Title
Commissioner of Customs vs. Marina Sales, Inc.
Case
G.R. No. 183868
Decision Date
Nov 22, 2010
Customs dispute over tariff classification of imported juice concentrates; CTA ruled in favor of Marina, upheld by Supreme Court, affirming 1% duty rate as raw materials.
dispute
classification
import duty rate

Case Summary (G.R. No. 183868)

Parties, Tribunal, and Procedural Milestones

The Commissioner questioned (1) the propriety of the CTA-En Banc dismissal of his petition for review and (2) the substantive correctness of the tariff classification upheld by the CTA Second Division. The underlying CTA case involved two importations, covered by Import Entry Nos. C-33771-03 and C-67560-03, both arriving at the Manila International Container Port (MICP) on the vessel APL Iris V-111 and at the relevant times disclosed in the record. The CTA Second Division rendered judgment on October 31, 2007, ruling for Marina and setting aside the Bureau of Customs Valuation and Classification Review Committee (VCRC) reclassification. On April 11, 2008, the CTA-En Banc dismissed the Commissioner’s subsequent petition for review for failure to file a required Motion for Reconsideration with the CTA Second Division prior to elevation. The CTA-En Banc later denied reconsideration on July 14, 2008, prompting the present Rule 45 petition.

Regulatory and Tariff Framework Implicated

Marina’s importations had previously been assessed under H.S. 2106.90 10 at 1%, and the Commissioner’s challenge required a determination whether the imported concentrates, as described and analyzed, had the tariff characteristics of the higher-duty category under H.S. 2106.90 50 for composite concentrates intended for simple dilution with water to make beverages. The Court also treated as relevant the procedural rule governing review by the CTA-En Banc in cases within its exclusive appellate jurisdiction, specifically Section 1, Rule 8 of the Revised Rules of the Court of Tax Appeals under A.M. No. 05-11-07-CTA.

Facts Surrounding Marina’s Importations and Tentative Release

Marina manufactured Sunquick juice concentrates and acted as the manufacturing arm in the Philippines appointed by CO-RO Food A/S of Denmark, the maker of Sunquick juice concentrates. Marina customarily imported raw materials, and it had computed and paid duties on the basis of H.S. 2106.90 10 at 1% for similar importations in the past.

For the first importation, designated as Import Entry No. C-33771-03, the shipment arrived at the MICP on March 6, 2003 aboard the vessel APL Iris V-111. The import entry consisted of a 1’ x 20’ container STC holding 80 drums, comprising 56 drums of 225 kilograms Sunquick Orange Concentrate and 24 drums of 225 kilograms Sunquick Lemon Concentrate. Marina supported the entry with the relevant Bill of Lading and invoice, and Marina computed and paid duties using H.S. 2106.90 10 at 1%.

At this time, BOC examiners contested the tariff classification and recommended to the Collector of Customs, acting as Chairman of the VCRC, that the goods be reclassified as H.S. 2106.90 50, carrying a 7% duty rate. Because the withheld importation was necessary for Marina’s operations, Marina requested a release under the Tentative Release System and undertook to pay the reclassified duty if the final determination upheld the VCRC’s proposed classification. The District Collector granted the request.

On April 15, 2003, the VCRC ordered Marina to appear for deliberation on May 15, 2003 to explain why the shipment under Import Entry No. C-33771-03 should not be classified under H.S. 2106.90 50 at 7%. Marina, through its Product Manager Rowena T. Solidum and customs broker Juvenal A. Llaneza, attended the deliberation and submitted its explanation dated May 13, 2003, together with samples.

A second importation, Import Entry No. C-67560-03, arrived on May 21, 2003 and contained a similar container configuration and total quantity, but with additional fruit concentrate varieties, including orange, tropical fruit, lemon, ice lemon, and peach orange concentrates. Again, BOC examiners contested the classification and recommended reclassification under H.S. 2106.90 50 at 7%. Marina, to obtain release, signed an undertaking under the Tentative Release System, and the VCRC scheduled another deliberation, which required Marina to explain why the goods should not be classified under H.S. 2106.90 50 at 7%. Marina attended on July 17, 2003 and submitted its explanation dated July 17, 2003, with supporting samples.

Consolidation and VCRC Reclassification

After Marina’s participation in the proceedings for both entries, the VCRC consolidated the classification cases for Import Entry No. C-33771-03 and Import Entry No. C-67560-03. On September 11, 2003, as reflected in its first Indorsement, the VCRC reclassified both import entries under H.S. 2106.90 50 at a 7% import duty rate.

