CTA Case No. 4399 (Decision)

Republ i c of the Philippines COURT OF T~X ~PPE~LS Qw?zon City REDSON TEXTILE MANUFACTURING CORP., Petit i OlHH', �- Vet'SUS �- C.T.A. CASE NO. 4399 COMMISSIONER OF CUSTOMS, He s pond�~nt. X - ------------- - ----------- X DEC I I Cl N This is an appeal from the decision of the Commissioner of Customs d ated Se ptember 6 , 1989 affirming the decis io n of the District Collector of Customs of the Port of Manil a dated August 3, 1988 decreei ng the forfeiture of petitioner's goods, consisting of thread a nd knitted sweaters, for alleged violation of Secti on 2530 (e ) of the Tariff and Cu stoms Code of the Philippi n es <TCCP) in rela �tio n to Customs IY! e mo ra ndum Ot�der No. 11--80 <CMO 11-80) and the Gar ments and Texti le Expor t Bo ar d' s <GTEB> rules and regulations. Petitionet' Reds on Textile Mam.t fact uri n g Corporation <RTMC> is registe red with the Board of ,. Investments <BOI> as exp o rt prod ucer of knitted " 68 7 /

C.T.A. Case No. 4399 - DEC I S I 0 N- a nd as such a Bon de d Manu facturi n g Ware h ouse <BMW No . 6(1 3 ) � In it s ma n 1.1fac t IJ t~ i n g b usi ne ss , i t is s upplie d wi th semi-finished or fi n ish ed product <thread, and accessories) as it s material in p u ts of product s mi::muf act ured export consistit,g of swe ate r s a nd These products are supplied by Cont inental Manufacturi n g <CMC> , a s ister co mp any o f RTMC and likewis ~ a BOI re g istered e xpor t producer~ a nd operator of a bond ed manu f acturing warehouse. 0 n No v e mbe r~ 1 L~, 1 '3 8 E., a g e n t s o f t h ~ C us t om s Int el lig ence and In v es t igation Division <CIID> apprehended two vehicles lo a de d with thread and knitt e d sweate r s wh ile th ey are a b out to le ave t h e of p~t i t i on et~ at Bri xt on St. , . Ma n daluyong, lnvegtigati on showed the good s were b o und for its sub-contractors, Pagawa, lnc. t';\ nd E. S . Needle c raft , fen~ washi ng embroid ery and knitting. Said c ont ractors do not appear to be accredited with the Bureau o f Custo ms and tho GTEB when verifi~d. Furt her, t tH~ was neither co ver~d by an y boatnote nor was i t u nd erg u arde d by customs guards . Acc ordingly, t h e .,� >' \' CIID in a me morandum d a ted December 3, 1 '386 688

C.T.A. Case No. 4 399 - DE C I S I 0 N- 3 recommend e d to the Collec tor of Cu s tom s, Port of Manila that a war r ant of seizure and detention be issued a gainst the aforementi on ed goods fat~ v iol a tion of Section 2530 Ce> of th e TCCP, as a mended i n rel ation to CMO 11 - 80 and GTEB r ules and regule.'\tions. ( p. 2 0, Ct..1stoms F~eccn~ds.) Petitioner prayed for the dismissal of the s eizure proc eeding s and or the immediat e release of the goods 1.1 n de~~ 11 s e i z tn- e 11 , th ey being c:n~t i c 1 e s not of p r ohibit�~d impo t~t atio n or export~lt io n ("Motion to Di $ !Tiism ", p . 2 9 - 32, Cu s tom s Records>. This was denied by the Collector of Customs in his d c:d ; ed May 7, l.987 fi ndi ng that the allegation s and grounds cit~d ha ve no legal leg to stand on. Cus tom s Records> After hearing on the merits, the Co ll ector of Customs decreed that the arti cles subject of this case be forfei t ed in favor of the government <"Decis i Cin", P� 99- 101' Customs Petitioner subm it ted said decisio n for revie w by the Commissi on er of Customs on the ground th at the sam e is co ntt~c.,t~y to l r-.l w an d jurisprud ence. �<p. 107, Customs Recot~ds.) The Commissioner of Customs affirmed the d e cision of the Collec tor of Cus toms �: on S eptember 6, 1989, finding no reason to reverse 68 ~1

