Illicit

Just as this administration was trying to impress the public about its seriousness in curbing economic sabotage, the Court of Tax Appeals (CTA) dismissed on a technicality a case involving tax evasion through illicit tobacco products. Tobacco is one of the agricultural products protected by more stringent rules on smuggling and tax evasion.

On Nov. 20, 2024, the CTA acquitted GB BEM Cigarette Company on charges of Unlawful Possession or Removal of Articles Subject to Excise Tax Without Payment of the Tax. The CTA deemed the evidence submitted by the BIR inadmissible for failure to follow existing rules on warrantless searches and seizures.

This story began on Feb. 5, 2020 when a BIR team, enforcing a Mission Order, raided the premises of GB BEM at the Clark SEZ. The manufacturer is a PEZA-registered firm that is supposed to be manufacturing cigarettes for export – although some of their products were found in stores around Central Luzon.

The raid confiscated 500 packs of D&B cigarettes, 4,138 packs of Two Moon cigarettes and 307,560 packs of A380 cigarettes. The company was charged for evading the payment of excise taxes from 2017 to 2020 amounting to P14,048,910. Raw materials and equipment used by the company were likewise confiscated.

Among those charged were: GB BEM president Gregory G. Lim, treasurer Benson G. Chua, company directors Elsie A. Oafallas and Gendy A. Bambao along with corporate secretary Amria Cristina G. Dayos.

The BIR argued that since GB BEM is engaged in the manufacturing of cigarettes, it is required to register as an excise taxpayer and obtain a Permit to Operate before it commences its business operations. The company did not comply.

The National Internal Revenue Code (NIRC) confers supervisory and police powers on the NBI. Included here is the power to enter premises, inspect operations and examine records pertaining to a manufacturer’s business activities. Products subject to excise tax could be seized under a valid warrant and under the principle of “plain view,” mere possession of articles subject to excise tax without payment of the tax violated Section 263 of the NIRC.

Prior to the raid, the BIR conducted careful surveillance of the manufacturing plant and acquired samples of untaxed cigarettes in the area. The tax agency claims it scrupulously followed all the guidelines for conducting such surveillance.

In its counter-argument, GB BEM claims the raid on their premises was prompted by an unsigned letter from a rival tobacco manufacturer. The company claimed in its defense that the mission order for the raid was issued without validating the information contained in the letter and confirming its authenticity.

In addition, the company says the BIR strike team did not obtain the consent of the GB BEM for the search. They further claimed the search was in the nature of a “fishing expedition.” Therefore, according to their lawyers, the evidence obtained from the raid was inadmissible for being “fruits of a poisoned tree.”

Finally, GB BEM claims they are not liable for excise taxes under their registration agreement with the PEZA. This is apparently an incentive granted to invite investments into our economy.

The CTA ruled that the search and seizure conducted by the BIR were unreasonable and contrary to the rules of the BIR. Therefore, the evidence obtained is inadmissible.

The CTA also found that the BIR Strike Team failed to fully comply with the guidelines and procedures set forth in RMO No. 3-2009. Specifically, the requirements of a prelude to the surveillance were not met by the investigating officer. These requirements ask that the investigating officer acquaint himself with the business organization and economic activity of the subject of surveillance.

In addition, the implementing officer must be briefed on the action to be performed within 30 minutes before the actual surveillance. The RMO mentioned above permits the conduct of an inventory and the seizure of “unauthorized official receipts or invoices.” Instead, company lawyers argued, the BIR Strike Team seized “cigarette raw materials, tobacco products, machines, equipment and other items.”

The raiding team did not recommend closure of the plant for the Approval of the Commissioner. The Mission Order served as basis for the BIR to enter the premises of the plant; it did not authorize them to close the business.

The seizure of raw materials and equipment, the CTA concluded, cannot be considered the result of “search in plain view.” While the BIR may have been conferred certain police powers, these remains subservient to the people’s right against unreasonable searches and seizures.

This case is spilled milk. The opportunity to collect excise taxes from this cigarette manufacturer is probably gone. Along with it, the opportunity to raise more funds for public health.

But there are lessons to be learned as we begin enforcing the Anti-Agricultural Economic Sabotage Law (RA 12022). The new law elevates smuggling, hoarding, profiteering and cartel operations into non-bailable offenses.

We need better coordination among government agencies in cracking down on tax evaders and smugglers. Too often, government agencies trip among themselves in going after the felons.

We need to review the internal guidelines of agencies so that they do not impose impossible restrictions on law enforcers. Too often, the complicated operations guidelines nearly guarantee the wrongdoers are acquitted in court for some technicality or another.

In dealing with well-organized syndicates, it should help to form multi-agency task forces to go after the criminals. This will ensure all bases are covered.

H