On October 7, 2003, Marina appealed before the Commissioner challenging the VCRC reclassification. In the VCRC’s first Indorsement dated November 13, 2003, the VCRC modified its earlier ruling and classified Marina’s import entries under different tariff headings and duty rates, namely H.S. 2009 19 00 at 7%, H.S. 2009.80 00 at 7%, and H.S. 2009.90 00 at 10%.

Unconvinced by the VCRC’s modified classification, Marina filed a petition for review before the CTA on February 3, 2004, docketed as CTA Case No. 6859.

CTA Second Division Ruling on Substantive Classification

In a decision dated October 31, 2007, the CTA Second Division ruled in favor of Marina. It held that the tariff classification applied by Marina under H.S. 2106.90 10 at 1% was the most appropriate and descriptive of the disputed importations. The CTA Second Division rejected the Commissioner’s position that the importations were ready-to-drink juice concentrates. Instead, it characterized the importations as raw materials used in Marina’s manufacture of Sunquick products, not products falling under the higher-duty tariff description for composite concentrates for simple dilution with water.

The CTA Second Division thus granted Marina’s petition, set aside the VCRC resolution, and ordered the reclassification of the importations covered by Import Entry Nos. C-33771-03 and C-67560-03 under H.S. 2106.90 10 at a 1% duty rate.

CTA-En Banc Dismissal for Failure to File a Motion for Reconsideration

The Commissioner disagreed and elevated the matter to the CTA-En Banc through a petition for review. On April 11, 2008, the CTA-En Banc dismissed the Commissioner’s petition for review. The CTA-En Banc found that the Commissioner failed to file a Motion for Reconsideration with the CTA Second Division before elevating the case to the CTA-En Banc. It anchored this conclusion on Section 1, Rule 8 of the Revised Rules of the Court of Tax Appeals, which required that in cases within the CTA-En Banc’s exclusive appellate jurisdiction, a petition for review of a decision or resolution of a Division must be preceded by the filing of a timely motion for reconsideration or new trial with the Division.

The CTA-En Banc treated the use of “must” in the rule as mandatory and not merely directory. It also treated as persuasive analogy the Supreme Court’s holding that a Motion for Reconsideration is mandatory as a precondition to the filing of a Petition for Review under Rule 43 of the Rules of Court, and it reasoned that the Commissioner’s failure deprived the CTA Second Division of an opportunity to correct any error before the matter reached the En Banc.

The Commissioner’s motion for reconsideration of the dismissal was denied by the CTA-En Banc in a July 14, 2008 Resolution, leading to the present Rule 45 petition.

Issues Raised by the Commissioner

In his Memorandum, the Commissioner framed two issues. First, he argued that the CTA-En Banc dismissal based on a technical rule resulted in injustice and unfairness to the government. Second, he contended that the CTA Second Division’s determination that Marina’s imports were properly classified under H.S. 2106.90 10 with 1% duty was legally and factually incorrect.

Commissioner’s Arguments Against Dismissal and on Classification

On the procedural issue, the Commissioner relied on the principle of liberal construction of procedural rules. He asserted that the dismissal prevented the collection of the higher 7% duty rate, which, he argued, produced grave injustice and unfairness to the government. On the substantive classification issue, the Commissioner maintained that Marina’s concentrates were ready for consumption by mere dilution with water. He also invoked testimony of Marina’s expert witness, Aurora Kimura, which he claimed supported classification under the higher-duty tariff heading.

The Court’s Ruling on Procedure: Compliance with Rule 8, Section 1 Was Mandatory

The Court found no merit in the petition. On the procedural issue, it agreed with the CTA-En Banc. The Court held that the Commissioner did not comply with the mandatory provisions of Rule 8, Section 1 of the Revised Rules of the Court of Tax Appeals, requiring that the petition for review of a Division decision within the exclusive appellate jurisdiction of the CTA-En Banc must be preceded by a timely motion for reconsideration or new trial filed with the Division. The Court emphasized that the word “must” clearly indicated a mandatory, not merely directory, requirement. It stressed that litigants had to show that they sought prior reconsideration or moved for a new trial with the relevant CTA Division before the CTA-En Banc could validly take cognizance of the petition.

The Court also held that procedural rules were not to be ignored on the ground that non-compliance might prejudice substantive rights. It recognized that rules might be relaxed only for very exigent and persuasive reasons to relieve a litigant of an injustice that was not commensurate with its careless non-observance of the prescribed rules. It found no such compelling reasons in the record.

The Court’s Substantive Ruling: The 1% Tariff Classification Was Correct

Even assuming arguendo a liberal approach, the Court ruled that the Commissioner’s substantive position also lacked merit. It reviewed the tariff headings that were relevant to the dispute: H.S. 2106.90 10 covering flavoring materials and other food preparations used as raw m

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