LIQ-11-CO:R:C:E 222321 PH
District Director
U.S. Customs Service
3600 East Paisano, Building B, Room 134
Bridge of the Americas
Post Office Box 9516
El Paso, Texas 79985
RE: Protest 2402-6000006; Certification by surety required by 19
U.S.C. 1514(c)(2); Notice to surety of extension of period
for liquidation; 19 U.S.C. 1504(b); 19 CFR 159.12(b).
Dear Sir:
The above-referenced protest was forwarded to this office
for further review. We have considered the points raised by your
office and the protestant. Our decision follows.
FACTS:
A United States company (the "importer") began importing
cotton pants and overalls sewn overseas of United States
materials in June of 1981. The importer entered the merchandise
under item 807.00, Tariff Schedules of the United States (TSUS),
which provided for the duty-free importation of certain articles
assembled abroad of fabricated components which were the product
of the United States (the corresponding provision in the
Harmonized Tariff Schedule of the United States Annotated
(HTSUSA) is subheading 9802.00.80).
The protestant claims that despite the classification of the
merchandise under item 807.00, the importer failed from the
beginning to provide Customs with the documents required to
sustain its claim for such a classification. The protestant
states that repeated requests were made by Customs to provide the
necessary documents but that the importer substantially failed to
comply. The protestant cites statements by the Customs officer
handling the importer's entries and a former employee of the
broker of the importer to this effect.
The protestant states that the importer submitted
significantly deficient actual cost data substantially after the
time established by the Customs Regulations for providing such
information. According to the protestant, the actual cost data
covering the period from March 13, 1981, through June 30, 1982,
was submitted on August 17, 1983. Two subsequent reports were
submitted in November of 1984. The protestant states that all of
these submissions were deemed insufficient by Customs because of
a lack of any materials in support of the figures in the
submissions.
The protestant states that "[d]espite the unconscionable
delays in submitting the requisite data and then when data was
finally submitted, the failure of the submitted data to be
complete, and the repeated requests by Customs for further data
which went substantially unheeded, Customs for some unexplained
reason continued not to liquidate past entries and to accept new
[item] 807 entries from the [i]mporter." According to the
protestant, this practice only ended in November of 1985 when
Customs, for the first time, notified the importer of the denied
classifications.
The protestant issued four general entry bonds, each in the
amount of $100,000, in support of the importer's entries for the
period July 1981 to June 1985. Each of the bonds was issued
covering the period of July 1 to June 30. There follows a table
describing the number of entries included within this protest
with the amount due for each of the bond periods:
Period # of Entries Amount Due Liq. Date
07/01/81-06/30/82 5 $25,081.60 12/13/85
07/01/82-06/30/83 20 $125,270.50 12/06/85*
07/01/83-06/30/84 45 $271,487.53 12/06/85+
07/01/84-06/30/85 None N/A N/A
* Three entries were liquidated on 12/13/85.
+ Ten entries were liquidated on 12/13/85.
According to the protestant's April 6, 1990, letter
submitted with the file, a number of other entries covered by one
of these bonds are the subject of a related protest, Protest No.
2402-6000014. The corresponding figures for the entries included
within this other protest are:
Period # of Entries Amount Due Liq. Date
07/01/81-06/30/82 None N/A N/A
07/01/82-06/30/83 None N/A N/A
07/01/83-06/30/84 None N/A N/A
07/01/84-06/30/85 115 $870,192.59 02/28/86
The protestant states that the importer went out of business
in 1985. Because of the dissolution of the importer, Customs
has demanded payment from the protestant under the bonds issued
by it (two demands are in the file, one dated February 1986 and
the other dated May 1986).
The protestant filed the protest/application for further
review under consideration on April 11, 1986, claiming that
Customs disallowance of classification under item 807.00, TSUS,
was substantively incorrect and requesting that it be given the
opportunity to submit such additional information as is necessary
to support its protest when it obtained the information. On
April 28, 1986, the protestant amended the initial
protest/application for further review, further claiming that the
disallowance of classification under item 807.00 was a mistake of
law and that the evidence already provided to Customs establishes
that the merchandise is entitled to classification under item
807.00 in accordance with existing regulatory and legal
standards. On April 30, 1986, the protestant further amended the
initial protest/application for further review, claiming that the
increase of dutiable value for the merchandise constitutes a
mistake of law (i.e., arguing that the dutiable value of the
entries should have been based solely upon the cost of foreign
assembly of U.S. origin components, not upon the total cost of
the imported articles) and that the entries were properly subject
to tariff treatment under item 807.00, TSUS, and the valuation of
the entries as fully dutiable was a mistake of law. The
protestant's stated position was that the information submitted
in connection with the importation provides for proper
classification under item 807.00 or, in the alternative, that the
entries were as a matter of law eligible for classification under
item 807.00, regardless of any information previously submitted
in connection with the importation of the entries.
