CTA Case No. 2823 (Decision)

q,fPt.JBLI<= OF ~ �HE t'J.llUPPI;'Ilr -. ~O URT OF TAX A.rPEAI...S r:r Q.lJ�ZON C:! MAYER STEEL PIPE CORPORATION, Petitioner , - versus -� C.T.A. CASE NO. 2823 HON. ALFREDO PIO DE RODA, in his capacity as Acting Commissioner of Customs, Respondent. X- - ~- - - ~- ~- - X DECI S I 0 N For violation of Section 2503 and Section 2530(K)-5 of ~ the Tariff ~nd Customs Code, as amended~ in relation to Presidential Decree No. 272; Central Bank Circulars Nos. 315 and 371 implementing Republic Acts Nos. 5186 and 6142 and the rules and regulations implementing said laws, the Collector of Customs for the Port of Manila, in a decision dated September 25, 1975, ordered and decreed the forfeiture in favor of the Government the shipment of petitioner Mayer Steel Pipe Corporation con~isting of eleven (11) packages of machinery parts for steel pipe manufacturing. A resort to respondent Commissioner of Customs proved unavailing. Hence , the present recourse. The facts are not disputed. As summarized by the Acting Collector of Customs for the Port of Manila in his 52

� DECISION - CTA CASE NO. 2823 - 2- decision dated September 25, 1975: Reco~ds show that the subject machinery was imported into the country from Liverpool, England, consigned to Mayer Steel Pipe Corpo- ration at Barrio Canunay, Valenzuela, .... Bulacan. The shipment arrived in the Port of Manila on board the vessel SS "Puerto Princesa", Reg . No. 580, on March 23, 1975. It was de- clared under Import Entry No. 26946, current series, as "Machinery for steel pipe manufacture including decoiler forming cut off equipment" under Central Bank Commodity Code Classification EP-716-13.99 with a Home Consumption Value of bu6,600.00, classified under Tariff Heading No. 84.45 at 10% ad valorem rate of duty. After processing of the cover- ing import papers and after payment of the amount of e267,028.00 in government levies under Customs Official Receipt No. 415001, dated April 2, 1975, the same was released to the herein claimant, Mayer Steel Pipe Corporation, on April 3, 1975. A few days thereafter, an inform- ation was received by the ASAC and furnished this Office that the said importation was released from Customs 0 custody, allegedly misdeclared, mis- classified and very much undervalued to the prejudice of the Government, prompting th~ ASAC to request issuance of a warrant of seizure and detention against the machinery in question and, consequently, Warrant of Seizure and Detention No. 14665, dated May 9, 1975 was issued by this Office, hence, the instant case. 53

DECISION ~ CTA CASE NO. 2823 - 3- This case was then heard. On November 5, 1975, l however, the Hearing Officer of the Bureau of Customs, Atty. Francisco Joaquin, Jr. issued a Memorandum to the Customs Collector thru the Chief, Law Division, which is reproduced hereunder: This is in connection with the motion for reconsideration and/or rehearing dated October 10, 1975 filed by counsels fo~ the claimant under 5.1. No. 14665 alleging, among others, as appearing in their memo- randum of October 27, 1975, that they were not afforded their day in court, in violation of the due process re- quirement mandated by law and, that the decision dated September 25, 1975 of the th~n Acting Collector of Customs, Alfredo T. Francisco, was irregular, because the articles were forfeited for alleged violations of P.D. No. 272, R.A. No. 5186, R.A. No. 6142 and its implementing rules and regulations, which were not among the charges included in the Warrant of Seizure and Detention. For your information and reference, hereunder recited are the antecedents facts that led to the promulgation of the said decision. Pending seizure proceedings, on July 31, 1975, the then Acting Collector of Customs issued an Qrder allowing the provisional release of the subject machinery under bond. After securing the aforesaid Order, the claimant successively requested for several postponements starting on the hearing of August 6, 1975 when its principal counsel, Atty. Albano and their witness, Mr. Mario Alinea were i 5

