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G.R. Nos.

L-28508-9 July 7, 1989

ESSO STANDARD EASTERN, INC., (formerly, Standard-Vacuum Oil
Company), petitioner,


In CTA Case No. 1251, petitioner ESSO deducted from its gross income for
1959 the amount it had spent for drilling and exploration of its petroleum
concessions. This claim was disallowed by the respondent Commissioner of Internal
Revenue on the ground that the expenses should be capitalized and might be
written off as a loss only when a "dry hole" should result. ESSO then filed an
amended return where it asked for the refund of P323,279.00 by reason of its
abandonment as dry holes of several of its oil wells. Also claimed as ordinary and
necessary expenses was the amount of P340,822.04, representing margin fees it
had paid to the Central Bank on its profit remittances to its New York head office.
The CIR granted a tax credit of P221,033.00 only, disallowing the claimed deduction
for the margin fees paid.
In CTA Case No. 1558, the CR assessed ESSO a deficiency income tax for
the year 1960, for a total of P434,232.92. The deficiency arose from the
disallowance of the margin fees of Pl,226,647.72 paid by ESSO to the Central Bank
on its profit remittances to its New York head office. ESSO settled this deficiency
assessment on August 10, 1964, by applying the tax credit of P221,033.00
representing its overpayment on its income tax for 1959 and paying under protest
the additional amount of P213,201.92. On August 13, 1964, it claimed the refund of
P39,787.94 as overpayment on the interest on its deficiency income tax. It argued
that the 18% interest should have been imposed not on the total deficiency of
P367,944.00 but only on the amount of P146,961.00, the difference between the
total deficiency and its tax credit of P221,033.00.
The claim was denied by CIR. The CTA also denied petitioners claim for

Issue: Whether R.A. 2009, entitled An Act to Authorize the Central Bank of
the Philippines to Establish a Margin Over Banks' Selling Rates of Foreign Exchange,
is a police measure or a revenue measure.

We conclude then that the margin fee was imposed by the State in the
exercise of its police power and not the power of taxation. In the case of Atlas
Consolidated Mining and Development Corporation v. Commissioner of Internal
Revenue, the Court laid down the rules on the deductibility of business expenses,
(1) the expense must be ordinary and necessary,
(2) it must be paid or incurred within the taxable year, and
(3) it must be paid or incurred in carrying on a trade or business.
In addition, not only must the taxpayer meet the business test, he must
substantially prove by evidence or records the deductions claimed under the law,
otherwise, the same will be disallowed.
The principle is recognized that when a taxpayer claims a deduction, he must
point to some specific provision of the statute in which that deduction is authorized
and must be able to prove that he is entitled to the deduction which the law allows.
ESSO has not shown that the remittance to the head office of part of its
profits was made in furtherance of its own trade or business. The petitioner merely
presumed that all corporate expenses are necessary and appropriate in the absence
of a showing that they are illegal or ultra vires. This is error. The public respondent
is correct when it asserts that "the paramount rule is that claims for deductions are a
matter of legislative grace and do not turn on mere equitable considerations. The
taxpayer in every instance has the burden of justifying the allowance of any
deduction claimed."
It is clear that ESSO, having assumed an expense properly attributable to its
head office, cannot now claim this as an ordinary and necessary expense paid or
incurred in carrying on its own trade or business.
The decision of the Court of Tax Appeals is AFFIRMED, with costs against the

G.R. No. L-36081 April 24, 1989

QUEZON CITY, respondent.
The City Council of respondent Quezon City adopted Ordinance No. 7997,
Series of 1969, otherwise known as the Market Code of Quezon City, Section 3
which provided for a Supervision Fee. The Market Code was thereafter amended by
Ordinance No. 9236.
Petitioner Progressive Development Corporation, owner and operator of a
public market known as the "Farmers Market & Shopping Center" filed a Petition for
Prohibition with Preliminary Injunction against respondent before the then Court of
First Instance of Rizal on the ground that the supervision fee or license tax imposed
by the above-mentioned ordinances is in reality a tax on income which respondent
may not impose, the same being expressly prohibited by Republic Act No. 2264, as
In its Answer, respondent, contended that it had authority to enact the
questioned ordinances, maintaining that the tax on gross receipts imposed therein is
not a tax on income. The Solicitor General also filed an Answer arguing that
petitioner, not having paid the ten percent (10%) supervision fee prescribed by
Ordinance No. 7997, had no personality to question, and was estopped from
questioning, its validity; that the tax on gross receipts was not a tax on income but
one imposed for the enjoyment of the privilege to engage in a particular trade or
business which was within the power of respondent to impose.
The lower court dismissed the petition. Hence, this Petition for Review.
Issue: Whether the tax imposed by respondent on gross receipts of stall
rentals is properly characterized as partaking of the nature of an income tax or,
alternatively, of a license fee.

