CTA Case No. 2845 (Decision)

. I j �� li,tlilLCC: OW' -~HIE ~imJ.t"ii~lN,_.'I> �f!.:OURT Of TAX .lt. t..P.f~ALS QU�1ZO~ Q f"V .t� NUTRITIONAL PRODUCTS~ INC., '' Petitioner, C.T . A. CASE NO. 2845 �~ versus ... THE COMM I SSIONER OF CUSTOMS, Respondent. I X- - - - - - ~ - - - - - - X l DECI S I 0 N This case comes on a question of the proper clns- sificatlon of the shipn e nts of b ottle seals made of aluminum membrane foils with backing discs, covered by Import Entries Nos . 83045-70, 021601-70 1 09807-70, 11164-70, 12694-71, 76142-71, 60449-72l 26527-72, 85031-72, 43065-72, 15770-72, 54930-72 and 89827-72, I entered at the Port of Manila during the period of I 1970 through 1972 by the petitioner domestic corporation. l The corresponding duties and advance sales tax t due thereon were assessed Gnd collected as the ship- ments were then classified under Tariff Heading No. 83.13-B of the Tariff and Customs Code, to wit: \ 286

DEC IS ION ~� CTA CASE NO. 2845 ~� 2 - /' T.H. 83 sl3 ~ Stoppers , c r own cor k s, bot tl e caps, .E..!!P~Ul':2_, b u nq co vers, seals and plombs, case corner 'Protect ors and othe:r pack- accessories, of base metal: A. Crown c a ps � o�eu�G� kg. el.20 and ad val~ 70% Pursuant to a s ubs equent ruling of t he Depar tment of Fi nance date d Ma y 2: 0, 1975, the subject shipments became a fresh disput e with the government a dvo cating reclassif icnt iont initially dwelli ng on Ta riff Heading 76.04-B but settling conveniently for Tari ff Heading 48.15~8 at 10 0% ad val o rem duty of the Tariff and Customs Code , as amended by Pr esidential Decree No. 34 , reading as follows: T .H . Lr8 �.15 ... Other paper and paper b oa rd, c ut t u size or shape: A. Pa pe r 1. Fil t er paper ���u� ad val8 30% 2o Ciga rette pa per of 15 cmo o r less i n width bu t no t c trt t o c i g a r e t t e size ���~~� � ~~eDoeo ad v a l . 50% B. F'a .E_erboar~ ..... u u e � ad val. 100 % c. Cellulose wadding ��� ad val. 30% (Un derscoring supplied) \ 28 '7

DCCISION - CTA CASE NO. 2845 As a consequence of the higher dutiab e cateQory proposed for the artie e in question, deficienc ass ssments wer e issued by the Collector of Customs (Manila) un~er thirteen (13) letters of demand all dated August 7, 1975 against the petitioner for the payment of ad dition al duties and advance sales tax including surcharges aggregating a sum of e7,539t455.00, summarized as follows: Additional Duties Surcharges on Total and Advance Sales Duties and Ad~� vance Sales Tax � Tax Sub-totals ; Duty �����~~ el,229,676.oo e6,1Lt8,390.0D Advance sales �-}~8.01,.00. tax .. � .. .. � ~07 1/98.!_q_o e6,202,18l.OO lOTAL El,337,274e00 E!7,539,455 ,.00 It may suffice to state that t.he petitioner duly contested the demands under letter dated August 15, 1975; that notwithstand ing the administrative hearing conducted on August 29, 1975 and September 3, 1975 for purposes of the protest~ the Collector of Customs rei- terated the demands for th e payment of additional duties artd advance sales tax including an additional 10% \ 283

DECISION - CTA CASE NO. 2845 thereof on December 2~~, 1975; and, that on appeal 1 the Commissioner of Customs sustained the Collector's decision, directing 'that a reiterating der.and ~. .letter for collection of subject deficiencies be made against the Nut.ritiona1 Products, Inc. (petitioner) 11 , under 1st Indorsement dated October 14 t 1976. Hence this recourse for a revjew. In assailing the assessment for the additional duties and adv c� nce soles tax and sure arges on the previously ente red shipments of bottle or jar seal made of aluminum membrane foil with backing disc, petitioner contends that - lQ Nutritional Product s, Inc. 1 s (petitioner) importations in question ware properly liquidated and tnxed under Section 83.13 B of the Tariff Code, prior to its amendment by Presid .ntia l Decree �~ No 34, 2. The liquidations o f the impor entrles subject of reinvestigation attained. finality and are now binding on all persons. 3. The established classification, inter- pretation ar d practice relative to the importations at issue cannot be ch ang e d withou t a published decision, and such change should have no adverse retroactive effect upon Nutritional Products, Inc~ � \ 28 8

