ASIA INTERNATIONAL AUCTIONEERS, INC. AND SUBIC BAY MOTORS CORPORATION, VS. HON. GUILLERMO L. PARAYNO, JR., IN HIS CAPACITY AS COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE (BIR), THE REGIONAL DIRECTOR, BIR, REGION III, THE REVENUE DISTRICT OFFICER, BIR, SPECIAL ECONOMIC ZONE, AND OFFICE OF THE SOLI

Ruling

accordingly to the BIR. This was later amended by RMC No. 32-2003, [5] to wit: The imported motor vehicles after its release from Customs custody are sold through public auction/negotiated sale by the consignee within or outside of the Freeport Zone: The gross income earned by the consignee-seller from the public auction/negotiated sale of the imported vehicles shall be subject to the preferential tax rate of five percent (5%) in lieu of the internal revenue taxes imposed by the National Internal Revenue Code of 1997, provided that the following conditions are present: That the consignee-seller is a duly registered enterprise entitled to such preferential tax rate as well as a registered taxpayer with the Bureau of Internal Revenue (BIR). That the total income generated by the consignee-seller from sources within the customs territory does not exceed thirty percent (30%) of the total income derived from all sources. In case the consignee-seller is a registered enterprise and/or locator not entitled to the preferential tax treatment or if the same is entitled from such incentive but its total income from the customs territory exceeds thirty percent (30%) of its entire income derived from the customs territory and the freeport zone, the sales or income derived from the public auction/negotiated sale shall be subjected to the regular internal revenue taxes imposed by the Tax Code. The consignee-seller shall also observe the compliance requirements prescribed by the Tax Code. When public auction or negotiated sale is conducted within or outside of the freeport zone, the following tax treatment shall be observed: Value Added Tax (VAT)/ Percentage Tax (PT) - VAT or PT shall be imposed on every public auction or negotiated sale. Excise Tax - The imposition of excise tax on public auction or negotiated sale shall be held in abeyance pending verification that the importer's selling price used as a basis by the Bureau of Customs in computing the excise tax is correctly determined. Petitioners Asia International Auctioneers, Inc. (AIAI) and Subic Bay Motors Corporation are corporations organized under Philippine laws with principal place of business within the SSEZ. They are engaged in the importation of mainly secondhand or used motor vehicles and heavy transportation or construction equipment which they sell to the public through auction. Petitioners filed a complaint before the RTC of Olongapo City, praying for the nullification of RMC No. 31-2003 for being unconstitutional and an ultra vires act. The complaint was docketed as Civil Case No. 275-0-2003 and raffled to Branch 74. Subsequently, petitioners filed their "First Amended Complaint to Declare Void, Ultra Vires, and Unconstitutional [RMC] No. 31-2003 dated June 3, 2003 and [RMC] No. 32-2003 dated June 5, 2003, with Application for a Writ of Temporary Restraining Order and Preliminary Injunction" [6] to enjoin respondents from implementing the questioned RMCs while the case is pending. Particularly