Home » Across Borders » Legal Issues Involving Customs Demand Letters
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EARLY this year (March 12, 2007 column), we wrote about how importers are receiving demand letters from the Liquidation and Billing Division (LBD) of the various ports for payment of additional assessments on previous importations. Unlike previous demand letters where the additional assessment is based on errors in the tax and duty calculation (i.e., exchange rate, freight, insurance costs or value declaration), the demand letters now involve additional assessments amounting to hundreds and even millions of pesos arising from the rejection of the declared value and the subsequent use of a substitute value.

OCOM Demand Letters. In recent months, 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 by the OCOM is in addition to the numerous demand letters being issued by the LBD of the various collection districts as well as the Audit Notification Letters (ANLs) being issued by the OCOM through the Post Entry Audit (PEA) group.

Readjustment of Assessment. The issuance of the demand letters is principally premised on the power of customs to make the necessary readjustment to the appraisal or classification of an imported article within a certain period. As a general rule, the “appraisal, classification or return as finally passed upon and approved by the Collector shall not be altered or modified in any manner” as provided under Section 1407 of the TCCP. Stated otherwise, the appraisal or classification of an importation is deemed final and conclusive after three years from date of importation except under the following exceptions:

  1. when within three years (previously within one year) after payment of duties, upon statement of error as approved by the Collector pursuant to Section 1707, TCCP;
  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”;
  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); and
  4. upon demand by the Customs Commissioner after completion of a compliance audit.

Basis of LBD letters. The issuance of demand letters by the LBD refers to the first exception under Section 1407, with such readjustment to be made “within one year after payment of duties, upon statement of error in conformity with Section 1707, approved by the Collector”. Section 1707 of the TCCP generally pertains to correction of manifest errors in invoice or entry in return of weight…or distribution of charges on invoices. These manifest errors do not involve legitimate valuation issues which normally should be raised before the Valuation and Classification Review Committee (VCRC) upon import processing or during a compliance audit within three years from date of importation and after release from customs custody. Also, this exception clearly provides that only the District Collector can make such demand.

Many of the demand letters being issued now by the LBD involve the readjustment of the appraisal of previous importations based on valuation issues not specifically raised before the VCRC during entry processing and without the conduct of a post entry audit. Many importers have now raised issues on the regularity of such demand letters.

With regard to the demand letters issued by OCOM, the same are accordingly being issued without reference as to the basis of the reappraisal. Section 1407 provides for strict exceptions to the general rule that the appraisal of an importation is deemed finally liquidated after three years from importation. Under said Section, the Commissioner of Customs may only issue demand letters after completion of a compliance audit.

Obviously, the demand letters presently issued by OCOM do not strictly fall under any of the exceptions provided under Section 1407, TCCP. It is not based on manifest errors and even if it is, a demand may only be made within one year by the District Collector himself. The OCOM demand letters also do not involve shipments cleared within 15 days from date of issuance of the demand letters. Finally, the same letters are not issued as a result of completed compliance audits.

Need for New Rules. While we are not saying that the issuance of the demand letters from LBD and OCOM are without legal basis, it important for customs to issue new rules and guidelines to clarify the statutory basis and procedures for the issuance of such demand letters. As it is, importers are not only subject to such demand letters but also to customs visitorial powers (and visits by PASG) or to customs compliance audit. These various modes of post entry customs intervention are unfortunately in addition to the numerous customs checks already being performed upon import entry processing and prior to release of an imported article from customs custody.

The author is an international trade 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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