Section 12, Article III of Republic Act No. 537, otherwise known as the
Revised Charter of Quezon City, authorizes the City Council:
(c) To tax, fix the license fee, and regulate the business of the
... preparation and sale of meat, poultry, fish, game, butter, cheese, lard vegetables,
bread and other provisions.
The scope of legislative authority conferred upon the Quezon City Council in
respect of businesses like that of the petitioner, is comprehensive: the grant of
authority is not only" [to] regulate" and "fix the license fee," but also " to tax".
It is now settled that Republic Act No. 2264 confers upon local governments
broad taxing authority extending to almost "everything, excepting those which are
mentioned therein," provided that the tax levied is "for public purposes, just and
uniform," does not transgress any constitutional provision and is not repugnant to a
controlling statute. Both the Local Autonomy Act and the Charter of respondent
clearly show that respondent is authorized to fix the license fee collectible from and
regulate the business of petitioner as operator of a privately-owned public market.
To be considered a license fee, the imposition questioned must relate to an
occupation or activity that so engages the public interest in health, morals, safety
and development as to require regulation for the protection and promotion of such
public interest. When an activity, occupation or profession is of such a character that
inspection or supervision by public officials is reasonably necessary for the
safeguarding and furtherance of public health, morals and safety, or the general
welfare, the legislature may provide that such inspection or supervision or other
form of regulation shall be carried out at the expense of the persons engaged in
such occupation or performing such activity. Accordingly, a charge of a fixed sum
which bears no relation at all to the cost of inspection and regulation may be held to
be a tax rather than an exercise of the police power.
Petition Denied.

G.R. No. L- 41383 August 15, 1988

PHILIPPINE AIRLINES, INC., plaintiff-appellant,
ROMEO F. EDU in his capacity as Land Transportation Commissioner, and
UBALDO CARBONELL, in his capacity as National Treasurer,
The Philippine Airlines (PAL) is a corporation organized and existing under the
laws of the Philippines and engaged in the air transportation business under a
legislative franchise. Under its franchise, PAL is exempt from the payment of taxes.
PAL has, since 1956, not been paying motor vehicle registration fees.
Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued
a regulation requiring all tax exempt entities, among them PAL to pay motor vehicle
registration fees. Despite PAL's protestations, the appellee refused to register the
appellant's motor vehicles unless the amounts imposed under Republic Act 4136
were paid. The appellant thus paid, under protest, the amount of P19,529.75 as
registration fees of its motor vehicles. After paying under protest, PAL demanded a
refund of the amounts paid, invoking the ruling in Calalang v. Lorenzo:
motor vehicle registration fees are in reality taxes from the
payment of which PAL is exempt by virtue of its legislative franchise.
Appellee Edu denied the request for refund basing his action on the decision
in Republic v. Philippine Rabbit Bus Lines, Inc.:
motor vehicle registration fees are regulatory exceptional. and
not revenue measures and, therefore, do not come within the
exemption granted to PAL under its franchise.
Trial Court dismissed appellants complaint.

Issue: Whether or not motor vehicle registration fees are taxes or regulatory

The vehicle registration fees were originally simple exceptional intended only
for rigidly purposes in the exercise of the State's police powers. Over the years,
however, as vehicular traffic exploded in number and motor vehicles became
absolute necessities without which modem life as we know it would stand still,
Congress found the registration of vehicles a very convenient way of raising much
needed revenues.
We rule that motor vehicle registration fees as at present exacted pursuant to
the Land Transportation and Traffic Code are actually taxes intended for additional
revenues. of government even if one fifth or less of the amount collected is set aside
for the operating expenses of the agency administering the program.
Furthermore, any registration fees collected between June 27, 1968 and April
9, 1979, were correctly imposed because the tax exemption in the franchise of PAL
was repealed during the period. However, an amended franchise was given to PAL in
1979 pursuant to Section 13(a & b) of Presidential Decree No. 1590
PAL's current franchise is clear and specific. It has removed the ambiguity
found in the earlier law. PAL is now exempt from the payment of any tax, fee, or
other charge on the registration and licensing of motor vehicles. Such payments are
already included in the basic tax or franchise tax provided in Subsections (a) and (b)
of Section 13, P.D. 1590, and may no longer be exacted.
Petition is partially granted.