DECISION - CTA CASE NO. 2823 - 4- not available. Again, the hearing was resef fo r Augu st 12, 1975 and, after direct examination of their wit- ness Mr. M~rio Alinea, counsels for the claimant postponed again the said hearing because their witness has another engagement to attend to, hence, the case was reset to August 15, 197 5. The hearing of Au gust 15, 1975 was again postponed by the claimants after cross-examination of their witness Mr. Mario Alinea for the reason that their other witness, Mr. Sy, was suf fering from hypertension, without submitting, howev er , a medical ce r tificate as required by the rules. Nevertheless, postponement was granted to afford them all the opportunity to present their side and the case was again set for hearing on September 9, 1975. On the scheduled hearing, counsel for th e claimant dgain asked for postpcne~ent for t~e reason fhat they had a pending motion for reconsideration filed with the Office of the then Acting Collector of Customs and was likewise granted, with the promise that, if within 10 days they have not taken any move, they will submit their case for resolution on the basis of the records on hand (see t.s.n. p. 78 5) so the case was again reset for September 22 and 23, 1975, intransferrable in nature, per Order of the Collector of Customs dated September 11, 1975. On the hearing of September 22n d , counsels for the claimant again were asking for a postponement inspite of the agreement tha t it is intr ansferrable in nature which the undersigned denied and directed counsels to present their last witness, Mr. Manuel Sy, ~ho was then present in the hearing room. Atty. Albano, however, refused to present his evidence and walked out of the hearing room and the ASAC pro- sec utor moved that the case be submitted 55

.. DECISION - CTA CASE NO. 2823 ~5- for reso lu tion on the bas i s of the docum e nt~ on record. A few minut es thereafter, the Acting Chief , Law Division c~lled for the undersigned and asked i f I could still grant c 1 a i nt an t an o t he r p o s t p o n e me nt to wh i c h I consented and provisionally set the case for hearing on October 7, 1975 , infor min g hi s counsel Atty. Gajo of the resetting of the case and also the ASAC prosecutor who objected to the sa me . On Se pt em b er 23 > 1975, the ASAC prosecutor fi le d a Motio n for Rendition o f Judgement which w~s sent to the Chief , Law Di vision with the no t ation of the Acting Collector of Customs as follows : 'Att y . Burgos: If hearj.n g a l ready termi- nated please pr epare draft of decisio n. (Sgd.) Collector Franci sco September 23 , 1 9 75' Upon re ceipt of sai d instruction, the undersigned prep ared a memorandum of even date ad vi sing the Acting Col l ector of Cus tom s of th e resetting o f the case on October 7, 1975 as requested by the counsel s for the claimant. The Acting Collector of Customs, after going over the reco rd s of the c as e and finding t he se veral motions for postponement t o be dilatory i n character and c on - siderin g further t he refusal of co unsels fo r the clai~ant to pr esent their evi- dence when directed by the und ersigned , reve r se d my orde r resetting the case a nd issued an order directi n g the Law Divisio n t o prepare the corresponding decision based on the pleading s and other documents a tta ched on reco r d per his Order of September 23 , 1975 . Correspondingly, the undersigned pre - par ed the draft of t he decision and the Acting Collector of Customs, after having 5 ,") 0

.{ I i (" I~ I \ 'I ii t' DECISION - : Ii CTA CASE NO. 2823 l ~ reviewed the records of the case, signed the decision of forfeiture dated September 25, 1975. Based on the foregoing facts , claimant therefore can not claim denial of due process because their refusal to present their last witness when directed by the Hearing Officer to do so during the hearing of September 22, 1975 amounted to a waiver of their right to adduce further evidence, hence, the case can be decided on the basis of the pleadings and other documents already on record. As a matter of fact, the mqre than 800 pages of the transcript of stenographic notes will show that while we have conducted weekly hearing, morning and afternoon session, in the instant case counsels for the claimant, after seeing the release order of July 31 , 1975, resarted to those dilatory tactics, requesting post ponement after postponement only to delay the dispositj.on of the case. We could not have consumed these voluminous transcript if they were denied their day in court. Likewise, their claim that the decision was irregular, it appearing that one of the reasons for the forfeiture of the sub- ject machinery was for violation of P.D. No. 272, R.A. 5186, R.A. 6142 and its implementing rules and regulations 1 which were not included in the Warrant of Seizure and Detention is, likewise, not feasible, in line with the decision of the Supreme Court in the t:ase of 11 \'Jood vs . U.S. 1842 w~en it ruled that goods seized by mistake are liable for forfeiture if a good cause for forfeiture existed at the time of for- feiture but without the knowledge of the seizing officers.l! It is .likewise an es�tablished precedent that the Col l ector of Customs concomittant with his powers (

