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DOJ Appeals Excise Tax Drawback Ruling

The Department of Justice on April 17 filed an appeal of the Court of International Trade's decision that struck down CBP regulations to prohibit drawback claims for excise taxes. The appeal, which was docketed by the U.S. Court of Appeals for the Federal Circuit on April 24, seeks to restore the agency's ban on substitution drawback on products that must pay excise taxes, such as alcohol and petroleum. The regulations deemed exportation without payment of excise taxes to be a form of drawback, and limited the amount of drawback to the amount of taxes paid (and not previously refunded) on the export that forms the basis for the drawback claim.

The DOJ also filed on April 17 a motion with CIT requesting a stay of the drawback decision. “Absent a stay of judgment, the Government faces immediate irreparable harm,” it said. That's because CIT ordered CBP to begin processing and paying the drawback claims at issue, but if the ruling is “reversed on appeal, and a stay is not entered at this time, CBP runs the risk of processing and paying substitution drawback claims that are eventually deemed invalid,” the DOJ said. Also, “unprocessed substitution drawback claims that implicate the Final Rule may become deemed liquidated by operation of law before the appeals process has finalized,” the government said. “Should this occur, substitution drawback claimants may be entitled to refunds at the amounts asserted, even if the Final Rule is ultimately upheld on appeal.”

Lawyers for the National Association of Manufacturers and the Beer Institute, which challenged the regulations at CIT, told the DOJ they don't consent to the stay request. The DOJ argued that the plaintiffs would face less injury if a stay is granted and DOJ eventually loses on appeal. “Even if a stay is entered and NAM prevails on an appeal, double drawback claimants will receive the full amount of excise taxes refunds that they are entitled to by law,” the government said.

A stay would also be in the public interest because of the added clarity for the procedures and regulations, the DOJ said. “The public would be disserved if CBP were to undertake a massive regulatory overhaul to implement the Court’s judgment with respect to the filing and processing of substitution claims, only to have to reverse course and dismantle that regulatory framework if the judgment is ultimately reversed on appeal,” the DOJ said.

The government goes on the lay out several arguments it says show, at a minimum, “substantial questions of importance requiring appellate resolution,” which is one of the factors to be considered by CIT. Among the issues raised by the DOJ was CIT's agency deference analysis and its rejection of drawback definitions from the final rule.

Email for a copy of the motion to stay.