HQ 0222836 - Application for further review of Protest No. 2304-9-000083 under 19 U.S.C. 1504(a) - United States International Trade Commision Rulings

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HQ 222836

January 30, 1991

LIQ-11-CO:R:C:E 222836 CB

CATEGORY: ENTRY PROTEST

Regional Commissioner
U.S. Customs Service
Southwest Region
Suite 500
5850 San Felipe Street
Houston, TX 77057-3012

RE: Application for further review of Protest No. 2304-9-000083 under 19 U.S.C. 1504(a)

Dear Sir:

The above-referenced protest was forwarded to this office for further review. We have considered the points raised and our decision follows.

FACTS:

This protest involves a surety's request for relief from payment of supplemental duties assessed. Protestant is the surety for the principal on two bonds covering said releases. Each bond has a liability limit of $50,000.00 and was cancelled by protestant in March of 1986. The 13 entries being protested are part of 68 releases during the period of September 1983 through August 1984. Entry numbers and dates were assigned at the time of release.

The importer of record failed to present sixty-eight (68) entry summaries against sixty-eight (68) releases. Liquidated damages were assessed for value plus estimated duty based on information derived from the CF 3461. The protestant/surety sent two checks for a total of $36,242.48 which was the amount of duty shown on the CF 5955-A. On July 22, 1986, the entry numbers originally assigned to the releases were cancelled. A letter was issued to the importer of record demanding presentation of the entry summaries for the purpose of applying estimated duties to these releases.

Entry summaries were presented on August 29,1986, for sixty- seven (67) entries. One entry was held pending correct classification because the shipment was seized. Payment was not included with the entry summaries. The entry summaries were back dated and new entry numbers were assigned. The thirteen (13) entries being protested were liquidated for increased duties based on the information contained in the entry summaries. -2-

Demand was made on the protestant/surety for the additional duties on June 16, 1989. Protestant/surety claims that the entries liquidated by operation of law pursuant to 19 U.S.C. 1504(a).

ISSUES:

1) Whether the subject merchandise was released under an immediate delivery permit or an entry release?

2) Whether a surety remains liable for additional duties assessed after liquidation if the bond used to obtain release expires before an entry summary is filed?

LAW AND ANALYSIS:

It is the protestant/surety's position that the merchandise was entered during the period of September 1983 through August 1984. Therefore, because Customs failed to liquidate the entries within one year of entry, all of said entries were liquidated by operation of law. We agree with protestant/surety's claim that the merchandise was entered at the time of release and that Customs is precluded from assessing additional duties.

Liquidation of an entry of merchandise constitutes the final computation by Customs of all duties accruing on that entry. See generally, Ambassador Division of Florsheim Shoes v. United States, 748 F.2d 1562 (Fed. Cir. 1984). Section 504, Tariff Act of 1930, as amended (19 U.S.C. 1504 (1988)), provides that if Customs fails to liquidate an entry within one year from the date of entry or final withdrawal from warehouse, that entry is deemed liquidated at the rate of duty, value, quantity and amount of duties asserted at the time of entry by the importer, his consignee, or agent. Customs is permitted to extend the one year period, under 19 U.S.C. 1504(b), if additional information is needed to classify the goods, liquidation is suspended by statute or court order, or if the importer, consignee, or his agent requests an extension. Customs must provide the importer with notice of the extension.

Section 448, of the Tariff Act of 1930, as amended (19 U.S.C. 1448(b)), and the Customs Regulations issued thereunder, provides that the Secretary of the Treasury is authorized to provide for the issuance of special permits for special delivery (immediate delivery), prior to formal entry therefor. Customs administration of the special delivery (immediate delivery) statute is governed by 19 CFR 141.68(c) which provides as follows:

When merchandise is released under the immediate delivery procedure - The time of entry of merchandise released under the immediate delivery procedure shall be the time the entry summary is filed in proper form, with estimated duties attached.

However, in the instant case, the record indicates that entry releases were made rather than immediate delivery releases. The immediate delivery application (CF 3461) for eleven of the releases show it as a Code "01" entry. The Entry Record (CF 5101) show it as a free or dutiable consumption entry. Code "01" is such an entry under Customs Directive 3550-03 of September 28, 1984. Paragraph 2 of the Instructions for Preparation of CF 7501.

