HQ 0222982 - Application for further review of Protest No. 1401-90- 000143 under 19 U.S.C. 1520(c); reliquidation for higher duty - United States International Trade Commision Rulings

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HQ 222982

July 1, 1991

LIQ-9-01-CO:R:C:E 222982 CB

CATEGORY: ENTRY LIQUIDATION

Regional Commissioner
U.S. Customs Service
Southeast Region
909 S.E. First Avenue
Miami, FL 33131-2595

RE: Application for further review of Protest No. 1401-90- 000143 under 19 U.S.C. 1520(c); reliquidation for higher duty

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:

Protestant seeks reliquidation of three entries on the grounds that the entries were liquidated in the absence of information necessary to appraise the imported merchandise. According to protestant, this mistake of fact is adverse to protestant because it may increase protestant's liability for income taxes.

Protestant exports certain active ingredients used to manufacture herbicides to various related overseas facilities in France and Australia where it is subjected to further manufacture. Thereafter, the resulting herbicides are exported to the United States and imported by protestant. In some cases, referred to by protestant as tolling operations, protestant retained title to the exported active ingredients at all times, and there was no sale of the finished herbicides to protestant by its related overseas facilities. In other cases, protestant or a related company in Puerto Rico actually sold the active ingredient to its related overseas facilities in France or Australia at arms-length transfer prices, and then the finished products were resold to protestant based upon those transfer prices plus the costs of manufacture.

According to protestant, it sought Customs advice regarding the appraisement of the herbicides procured through tolling operations. Thereafter, in a telephone conversation, protestant was informed that the Import Specialist believed that computed value was an appropriate method of appraisement. However, the -2-

Import Specialist wanted to seek confirmation of this conclusion from New York Customs officials. Protestant alleges that it was also informed that liquidation would be withheld pending receipt of New York's advice. However, some of protestant's entries were liquidated at the values proposed by protestant in the pending appraisement inquiry.

Subsequently, through an internal review of import transactions, protestant's personnel discovered that some of the herbicides which protestant had believed were imported pursuant to tolling operation transactions, were in fact procured in sales (non-tolling) transactions between protestant and its related facilities in France. Protestant contends that had its personnel responsible for liaison with Customs been aware of these facts and been in a position to present these facts to Customs at the time the merchandise was entered, then the value declared upon entry would have reflected the sales price paid to protestant.

Protestant contends that the liquidation of the entries at the understated value provided is adverse to protestant due to recently enacted Internal Revenue Service (IRS) regulations relating to the limitation on a U.S. taxpayer's basis or inventory cost in property imported from a related person. Therefore, a mistake resulting in the undervaluation of imported merchandise and a consequent increase in income tax liability is "adverse" to the importer as provided for in the statute.

ISSUES:

1) Whether the subject liquidation was due to a mistake of fact not involving an interpretation of a law?

2) Whether an undervaluation on a Customs entry that results in a possible IRS violation is an error that is "adverse to the importer"?

LAW AND ANALYSIS:

Section 520(c)(1) of the Tariff Act of 1930, as amended (19 U.S.C. 1520(c)(1)), provides that Customs may correct certain errors, if adverse to the importer, within one year from the date of liquidation. An entry may be reliquidated in order to correct a clerical error, mistake of fact, or inadvertence not amounting to an error in the construction of a law. See 19 U.S.C. 1520 (c)(1); 19 CFR 173.4. Section 520(c) is not an alternative to the normal liquidation-protest method of obtaining review, but rather affords limited relief where an unnoticed or unintentional error has been committed. See Computime, Inc. v. United States, 9 Ct. Int'l Trade 553, 622 F. Supp. 1083 (1985); see also Universal Cooperatives, Inc. v. United States, 23 Cust. B. & Dec. No. 29, p. 38, Slip Op. No. 89-89 (CIT June 27, 1989). -3-

Section T.D. 54848 describes and distinguishes correctable errors under 1520(c). Mistake of fact occurs when a person believes the facts to be other than what they really are and takes action based on that erroneous belief. The reason for the belief may be that a fact exists but is unknown to the person or she may believe that something is a fact when in reality it is not. Inadvertence connotes inattention, oversight, negligence, or lack of care while clerical error occurs when a person intends to do one thing but does something else, including mistakes in arithmetic and the failure to associate all the papers in a record under consideration. These errors are not necessarily mutually exclusive. However, errors in the construction of a law are not correctable under 1520(c). Those 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. 94 Treas. Dec. 244, 245-246 (1959).

