CIT Agrees with Customs on Treatment Issue, But Agrees with Importer on Expense Allocation Methodology
In Peerless Clothing International, Inc. v. U.S., the Court of International Trade concluded that Customs did not violate 19 USC 1625(c), despite the lack of a notice and comment period before changing its appraisement of Peerless USA's entries, because the entries claimed by Peerless USA to establish treatment were not substantially identical to those modified by Customs.
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However, the CIT ruled Customs improperly replaced Peerless USA's allocation methodology for certain expense categories.
(Peerless USA, a wholesaler and importer of men's clothing, contested the appraisement and assessment of duties determined by Customs. It disputed Customs' conclusion that most of the expenses identified as warehousing, general and administrative expenses (Warehousing and Expense Allocation (WEA), management salaries, data entry salaries, office salaries and supplies, computer supplies, telephone expenses, buying salaries, and warehousing costs), should be dutiable.)
Peerless USA initially claimed that Customs had violated 19 USC 1625(c) by modifying "treatment" of its goods without the statutorily required review and comment period. Peerless USA asserted that thousands of its entries were liquidated "no change" by Customs prior to the modification in the dutiable value, and this should constitute "treatment."
Peerless USA also claimed that Customs violated 19 USC 1401(a) by replacing Peerless USA's expense allocation methodology, a methodology which complied with Canadian generally accepted accounting principles (GAAP).
Regarding the issue of "treatment," CIT noted significant changes in the costs associated with both the production and the sale of the merchandise by Peerless. CIT stated that these changes established that the transactions liquidated by Customs using the "no change" were not "substantially identical transactions" to those modified and, as a result, Customs was not in violation of 19 USC 1625(c).
With respect to expense allocation, the CIT ruled that Customs had provided sufficient justification to reject Peerless USA's allocation of the warehousing expenses, but not for the remaining WEA expenses. CIT instructed Customs to reallocate the duties for all other expense categories except warehousing costs in accordance with Peerless USA's methodology.
Slip Op. 09-4 (dated 01/13/09) available at http://www.cit.uscourts.gov/slip_op/Slip_op09/slip%20op%2009-04%20%5BPUB%5D.pdf