C.T.A. Case No. 4399 - DE C I S I 0 N- ���- .{~ �-� it. <"De cis ion", p. 109 -- ll.O, Customs Henc e , t he instant p e tition for review was f i led with this Co twt on Oct c1 bet~ 27, ( "Fippeal Br�'ief", p . 1 �- 10, CTn t'ecot�d s . > Initi a lly, it was not cleat' as to which provi s ion of the Tariff & Customs Code was suppo s edly viol a ted - Section 2 5 3 0 <e> or ~3 e c t ion (f) but the s ame wa s , however, thresh e d out f t ' 0 Ill the record s and determined to be the fot�mer, quoted b e lo\1-J: Section 2530. Property Subject to r �ot�fl".i tw��e Und er� T�.=u � i F f . and Custom s 1... a '"'. �- f:ln '/... y~~U;J_g_!_ v e s s e 1 !!!:. ?-' i r�c;.ra f .:t . ,_ ~-~r.:_q_Q.L 9.X:.t..L c;;J ..~:.. s"'-!1.9. .9..:tt:~ Q_P.�i~_gj;_~.. ~!.!:!.9.1.J...'I.. u TJ..~.t~-!:.":. H1.g_ .f...Q.l.l..9...w i_!)__q c on d i "t!.J. o n s_ gg_ s 1-:!!::_!j_f?.~:t !;_q_ L9...t.:f e_i t u.t.~-~: ><X X XXX X>< X e � [LU.Y... 9. !::::U_~J_g_ ~b_Lc;..tJ i ?_ fraudulently conce a led in or !:..!~..IJI.QS..J:!_Q_ ~:Q_T).!i..!2..c": !!.~..'t'- !;_q_ 1~.~ f t' 0.!!!. !'l!.1_y_ P.�=~t.l..Li�. Q_t_: Q!: i v_a t_~ ~E:.cg.b..9..~-:!..?....f?..'l_ c o n t a i n e t' y at' d o t' cont a iner freight station !-:!.!:!.9 ..f:!.:t.: t;_1!2.i.fl.�II!S:t ~-!".IP..f?..!.:..v_i_~_i o n ; <Und ers coring supplied.) ><X>< XXX )( )( )( Interrelated to the above and claimed as not havin~;t been complied with were CMO 11-80 and GTEB F~u 1 e s I the and Regul a tions. Cited below aY' O requirement s under CMD 11-80: .'1" XXX XXX ,I ' 6~0

C.T.A. Case No. 4399 - DE C I S I 0 N- B. WITHDRAWAL OF RAW MATERIALS FROM THE BONDED WAHEHOUSE X>< X )(XX X)(X 2 . Subcontracting a. Ihl?.. QJl_et~atot~ shall seek the_ e.Qpro_y_E.J:_ fit�st of th~ !:29...TIJ_m i s .21-'-<?..!J.lU:. f Q!.: s u b c o n t t~ acti.!J...g_ :tg_ anothet~ Q.onQ_ed !!Jc.mufactut~ i_!!Y_ ~~~~.!:!..Q~~ .Q.!.:. :t2- �!.!}.Y. 9 u s t.Q m' s eg_ g~.L!_y - acct�gd i t ?._�:~bcontt'a_~;'t Ot' hY.. ~d. tin_g. e. t~ e g u e s t s t at t.!lY. :tbe na!!J.JU!.. 9f :\';h_g_ subcontractot~ !2-.!lQ. th_g_ wot~k/pt~ocess :t.Q. be g_one. b. Before the transfer is made, inventory and identification of the materials to be subcontt'act ed ~ shall be conducted by the CBW officer. A ftn' m <Annex B> as in requisition shall be prepared containing the description of materials to be transferred, quantity and the requisition ship number( s ) that cover them. The Document Processor <BMWD> handling the logbook of the warehouse s hall be duly furnished with a copy for recording purposes. c � l!J..g_ t t~ an s f e t' s h a 1 1 b e co v e t~ e d Q.y_ e. bo ~ t note and sha 11 .12..~ ll!l.det:.g~-~n~q_ed unt i 1 !~ece i vee! Q.y_ thg_ ~~W Qfficet'/S!_:~pc ontr ~c;tor !.; o n.�J?.!:.!H?..Q.!... d. Return of the finished product s to the original warehou se shall be in the same mannet~, t duly covered by a boatnote, and shall be subject to identifica tion and re-inventory of the CBW Officer. 68.1