G.R. No. L-16619 June 29, 1963

CITY OF MANILA, ET AL., defendants-appellants.
Appellee Compania General de Tabacos de Filipinas (Tabacalera), filed this
action in the Court of First Instance of Manila to recover from appellants, City of
Manila (City) the sum of P15,280.00 allegedly overpaid by it as taxes on its
wholesale and retail sales of liquor for the period from the third quarter of 1954 to
the second quarter of 1957, inclusive, under Ordinances Nos. 3634, 3301, and 3816.
Tabacalera, as a duly licensed first class wholesale and retail liquor dealer
paid the City the fixed license fees prescribed by Ordinance No. 3358 for the years
1954 to 1957, inclusive, and, as a wholesale and retail dealer of general
merchandise, it also paid the sales taxes required by Ordinances Nos. 3634, 3301,
and 3816. Tabacalera's action for refund is based on the theory that, in connection
with its liquor sales, it should pay the license fees prescribed by Ordinance No. 3358
but not the municipal sales taxes imposed by Ordinances Nos. 3634, 3301, and
3816; and since it already paid the license fees aforesaid, the sales taxes paid by it
amounting to the sum of P15,208.00 under the three ordinances mentioned
heretofore is an overpayment made by mistake, and therefore refundable.
The City, on the other hand, contends that, for the permit issued to it
granting proper authority to "conduct or engage in the sale of alcoholic beverages,
or liquors" Tabacalera is subject to pay the license fees prescribed by Ordinance No.
3358, aside from the sales taxes imposed by Ordinances Nos. 3634, 3301, and 3816.

Issue: 1. Whether or not refund is proper.

2. Whether or not Tabacalera is subjected to double taxation.

1. No. License fee is a legal concept quite distinct from tax; the former is
imposed in the exercise of police power for purposes of regulation, while
the latter is imposed under the taxing power for the purpose of raising revenues.
Ordinance No. 3358 is clearly one that prescribes municipal license fees for
the privilege to engage in the business of selling liquor or alcoholic beverages. The
license fees imposed by it are essentially for purposes of regulation, and are
justified, considering that the sale of intoxicating liquor is, potentially at least,
harmful to public health and morals, and must be subject to supervision or
regulation by the state and by cities and municipalities authorized to act in the
On the other hand, it is clear that Ordinances Nos. 3634, 3301, and 3816
impose taxes on the sales of general merchandise, wholesale or retail, and are
revenue measures enacted by the Municipal Board of Manila by virtue of its power to
tax dealers for the sale of such merchandise.

2. No. That Tabacalera is being subjected to double taxation is more apparent

than real. As already stated what is collected under Ordinance No. 3358 is a license
fee for the privilege of engaging in the sale of liquor, a calling in which it is
obvious not anyone or anybody may freely engage, considering that the sale of
liquor indiscriminately may endanger public health and morals. On the other hand,
what the three ordinances mentioned heretofore impose is a tax for revenue
purposes based on the sales made of the same article or merchandise. It is already
settled in this connection that both a license fee and a tax may be imposed
on the same business or occupation, or for selling the same article, this
not being in violation of the rule against double taxation.
Case Dismissed.
G.R. No. 99886 March 31, 1993
JOHN H. OSMEA, petitioner,
OSCAR ORBOS, in his capacity as Executive Secretary; JESUS
ESTANISLAO, in his capacity as Secretary of Finance; WENCESLAO DELA
PAZ, in his capacity as Head of the Office of Energy Affairs; REX V.

