HQ 0222519 - Application for further review of protest 4115-0-000047, protesting for reliquidation of several entries under 19 U.S.C. 1520(c)(1). - United States International Trade Commision Rulings

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HQ 222519

September 10, 1991

FOR-2-04-CO:R:C:E 222519 TLS

CATEGORY: ENTRY

District Director
U.S. Customs Service
Plaza Nine Building 6th Floor
55 Erieview Plaza
Cleveland, Ohio 44114

RE: Application for further review of protest 4115-0-000047, protesting for reliquidation of several entries under 19 U.S.C. 1520(c)(1).

Dear Sir:

We have received the request for further review of the above-referenced protest dated February 22, 1990. Our reply is discussed in detail below.

FACTS:

This protest involves 11 entries of truck engines and/or transmissions into a foreign trade subzone in Louisville, Kentucky. The dates of entry range from December 30, 1985, to February 7, 1986. These entries were liquidated on December 1, 1989 with rate advances. Customs maintains that one-year extensions on liquidation were granted for three consecutive years for each entry. Customs further maintains that it notified Ford Motor Company (FMC or Ford) of the extensions as required by statute. Ford is the importer of record as noted on each of the entries. FMC maintains that the dates of liquidation on these entries is actually one year after the dates of entry by action of law. The protestant contends that it did not receive a Customs Form 4333-A notifying it of each extension. Consequently, the importer considers the entries to be deemed liquidated one year after date of entry, pursuant to Customs Regulations section 159.11.

Customs sent the protestant a Form 29, Notice of Action on January 9, 1990, notifying it that the bills from the rate advances should have totaled $5,275,336.77 instead of $5,421,350.61 as originally calculated. As a result, two of the entries were reliquidated on February 2, 1990 to correct this error. Documents filed by the importer in accordance with entry procedures for the FTZ show that the protestant originally did not elect privileged foreign (PF) status for the subject entries. As a result, the standard non-privileged foreign (NPF) status rate was applied by Customs officials instead of the rate applicable under PF status. In failing to elect PF status for the entries, the protestant claims to have made an inadvertent error correctable under 19 U.S.C. 1520(c)(1).

ISSUES:

Whether or not protestant's decision to elect non-privileged foreign (NPF) status rather than privileged foreign (PF) status for merchandise admitted to a foreign trade subzone is a mistake of fact or an inadvertent error correctable under 19 U.S.C.

Whether or not a notice of extension on liquidation is valid under 19 U.S.C. 1504 and 19 CFR 174 when the importer was notified of the reliquidation but the surety(s) involved were not notified.

LAW AND ANALYSIS:

With regard to the protestant's claim of mistake of fact in electing NPF status for the subject entries, the remedy is provided for under statute. The relevant statute states:

(c) Notwithstanding a valid protest was not filed, the appropriate customs officer may, in accordance with regulations prescribed by the Secretary, reliquidate an entry to correct-
(1) a clerical error, mistake of fact, or other inadvertence not amounting to an error in the construction of a law, adverse to the importer and manifest from the record or established by documentary evidence, in any entry, liquidation, or other customs transaction, when the error, mistake, or inadvertence is brought to the attention of the appropriate customs officer within one year after the date of liquidation or exaction.... 19 U.S.C. 1520(c)(1); Tariff Act of 1930 section 520(c)(1). (emphasis added.)

We concern ourselves only with the election of status of the merchandise admitted to the zone as an "other customs transaction" to determine whether an error correctable under 520(c) was made. FMC claims that the election of non-privileged foreign status for the subject entries was a mistake of fact or an inadvertence covered under section 520(c) of the Tariff Act of 1930. Specifically, the importer contends that it is a mistake of fact that its employee elected non-privileged foreign status instead of privileged foreign status, as the importer intended to have done. Ford recounts that the employee charged with the responsibility of electing the status did not have extensive experience in Customs matters. The importer also claims that the lack of "experienced" Customs officials at the foreign trade subzone was a contributing factor to the mistake.