�I I .} l DECISION - CTA CASE NO. 2823 - 7- under Section 1207 of the Tariff and Customs C~de h ave all the powers and jurisdiction to take such action as will prevent the importation or ex- portation of articles which are pro- hibited or the importation or export- ation of whi ch, is contrary to existing laws, rules and regulations. Premises considered, the under- signed believes that the instant motion for reconsideration and/or re-hearing is without merit. XXX XXX XXX Issues The issues as posed by respondent: a. Whether subject machinery violated the pro- vision s of Section 2503 of the Tariff and Customs Code , as amended, which prohibits un dervaluation, misdeclarution and misclassifica t ion of imported articles, in relation to Presidential Decree No. 272, Central Bank Circ ul ar Nos . 315 and 371 i mpl ementi ng Republic Ac t No. 6142, Rep ublic Act No. 5186 , and the rul es a nd regulations implement i ng said laws, to warrant its forfeiture in favor of the Government, pursuant to Section 2530 of the Tariff and Customs Code, as a~ended. �� b. \~hether "due process" was observed. At the outset, it should be stated that forfeitures are imposed by the seizure and subsequent institution of seiz ur e proceedings pursuant to Section 2532 of the sa I

- ' DECISION CTA CASE NO. 2823 - 8- Tariff and Customs Code. In seizure cases, one important aspect of the proceedings in the consider- ation of the issues involved , is the duty on the part of the government of presenting evidence which indicates pr obable cause for instituting s uch proceedings. (Sanchez vs . Co mmissioner of Customs, B.T.A. Case ~Jo. 1El5, decided by the Court of Tax Appeals on November 2, 1954, citing U.S. vs. One Bag of Paradise and Choura Feathers, N. Y., 365, F.301, 167, C.C . A. 473; As sociate d Banking Corporation vs. Commissioner of Customs , et al . , C.T.A. Case No. 2448, August 6, 1976; Metropolitan Garment Corporation vs. Ramon J . Farolan, Acting Commissioner of Customs , C.T.A. Case No. 3959 , April 16, 1986.) The term "pro b ab1e cause'' , \'lhich has been held synonymous with "reas onab J e cause" , me'ans less than the evidence which will justify condem- nation. It i mports a seizure made under circumstances which warrant suspicion . (Sanchez vs. Commissioner of Customs, supra, citing Fooke vs. United States, 7 Cranch _LU.S. 3 3fT; Associat ed Banking Corporation vs. Comrni s - sioner' of Customs, supra; Metropolitan Garment Corporation vs. Ramon J. Farolan , as Acting Commissicner of Customs , !upra.) And up to the time this case is pending before this Court, Section 2535 of the Tariff and Customs Cod~ as amended, provides: 5J

DECISION - CTA CASE NO. 2823 - 9- "Sec. 2535. Burden o f Proof in Seizure and/or Forfeiture. - In all proceeding_s taken f or the seiz ure a nd/or forfeiture of any vehi c l e , vessel, ajr- craft, beast or articles under th e provisions of the tariff and customs laws, the burden of proof shall lje upon the claimant; Provided, Th a t probable cause shall first be shown for the ins- titution of such proceedings and that seizure and/or forfeiture was made under the circumstances and in the manner described in the prepeding sect ions of this Code." Our decision therefore turns upon whether the subject machinery violated the provisions of Section 2503 of the Tariff and Customs Code, as amended, which prohibits undervaluation, misde cla rati on and mis - classification of imported articles, in relation to Presidential Decree No. 272, Cent �al Bank Circulars Nos. 315 and 371 implementing Republic A~t No. 6142, Republic Act No. ~>186, and the rules and regulations implementing said law s , to warrant it s forfeiture in favor of the Gov ernm ent, pur suant to Section 2530 of the Tariff and Customs Code, as amended~ and if so, whetheT petitioner has sustained the burden which the law places upon it to overcome the effe ct thereof. Section 2503 of the Tari ff and Customs Cod e , as amended, which prohibits undervaluati on , mis cl ass ification 60

