Commissioner of Customs vs. Marina Sales, Inc.

A motion for reconsideration with the CTA Division is a mandatory precondition before elevating a case to the CTA En Banc, pursuant to Section 1, Rule 8 of the Revised Rules of the Court of Tax Appeals, and imported juice compounds that have lost their original character and require further manufacturing to be consumable are classified as raw materials under Tariff Heading H.S. 2106.90 10.

Marina Sales, Inc., the local manufacturing arm of CO-RO Food A/S of Denmark, regularly imports raw juice concentrates for its Sunquick products, which the Bureau of Customs (BOC) historically assessed under Tariff Heading H.S. 2106.90 10 at a 1% import duty rate. In 2003, the BOC contested this classification for two of Marina's import entries, seeking to reclassify them under Tariff Heading H.S. 2106.90 50 at a 7% duty rate on the ground that the concentrates were composite concentrates ready for simple dilution with water.

• Importations and Initial Assessment: Marina Sales, Inc. imported two shipments of Sunquick juice concentrates (Import Entry No. C-33771-03 on March 6, 2003, and Import Entry No. C-67560-03 on May 21, 2003). Marina computed and paid duties under Tariff Heading H.S. 2106.90 10 at a 1% rate.
• BOC Reclassification: BOC examiners disputed the classification, recommending reclassification under Tariff Heading H.S. 2106.90 50 at a 7% rate. Marina requested release under the Tentative Release System, undertaking to pay the difference if the reclassification was upheld.
• VCRC Deliberations: The Valuation and Classification Review Committee (VCRC) scheduled deliberations for both entries. Marina attended and submitted explanations and samples arguing against reclassification. The VCRC consolidated the cases and reclassified both entries under H.S. 2106.90 50 (7%).
• Commissioner's Ruling: Marina appealed to the Commissioner of Customs, who modified the VCRC ruling, classifying the entries under H.S. 2009.19.00 (7%), H.S. 2009.80.00 (7%), and H.S. 2009.90.00 (10%).
• CTA Second Division Ruling: Marina appealed to the CTA. The Second Division ruled in favor of Marina, holding that the importations were raw materials used for manufacturing, not ready-to-drink juice concentrates, and were thus properly classified under H.S. 2106.90 10 (1%).
• CTA En Banc Dismissal: The Commissioner directly appealed to the CTA En Banc without filing a motion for reconsideration with the Second Division. The En Banc dismissed the petition for failure to comply with the mandatory requirement of filing a motion for reconsideration under the CTA's Revised Rules.

• Liberal Application of Procedural Rules: The Commissioner argued that the dismissal of his petition based on a mere technicality was inconsistent with the principle of liberal application of procedural rules, resulting in grave injustice and unfairness to the government, which would only collect a 1% duty instead of 7%.
• Tariff Classification: The Commissioner contended that the imported concentrates should be classified under Tariff Heading H.S. 2106.90 50 (7% duty rate) because they are ready for consumption by mere dilution with water. He further asserted that the Sunquick Lemon compound could be classified as "heavy syrup" under this heading based on the testimony of Marina's expert witness.

• Mandatory Procedural Requirement: Marina maintained that the CTA En Banc correctly dismissed the petition because the filing of a motion for reconsideration with the Division is a mandatory precondition under Section 1, Rule 8 of the Revised Rules of the CTA.
• Correct Tariff Classification: Marina argued that the imported concentrates are raw materials that must undergo further manufacturing and the addition of additives before becoming suitable for human consumption, thus falling under H.S. 2106.90 10 (1% duty). The concentrates had lost their original character as fruit juice due to the compounding ingredients.

• Procedural Compliance: Whether the CTA En Banc correctly dismissed the petition for the Commissioner's failure to file a motion for reconsideration with the CTA Division prior to elevating the case to the En Banc.
• Tariff Classification: Whether the imported Sunquick juice concentrates should be classified under Tariff Heading H.S. 2106.90 10 (1% duty) as raw materials, or under H.S. 2106.90 50 (7% duty) as composite concentrates for simple dilution.