Correctable errors under section 520(c)(1) have been defined in a previous Customs ruling (HQ 221473). A clerical error is when a person intends to do one thing but does something else, such as write "213" instead of "312." A mistake of fact is when a person believes the facts to be other than what they really are and takes action based on that erroneous belief. An inadvertence is inattention, oversight, negligence, or lack of care to a particular task. It is worthy to note that these are not mutually exclusive; an error may be characterized as both a clerical error and an inadvertence. These are distinguished from errors in the construction of law, when a person knows the true facts of a case but has a mistaken belief of the legal consequences of those facts and acts on that mistaken belief. 94 Treas. Dec. 244, 245-46 (1959).

In the present case, the importer did not elect the status it intended to for its entries into the foreign trade subzone. The election of non-privileged foreign status was made by an employee charged with the responsibility to do so. The importer acknowledges that the error was committed due to the inexperience of its employees, but also claims that Customs contributed to the error by having officials without extensive experience in these matters handle the transaction. The error in this case was made not by someone in a clerical capacity, but by an employee who had the authority to make the decision, right or wrong. See PPG Industries, Inc. v. United States, 7 CIT 118, 124 (1984). To the extent that Ford's employee in this case had the authority to choose whatever status was favored, it was more than just the recording of a decision that had already been made. Thus, because the employee's actions amounted to a business decision he was authorized to make, we cannot find a clerical error in this case.

We also find the protestant's argument that Customs is partly responsible for the error in electing the less-desirable status to be without merit. The experience of the Customs officials involved in the entry transactions at issue has no bearing on the election of non-privileged foreign status in this case. There is no evidence showing that the officials had any influence over the decision. Furthermore, Customs officials are not responsible for the importer's election of such status, whether it be favorable or unfavorable. It also outside of the scope of Customs duties to review the business decisions of importers in transactions such as the present one, when the decision is solely discretionary. Therefore, the alleged inexperience of the Customs officials involved in the subject entries cannot be deemed a contributing factor to the protestant's error.

The evidence as presented does not show a mistake of fact correctable under section 520(c)(1) to exist in this case. The facts show that the importer's employee responsible for electing the status knew the result his company wished to obtain but did not know how such a result could be achieved. His lack of awareness amounted to a lack of knowledge of the relevant legal procedures to be applied here, not any misinformation regarding the facts. The protestant acknowledges the employee's thoroughness and awareness of the facts surrounding the subject entries; the evidence does not show that he misunderstood them. The protestant cites to C.J. Tower & Sons of Buffalo, Inc. v. United States, 68 Cust. Ct. 17, aff'd, 61 C.C.P.A. 90, 499 F.2d 1277 (1974), to support its contention that a mistake of fact was made here. We find reason to distinguish C.J. Tower from the present case, however. In the former case, the importer was not aware of how the merchandise would be used once entered, a material fact. Here, the importer knew how the merchandise would be utilized in the FTZ but apparently did not know how to apply the relevant law to its advantage.

The protestant also cites to S. Yamada v. United States, 26 C.C.P.A. 89 (1938), claiming that its employee was merely acting in a clerical capacity when he made the incorrect status designation. In Yamada, an employee was instructed to file a certificate with certain information contained therein. The employee, however, filed the certificate with incorrect information. While the trial court had found that the employee's "carelessness" did not constitute a clerical error, the appeals court reversed, finding carelessness was indeed clerical error in that case. Of particular note is the court's finding that who made the decision was of as much importance as what decision was made. The Yamada court found a distinction between its case where a person was following the instructions of someone else and situations where the person making the alleged error was responsible for making the decision. In this case, FMC presents no evidence supporting the claim that its employee had no independent authority to designate a status. In fact, Ford had admitted on several occasions in meetings and telephone conversations with Customs officials that the employee was in charge of making that decision at the time it was made. Such authority goes beyond the responsibility of someone in a clerical capacity; the decision-making power suggests that all the information needed to make the decision was at his disposal and he was in fact to do so. Thus, we find distinction between Yamada and the present case.

In T.D. 54848 (1959), an error in the construction of law is found to occur when a person knows the true facts of a case but has a mistaken belief of the legal consequences of those facts and acts on that mistaken belief. The importer's mistaken belief was that the status chosen would achieve the results hoped for. Therefore, we must find that there was an error in the construction of law, rather than a mistake of fact.