- I , DECISlOf~ �� - .�-) .. CTA CASE NO. 2845 /� 4~ GrantingF without admitting, the existence of legal and factJal bases for the irrposition of additional duties and advance sales tax, there is no justification in law and in equity for the impos ition of surcharges of five (5) times t~e alleged short d u t:l e s and 50~~ o f the alleged deficiency sc:les t.&x3 By and large, respondent Commissioner of Customs in invoking the re-~li.qui dation and taking the re- clasBification of subject. shipments maintains that. ... The assessm e nts agaj.nst petitioner as contain~d i n the letters of demand of the rol lector of Customs of Manila in the total sum of 87.t539,455.00, involving thirteen (13) import e ntr i es , ere based on lRgal grounds, particularly, the provisions of Sec tions 1602 (Tentative liquida tio n) and 1603 (Finality of liquidation) in relation to Section 2501 (Failure to pay liquidated c harges) of the lsriff and Cust oms Cadet as amended, the subject import e .tr ie G covering the importations -.in question being merely tentative in nature; and The DeJartment of Finance ruling (decision), which was the co nsequence of :he investigat:on conducted by tl e finance-NBI-BIR Team, in classi- fying aforesaid shipments of aluminum me mb rane foils (disc) of petitione~ under Tariff Heading Nee 48o15-B at 100% ad valore m duty, is procer, valid and legal. ------- , The record raisE..-s t he basic issue as t.o whether petitioner's importations subject of the letters of demand were properly assessed and liquidated under \ 290

DECISION - CTA CASE NO. 2845 the dutiable categ ory of Tnriff Heading No& 83 .1 3-B a t 2 0 ,~ a d v a l o r e rn d ut y , o r wr1e t h e r t h e y fa 11 u n de r Tariff Heading No. 48.15-B at 100 % ad valorem as omended by P.O. 34. The legality of l) re-liquidation, 2) imposition of surchar ges, a nd 3) additional ten percent (10%) of the amount demanded, co mes as su bsidi ary questions. As it appears the argument for the re-classification of the importations at bar urged in th e Departmen t of Finance ruling may be wra pp e d up this wise: "Finally, it was found out: that upon actual examination of the NESCAFE bottle, the same is sealed with aluminum foil onlyv The paperboard, which is supposed to back up or reinforce the aluminum foil is actually stuck to the inn~r side of the bottl e cap, probably for esthetic and hygi e nic reason, as the bottle cap actually looks better a nd cleaner with the paperboard stuck to the inn er side thereof. One thing is certa in and beyond doubt. The paper board forms part of the bottle cap. It is not used to back up or reinforce the aluminum toil xxx." Hcspondent thus posits an unvarying impression that because the membra ne aluminum foil is on the bottle while the paperboard is on the plastic cover or cap they should be treated independently and t a xed \ 291

DECISION - ... 7 - CTA CASE NO. 2845 t' separately. The paperboard should be subject to the 100% ad v a lorem duty under Tariff Heading 48.15-B, Turning to the merchandise in iss ue , the testimony of record shows that the bottle or jar l~~!. is mad e up of several components: l) cardboard, 2) layer of micro-crystalline waxt 3) aluminum varnished foil, 4) polyethylene filmv and 5) parchment; perform such essential functions, viz: the micro-crystalline acts as a joint betwee n the cardboard and the varnished aluminum, otherwise they will no t stick together; the polyethylene film is just to protect the painting where to print the trade mark on the aluminum foil; then, the parchment will make contact between the jar or the lips of the container and the jar seal. (ppa 53~55, t.s.n., November 28, 1977; please see also Exhibits D, D-1, D-3 , D-4). The testimony further reveals that it is essential that the seal consisting of the membrane foil and the backing disc must be a single unit, and no portion thereof .must be separated or detached from the time it is inserted in the cap to the time the cap is \ 292

