CTA Case No. 2482 (Decision)

REPUBl.tC OF TilE PUILifPlNE8 Cut:R'r OF T.\.X APPEALS QlJ i;:ZON C:JTY \ / PHILIPPINE WALLBOARD CORPORATION, Petitioner , - versus - C. T.A. CASE NO. ' COHMISS IONER O:b, CUSTOivlS 2482 Respondent . X- - - - - - - - - - - - - - - X DECISION This is an appeal from the decision of r espondent Commissioner of Customs dated Decem- ber 29 , 1972, affirming that of the Collector of Cus toms of 11anila , denying peti tioner ' s claim for the refund of the amount of P24,807 . 00 paid as customs duty and Y1 , 736 . oo as compensa- ting tax, or a total sum of ?26 , 543 . 00 , on the importation of oiticica oil from C. Tennant Sons & Company , New Yor k, U. S. Ao, in 1961. Both parties have adopted the undisputed facts appearing in t he aforesaid decision of the Commissioner of Customs , which we equally repro- duce below as our own: of 1. The protestant is a manufacturer in con struc tion ma11 LtAeWrAiaN Il~ commonly known the mark et as 11 hardboa r d . The raw materials used in the manufacture of these hardboards come from sawmill wastes and f orest residues . To make the hard-

DECISION - CTA CASE NO. 2482 - 2- board weather resistant tempering of the product with drying oils like tung, lumbang and oiticica becomes necessary; 2 o On December 29 , 1961, an im- portation of Brazilian oiticica oil con- sisting of 100 met rcic. tons was received by protestant ,from Tennant , Sons and Company, in New York . This importation was declared under Sub- paragr5ph A-(2) of Tariff Heading 15.07 at 35% ad va- lorem. However , when the corresponding examination and appraisal was made, the oil was instead classified under Sub- paragraph B-(2) of the same Tariff and Customs Code at 70% ad valorem because of the doubt entertained by the Customs Appraiser as to the exact physical and chemical state of the oiticica oil at the time of examination. Additional customs duties and compensating tax were paid by the Protestant (Philippine vlallboard Corporation) in the total amount of 126 , 543 . 00 under official Receipt No . 4901 . 3 . The instant protest case was filed. The same was duly heard but later on the protest was denied by the Collector of Customs of Nanila . Hence , this appeal . As aforesaid, petitioner had appealed the - .. . decision of the Collector of Customs to the Com- missioner of Customs , who , in his decision of December 29, 1972, affirmed that of the former. Consequently, not satisfied with the Commissioner of Customs decision, petitioner filed , on February 15, 1973, the instant petition for review.

DECISION - CTA CASE NO . 2~82 - 3- The issues presented for decision are as followsa lQ Whether or not the 100 metric tons of Brazilian oiticica oil should be classified as crude oil under Tariff Heading No~ 15.07�A-2 of the Tariff and Customs Code, as ~eclared by petitioner, and taxable at 35~a ad vglorem, or as refined oil classified under Tariff Heading No. 15.07-B-2 of the same Code at 7Q7~ ad valorem; and 2. Whether or not petitioner is , entitled to the refund of ~26 ,5~3o00 paid as additional customs duty and compensating tax. The above issues are interlaced~ We will, therefore, consider them at the same time~ Tariff Heading No. 15o CJl of the Tariff and Customs Code of the Philippines, the law involved in this case, reads as followsa 15,. 07 FIXED VEGETABLE OIL, �FLUID OR SOLID , QRUDE , REFINED OR PURIFIED& A.. Crude: l.t Palm, linseed and ad caster oil � �' val. 15% � � � � "-< � ~. Other � � 0 � � � � ad val.o 35(~ / .�. Refined or Purified 1"' .Palm, linseed and ad� valo 30% caster oil � � � � 2 ,. others � � � � � � ad val~ 7CYfo / Petitioner , invoking the a~ove cited law, contends that its imported Brazilian oiticica

DECISION - CTA CASE NO . !4-82 ~ - 4- oil is ucrude" oil under Tariff Heading No . 15. 07- A-2 subject to 35% ,a9; valorem. On the other hand, due to a doubt entertained as to the physical and chemical characteristics of the oiticica oil , respondent contends that he had e�l assified said oil as �refined" under Tariff Heading No . 15. 07- B-2 , subject to a higher rate of duty , or 70% ad valorem , and , he~ce , peti- tioner is not entitled to the refund of the customs duty and compensating tax pqida We find the contention of respondent un- tenable. The change of the customs duty from 35% t o 70';~ ad valorem, imp9se.d_:.on the oiticica oil in question was brought about by the fact that there was a doubt entertained by Vicente Munoz , Customs Appraiser , that the oiticica oil is raw oil inasmuch as it has been prepijred for certain use and that there was no analysis of the product submitted by petitioner at the time 1 of the appraisal thereof. However , respondent 1 Customs Records , pp . 97- 98 , 103.