DECISION - CTA CASE NO. 2823 - 10 - and misdeclaration of imported articles reads: S EC �. 25 0 3 � ~!.!:!_d e.! v a 1 u a t i o n.J._Ji..i s- E~-~-~-~t:l. on and HisdeclaE_atio!: in Entry. �~ When the dutiable value of the imported articles shall be so declared and entered that the duties, based on the declaration of the importer on the face of the entry, would be less by ten per cent (10 %) than should be legally collected, or when the imported articles shall be so describ ed a nd entered that the duties based on th e importer's description on the face of the e ntry would be less by ten per cent (10%) than should be legally collected based on the correct tariff classification, or when the dutiable weigh t, ~easurement or quantity of imported articles is found upon examination to exceed by ten per cent (10%) 6r more than th e e nter ed weight, measurement or quant it y, a surcharge shal l be collected from the importer in a n amount of not less than the differenc e between the fu ll duty and the estim ated duty based upon the declaration of the importer, nor more than twice of such difference: Provided, That , an undervaluation, misdeclaration in weight, measurement or quantity of more than 50% between the value , weight, measuremen t or quantity declared in the entry, and the correct value, weight, quantity or mea s ure- ment, shall constitute a prima facie evi dence of fraud penalized under Section 2530 of this Code. When the undervaluation, misdescription, misclassification or misdeclaration in the import entry is intentional the importer shall be subject to the penal provision under Section 3g02 of this Code. Undervaluation The application of petitioner for th e issuance of a Letter of Credit with the Con sol idated Bank and Trust 61

DECISION - CTA CASE NO. 2823 - 11 - Co. wa s submitted with the Central Ba n k on July 3, 1974. By such Letter of Credit , petitioner soug ht authority to import the machinery in question and to a vail fo reign credit in the amount of bl70,000 . 00 (approximately $430,000.00), pur suant to Republic Act No. 6142 as implemented by Central Bank Circular No s . 315 and 371 for the following item s : ITEM 1 - One (1) BASIC STANDARD Spiral pipe making machin e unit with din- meter ~;ize 16" to 00 " max CIF , ~1anila ��� � ���� blD 5 ,0DO.OD ITEM 2 - Extra over item 1 above for modifying mill to manufacture p .i. pe up to lOl+" dia-- met e r � � ���������. � .~~,ooo.!_g_g_ TO TAL ...... bl70,ooo.oo with the proposed deferred payment Bcheme as follow s : 10% of contract price upon signing of contract , 10 % of contract price against shippin~ docum ents , and 10% of contract price in 10 half yearly installments; excluding interest . (pp. 24-25, TSN, S.I . No . 14665, Exhs. "H" to "H-10 ".) 62

DECISION - CTA CASE NO. 2823 - 12 - Acces sorie s or optionals are not i nclud ed as they constitute se parate items, and with disti nct prices apart from, and not included in the pr ice of the machine its elf. (Description through the brochure, Exh . "K"; Testimony of Customs Examiner Oscar Calzaoo, pp. 114 to 127, TSN, S .I. No. 14 665, June 25, 1975.) The entered value as declared by petitioner in the Im port En try Revenue Declaration is only b76,600.00. (Exhs. "E" and "E-3". ) The records show that the subject s hip ment has a Home Consumption Value of bl70,000.00. (EX h s � "H II ' 11 H-1" , "H- 2 '1 & "H- 8" ) . 0 n th e other h and , the entered value as declared by petitioner in the Import Entry Revenue Declaration is only b76, 600 .0 0 (Ex hs . "E" & II E.:. 3". ) Clearly, therefor e , the gross undervaluation , which is proh ib ited by the l aw , is very patent. Misdeclaration Peti ti oner tried to show, however, that the machinery imported doe s not const itut e a complete s t andard basic spiral pipe mill but merely parts of a spiral pipe making machine a nd thus the purchase pric e 63