Inadvertence cannot be said to exist in this case. The facts reflect that the importer knowingly elected non-privileged foreign status after much consideration and attention was given to the problem. There is no evidence in the record indicating that the importer's employee was less than careful in making the decision. The protestant points out that extensive deliberations preceded the filing of the subject entries. In fact, Ford notes that several meetings were held with Customs officials before the zone was put into operation. During those meetings, the intentions of FMC were discussed with regard to the zone's purpose. Ford knew of the results it wished to reach before the FTZ was opened. While the effect of the employee's decision may be inconsistent with the importer's goal, nothing in the record shows that the making of the decision itself was contrary to the importer's wishes. In fact, Ford officials acknowledge that the employee was expected to make such decisions. As noted before, inadvertence has been held to connote inattention, oversight, negligence, or lack of care. None of those kinds of mistakes are in evidence here and thus we cannot find inadvertence in this case.

The protestant also claims that the rate advanced liquidations are inconsistent with the holding in C.S.D. 83-96 (June 1, 1983). We find reason to distinguish the ruling from the present case, however. In that case, the FTZ user's Automated Inventory Control System (AICS) did not reflect what was actually being manufactured in the zone. As a result, errors in entry were sometimes made which were not detected until after entry was completed and duty paid. The importer wished to change the status of the merchandise to accurately reflect the updated inventory records. Customs agreed. The ruling held that allowing the change of status in this case when the merchandise was not removed from the zone beforehand allowed for practical inventory and accounting procedures and did not interfere with the protection of revenue. Thus, the status of merchandise in an FTZ was changed to privileged foreign, duty paid, and the merchandise was not removed from the zone.

In the present case, the foreign merchandise, engines and transmissions, is used to manufacture vehicles which are then removed from the subzone. This is the normal operation for the FTZ in this case and there is no need for a correction of records here. On the contrary, the importer here has made a decision which it now finds adverse to its interests and as a result wishes to change. Without a finding of mistake of fact, however, Customs cannot change a decision made by an importer concerning the status of merchandise in an FTZ. Once duty is paid it becomes the revenue of the United States Treasury to be protected under Customs laws. To allow the importer to in effect change its mind after realizing the adverse impact of its decision would be to interfere with that objective. Therefore, we do not find C.S.D. 83-96 to be applicable to the facts in this case.

The foreign merchandise admitted into the subzone is used in the manufacturing of domestic vehicles, an activity that would obviously produce foreign vehicles if done so outside the United States. The fact that the importer chose non-privileged foreign status for merchandise that could have been classified as privileged foreign does not alter the general purpose of the FTZ in this case. In fact, there is no dispute that the subzone would be used to produce domestic vehicles with parts that would otherwise be classified as foreign if not admitted into the subzone and designated as privileged foreign merchandise. The importer, for whatever reason chose not to do this. While such a decision might be questioned for merit, it is not outside the realm of everyday decision-making. Ford may have other reasons for making such a choice that are not apparent to those outside the decision-making process. Thus, we find no reason to allow the importer to correct what is essentially a business decision made in the normal course of business.

There is a dispute as to when the original liquidation of entries took place. Protestant claims that the dates of liquidation were between December 30, 1986 and February 7, 1987, citing 19 U.S.C. 1504(a), which provides that if an entry is not liquidated within one year of the date of entry, then it is deemed liquidated by operation of law. Customs maintains that the liquidations were suspended for three consecutive years in 1986, 1987, and 1988, and notices were sent to the importer of record as listed on the entry documents. FMC claims that it did not receive these notices through its Louisville office, where the foreign trade zone is operated, nor did its sureties receive any notice.

That the sureties were not notified of the liquidation extensions in this case is not relevant to the validity of the notices. The statute expressly states that notice of extension should be given to the importer of record. 19 U.S.C. 1504(b) (1982 and Supp II 1984). The importer of record is considered to be the party named on the documents of entry, to whom Customs claims to have sent the notices. To the extent that Customs records show the importer of record was in fact notified, the notices of extension are valid under law, as there is no requirement that the sureties be notified. The protestant cites to 19 CFR 159.12(b), which, if read literally, seems to require that the importer of record and surety be notified of the extension. Specifically, section 159.12(b) requires that notice of extension be given to the importer or the consignee and his agent and surety on Customs Form 4333-A. This language contradicts the statute, which requires that notice be given to the importer of record or the surety. The Court of International Trade has recently addressed the issue of apparent conflict between the subject statute and regulation. The court held that since the reading of the regulation must be consistent with the statute, it cannot be read to effect a deemed liquidation in cases where, as here, the importer of record was properly notified but the surety was not notified at all. Old Republic Insurance Co. v. United States, 10 CIT 589, 596 (1986). See also Detroit Zoological Society v. United States, 10 CIT 133 (1986). Thus, we cannot find the notices of extension in this case invalid simply because the sureties did not receive the notices.