DECISION - CTA CASE NO. 2482 - 5- had presented only one evidence to support his action and to sustain the classification made of the Brazilian oiticica oil as '*refined'� and not crude or raw, and causing him to subject said oil to 79.% ~ valorem duty under Tariff Heading No. 15.07-B-2. This was the Laboratory Report No. 64-182 dated July 7, ~964 of Horacio Tan Torres , Chief Laboratory Analyst of the Bureau of Customs, on the alleged examination of the oiticica oil. But this report only 9ontains the conclusion that the lSample submitted under Entry No , 103055(61) is refined oiticica ~ 2 oil .... There was, however , neither a report on the actual tests conducted on the imported oiticica oil, nor on the chemical findings or results arrived at, ~sed on such alleged test. Tan Torres was never presented to testify before this Court as to the veracity or truth of his conclusion in his report which only curtly sta- ted that the oiticica oil is "refinedtt, We be- lieve that this ev:Ldence , standing alone and with- 2 Ibid,, P� 201.

DECISION .... CTA CASE NO . 24-82 - 6- out more , cannot validly support the position of respondent , as against the overwhelming evi� dence , both testimonial and documentary , offered by petitioner , which prove beyond the scintilla of doubt that the oiticica oil in question ~ ttcrude" or raw. During the hearing of this case , peti- 3 tioner 1s witness Simeon de Jesus, a chemist for 25 year s , and former chief chemist of petitioner , now cop.nected with the A. Soriano Corporation, uncontrovertedly testified that Tan Torres 1 report which stated that the imported oiticica oil is refined oil 'vas only a mere con- elusion; and that this conclusion had nobasiso De Jesus stated that oiticica oil can be used for tempering of petitioner �s products (lawanit hardboard) . .And during the hearing of the ad- ministrative case before the Customs Bureau, he also testified and stat aq. , and which was adopted by petitioner for purposes of thi.s appeal , and also during the hearing in this Court, , that 3 T. SoN., PP� 7- 11.

DECISION .... CT CASE NO . 2~82 - 7- based upon laboratory tests he conducted on the sampl~ of Brazalian oiticica oil, supplied by the same .:illdentoi'i of the oiticica oil in question , he found out categorically that said oil was ~ crude. Actually, tests on the oiticica oil were conducted by De Jesus as early as March 5 10, he recommended on August 7, 1961 1961 and that this oil be used by petitioner, in lieu of tung oil, for tempering the latterrs lawanit 6 board products. Another Witness of petitioner , A.belee H. Jimiera, Chemist .of the Check-up Research and Development and ~uality Control unit of peti- tioner unrebuttedly testified that petitioner used for tempering purposes drying oils such as tung and lumbang oil, but on account of the rise in the prices of tung oil, he conducted tests on the oiticica oil on March 10, 1961 for purposes of possible adoption or substitution as 4 ToS . N., pp . 7-11. 5 n, CTA records, P� 22. Exho 6 Exho C, ~'il� 2~o

DECISION - CTA CASE NO . 2482 - 8- tempering oil ; that tests were actually made on said oiticica oil based upon the specifications and samples furnished by the .manufacturing com- pany - the Brazilian Oiticica Inc., thru its � indent company , the c. Tennant Sons & Co o, New York , u.s .!. ; that after his tests , he found out that the oiticica oil in . question~as . ~crude" or raw; that his findings were in ac... cord with, or match the specifications given by said c. Tennant Sons & Co . and that , conse- quently , on the basis of these findings , he re- commended the adoption or use by petitioner of - oiticica oil for tempering of its lawanit pro- 7 ducts The results of two (2) actual analytical 8 tests conducted on the oiticica oil sample, which \-ras given by said c. Tennant Sons & Co. , of New York, u.s.A. , are quoted below' Analysis of Qiticica Oil Sample from c. Tennant Sons & Co . of New York labelled CIC.QIL Laboratory Controlled Uniform Qualifv Raw Liguid Oiticica Oil.- 7 T.S. N., pp . 32-38. 8 Exhs . D-2 & E, CTA records , pp. 24-25 , res- pectively; T. S.N. PP� 32-38 , 50-51.