DECISION - ' CTA CASE NO. 2823 - 13 - was reduced to b87 280.00 as shown by the sales and pro-forma invoice and consular invoice. The fact that the machinery in question is complete by itself is ap parent from the affidavit of petitioner t s Vice-President, body of which is quoted: AF F I DAVI T I, SY KA KHIENG, of legal age, married, Naturalized Filipino� citizen , Vice-President of the Mayer Steel Pipe Corporation, and r~siding at 406 C. M. Recto Avenue, Manila, Philippines after having been duly sworn to according to law depose and say: 1. That at present our corporat ion, the Mayer Steel Pipe Corporation, have an importatien of Machinery for steel pipe manufacturing, consisting of 7 cases and 4 Part Wood Protected Pieces from West Ro t hian, Scotla nd; 2 . That our said import ation is covered by Entry No. 026946, Series of 1975; 3. That th e said goods mentioned in the Pa cking List of our importation are knock -down parts and accessories of a complete set of a machinery fo r steel_pi~ manufacturing. IN WITNESS WHEREOF, I hereunto set my hand this 3rd day of Apr il 1975, at the City o~ Manila, Philippines. (Sgd . ) SY KA KHIENG Affiant (Underscoring supplied)

DECISION - CTA CASE NO. 2823 - 14 �~ As aptly state d by respondent, "In addit.i.on , we' . have the testimony of Customs Ex aminer Oscar Calzada, who testified that subject machinery, as found during his re-examination (Exhs. "G" to "G-1") and compared to the brochure for said ma~hinery furnished him by the importer (Exh. "K") , is complete by itself. A fair comparison of the equipment found during the re-exami- nation and the brochure ( Exhs. "K-1" t:o "1<-3"), the description in the Project Study (Exhs. "J-20" to "J-22"), and the description appearing in Exhibits "KK" to "KK-5", will show that subjec t machinery constitute a complete spiral pipe mill capable in itself of producing marketable pipes. In fact, in its pleading dated June 2, 1975 for the release of the subject machinery under bond, claimant/ petitioner averred and� pointed to the urgent necessity of having the mach inery a~d to install the s ame for legitim ate use and that it had already contracted for the sale and marketing of the pipes to be produced. Surely, this clearly admits the completeness of the machinery for pr~ducing the said pipes." (pp. 684-685, CTA records.) As a matter of fact, pe titioner 's own witness in the person of John Keenan, a long-time businessman in 65

DECISION - CTA CASE NO. 2823 - 15 - steel manufac t uring, ac knowledged t hat ac cessories/ optional equipments of steel pipe ma chineries are not included in the basic purchase price as in the instant case. (See TSN, pp. 486 to 488, S.I. No. 146 6 5.) Mi~classification Atty. Ernesto Felix, Assistant Chief of the Valuation and Classific ation Division, Bure a u of Customs, testify i ng as a Custom s Supervi si ng Appr a iser, st a ted the correct cl a ssification of the subject machinery wa s under Tariff Heading No. 84.59 a t 30 % not 84.45 at 10 %, (TSN, pp. 387 to 392, S.I. No. 146 6 5), which is also a violation of Section 2503 of the Tariff and Customs Code, as amended. While it is true that former Ta riff Commis- sioner Montano Tejam was presented to qualify this testi~ony, records of the case show that Mr. Tejam was hired as counsel for petitioner and later utilized as petitioner's witness. His testimony therefore could not be taken at its face value. _?libject Importation VJas vHthout BOI Authority In Violatio.n _of Republic Act No. 5186 Records of the case reveal that the importation of the machinery in question wa s not favo r ably endorsed by the Board of Investment s . (Exh. "tvl".) It appe a rs

DECISION - CTA CASE NO. 2823 - 16 - that petitione,r was not allowed by the Board of Investments to import the said machinery because the industry to which petitioner intends to engage in has � bee~ listed as one of the crowded industries or industries with excess capacity as early as January 28, 1970, and remained unchanged as of May 23 1 1975. (E><hs. "N" and "DO.) _____________ -P-re-s-id-en-t-ia-l-D-e-cr-ee-�-N-o-.--2-7-2---W....as Also Violated Then, in violation of Presidential Decree No. 272, petitioner failed to secure prior authority from the Iron and Steel Authority (ISA) in the importation of subject machinery. As testified to by Atty. Lilia Bautista, Assistant Secretary of th e De partment of Industry and concurrently Acting Secretary and Chief, Le~al Staff, Iron and Steel Authority, prior authority of the ISA is mandatory. Presidential Decree No. 272 was promulgated by reason of the existing recurrent imbalances between demand and supply of iron and steel products that necessitate the orderly regulation of ' the ma~ket thereof and the existing capacity in several sectors of the iron and steel industry while other