PD 1956 was issued to create the Oil Price Stabilization Fund (OPSF) designed
to reimburse oil companies for cost increases in crude oil resulting from exchange
rate fluctuations and from increases in the prices of oil in the world market. It was
later amended by EO 137 which expands the grounds for reimbursement to oil
companies for possible cost under recovery incurred as a result of the reduction of
domestic prices of petroleum products. In 1991, the OPSF incurred a deficit to which
the Energy Regulatory Board (ERB) tried to resolve such problem by issuing an order
to increase pump prices of petroleum and such shall have covered the OPSF deficit
within 6 months. Osmena reacted to this by claiming that the OPSF should be
treated as a special fund and not as a trust account/fund because a special tax
collected for a specific purpose shall have its revenue expended for such purposes
only and not channeled to another government objective and that PD 1956 is
unconstitutional because it confers invalid delegation to ERB. It thus appears that
the challenge posed by the petitioner is premised primarily on the view that the
powers granted to the ERB under PD 1956, partake the nature of the taxation power
of the State.

Issues: (1) Whether PD 1956 is a legislation partaking the nature of the

taxation power of the State or is it more of police power; (2) Whether Paragraph 1
PD No. 1956 is unconstitutional for being an undue and invalid delegation of
legislative power, setting no limit on the powers of the ERB.

The fluctuations in world market prices and foreign exchange rates would in a
completely free market translate into corresponding adjustments in domestic prices
of oil and petroleum products with sympathetic frequency. But domestic prices which
vary from day to day would result in a chaotic market with unpredictable effects
upon the countrys economy. The OPSF was established to protect local consumers
from the adverse consequences that frequent oil price adjustments may have upon
the economy. The OPSF is thus a buffer mechanism through which the domestic
consumer prices of oil and petroleum products are stabilized instead of fluctuating
every so often. The establishment and maintenance of the OPSF is well within that
power and responsibility of the government to secure the physical and economic
survivalit is within the police power of the State. The stabilization and subsidy of
domestic prices of petroleum products is regarded as public purpose. With regard to
undue delegation of legislative power, the Court finds that the authority conferred
upon the ERB to impose additional amounts on petroleum provides a sufficient
standard. PD 1956 expressly authorizes the ERB to impose additional amounts to
augment the resources of the Fund. What is here involved is not so much the power
of taxation as police power. Although the provision authorizing the ERB to impose
additional amounts could be construed to refer to the power of taxation, it cannot be
overlooked that the overriding consideration is to enable the delegate to act with
expediency in carrying out the objectives of the law which are embraced by the
police power of the State. Constant fluctuation of the various factors involved in the
determination of the price of oil and petroleum products do not conveniently permit
the setting of fixed or rigid parameters in the law as proposed by the petitioner. As
such, the standard as it is expressed suffices to guide the delegate in the exercise of
the delegated power. The petition is granted only for the nullification of the
reimbursement of financing charges but dismissed in all other respects.

G.R. No. 159796 July 17, 2007

ROMEO P. GEROCHI, et al, petitioners
DEPARTMENT OF ENERGY (DOE), et al, respondents.
Congress enacted the EPIRA on June 8, 2001. respondent National Power
Corporation-Strategic Power Utilities Group (NPC-SPUG) filed with respondent
Energy Regulatory Commission (ERC) a petition for the availment from the Universal
Charge of its share for Missionary Electrification. NPC filed another petition with ERC,
docketed as ERC Case No. 2002-194, praying that the proposed share from the
Universal Charge for the Environmental charge of P0.0025 per kilowatt-hour (/kWh),
or a total of P119,488,847.59, be approved for withdrawal from the Special
Trust Fund (STF) managed by respondent Power Sector Assets and Liabilities
Management Group (PSALM) for the rehabilitation and management of watershed
The ERC issued an Order in ERC Case No. 2002-165 provisionally approving
the computed amount of P0.0168/kWh as the share of the NPC-SPUG from the
Universal Charge for Missionary Electrification and authorizing the National
Transmission Corporation (TRANSCO) and Distribution Utilities to collect the same
from its end-users on a monthly basis. Subsequently, the ERC rendered its
Decision[13] (for ERC Case No. 2002-165) modifying its Order to the effect that an
additional amount of P0.0205 per kilowatt-hour should be added to the P0.0168 per
kilowatt-hour provisionally authorized by the Commission in the said Order.
NPC-SPUG filed a Motion for Reconsideration wherein it was granted.
Meanwhile, on April 2, 2003, ERC decided ERC Case No. 2002-194,
authorizing the NPC to draw up to P70,000,000.00 from PSALM for its 2003
Watershed Rehabilitation Budget subject to the availability of funds for the
Environmental Fund component of the Universal Charge.
On the basis of the said ERC decisions, respondent Panay Electric Company,
Inc. (PECO) charged petitioner Romeo P. Gerochi and all other end-users with the
Universal Charge as reflected in their respective electric bills starting from the month
of July 2003.
Hence, this original action.
Petitioners contend that the Universal Charge has the characteristics of a tax
and is collected to fund the operations of the NPC.
On the other hand, respondent PSALM through the Office of the Government
Corporate Counsel (OGCC) contends that unlike a tax which is imposed to provide
income for public purposes, the assailed Universal Charge is levied for a specific
regulatory purpose, which is to ensure the viability of the country's electric power