DECISION - C'f.A Cl SE NO. 24~2 - 9- Trial 1 Trial 2 Ave . CICOIL Specs . * Refractive Index 1 . 5094 1 . 5092 1 . 5093 1 .@502959ncl � 5130 @ 27 deg . c. Specific Gravity 0. 9837 0. 9838 0. 98375 0. 9770-0. 9880 27/ 27�C Saponification Value 178 180 179 186- 193 Free Fatty Acid as 3. 60 3 . 65 3. 625 max . 4r; FFA Oleic Acid , ;b Ge l Time , minutes 12 min 12 min. 12 mi n . max . 17 min. & 10 sees & 5 sees *. Laboratory Controlled Uniform Quality Raw Liquid Oiticica Oil Analyzed bya (Sgd . ) A. 1'1 . JHUERA Tr i a1 1 Tr i a 1 2 Drum No . Drum No � ...:::I.fl� Drum No . Drum No. Ave . 1 1 2 2 Refractive Index @ 27 deg . c 1 . 5090 1 . 5092 1 . 5091 1 . 5087 1 . 5085 1. 5086 Specific Gravity C 27~27�C 0. 9837 0. 9837 0. 9837 0. 9819 0. 9819 0. 9819 I odine Value 142 . 38 141 . 97 142. 17 136 . 28 130. 27 133 o27 Saponification Value 177 . 20 177 . 02 177. 11 178. 00 176 . 00 177 . 00 Avid Value 7 . 12 7 ~ 14 7. 13 7 . 14 7. 10 7. 12 Per Cent Free Fatty Acid as Oleic Acid 3 . 61 3 . 615 3 . 62 3 . 60 3 . 61 Gel Time , Minute s 11 min . 12 min . 45 sees . ~ Analyzed by: (Sgd . ) A. C. BUGAS (Sgd . ) R. C. GABALLO

DECISION - T CTA CASE NO . 2482 - 10 - which show that they substantially conform to the official specifications of the oiticica 9 oil , the tr&de name of which is CICOIL , which product is actually distributed by the Brazil Oiticica , Inc o of New York , U. S . A., but uproduced onl~ J2..'i" the Brazil Oiticica S . A., Rio de Janaeiro , Brazil , as follows: VISCOSI1.'Y (Gardner- Hold t 25�C) ����� vl to Y COLOR (Gardner) ������������������� 9 - 11 *:a.:El: TING TEST (S . S . T. N. ) ������������ max . 17 minutes SPECIFIC GR.iNITY (20�C) ����������. 0. 9770 to 0. 9880 REF . IND . (25�C) � � � � � � � � � � � � � � � � � � 1 . 5090 to 1 . 5130 ACID VALUE ������������������������ max . 4j~ F. FoAo S.& PONIFICAT ION VALUE �������������� 186 - 193 UNSAPONIFIABLE FlA~TER � � � � � � � � � � � � � 1 . 51~ *Equivalent Gelling Time ( Browne Heat Test) - Max . 15 minutes The Brazilian oi ticica oil , which is commer- cially registered as an export product from Brazil , is shovm to be permanently liquid product 9 B & B- 1 , at p. 4 of Exh . B, Customs Exhs . Records , p. 145. # {

DECISION - CTA CASE NO . 2482 - 11 - in order to facilitate its handling, shipping , and prevention from chemical change due to oxidation which can occur in the raw oil since it is a semi- solid at ordinary tempera- tures . Like any wood oil , Brazilian oiticica oil dries with matt fin-; and , t herefore , it must be heat- processed in order to give the product of uniform glossy gas-proof films . 10 In other words , the only processing this oil has to undergo in order to keep it constantly in liquid form for export purposes is by heating . 11 This oil is produced from the nuts of a Brazilian tree, called Licania rigiqa Benth , 12 which grows in the northeastern part of Brazil . The tree is large and bushy, and its nuts varies in length from 2 . 5 to 6 ems . which consist of 35% shell , and the remainder being the kernel . The kernel contains approxi- mately 60% of oil . The tree does not produce 1�Exh. B-2 , at p. 5. of Exh . B, Customs Records , p. 145. 12EXh. B-2 , ~ . ; also Customs Records , pp . 117- 118 . I

DECISION CTA CASE NO. 2482 - 12 - fruits until it is about 25 years and lives as long as 100 years. Tens of thousands of oiticica trees grow in the northeastern area of Brazil, insuring, therefore, adequate and regular supplies of oil . 13 It has also been testified to by said Simeon de Jesus, heretofore stated as chemist of petitioner, that the shells of the oiticica nuts is first removed, and the kernels taken therefrom are crushed �drawing therefrom the fluid known as oiticica oi1 . 14 The same witness also testified that the only process under- taken in order to keep the oil in liquid form is by heating, 15 and that heating is the normal procedure found in all textbooks to make the oiticica oil in a liquid state. 16 1411U..d.' Po 145� 15customs Re~ords , pp. 117-118 . 16Exh. B-2, p. 5, Customs Records, p . 145; Customs Records, PPo 117-118.

