CIT Orders Duty Refund for Importer After Finding CBP Notice of Action Improperly Revoked Ruling Letter
The Court of International Trade ordered CBP to refund tens of thousands of dollars in duties collected from importer International Custom Products (ICP) on an entry of “white sauce.” The excess payment had resulted from CBP notice of action that classified ICP’s product as a dairy spread dutiable at $1,996 per kilogram, despite an earlier CBP ruling letter said ICP only owed 6.6 percent ad valorem. CIT ruled that the notice of action was an “interpretive ruling or decision” that effectively revoked the earlier ruling letter, so CBP should have followed notice and comment procedures required by 19 USC 1625(c) when it issued the notice of action. The government argued that ICP's product isn't covered by the ruling letter, and that the ruling letter was in any case obtained fraudulently. CIT disagreed and said the ruling letter was valid and applied to ICP's white sauce.
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Notice of Action Revoked Ruling Letter; Over 7 Years of Litigation Followed
White sauce is a milkfat-based product that serves as the base and can be an ingredient for products such as gourmet sauces, salad dressings, processed cheeses, club cheese preparations, other sauces, and baked goods. In 1999, in response to a request from ICP, CBP issued NY ruling D86228, which said that ICP’s white sauce, used as the base for a gourmet sauce or salad dressing, with a milkfat content of 72 to 77 percent and including as ingredients xanthan gum and carboxymethylcellulose, is correctly classified at HTS subheading 2103.90.9091 (“sauces and other preparations therefor;…:other: other: other: other”), dutiable at 6.6 percent. But after CBP testing allegedly revealed ICP’s white sauce no longer complied with the terms of the ruling letter, CBP issued a notice of action in 2005 that reclassified 100 of the company’s entries of white sauce under HTS 0405.20.3000 (“butter and…dairy spreads”), which resulted in an increase in duties owed of 2,400 percent.
This is the second time CIT ruled in favor of ICP on its white sauce entries. After ICP challenged the notice of action in 2005, CIT declared the notice null and void because it revoked the customs ruling without following notice-and-comment requirements. But on appeal, the Court of Appeals for the Federal Circuit found fault with the residual jurisdiction provision relied upon by ICP, and vacated the CIT ruling. CIT consequently dismissed the case. ICP again brought suit in 2007, this time on 28 USC 1581(a) denied protest grounds. Before it began the 2007 challenge, ICP paid $66,602 for one entry and filed a protest so it would be able to bring suit for a denied protest. ICP could not pay the duties owed on all of the 100 entries without going out of business, CIT said. The company requested accelerated disposition, and its protest was deemed denied. Thus, it began this action, this time based on the single entry for which ICP paid duties.
CIT Finds in Favor of Plaintiff at Trial after Government Witnesses Prove Unreliable
Prior to trial, CIT found that the notice of action was in fact an “interpretive ruling or decision” that would revoke the earlier ruling, and thus was subject to the notice and comment requirement in 19 USC 1625(c). But the government argued that the white sauce at issue did not conform to the 1999 ruling letter because it did not contain 72-77 percent milkfat and have carboxymethylcellulose and xanthan gum as ingredients, and that the letter was in any case obtained fraudulently because of misrepresentations by ICP with regard to the typical use, designation, and purpose of the white sauce.
At trial, CIT found the white sauce did contain carboxymethylcellulose and xanthan gum, and the milkfat content in the entries was within the 72-77 percent range, so the entries were covered by the ruling letters. CIT also found that ICP adequately informed CBP of the typical uses of the white sauce, its common, commercial and technical designations, and the purpose of its ingredients.
The court found several government witnesses to be unreliable at trial. One expert witness was unreliable because he was untruthful about financial benefits he derives from serving as a frequent government expert, and had a “personal commitment to the government’s victory in this case.” Another, a former secretary at ICP, testified that the company’s president told her that importing white sauce was a way to avoid high duties on butter. But CIT found her testimony unreliable because she and the president “appear to have had an extremely bitter falling out over her abrupt termination from ICP in 2003.” The secretary’s demeanor alternated between sharp and tearful while testifying, CIT said. Meanwhile, CIT heavily relied on the testimony of another government witness, the CBP official that originally authored the ruling letter, in finding for ICP.
Ruling Letter Should have Applied to Entries, says CIT; Orders Refund
Because the notice of action unlawfully revoked the ruling letter without a notice and comment period, and because the white sauce was covered by a valid letter that was binding on CBP, the entries were improperly liquidated, CIT said. ICP is therefore entitled to a refund from CBP on the 2,400 percent overpayment of duties on the white sauce.
(International Custom Products v. U.S., CIT Slip Op. 12-140, dated 11/20/12, Judge Carman)
(Attorneys: Gregory Teufel of Eckert Seamans Cherin & Mellott for plaintiff ICP; Stuart Delery for defendant U.S. government.)