DECISION - - 8- CTA CASE NO. 2845 ~�� screwed on the jar by the capping machine. During the storage and up to the time the consumer punctures the aluminum foil, both the cardboard backing and the foil function to seal the jarc The paperboar d backing do~s:hot lose its character as a seal, even after its separation from the foil when the cap is unscr ewe dt with th e foil now sticking (glue d) to the lip of the jar and the disc now inside the cap . For aside from the backing disc's function of sealing the ja r evenly and uniformly with the gluing of the aluminum foil membrane to the jar's lip by absorbing th e torque applied during the capping process ( p. 63 , t~ s .n~, September 3, 1975, Customs hearing; now p. 373, Exh.lbl�t "A") th e sal.d t1ac<I 1. ng d1"sc a 1 so serves a secondary purpose. It (backing di s c now in tl c plastic cap) assures that after opening the jar and during the normal consumption period of its contents, the produ~t would last and co uld be used up to the last particle, without the contents caking along the side of the jar and becoming useless. Thus the j ar s hould be kept tightly closed, according to the instructions of the label. (p. 64 , t.s.n., Sep te mber 3f 1975~ \ 293

DECISION .. CTA CASE NO. 2845 ... 9 .... Customs hearing; �p. 372, Exhibit "A 11 Even after ). puncturing of the aluminum foil membrane of the jar seal, the backing portion s ill serves as a seal. (Petitioner's brief). Aside from testimonial evidence, ample documentary evidence was introduced to show that the jar seals in question must be imported as a unit and that the principal components (aluminum foil and backing disc) must always stick flush together and must not curl or be jarred loose prior to the ocrewing on by the capping � machine. (Exhibits "15" , "16" and "17 11 , Customs heari g, p,. 442, 443 and l~4t~, of Exhibit "A") . To our minds it would be unfair and incongruous to have the elements taxed separately as paperboard and aluminum foil consider ing that the seal can only be utilized and has to be imported as a unit. Moreover, respond'e nt has not presented any e vid ence of the relevance and competence required to bash that patina of legitimacy over petitioner's .assertion . Accordingly we feel compelled to affirm t he import and force of the specific purpose and function of the subject article in the context of T.H. 83-13�-B,' ,s,up~, v-1hich may not \

., .. ' .. ' DECISION - CTA CASE NO. 2845 - 10 - be suffered to petrify in fut il ity. On a related aspect, it may well to add that before the letter of the Department of Fin ance �� requesting the Commissioner of Cu st om s to chang e the classification of the (NESCAFE) sea ls from Heading 83.13-B to, i nitially, Heading 76.04-B, and subse- quently, to Heading 48.15-B, an i ssue a r os e as to the proper classification the r eofo It appea r s t hat the release of one shipment was withheld by the Bure au of Customs pending confirmation from the Central Bank of the commodity c lassi fication of the said i tem . The Central Bank wrote the petitioner ' s ba nk certifying that the said importation did not fa ll un der Commodity Code No. UP 684-02.09 ("{\luminurn foil, un mou nte d , with- out paper bac king") and instead ruled th at "the alu- minum foil cut to shape 11(round or d isc s h a pe), of 8 mm. in diameter, laminated with a film on one side a nd backed with paperboard of the same s hape and s ize, which is used as a _seal or top cover for coff ee bottle s "to protect the coffee from getting moistur e as well as to retain the a roma and fl a vor of the product " should be properly classified under Code NEP 699-29.16 - \ 295

.. , .. ' ' DECISION - - 11 ... CTA CASE NO. 2845 ~� '. "stoppers, bottle caps (screw-typ e, excluding cro>~n caps for softdrink and beverage bottl es) , capsules r, and other packing accessories, of base metals ( excluding vial caps)" � . The ruling comports with t.he cat eg orization which petitioner has itse lf given to its importation under T.H. 83.13-B, ~1:2.� We therefore conclude, and tha t is what we need decide rendering unnecessary the resolution of the subsidiary issues presented that the s ubject import- ations of bottle or jar seals were properly classified and taxed under Tariff Heading 83.13-B of th e Ta rif f and Customs Code. WHEREFORE, finding the petition well takent the same is granted and the assessments against peti ti oner are hereby set aside and cancelled. No pronouncement as to cost. SO ORDERED. Quezon City, Metro Manila, May 29, 1987. ~ WE a CO~N. CUHW. /~A/E"sJ'fXs_.~ o~� -/R'2(JEuYh(dE\Sg\e.)tV~ /~~ P A�rMesA,~NTnE gFILJLuEdge 29G