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CIT Says HTS Subheadings Start With Adjacent Text, Not Unattached Heading, for Drawback Claims

The Court of International Trade on Jan. 30 said that for drawback purposes the 10-digit Harmonized Tariff Schedule subheadings should be read starting with their directly adjacent text and not the superior indented text. Judge Claire Kelly said the "plain meaning" of the statute governing substituted unused merchandise drawbacks refers to the "words describing the article adjacent to the 10-digit number."

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As a result, importer Spirit Aerosystems' drawback bid falls short because substituted unused merchandise drawbacks may not be claimed on subheadings starting with "other" and the company's claimed 10-digit subheading starts with the word "other."

Kelly found that statutory history supports her reading. Congress meant to exclude article descriptions with the word "other" to eliminate the need for CBP to find on a case-by-case basis whether goods are sufficiently similar to be eligible for drawback. In addition, the court said the importer's reading would lead to "illogical results."

Spirit imported aircraft parts into the U.S. under HTS subheading 8803.30.0030 -- a basket provision that starts with the word "other." However, the superior indented text, which sits underneath the eight-digit subheading of "Other parts of airplanes or helicopters" but above the 10-digit subheading, reads "For use in civil aircraft." The indented text refers to both Spirit's claimed subheading and another 10-digit subheading that refers to airplane or helicopter parts used by DOD or the U.S. Coast Guard.

The importer submitted a substituted unused merchandise drawback claim, which allows for a refund of import duties when the goods are exported or destroyed. Exported or destroyed goods classified under an eight-digit subheading that starts with "other" are ineligible for unused substitution drawback unless they fit under the same 10-digit subheading as the imported goods and the 10-digit subheading doesn't start with "other." CBP rejected Spirit's claim on the grounds that its 10-digit subheading starts with "other."

Kelly said the requirement that the exported or destroyed goods match the article description "for that 10-digit" HTS subheading "necessarily" limits the description "to the words adjacent to the numbers." The "unattached unifying language in the HTSUS, as prefatory language, necessarily refers to more than one 10-digit" subheading where there are multiple preceding 10-digit subheadings, the court held. In this case, the "unattached unifying language" is the heading "For use in civil aircraft."

The court found Congress wrote the statute to "simplify laborious and time-consuming drawback procedures under the 'commercially interchangeable' standard" by linking eligibility to HTS numbers.

Finding for Spirit would "render illogical results," Kelly said. As an example, the judge pointed to HTS heading 8504, which covers electrical transformers, among other things. The heading includes a host of 10-digit subheadings that cover specific products, though the unattached superior text begins with "other." Under Spirit's interpretation, all these subheadings would be ineligible for the substitute unused merchandise drawback, which cuts against Congress' intent, she said.

Spirit made a number of arguments based on rules of statutory construction. Kelly initially noted that these canons are subservient to the statute's "plain meaning and text," which favors the government's interpretation, but she addressed each in turn.

The importer said the canon of in pari materia requires the law to be read in conjunction with the HTS because they pertain to the same subject material. The court responded that the "plain meaning" of the law doesn't violate this canon because CBP classifies its imports to set the duty rate, while the law implements Congress' intent to identify substituted used goods that are sufficiently similar to the taxed merchandise so they are eligible for drawback. The HTS General Rules of Interpretation are interpretive rules used to classify goods but "do not shed light on the meaning" of the statute, Kelly said.

Next up was the canon of "scope-of-the-subparts," which requires the article description to include the superior indented and unattached subheadings. The court found this canon to be inapplicable to the "context of substituted unused merchandise drawback eligibility."

Spirit claimed that the punctuation canon backed its case, since this canon says punctuation is a permissible indicator of meaning. According to Spirit, the colon after "For use in civil aircraft" indicates a continuation of the preceding clause. The court said that while this is correct, it doesn't mean that the unifying text serves as the language that begins the article description for the preceding subheadings. The unattached text tells the interpreter which 10-digit subheadings fall within the prefatory subheading.

The last canon advanced by Spirit said that all provisions in a law must "be given effect so that no provision has no consequence." The importer said that reading its 10-digit subheading to start with the term "other" instead of "For use in civil aircraft" would render the latter term "superfluous." Kelly again pointed to the purpose of this language, which is to distinguish between the two 10-digit subheadings that follow the superior text.

(Spirit Aerosystems v. U.S., Slip Op. 24-10, CIT # 20-00094, dated 01/30/24; Judge: Claire Kelly; Attorneys: W. Randy Rucker of Faegre Drinker for plaintiff Spirit Aerosystems; Alexander Vanderweide for defendant U.S. government)