DECISION - CTA CASE NO. 2823 - 17 - sectors suffer from deficiency of investment . As correctly stated by respondent, the supervision and regulation of the Iron and Steel Authority is thus essential and imperative to the e nd that these kinks in the iron and steel industry be controlled and straightened out. Violation of Central Bank ~!ars 315 And 3 1_2..t__,~nended And last but not l east , the importation of the subject machinery was effected in violation of Central Bank Circular No. 31.5, ns amer ded. The sai d circular provides for the withholding of the approval of appli- cation for for eign credits where the proposed project would expand the capacity of overcrowded industries. (Exhs. "EE", "EE-l" and "EE-2".) Observance of Due Pro cess On the question of whether petitioner was denied due process by the Collector of Customs for the Port of Manil a, a perusal of the Memo randum dated November 5, 1975 of the Hearing Officer of the Bureau of Customs Atty. Francisco Joa~uin, Jr., to the Customs Collector thru the Chief, Law Division, quoted above , will readily show that due process was afforded petitioner consider- ing ~hat all of its seven (7) witnesses except one 68 . .~

DEC ISION - CTA CASE NO. 2823 - 18 - have testified. If the seventh witness, petitioner's own president, was not ab l e to testify, it was due , as ob served by respondent, to petitioner's own maneuvers, dilatory tactics and acts in asking co ntinued and re- peated postponements notwithst ondi nu previous agreements that the sc heduled hearings set on August 15, September 9, 10 and 22, 1975 would be intran s ferable, At any rate, petitio ner fully a vailed of the trial de novo before this Court that it could never complain it was denied due process. Regul arit_l. of Decision Forfeit.:0_g_ SubJEct M~chinerl Neither can petitione r complain that the dec ision forfeitin g the machinery in question is irregular and no t in order since one of the reasons for the forfeiture of the ma chinery for v iolation of Presidential Decree No, 272, Republic Act No. 5186 , Republic Act No . 6142 and it s implem ent ing ru l es and regulations was not incl uded in the Warrant of Seizure and Detention. Settl~d is the rule thet good s seized by mistake are liable for forfeiture if a good cause for forfeiture existed at the time of the seizure but without knowledge of the seizing officer. (Wood vs . U. S . 1842 , 41 U.S . !T5 Pet..!...7 34 2 , 10 L , [ d � 9 87 � ) An d as cor r e c t l y s t a t e d 68 .l

.. DECISION - CTA CASE NO. 2823 ~ 19 - by respondent, it is an established precedent that the Collector of Customs, concomittant with his powe r s under Section 1207 of the Tariff and Customs Code, has all the powers and jurisdiction to take such action as will prevent the importation or exportation of articles which are prohibited or the importation or exportatio n of which is contrary to existing laws, rules and reg u- lations. Conclusion When we consider the fact s and c i rcumstances of this case as discussed above which, taken together, support the conclusion that the importation of the subject mac hinery violnled the provisions of Section 2503 of the Tariff a nd Customs Code , as amended , which piohibit undervaluation, misdeclaration and misclass- ification of imported articles, i n relation to Presi- dential Decree No. 272, Central Bank Circulars Nos. 315 and 371 implementing Republic Act No . 6142, Republic Act No. 5186, and the rules and regulations implementing said laws, to warrant the forfeiture in favor of the Government of the subject machinery pursuant to Section 2530(K)-5 of the Tariff and Customs Code of the Phil i p- pines, as amended, which provides: tO

DECISION - CTA CASE NO. 2823 - 20 - SEC. 2530. froperty Sub j ect to For feituie Under Tariff and Cu s tom s Law. - x x x k. XXX XXX XXX 1. Any article so ught to be import ed or exported: XXX XXX XXX (5) Through any oth er prac t i ce or device contrary to law by mean s of which such articles was entered through a customhouse to the prejudice o f the government. And the failure of petitioner to sustai n the burden which the law places upon it to ov ercome the effect thereof, the decision of respondent Commissioner of Customs appealed from must be sustained. WHEREFORE, we find no merit in the petition for review and the s ame is hereby dismissed with costs aga i nst petitioner. . SO ORDERED � Quezon City~ Metro Manila , February 18 , 1987. AMAN TE Pre s idi g Judqe WE CONCUR: 71