C.T. A. Case No. 4399 - DECI S I 0 N- �- E. �- e. All matet~ i a ls, including wa s tages, if any shall be returned to the BMWD of a ll sub- contracting jobs and th e ir status. ( Un de t' scot' in g sup p 1 i e d. > XXX XXX XXX The aforecited legal requirements spelled out in CMO 11-80 and GTEB Rules and Regulations were not by petitionet'. petitioner assailed the factual bases of the decisions and insisted on its exemption ft'om observing customs rules and regulations . The appeal of petitioner raised t h e argument that no evidence allegedly support the respondent's findings that the subcontt'actot'S <Pagawa, Inc. and E.S. Needlecraft) were not accredited wit h the GTEB and the Bureau of Customs and that t h e at't i c 1 e s subject of this being shipped by petitioner to the subcontractors without guard and boat notes. Likewise challenged by petitioner is the capability of the Bureau of Custo ms to assign customs guard for every request of bonded wat'ehouse. Despite these however, petitioner failed to show the accreditation of the subcontractors with the GTEB and t h e But'eau of Customs and also failed to produce a n y document .' ! G92

C. T.A. Cas e No. 4399 - DEC I S I 0 N- - 7- indicating that the tr a n sfer was c ov e re d b y a boa t n ote and u nd erguarded b y a Cu s tom s gu a rd. On the othet~ hand, t he swot~ n s t at e me nts . o f p e t it ioner's warehouse man - in - charge , Rodol fo Ma dl a <An nex "B", p. 14- 15, CTA r~eco t~ d s >, i t s e xpot~t- ma nager' , Samuel C. Ge nove <A nn ex " B-1 ", P� 16- 18 , CTA r ec ord s ) and driver o f the truc k , Re g gi e B. Vale t e <p. 1 2 , C1..1st om s t~ecot~ ds) w e r~ e pt~ ese nted by respondent to refut e petiti oner' s cha r ge th a t is n o evidence to s upport its f i ndi ng s . i s li k ewi s e n o basis for petitioner's claim tha t the Bureau o f Custo ms h as no capab ility to fie l d a cu s tom s gu a rd f or every bonded ware h o u s e s in ce pe t ition e r did n ot even a tt e mp t to req u es t th e Bureau to provide it a guard . Exemption f rom observing cu s to ms r ules and reg u l a tio n s claim e d by p e tition er was p r em i s ed on t h e En dorsement d a t e d Ja n uary 2 8, 1 9 7 L� b y t hen of Fina n ce <Cesar Vit~ ata> t o the Com missioner of Cu s tom s whi c h st at es: XXX XXX XXX " this Depart me nt <F inanc e> will i nter po se no o bj e c t ion t o ~he approval o f t h e within repr esen tat i on o f Cont i nental Ma nufa c tu r ing C or~oration , o r any other BOI regi stered e x po r t p r o ducer 693

C. T.A. Case No. 4399 - DE C I S I 0 N- - 8 �- for that ma tter, that its s ale o f y arn s Cor any manufactured product) to its sister companies Cor an y company ) wh ich are likewise registered export producer s ; s h�111 be conside t~ed as " e><po t~t sale" and that the transaction meets the requirements for the liquidation of the warehousing entries and cancellation of the corresponding surety bonds covering the products subject of sa l e, which proposition may be effected under eith e r of the following arrangement: 1. That the sale by the vendor to the vendee of yarns or any manufactured product is considtn~e d "exp t1r t sa le" and therefore exempt from the payment of sales ta x . Howeve r , the bond s po ste d by the ve n dor on the import ed ma terials th a t went into manu fac ture of the products subject o f sa le shall re main su b s isti ng until su c h time when the vendee can show proof of a ctua l ex portation of the registere d export product; ot�� 2. That th e sale by th e vendor to th~ vDndee of tha product s l�'l?ft~ t' r~e d to .:~bo ve is 1 il<e wi se c on s idtlred "t? xpo rt sale" and free fro m sales tax and the bonds posted y the vendor on the imported r a w materials us ed in the ma n ufacture of the products s old cancel ed provided the vendee posts a n equivalent bond to s ubsists until the registered manufactured produ ct s hall have been actually expor~t ed. " 'I