Protestant contends that the entries were mistakenly liquidated because there was an understanding that Customs would withhold liquidations pending resolution of questions regarding the appraisement of the merchandise. However, even if we were to accept this contention, this is not a mistake of fact or clerical error within the meaning of 19 U.S.C. 1520(c)(1). It is well- settled law that the importer of record has the obligation to check the bulletin notice of liquidations posted in the customhouse at the port of entry to determine the date of liquidation and to preserve the right to protest. Tropicana Products, Inc. v. United States, 23 Cust. B. & Dec. No. 24, p. 16, Slip Op. No. 89-64 (CIT May 12, 1989). The error in this instance was the failure to check the bulletin notice and file a 19 U.S.C. 1514 protest.

Section 1514, title 19, United States Code states that, except for certain specific situations which are listed (voluntary reliquidations under section 1501; petitions by domestic interested parties as defined in section 1677(9)(C), (D), and (E); refunds of errors as defined in section 1520; and fraud as covered by section 1521), decisions of a Customs officer in liquidating entries shall be final and conclusive on all persons, "including the United States...." It is also obvious when reading the pertinent statutes that Congress resolved to make the liquidation of an entry final and binding on all parties at a definite point in time. Title 19, United States Code, section 1501, provides that any entry may be reliquidated within 90 days of the date of liquidation, either voluntarily by the Customs Service or as the result of an action or protest by the importer. Reliquidations performed during this 90-day period may result in a different assessment of duty for the importer.

Regarding protestant's claim that Customs failure to reliquidate would be adverse to the importer, the plain wording of 19 U.S.C. 1520(c)(1) demonstrates an underlying legislative intent that a protest be denied if it would not result in a remission or refund of duties to the protestant. This has been the consistently held and well-settled view of the courts in this matter. See George S. Fletcher v. United States, 25 C.C.P.A. 195, 201 (1937); The Dow Chemical Company v. United States, 64 Cust. Ct. 471, 476-477 (1970); Dollar Trading Corp. v. United States, 67 Cust. Ct. 308, 315 (1971). This would be the case even if the Customs Service concedes that the importer is correct. See W. A. Force & Co., Ltd. v. United States, 24 Cust. Ct. 140, 145 (1950)(higher rate claimed by importer than that assessed); Donald Peters v. United States, 41 Cust. Ct. 195, 199- 200 (1958)(another tariff item claimed with same rate as that assessed); accord Carson M. Simon & Co. v. United States, 55 Cust. Ct. 103, 108 (1965). Therefore, a protest wherein an importer seeks reliquidation at a higher duty, should be denied because there is no injury or damage the importer can complain of having suffered.

The same legislative intent to provide for reliquidation for a refund or remission is reflected in other statutory protest provisions. For example, under 19 U.S.C. 1515(a), in pertinent part, Customs shall review a protest filed under 19 U.S.C. 1514 and "shall allow or deny such protest in whole or in part" and "any duties ...found to have been assessed or collected in excess shall be remitted or refunded...." The only authority under which a rate of duty might in effect be protested as being too low is contained in 19 U.S.C. 1516 (domestic interested party petition).

Protestant alleges that its tax liability is "adverse", just as a mistake of fact or clerical error resulting in overvaluation of imported merchandise and a consequent overpayment of Customs duties would be adverse to the importer. However, we must point out a very important distinction. An overvaluation which results in the overpayment of Customs duties is an adverse effect which is squarely within the Customs realm. In protestant's case, the tax liability which is "adverse" to protestant results from tax laws. There is nothing in the language of 19 U.S.C. 1520(c)(1) to indicate a Congressional intent to extend its applicability beyond liability for Customs duties.

HOLDING:

1) Liquidation of the subject entries was not as a result of a mistake of fact. The liquidations were based on a construction of the law by a Customs officer.

2) Customs is precluded from reliquidating an entry at a higher duty. The wording of 19 U.S.C. 1520(c)(1) indicates that a protest must be denied if it would not result in a remission or refund of duties to the protestant. However, protestant may voluntarily deposit the additional duties owed pursuant to 19 CFR 141.104.

A copy of this decision should be attached to the CF 19 Notice of Action to satisfy the notice requirement of section 174.30(a), Customs Regulations.

Sincerely,

John A. Durant, Director

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