• Procedural Compliance: The dismissal was affirmed. Section 1, Rule 8 of the Revised Rules of the Court of Tax Appeals uses the word "must," making the filing of a motion for reconsideration a mandatory precondition, not merely directory, before a case can be elevated to the En Banc. Procedural rules may be relaxed only for very exigent and persuasive reasons, which were not present here.
• Tariff Classification: The 1% duty rate under H.S. 2106.90 10 was correctly applied. To fall under the higher duty rate categories (H.S. 2106.90 50 or H.S. 2009), the imported articles must not lose their original character as fruit juice. Laboratory analysis and evidence showed that the concentrated fruit juice comprised only 12% of the total compound, having lost its original character due to the addition of water, sugar, citric acid, and other ingredients. Furthermore, the concentrates required a laborious manufacturing process and the addition of other additives to achieve a marketable juice consistency suitable for human consumption, refuting the claim that they were ready for simple dilution.

• Mandatory Filing of Motion for Reconsideration before CTA En Banc Review — Under Section 1, Rule 8 of the Revised Rules of the Court of Tax Appeals, a motion for reconsideration or new trial with the Division is a mandatory precondition before elevating a case to the En Banc. The use of the word "must" in the rule indicates an imperative duty that must be complied with, depriving the En Banc of jurisdiction if disregarded.
• Loss of Original Character in Tariff Classification — For imported fruit juices or mixtures to be classified under tariff headings for composite concentrates (H.S. 2106.90 50) or fruit juices (H.S. 2009), the imported articles must not lose their original character. If the addition of compounding ingredients reduces the fruit juice to a small percentage of the total compound (e.g., 12%), and the product requires further manufacturing to be suitable for human consumption, it is classified as a raw material or food preparation under H.S. 2106.90 10.

• "Before the CTA En Banc could take cognizance of the petition for review concerning a case falling under its exclusive appellate jurisdiction, the litigant must sufficiently show that it sought prior reconsideration or moved for a new trial with the concerned CTA division."
• "To fit into the category listed under the Tariff Harmonized System Headings calling for a higher import duty rate of 7%, the imported articles must not lose its original character."
• "To 'manufacture' is to 'make or fabricate raw materials by hand, art or machinery, and work into forms convenient for use.' Stated differently, it is to transform by any process into another form suitable for its intended use."

• Dangan-Corral v. Commission on Elections, G.R. No. 190156, February 12, 2010 — Cited for the principle that the use of the word "must" in a rule indicates a mandatory requirement.
• Systra Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 176290, September 21, 2007 — Followed for the rule that procedural rules are not to be trifled with or excused simply because their non-compliance may prejudice a party's substantive rights.
• Galang v. Court of Appeals, G.R. No. 76221, July 29, 1991 — Followed for the principle that procedural rules may be relaxed only for very exigent and persuasive reasons to relieve a litigant of an injustice not commensurate to his careless non-observance of the prescribed rules.

• Section 1, Rule 8 of the Revised Rules of the Court of Tax Appeals (A.M. No. 05-11-07-CTA) — Requires that a petition for review of a decision of the Court in Division before the Court En Banc must be preceded by a timely motion for reconsideration or new trial with the Division. Applied to dismiss the Commissioner's appeal for non-compliance with a mandatory procedural precondition.
• Tariff and Customs Code / ASEAN Harmonized Tariff Nomenclature (Tariff Headings H.S. 2106.90 10, H.S. 2106.90 50, H.S. 2009) — Applied to determine the correct classification of the imported juice concentrates. H.S. 2106.90 10 (1% duty) covers food preparations used as raw material in preparing composite concentrates; H.S. 2106.90 50 (7% duty) covers composite concentrates for simple dilution; H.S. 2009 covers fruit juices that have not lost their original character. The items were held to fall under H.S. 2106.90 10.

Antonio T. Carpio, Teresita J. Leonardo-De Castro, Diosdado M. Peralta, Roberto A. Abad