Issue: Whether or not, the Universal Charge imposed under Sec. 34 of the
EPIRA is a tax.

No. The power to tax is an incident of sovereignty and is unlimited in its
range, acknowledging in its very nature no limits, so that security against its abuse is
to be found only in the responsibility of the legislature which imposes the tax on the
constituency that is to pay it. On the other hand, police power is the power of the
state to promote public welfare by restraining and regulating the use of liberty and
The conservative and pivotal distinction between these two powers rests in
the purpose for which the charge is made. If generation of revenue is the primary
purpose and regulation is merely incidental, the imposition is a tax; but if regulation
is the primary purpose, the fact that revenue is incidentally raised does not make the
imposition a tax.
In exacting the assailed Universal Charge through Sec. 34 of the EPIRA, the State's
police power, particularly its regulatory dimension, is invoked. Such can be deduced
from Sec. 34 which enumerates the purposes for which the Universal Charge is
imposed and which can be amply discerned as regulatory in character. The
assailed Universal Charge is not a tax, but an exaction in the exercise of the State's
police power. Public welfare is surely promoted.

G.R. No. 166006 March 14, 2008

Petitioner PPI and private respondent Fertiphil are private corporations
incorporated under Philippine laws. They are both engaged in the importation and
distribution of fertilizers, pesticides and agricultural chemicals.
Then President Ferdinand Marcos, exercising his legislative powers, issued
LOI No. 1465 which provided, among others, for the imposition of a capital recovery
component (CRC) on the domestic sale of all grades of fertilizers in the Philippines.
Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it sold in the
domestic market to the Fertilizer and Pesticide Authority (FPA). FPA then remitted
the amount collected to the Far East Bank and Trust Company, the depositary bank
of PPI. Fertiphil paid P6,689,144 to FPA.
After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of
the P10 levy. With the return of democracy, Fertiphil demanded from PPI a refund of
the amounts it paid under LOI No. 1465, but PPI refused to accede to the demand.
Fertiphil filed a complaint for collection and damages against FPA and PPI
with the RTC in Makati. It questioned the constitutionality of LOI No. 1465 for being
unjust, unreasonable, oppressive, invalid and an unlawful imposition that amounted
to a denial of due process of law. Fertiphil alleged that the LOI solely favored PPI, a
privately owned corporation, which used the proceeds to maintain its monopoly of
the fertilizer industry.
In its Answer, FPA, through the Solicitor General, countered that the issuance
of LOI No. 1465 was a valid exercise of the police power of the State in ensuring the
stability of the fertilizer industry in the country. It also averred that Fertiphil did not
sustain any damage from the LOI because the burden imposed by the levy fell on
the ultimate consumer, not the seller.
RTC rendered judgment in favor of Fertiphil. CA affirmed with modification.

Issue: Whether the P10 levy under LOI No. 1465 is an exercise of the power
of taxation.