The protestant has cited to case law to support its claim that it never received notices of extension in this case. Of particular note are the citations to Intra-mar Shipping Corp. v. U.S., 66 Cust. Ct. 3 (1971), and F.W. Myers & Co. v. U.S., 574 F. Supp. 1064, 6 CIT 215 (1983). In Intra-mar, the court held that once an entity has proven that it did not receive notice, the burden falls on the Government to prove that it was mailed. Such proof should be "to the level of specificity where the Government must now produce the precise person who mailed the subject notices." Intra-mar at 6. The Myers decision, following Intra- mar, established that an affidavit from an importer's agent charged with the responsibility of receiving the notice stating that he did not actually receive such notice is sufficient evidence to shift the burden of production from the importer back to the Government. The protestant has produced such an affidavit from its employee, Donald Cohen, which is contained in its February 14, 1991 submission as "exhibit 14."

Customs officials in Cleveland have stated on several occasions that the subject notices were generated from their office. In 1985, Customs adopted an electronic system of providing notice to importers whose liquidations were being withheld for more information. When such a notice is necessary, the appropriate Customs official at the office where the records are being kept (in this case Cleveland) will input the necessary data into Customs nationwide computer network. Those data are then electronically transferred to a Customs information clearinghouse (in this case Indianapolis) where the notices are automatically printed and immediately sent to the importer's designated address. As noted above, FMC's designated address according to the importer number given in this case is in fact its headquarters address in Dearborn. Without producing any tangible evidence beyond the employee's affidavit stating non- receipt, Ford attempts to discredit Customs records showing notice was indeed sent in this case at every appropriate occasion.

We do not find such an attempt to be sufficient to allow us to ignore the fact that the records do show the notices were sent. Moreover, the dispute between Ford and Customs about where the notices should have been sent at the very least gives rise to questions about Ford's claim of non-receipt. If they were expecting notices to be sent to Louisville while they were in fact sent to Dearborn, the Ford officials in Dearborn might have been inclined to ignore the notices. At any rate, we are not in a position to question what the importer might have done with the notices once they were received, but we do know from the evidence submitted that they were in fact sent to the appropriate address.

Customs has maintained that the extensions were necessary to obtain additional information on how the merchandise was to be used in the foreign trade zone. In fact, there is an ongoing dispute as to the precise nature of how the engines and transmissions were admitted to the FTZ. Customs extended the liquidations to give itself more time to gather facts on this particular matter. Thus, Customs properly made the extensions pursuant to section 504(b)(1).

In summation, we find that the importer of record as listed on the entry documents to be Ford Motor Company headquarters in Dearborn, Michigan, not Louisville, Kentucky, as the protestant argued. Customs records show that notices of extension of liquidation were mailed to that address for three successive years on each of the 11 entries at issue. We also find no reason to allow for "correction" of a business decision made by the importer solely on the basis that the decision is adverse to its interests. The relevant statute does not authorize Customs to allow reliquidation for such a reason.

HOLDING:

The protestant's decision to designate certain articles admitted into its foreign trade subzone as non-privileged foreign merchandise is not a mistake of fact or inadvertent error correctable under 19 U.S.C. 1520(c)(1). The subject entries cannot be reliquidated under that statute as a result. Inasmuch as this was a business decision made by the protestant, it is outside the scope of Customs duties to review such; consequently, Customs did not contribute to any errors made in the present case by not reviewing the decision.

The notices of extension of liquidation of the 11 above- referenced entries are valid because the importer of record as listed on the entry documents was notified as required under 19 U.S.C. 1504. There is no requirement under statute that the surety be notified as well.

You are advised to deny the protest in full. Form 19, Notice of Action, should be attached to this ruling.

Sincerely,

John Durant, Director

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