A House panel subpoenaed an owner of an e-cigarette firm owing to his alleged connection with another vape company whose products were subject to alleged tax evasion.

The House committee on ways and means, which kicked off its probe into the seizure of P1.4 billion worth of smuggled e-cigarettes bearing the mark "Flava" on Tuesday, summoned Denkat Trading Corp. owner Dennis Rostata and Flava Corporation Philippines chief executive officer Gen Fabro to face lawmakers in the next hearing.

Cagayan de Oro Rep. Rufus Rodriguez, who called for an inquiry on Flava's purported tax evasion and regulatory non-compliance, postulated that there is a correlation between the two e-cigarette firms, citing online advertising and mobile purchasing applications.

Rodriguez posited that Denkat and Flava "clearly have a connection" and that Denkat is "importing" Flava, a claim vehemently denied by Denkat Trading Corp.'s legal counsel Lorman Arugay.

Arugay told lawmakers that Denkat is not the consignee or importer of the said products.

"On this transaction confiscated by the Bureau of Customs, there is no connection… Based on what has been presented to the media and available information, there appears to be some form of partnership. But based on corporate documents, I have not seen any document that would, in any way, formalize this alleged partnership," Arugay said.

Flava is said to have been mislabeling its products, claiming they contain "freebase nicotine" instead of "nicotine salt" to reduce tax payments, based on an independent testing report obtained by Rodriguez's office.

In late October, the Bureau of Customs yielded roughly 14,000 boxes or about P1.43 billion worth of e-cigarettes or vapes in a ware inspection in Valenzuela with the brand.

The seizure highlights Flava's possible evasion of excise tax, a critical revenue stream for the government, according to Rodriguez.

"The government cannot afford to lose vital revenue streams due to corporate deceit. Flava's actions to flout Republic Act No. 11900, if proven true, are a direct attack on our nation's fiscal health and must be met with stringent legal consequences," Rodriguez previously said.

The panel's chairperson, Albay Rep. Joey Salceda, ordered the Bureau of Internal Revenue to verify the licenses and product specifications of Flava with the Food and Drug Administration and the Bureau of Product Standards of the Department of Trade and Industry.

Citing Section 263 of the National Internal Revenue Code, Salceda warned that illicit trade in excisable products is subject to a penalty of not less than 10 times the value of the excise tax evaded.

"The stocks discovered are about 1.4 million cartridges containing 10 mL of electronic cigarette juice… The product is declared as freebase, which should be taxed at P60 per mL," Salceda said.

"But there are reports which suggest that the products themselves may be misdeclared and that they should, in fact, be taxed as nicotine salt, the more highly concentrated product, which is taxed at P52 per mL," added the economist-lawmaker, noting that this could be a case of P728 million in evaded taxes.

"The point of this hearing is not to prosecute just one company but to look at ways by which we can prevent illicit trade in electronic cigarettes, which will kill legitimate companies while allowing unregulated dangerous substances in the market," he pointed out.

Salceda also ordered the BIR to check Flava's licenses posted on its online store.