, customs may require the readjustment of the appraisal or classification of the importation. Such readjustment generally results in the issuance of a demand letter requiring an importer to pay any underpayment of duties and taxes.

When errors or fraudulent practices are likewise uncovered by the PEA group during the course of profiling an importer, customs may issue an ANL on the importer resulting in the conduct of an enforced compliance audit.

Legal Basis of Demand Letters. The power and jurisdiction of customs to examine, classify and appraise an imported article upon the filing of the import entry is well established and expressly provided in the TCCP. As provided under Section 1204 of the TCCP, the liability of the importer for duties and taxes on the imported articles constitutes a lien which may be enforced when such articles are in custody or subject to the control of the government. When goods are released from customs custody, it may be said that importation has been deemed as terminated (as provided in Section 1201 of the TCCP) and that government has already lost control or jurisdiction over the article or property. However, while the imported articles are no longer under the jurisdiction of customs, the latter may still collect any underpayment of duties and taxes under exceptional circumstances, that is, through the LBD or the PEA group.

With regard to the power of customs (in particular, the LBD) to make the necessary readjustment of the appraisal or classification of an imported article within 3 years from importations, the general rule as provided in Section 1407 is that the appraisal, classification or return as finally passed upon and approved by the Collector shall not be altered or modified in any manner. Exceptions provided in the same section are as follows:

  1. when within 3 years (previously within 1 year) after payment of duties, upon statement of error as approved by the Collector;
  2. within 15 days after payment of duties, upon request for reappraisal or reclassification by the Collector addressed to the Commissioner, if the appraisal or classification is deemed to be low; and
  3. upon request for reappraisal or reclassification by a third party addressed to the Collector and in the form of a protest (to be filed within 15 days from release from customs custody).

Issues and Concerns. Some importers have already raised issues as to the legality of some of the demand letters being issued by the LBD and OCOM. A few of the demand letters issued by the LBD do not actually raise errors as to the appraisal of the importation but rather, the letters involve the rejection of the declared value of the imported article and the subsequent use of a substitute value, which is inconsistent with the express provisions of Section 1407 as discussed above.

With regard to the demand letters issued by the OCOM, issues have also been raised as to the validity and regularity of such demand letters. For one, the demand letters issued post-importation are inconsistent with the provisions of Section 1407. Second, the audit powers of customs require the exercise of administrative due process and the issuance of such demand letters is inconsistent with the substantive and procedural requirements of the PEA system.

In the coming days, customs will need to rationalize its procedures and bases for the issuance of such demand letters otherwise it will be subjected to numerous complaints from the trading community.

The author is an international trade and customs consultant, and a licensed customs broker. He is a lecturer on logistics, indirect tax, customs and supply chain. Please contact agatonuvero@yahoo.com for your comments.

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