On March 28, 1988, the protest/application for further
review was forwarded from your office to the Regional
Commissioner. Your office recommended denial of the protest for
the reasons given in the Customs Protest and Summons Information
Report forwarded with the file. On February 27, 1990, the file
was forwarded by the Regional Commissioner to the Customs
Information Exchange for further review. By letter of April 6,
1990, pursuant to discussions between the Customs Information
Exchange and the protestant, the protestant made additional
arguments. On April 12, 1990, the file was forwarded by the
Customs Information Exchange to this office.
In its April 6, 1990, letter, the protestant states that,
based on the facts known to it, it questions whether liquidation
of a majority of the entries at issue was ever properly extended
by notice to the importer. The protestant states that it was
never notified of any extensions of the date of liquidation and
was not aware that liquidation was not occurring in a timely
manner until Customs sent the demand notice to it in 1986. The
protestant states that this demand notice was the only
notification it ever received that there was an ongoing problem
with the importer.
ISSUE:
Is a protest/application for further review filed by a
surety under 19 U.S.C. 1504(c)(2) defective when it is filed
more than 90 days after the date of liquidation of the entries
concerned but within 90 days of the date of mailing of a notice
of demand for payment against the surety's bond and the surety
fails to make the certification required by section 1504(c)(2)
that the protest is not being filed collusively to extend another
authorized person's time to protest?
LAW AND ANALYSIS:
The statutory provisions regarding protests against the
decisions of Customs officers are found in sections 514 and 515,
Tariff Act of 1930, as amended (19 U.S.C. 1514 and 1515). Under
19 U.S.C. 1514(c)(2):
A protest of a decision, order, or finding
described in subsection (a) of this section
shall be filed with such customs officer within
ninety days after but not before--
(A) notice of liquidation or reliquidation,
or
(B) in circumstances where subparagraph (A)
is inapplicable, the date of the decision
as to which protest is made.
A protest by a surety which has an unsatisfied legal
claim under its bond may be filed within 90 days
from the date of mailing of notice of demand for
payment against its bond. If another party has not
filed a timely protest, the surety's protest shall
certify that it is not being filed collusively to
extend another authorized person's time to protest
as specified in this subsection. [Emphasis added.]
The protest/application for further review in this case was
made more than 90 days after the date of liquidation of the
entries but within 90 days from the date of mailing of notice of
demand for payment against the bond. However, there is no
evidence in the file that the certification required by 19 U.S.C.
1514(c)(2) (see underlined material above) was made. Pursuant to
the Court of International Trade case of Washington International
Insurance Co. v. United States, Slip Op. 89-17 (23 Cust. Bull. &
Dec. 10, March 8, 1989, p. 71) (707 F. Supp. 561), this omission
is fatal to the protest/application for further review. The
protest/application for further review should be denied on this
basis.
For your information, we will address the arguments made by
the protestant. The protestant argues that all of the entries
which were liquidated more than one year from the date of entry
should have been deemed liquidated as entered (see p. 4 of
protestant's April 6, 1990, letter). The protestant states that
its information "reveals that Customs did not extend the
liquidation date of any of these entries." You state that
extensions of the time for liquidation were made pursuant to
section 504(b), Tariff Act of 1930, as amended (19 U.S.C.
1504(b)), on the basis that necessary information to appraise,
classify, and liquidate the entries was not available. Assuming
that proper extensions and re-extensions of the time for
liquidation were made and notice of those extensions and re-
extensions was properly given to the importer, his consignee, or
agent, this claim by the protestant would be denied. The only
exception to this is the one entry which was liquidated more than
four years from the date of entry (the entry was made December
16, 1981, and liquidated December 20, 1985) (see 19 U.S.C.
1504(d)).
The protestant also argues that, assuming that the entries
were not deemed liquidated as entered, the failure of Customs to
liquidate the entries within one year from the date of entry was
a violation of 19 U.S.C. 1504 which resulted in a material breach
of the surety bond sufficient to discharge the protestant from
its obligations under the bond. Because Customs did not notify
the protestant of the extension, protestant claims that it was
materially prejudiced by the delayed liquidation.
As indicated above, assuming that proper extensions and re-
extensions of the time for liquidation were made and notice of
those extensions and re-extensions was properly given to the
importer, his consignee, or agent, the failure of Customs to
liquidate the entries within one year from the date of entry was
not a violation of 19 U.S.C. 1504. With regard to the propriety
of the extensions and re-extensions of the time for liquidation,
the protestant argues that you improperly exercised your
discretion in granting the extensions and re-extensions because
you had no basis for doing so. That is, the protestant states,
the importer's consistent failure to comply with the regulations
(19 CFR 10.11-10.24) should have led Customs to realize that the
importer could not support classification under item 807.00,
TSUS, and to have immediately (upon this realization) liquidated
the entries with a denial of item 807.00, TSUS, treatment (citing
C.S.D. 80-250).
