Commissioner of Customs v. Hypermix Feeds

G.R. No. 179579 (February 1, 2012)

Facts:

On November 7, 2003, the Commissioner of Customs issued Customs Memorandum Order (CMO) No. 27-2003, which established a tariff classification system for wheat based on the importer or consignee, country of origin, and port of discharge. The memorandum provided a specific list of corporations, ports, commodity descriptions, and countries of origin, classifying wheat as either food grade (3% tariff) or feed grade (7% tariff). The order also mandated that importers post a cash bond to cover any tariff differential when protesting the classification.

On December 19, 2003, Hypermix Feeds Corporation, the respondent, filed a Petition for Declaratory Relief with the Regional Trial Court (RTC) of Las Piñas City, anticipating the implementation of CMO 27-2003 on its imported Chinese milling wheat. The respondent argued that the CMO was issued without public participation, prior notice, and publication, violating the Revised Administrative Code. It contended that the regulation unfairly classified it as a feed grade supplier without proper assessment, leading to a significant increase in tariffs. The respondent also claimed a violation of the equal protection clause of the Constitution, as the regulation treated non-flour millers differently from flour millers without justification. Additionally, it asserted that the retroactive application of the regulation was confiscatory.

The RTC issued a Temporary Restraining Order (TRO) on January 19, 2004, effective for 20 days. The petitioners filed a Motion to Dismiss, arguing that the RTC lacked jurisdiction, that the action for declaratory relief was improper, and that the CMO was an internal administrative rule. They contended that the claims were speculative and premature since the Bureau of Customs had not yet examined the respondent's products.

On March 10, 2005, the RTC ruled in favor of the respondent, declaring CMO 27-2003 invalid and of no force and effect. The court found that the petitioners had not followed the necessary requirements for public participation and publication in issuing the CMO, and that the classification based on importer and port of discharge violated the respondent's due process rights.

Dissatisfied with the RTC's decision, the petitioners appealed to the Court of Appeals (CA), which dismissed the appeal, affirming the lower court's ruling that the regulation affected substantial rights and required adherence to the requirements of notice, hearing, and publication.

Legal Issues:

1. Whether the RTC had jurisdiction over the case and whether a petition for declaratory relief was the proper remedy.
2. Whether CMO 27-2003 was valid, considering the requirements of the Revised Administrative Code regarding public participation and publication.
3. Whether the CMO violated the equal protection clause of the Constitution.
4. Whether the Commissioner of Customs exceeded his authority in issuing the CMO.

Arguments:

Petitioners' Arguments:

• The RTC lacked jurisdiction as the respondent sought a judicial determination of tariff classification, which was not within the court's purview.
• The action for declaratory relief was improper, and the CMO was an internal administrative rule, not legislative in nature.
• The claims were speculative and premature since the Bureau of Customs had not yet examined the respondent's products.
• The CMO was valid as it was an internal administrative rule and did not require the same procedural safeguards as legislative rules.

Respondent's Arguments:

• The RTC had jurisdiction as the case involved the quasi-legislative powers of the petitioners.
• A petition for declaratory relief was appropriate as the respondent had a legal interest in the outcome and the issue was ripe for judicial determination.
• The CMO was invalid due to the lack of public participation, notice, and publication, violating the Revised Administrative Code.
• The CMO violated the equal protection clause by treating non-flour millers differently without reasonable classification.

Court's Decision and Legal Reasoning:

The Supreme Court denied the petition, affirming the CA's decision. The Court held that the RTC had jurisdiction over the case and that the petition for declaratory relief was appropriate. It emphasized that the controversy involved the constitutionality of CMO 27-2003, which was within the jurisdiction of the regular courts to review.

The Court found that the petitioners failed to comply with the requirements of the Revised Administrative Code regarding public participation and publication. It reiterated that administrative rules that impose new burdens on affected parties must provide an opportunity for those parties to be heard before implementation.

Furthermore, the Court ruled that CMO 27-2003 violated the equal protection clause of the Constitution. The classification based on the importer and port of discharge was deemed unreasonable, as it did not reflect substantial distinctions relevant to the quality of wheat. The regulation unfairly imposed a higher tariff on the respondent while allowing certain importers to benefit from a lower rate, thus undermining the state's interest in tax collection.

The Court also noted that the Commissioner of Customs exceeded his authority by preemptively classifying wheat before the customs officer's examination, which was contrary to the duties mandated by the Tariff and Customs Code.

Significant Legal Principles Established:

• The necessity of public participation, notice, and publication in the issuance of administrative rules that affect substantial rights.
• The requirement for reasonable classification under the equal protection clause, ensuring that similar entities are treated alike unless a substantial distinction justifies different treatment.
• The limitation of administrative authority to ensure compliance with statutory mandates regarding the examination and classification of imported goods.