C. T. A. Case No. 4399 - DE C I S I 0 N- �- 9 - Either of the foregoing alternative that may be availed of is subject to the prior appro val of the Board of Inv!?stments und~?r such rules and regulation s established by sa id Board implementing the provisions of Section 3 (b) of Republic Act No. 5135 and that the transactions shall be maintained in separate records of acco unts of both vendor and Vl?nd~?e." )()(}( X><>< ><X>< The statutory basis of the said Endorseme n t accot'd in g to petit i OIH?t' is Section ,:, (b) of F~epubl ic Act No. 6135, otherwise 1-<nown as t h e " Expot' t Incentive f-kt of 1970" qu oted below: ){ )(X )()()( )( )( )( <b ) 11 Re g i s t e t' e d e x p o t' t r.:w o d u c e t' 11 shal l me an any person, corporation, pat ' t TH! t' !'". h i p o t' o t h rn�' �! n t i t y o t' ~1 an i z e d <HI d ~~><i s t ing 1..mder Philippinl? la\l'ls, (.l) registered with the Board in accordance with this Act, (2) engaged or proposing to engage in the manufacture or processing of export products as h e t' P i 11 b e 1 ow d e f i n e d , an d <3 ) d i t' e c t 1 y exporting its export products , or selling th~m ( a) to a registered export trader th~t subs equently exports the said fW'oducts, Ot' (b) to other' expot't producers who utilize said products as rlirrct inputs in products subsequently man u factured or processed by them and thereafter exported. XXX )()()( )(><X '! 695

C.T.A. Case No. 4399 - DE C I S I 0 N- - 1(I �- In said Act was intended to invigo rate the co untry's export trade as a means of economic growth by granting certain inc~~ntive~; and exemptions to registered pr-oducer-s , export trader s and ser-vice e ><por-ter-s . The bent~fits and incentive s by which registered pr- oducer's are entitled are: ta>< cr-edit, r- educed incomt? tax exemption on impor-ted capital equipment, tax credit on domestic ca pital equipment, and t?xempt ion from tax. (Sect ion 7, Rl:."t E.135 .) The issue before Us is whether the decree of for-feiture of petitioner's goods for violation of Section 2530 (e) of the Tariff and Customs Code in relation to CMO 11 - 80 and the GTEB rules and regulations was valid in view of petitioner's claim of e><empt ion from complyi ng with customs rules and regulations. The familiar and settled rule is that in all proce e dings take n for the seizure and/or fo r feiture of any v essel , vehicle, ait'Ct'aft, beast Ot' ar-ticles under the provisions of the tariff and custom laws, I the burden of proof shall lie upon the claimant. <Section 2535, Tariff and Customs Code .) Howe vet', 'I the Bureau of Customs mu st establish two

.. C.T. A. Case No. 4399 - DE C I S I 0 N- ��- 11 - namely: <l> that a t~ea~.; onable gt'' CJI..Ifld of presumption exist s th a t a charge is well founded , and ( 2 ) that t h e seizure and/or forfeiture proceedings was made under the c onditions and along the line s described in the Tariff an d Customs Code. In the case at bar, the art i c l es subject of se i z ut' e and/or forfeiture were f ound v iolative of Section 2530 (e) of the TCCP in r elation to CMO 11 - 80 and GTEB Rules and Regulations. The -� pr o vided under the law in such cas es were likewise duly obs erved as disc u ssed e.:n~lier . Petition er/clai mant was not h eard to claim and to �! Viden ce that it has c omplied ther e with, rely ing heavily o n t he alleged exemptio n s . By no of the i ma gi nat i 011 ca n a of the Endor s ement d ate d Jan uary 28, 1974 .:'\nd it s sta tutrH"' Y basis, Sec:ti. oll 3 <b> of R.n. G135 I nct?nt i v t? Act of 1 '::)73 ) ' conclu~;ion that petit i OIHit~ is e><empt ed ft~om o b s e t' v i n [~ customs rule s and regu l ations. To be e><clud ecl ambit of the law, one mu s t c.' nd point to a s t �c:\ t ut ot~y pt~ ovi s iclll whi c h say so in unequ ivo cal Othe r wise, a ll fair doubts will be resolved agai nst him . 687

.' C.T .A. Case No . 4399 - DEC I S I 0 N- �- u :: - WHEREFORE, the instant petition for review is hereby dis missed for l ac k of merit. We af fit�m Commissioner~ o f Custo ms ' decision upholding the de cree of forfeiture issued by the Collector of Customs, Por��t of Manila against petitioner's goods. SO ORDE RED. G1uezon City , Met r~o Manil a, Jul y C:~O, 1993 � . GRUBA WE CONCUR; ~)l.~es iding Judge ~J P~J.~ RAMON 0. DE V RA 1-)ssociate Ju ge C E R TIFICA TI ON I hereby certify that this decision was reached aft e~ due consultation among the members of t he Court of Tax Appeals in accordance with Section 13, nr~ticle VIII of the Con s titution. ~-.JA:O.. ~ ') ERNESTO D. ACOSTA Pr~E~s �. d � ng Js_,dge Court of Tax Appe a l s " 698