Yes. Police power and the power of taxation are inherent powers of
the State. These powers are distinct and have different tests for validity. Police
power is the power of the State to enact legislation that may interfere with personal
liberty or property in order to promote the general welfare, while the power of
taxation is the power to levy taxes to be used for public purpose. The main
purpose of police power is the regulation of a behavior or conduct, while taxation
is revenue generation. The lawful subjects and lawful means tests are used to
determine the validity of a law enacted under the police power. The power of
taxation, on the other hand, is circumscribed by inherent and constitutional
We agree with the RTC that the imposition of the levy was an exercise by the
State of its taxation power. While it is true that the power of taxation can be used as
an implement of police power, the primary purpose of the levy is revenue
generation. If the purpose is primarily revenue, or if revenue is, at least, one of the
real and substantial purposes, then the exaction is properly called a tax.
The P10 levy under LOI No. 1465 is too excessive to serve a mere regulatory
purpose. The levy, no doubt, was a big burden on the seller or the ultimate
consumer. It increased the price of a bag of fertilizer by as much as five percent. A
plain reading of the LOI also supports the conclusion that the levy was for revenue
generation. The LOI expressly provided that the levy was imposed until adequate
capital is raised to make PPI viable.
Petition was denied.

G.R. No. 173863 September 15, 2010

The Board of Directors of respondent Clark Development Corporation (CDC)
issued and approved Policy Guidelines on the Movement of Petroleum Fuel to and
from the Clark Special Economic Zone (CSEZ) which provided, among others, for the
following fees and charges:
1. Accreditation Fee
2. Annual Inspection Fee
3. Royalty Fees
- Php0.50 per liter those delivering Coastal
petroleum fuel to CSEZ locators not sanctioned by
- Php1.00 per liter those bringing-in petroleum
fuel (except Jet A-1) from outside sources
4. Gate Pass Fee

CDC sent a letter to herein petitioner Chevron Philippines, Inc. (formerly

Caltex Philippines, Inc.), a domestic corporation which has been supplying fuel to
Nanox Philippines, a locator inside the CSEZ since 2001, informing the petitioner
that a royalty fee of P0.50 per liter shall be assessed on its deliveries to Nanox
Claiming that nothing in the law authorizes CDC to impose royalty fees or any
fees based on a per unit measurement of any commodity sold within the special
economic zone, petitioner sent a letter to the President and Chief Executive Officer
of CDC, Mr. Emmanuel Y. Angeles, to protest the assessment for royalty
fees. Petitioner nevertheless paid the said fees under protest.
CDC again wrote a letter to petitioner regarding the latters unsettled royalty
fees. Petitioner responded through a letter reiterating its continuing objection over
the assessed royalty fees and requested a refund of the amount paid under protest.
The letter also asked CDC to revoke the imposition of such royalty fees. The request
was denied by CDC.
Petitioner appealed to the Office of the President which dismissed the appeal
for lack of merit and denied petitioners motion for reconsideration. Aggrieved,
petitioner elevated the case to the CA which likewise dismissed the appeal for lack
of merit and denied petitioners motion for reconsideration.

Issue: Whether CDC have any power to impose royalty fees on sale of fuel
inside the CSEZ on the basis of purely income generating functions.

Yes. We hold that the subject royalty fee was imposed primarily
for regulatory purposes, and not for the generation of income or profits as petitioner
In distinguishing tax and regulation as a form of police power, the
determining factor is the purpose of the implemented measure. If the purpose is
primarily to raise revenue, then it will be deemed a tax even though the measure
results in some form of regulation. On the other hand, if the purpose is primarily to
regulate, then it is deemed a regulation and an exercise of the police power of the
state, even though incidentally, revenue is generated.
The Policy Guidelines on the Movement of Petroleum Fuel to and from the
Clark Special Economic Zone provides:
It is hereby declared the policy of CDC to develop and
maintain the Clark Special Economic Zone (CSEZ) as a highly
secured zone free from threats of any kind, which could possibly
endanger the lives and properties of locators, would-be investors,
visitors, and employees.
It is also declared the policy of CDC to operate and manage the
CSEZ as a separate customs territory ensuring free flow or
movement of goods and capital within, into and exported out
of the CSEZ.

The Policy Guidelines was issued, first and foremost, to ensure the safety,
security, and good condition of the petroleum fuel industry within the CSEZ. The
questioned royalty fees form part of the regulatory framework to ensure
free flow or movement of petroleum fuel to and from the CSEZ. The fact
that respondents have the exclusive right to distribute and market petroleum
products within CSEZ pursuant to its JVA with SBMA and CSBTI does not diminish
the regulatory purpose of the royalty fee for fuel products supplied by petitioner to
its client at the CSEZ.
Petition was denied.