Under 19 CFR 141.61(d) (1979 ed.) a CF 5101 is completed only when an entry is made. See also the corresponding regulations for immediate delivery 19 CFR 142.1-142.16. Likewise, the Customs Manual, Section 8.8, (In effect unless superseded per Manual Supplement 2114-02 of September 10, 1979.) instructs Customs Officers as to the purpose of the CF 5101. Compare with Section 8.59 of that same Manual. Additionally, all of the entries are recorded as entry releases for which no entry summaries have been filed on a Customs Report dated December 7, 1985. Therefore, protestant/surety's contention that these entries liquidated by operation of law is correct. The subject merchandise was released under an entry release during the period of September 1983 through August 1984. Customs failed to extend liquidation of the entries as provided for in 19 U.S.C. 1504. Consequently, Customs may not assess supplemental duties based on the entry summaries filed in August of 1986.

Protestant/surety's alternate claim is that if entry was not effected until 1986, they were not covered by the bonds. Furthermore, that if Customs maintains that entry was in 1986, then the bonds were not effective for these entries at any time and Customs should refund the estimated duties and liquidated damages previously paid by protestant/surety. We disagree with this contention. The subject releases were covered by an Immediate Delivery and Consumption Entry Bond (CF 7553) as indicated by the record. The bond protects the government from losses as a result of non-compliance with Customs regulations. The regulations provide that the entry summary shall be filed within 10 working days after the time of entry. 19 CFR 142.12(b). Customs interpretation of a surety contract was set -4-
forth in C.S.D. 87-20. As stated, "the contract of a surety is interpreted according to the standards that govern the interpretation of contracts in general.... Contracts are construed most strictly against a compensated surety and in favor of the indemnity."

One of the conditions included in said bond is the principal's obligation to make or complete entry. See 19 CFR 113.62. If the principal defaults in this condition, the obligor agrees to pay liquidated damages. A surety's obligations under the contract is construed by reading together all of the instruments, statutes and regulations underlying the transaction. St. Paul Fire and Marine Insurance Co. v. Commodity Credit Corporation, 474 F.2d 192 (5th Cir. 1973). In the instant case, 19 CFR 142.12(b) provides that the applicable entry documentation must be filed within 10 working days after the time of entry. As stated by the Court of International Trade in United States v. Atkinson, 6 CIT 257, 575 F. Supp. 791 (1983), a surety is financially obligated under the immediate delivery consumption entry bond to pay liquidated damages when the principal fails to comply with Customs requirements. In the instant case, protestant's liability accrued on the eleventh day when the bond was breached because of failure to file the entry summaries timely.

The regulations also provide that the district director shall make an immediate demand for liquidated damages in the case of failure to file documetation timely. 19 CFR 142.15. Regarding the subject protest, liquidated damages were issued against the entries on December 23, 1985. Protestant/surety contends that it is entitled to a refund of the estimated duties and liquidated damages paid. As stated by the Court of International Trade, in Halperin Shipping Co., Inc. v. United States, 24 Cust. B. & Dec. No. 29, p. 81, Slip Op. No. 90-63 (CIT July 2, 1990), "[u]pon receipt of the notice demanding payment of estimated duties and liquidated damages, any right...to contest the amount of duties due or any other matters relating to the liquidation of the merchandise at issue had expired when the items were liquidated, or as appears the case here, deemed liquidated by statute, and the time to protest had lapsed....[Plaintiff] is thus precluded from contesting the amount of estimated duties it paid." In other words, protestant/surety should have filed a 19 U.S.C. 1514 protest within 90 days after liquidated damages were assessed.

Therefore, Customs demand on the surety/protestant for payment of estimated duties and liquidated damages was proper. However, protestant/surety's obligation under the terms of the bond ceased with the payment of said estimated duties and liquidated damages. The subject bonds had been cancelled on -5-

March 6, 1986. The subject entries were mistakenly liquidated by Customs in November of 1986. Consequently, protestant/surety is not liable for additional duties assessed upon liquidation.

HOLDING:

The subject merchandise was released under an entry release. Customs failed to liquidate the subject entries within one year from the date of entry. Therefore, the entries liquidated by operation of law. However, Customs demand on the surety/protestant for payment of estimated duties and liquidated damages was proper. You should deny protestant's claim for reimbursement of estimated duties and liquidated damages. At the same time, protestant/surety's obligation under the bond ceased upon the payment of estimated duties and liquidated damages. Therefore, you should approve protestant's request for relief from payment of supplemental duties assessed.

Sincerely,

John Durant, Director

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