G.R. No. 169352 , February 13, 2009.
COMMISSIONER OF CUSTOMS, Petitioner, vs. GELMART INDUSTRIES PHILIPPINES, INC., Respondent.

FACTS

Gelmart Industries Philippines, Inc. (Gelmart) is a corporation authorized to operate a Bonded Manufacturing Warehouse (BMW) and holds import licenses to bring in duty-free materials for re-export. In 1999, Gelmart imported three shipments of various textile materials and accessories (covered by Entry Nos. 44780-99, 46269-99, and 46297-99). The Bureau of Customs (BOC) issued a memorandum for a 100% examination of all shipments consigned to Gelmart. An inspection report concluded the imported articles (cotton fabrics with spandex for shirting and fleece materials) were not normally used for the manufacture of brassieres and lace, which the BOC believed were Gelmart’s only operational divisions. The BOC, through Atty. Tugday, recommended seizure, arguing the importations were unauthorized because Gelmart had closed other product divisions, misrepresented its machinery and capacity in its license renewal, and would subcontract 100% of the production, violating GTEB rules requiring a 70% export production capacity. The Garments and Textile Export Board (GTEB) certified that Gelmart’s license covered items like polyester, cotton, and other fabrics, and clarified that the 70% production capacity rule did not limit in-house production versus subcontracting. Gelmart requested reshipment of the goods, contending it had GTEB-approved subcontractors for manufacturing boys’ pants and tops requiring the imported materials. The Commissioner of Customs issued Warrants of Seizure and Detention. The Court of Tax Appeals (CTA) reversed the forfeiture, lifted the warrants, and ordered the release of the fabrics upon payment of correct duties and taxes.

ISSUE

Whether the Court of Tax Appeals erred in reversing the decree of forfeiture and ordering the release of the imported fabrics.

RULING

The Supreme Court affirmed the decision of the Court of Tax Appeals. The Court held that the basis for the forfeiture—that Gelmart violated GTEB rules by subcontracting 100% of its production—was without merit. The GTEB itself clarified that the rule on “production capacity geared for export of at least 70%” does not relate to limits on in-house production versus subcontracting. Furthermore, the imported materials (fabrics) were within the description authorized by Gelmart’s GTEB-issued import license. The BOC’s claim that Gelmart could only import materials for its bra and lace divisions was incorrect, as the import license was not restricted to specific divisions but covered fabrics generally. Therefore, the importation was not unauthorized, and forfeiture was not justified. The CTA correctly ordered the release of the goods subject to payment of applicable duties and taxes.