Section 1504(b)(1) provides for the extension of the time
for liquidation if "information needed for the proper
appraisement or classification of the merchandise is not
available to the appropriate Customs officer". Clearly, that was
the case with these entries; information needed for the proper
appraisement or classification of the merchandise was not
available to Customs. In the Court of International Trade case
of Detroit Zoological Society v. United States, 10 C.I.T. 133,
630 F. Supp. 1350 (1986), the Court stated:
Ordinarily, the court should defer to Customs'
determination that it needs additional
information to liquidate an entry and therefore
requires an extension of the statutory time
period. As stated by the Temporary Emergency
Court of Appeals, "deference to an agency's
judgement is especially appropriate when the
issue is the ability of that same agency to
perform certain tasks." Basin, Inc. v. Federal
Energy Administration, 552 F. 2d 931, 937
(Temp. Emer. Ct. App. 1977) .... [10 C.I.T. at
138.]
We are not convinced that the extensions and re-extensions of the
time for liquidation in this case were an improper exercise of
your discretion.
The protestant argues that Customs violated an established
and uniform practice by not rejecting the importer's entries
under item 807.00, TSUS, after "in 1983 and again in 1984 Customs
received significantly deficient cost submissions." (See p. 9 of
the protestant's April 6, 1990, letter. The protestant
continues: "[w]e submit that there can be no dispute that
Customs was under a duty after August 1983 and clearly after
November 1984 to reject Importer's entries under item 807.00,
TSUS ....") The basis for protestant's claim of an established
and uniform practice is T.D. 75-230, which promulgated 19 CFR
10.21. This section of the Customs Regulations provides in
pertinent part, with regard to cost data and other information to
be furnished to Customs concerning entries under subheading
9802.00.80, HTSUSA (formerly item 807.00, TSUS), that:
... Actual cost data must be submitted as
soon as accounting procedures permit. To
insure that information used for Customs
purposes is reasonably current, the importer
shall ordinarily be required to furnish updated
cost and assembly data at least every six
months, regardless of whether he considers that
significant changes have occurred. The 6-month
period for the submission of updated cost or
other data may be extended by the district
director if such extension is appropriate for
the type of merchandise involved, or because of
the accounting period normally used in the
trade, or because of other relevant
circumstances. [Emphasis added.]
In view of the portions of section 10.21 which are emphasized
above, we do not believe that Customs violated any established
and uniform practice in this regard.
The Court of International Trade case of Old Republic
Insurance Co. v. United States, 10 C.I.T. 589, 645 F. Supp. 943
(1986), is particularly apposite with regard to the protestant's
argument that the failure of Customs to notify it of the
extensions resulted in its being materially prejudiced by the
delayed liquidation of the entries. In that case the notice of
extension was given to the importer but the surety claimed that
it was not given such notice. The Court noted the difference
between the requirements for notice of an extension of the time
for liquidation in 19 U.S.C. 1504(b) and the corresponding notice
requirements in 19 CFR 159.12(b). In the former, the extension
may be effected by giving notice to "the importer, his consignee,
or agent" and in the latter notice is required to be given to
"the importer or the consignee and his agent and surety." The
Court held that notice to the importer "was sufficient to
effectuate the extension of time for liquidation [and that] [i]n
order to be consistent with the statute, the customs regulation
cannot be read to effect a deemed liquidation in this case." (10
C.I.T. at 596.)
The Court in Old Republic addressed the question of whether
the failure of Customs to give notice to the plaintiff (a surety)
of the extension pursuant to 19 CFR 159.12(b) discharged the
surety from its surety obligations. Although the Court held that
the failure to give notice to the surety of the extension as
required by section 159.12(b) did not result in the voiding of
the extension (see above), the Court also held that the right to
receive notice of an extension of the liquidation period provided
for by section 159.12(b) must be considered a term of the bond
(10 C.I.T. at 602). Having made that determination, the Court
stated that:
Thus, the question is whether failure to
provide notice materially increased the
surety's risk in this case. If so, the surety
is discharged. If not, the surety's obligation
will be reduced to the extent of its actual
loss. [10 C.I.T. at 602.]
In the absence of more information than is available in the
file, we are unable to determine whether the failure by Customs
to give the protestant notice of the extension of the liquidation
period "materially increased the surety's risk in this case."
However, there appears to us to be a good likelihood that the
protestant could demonstrate a material increase in its risk
which it could use as a defense against a suit by the Government.
HOLDING:
A protest/application for further review filed by a surety
under 19 U.S.C. 1504(c)(2) is fatally defective when it is filed
more than 90 days after the date of liquidation of the entries
concerned but within 90 days of the date of mailing of a notice
of demand for payment against the surety's bond and the surety
fails to make the certification required by section 1504(c)(2)
that the protest is not being filed collusively to extend another
authorized person's time to protest (see Washington International
Insurance Co. v. United States, Slip. Op. 89-17 (23 Cust. Bull. &
Dec. 10, March 8, 1989, p. 71) (707 F. Supp. 561)). The
protest/application for further review is denied on this basis.
Sincerely,
John Durant, Director
Commercial Rulings Division