D~CISION - CTA CASE NO . 2482 - 13 - He also testified that in order to determine whether an oil is refined or crude , the data on specific graph , melting points , saponifica- tion value , acid value and others must be shown , and these data were never indicated in Laboratory Report No. 64- 182. of Tan Torres 17 of the Bur eau of Customs dated July 7, 1964. Not only are the revidence of petitioner ample to draw an intelligent conclusion that the oiticica oil, in i ts imported state , is r aw and not r efi?ed , but also the brochure of the commercial trade name of the Br azilian oiticic a oil as CICOIL (also known as CITOIL) , shows and describes that this product is 11 Laboratory- contr olledtt , truniform gualitytt, uRaw Liquid oiticica oiln , and it is , as aforesaid , produced exclusively by the " Brazil, Oiticica S. A. " of Rio de Janeiro , Brazil , and which commercial product is distributed in the United Sta te s and Canada exclusively by Brazil 18 Oiticica , Inc . U. S . A. Oiticics oil is 17 Customs Records , p. 117 . 18 Customs Records , p . 201 .

DECISION - C'l'.A CASE NO . 2482. - 14 - internationally known to be a "crude or ~ oiln and is characterized as '*white or cream~� semi- liquid . The oil is similar to tung oil in many ways , having a high specific gravity , high refractive index and a tendency to gel 19 when heated . The just stated description of the oiticica oil that it has a high specific gravity and refractive index conforms also to the description contained in the commercial prochure that it is laboratory- controlled , 20 uniform quality , and 1:..Sji liquid . iul.d we would like to add , and we agree as corroboratedly testified to, that the oiticica oil imported was crude, for if it were true that petitioner imported refined, and not raw, oiticica oil, that will naturally give rise to the increased cost of production of its ha~ board products and also payment by petitioner of increased 19 An stoms Records ~ pp . 145- 146; Jeffrey R. . Cu Enc~clopeaia S t ewart, of ~ Chemical Proce s s Indus tries , 195 Ed . (NeH York , USA: Chemical Publishing Co . , Inc . , 1956), pp . 496- 497 . 20 Customs Re cords, ibid; Jeffrey R. Stewart, .Q.l2. � cit .

� DECISION CTA CASE NO . 2482 - 15 - customs and tariff duty, 21 which to us is averse to the normal reaction of an astute businessman t o reduce as much as possible the costs of production of its main products . Considering these evidence on hand, there is no room for doubting that oiticica oil (CICOIL or CITOIL) is 11 crude11 � We are of the I opinion and so hold that said oiticica oil, being ttcrude11 or ra1�1, is classifiable under Tariff Heading No . 15.07-A~""2, subject only to 3 5J~ ad va J or em duty . Petitioner , therefore, is entitled under the law to a refund, but only to the extent of the amount of P24,807 . 00, repres enting additional customs duty on its importation of the 100 metric tons of oiticica oil . No interest, however, can be imposed on respondent Co.mrnissioner of Customs on the said refundable amount of customs duty since he 1�ras only acting in good fa,i th, or there \vas a reasonable doubt entertained as to vthether said oil in question should be classified as refined subject to customs duty at 70% ad valor~m. Not having acted with arbitrariness, 21 T�s�N�' p. 19 � " 0 �'

' DECISIOY CTA CASE NO . 2482 therefore , no interest on the refundable amount i s imposable upon the respondent . We have noted a flaw on petitioner ' s appeal . As regards the refund of the compensating tax paid by petitioner in the sum of 1, 736 . 00 , which i s an internal revenue tax, the recovery thereof is governed by Sections 306 and 309 of the National Internal Revenue Code and Sections 7 (1) and 11 of Republic Act No . 1125~ And in every appeal from a decision concerning an internal revenue tax, or in a judicial claim f or refund thereof , as set by the aforesaid provisions of law, the Commissioner of Internal Revenue must always be made a party respondent thereto . 22 In the case at bar, the procedure set therein for recovery of said compensating tax , which is to implead always the Co~~issioner of Internal Revenue to be effective , has not been complied with by herein petitioner . We, therefore , have no jurisdiction to pass upon its claim for the refund or recovery of the said compensating tax f or lack of jurisdiction over the person of the Commissioner of Internal Revenueo 23 Custom22ss, eeCTATag2u7m49E(leRecstorlicutiCoon.~, Inc . vs . Comm . of Sept. 13 , 1976 and cases cited therein. 23sec . 1~ Rule 16 of the Revised Rules of Court of the ~hilippines . -

DECISION C ~ CASE NO. 248,2 - 17 - WH ' .:.,FORE , judgment is here by rendered orderin6 res pondent Commissioner of Customs ~ o r ef und to petitioner the amo unt of ~24 , ~07 . 00 as aaditiona1 c ustoms duty , without interest . No pronouncement as to costs . SO O:illERED . uezon City , December 16 , 1 976 . _/) c~RoL.UIN .associ&te Judse