HQ 559717 - Application for further review of protest no. 4103-94-100403; Extension of time for liquidation; deemed liquidation; assessment of marking duties - United States International Trade Commision Rulings

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HQ 559717

December 22, 1997

MAR-2 RR:CR:SM 559717 RSD/CB

CATEGORY: MARKING ENTRY

Port Director of Customs
6747 Engle Road
Middleburg Heights, Ohio 44130

RE: Application for further review of protest no. 4103-94-100403; Extension of time for liquidation; deemed liquidation; assessment of marking duties

Dear Director:

This is in response to your request for our review of the above-referenced protest with respect to the claim filed by counsel on behalf of Daniel Caron, Ltd. that the protested entries liquidated by operation of law prior to their liquidation in March of 1994, and that the assessment of marking duties was improper. We regret the delay in responding.

FACTS:

The protestant is the importer of the subject merchandise. The protestant filed twenty-two entries from February 1990, through January 1991. At the time of entry, the merchandise was entered as products of Portugal, Zimbabwe, and Mozambique. The file indicates that, prior to entry of the subject merchandise, the Office of Textiles and Metals, had issued a Textiles Alert regarding the transhipment of textiles through Zimbabwe. Your office was concerned that the country of origin indicated on the entry documents may have been false and there may have been quota and visa violations. You therefore referred the matter to the Office of Investigations (OI) and extended liquidation on three occasions because of the ongoing investigation.

The investigation proved that, in fact, the merchandise entered as products of Portugal, Zimbabwe and Mozambique were actually produced in China. Thus, the merchandise was not properly marked. The investigation was still open as of the time of the filing of this protest. The entries were finally liquidated from March 11 through April 8 of 1994, with the assessment of a 10% ad valorem marking duty. The liquidations were timely protested on June 7, 1997.

Protestant asserts that Customs may not extend liquidation to obtain country of origin information because such information is not "needed for the proper appraisement and classification of merchandise." The protestant claims that appraisement relates "simply to the valuation of the imported merchandise in accordance with the value statute, regulations and rulings" (citing 19 CFR 152.101, et seq.), and "classification" relates "to the assignment of the proper tariff heading to the merchandise in accordance with the Harmonized Tariff Schedule" (citing 19 CFR 152.11). The Protestant then asserts that 19 U.S.C. ?1504(b)(1) only permits Customs to extend liquidation to obtain information to assist in determining the value or the classification of the imported merchandise and origin information is not relevant to either.

Additionally, protestant also contends that the notices of extension were defective because they did not set forth the reasons for such extension (citing 19 U.S.C. ?1504(b); 19 CFR 159.12). The notices stated that: "The liquidation of this entry has been extended: Additional time is required by Customs to process this transaction. No action is required on your part unless information is specifically requested by Customs." Protestant cites the Court of International Trade's decision in Detroit Zoological Society v. United States, 630 F. Supp. 1350, 10 CIT 133 (1986) in support of its contention.

Protestant also asserts that Customs should be barred from assessing marking duties on the entries because there was a four year delay in issuing a marking notice advising the importer that the merchandise was not properly marked. Finally, the protestant also contends that with respect to one entry, it is not the importer of record and this claim should be dismissed.

According to the CF 6445-A contained in the file, it is your position that the extensions of liquidation were acceptable because of the ongoing investigation into the origin of the entered merchandise.

ISSUES:

1. Was the liquidation of the subject entries properly extended.

2. Was the assessment of marking duties proper in this case where the importer was not informed that the goods were not legally marked until four years after the release of the merchandise while an investigation was being conducted.

LAW AND ANALYSIS:

Initially, we note that the protest was timely filed (i.e., within 90 days of the date of liquidation of the earliest liquidation) and the matter is protestable under 19 U.S.C.

I. Extension of the Liquidation of Subject Entries

Under 19 U.S.C. ?1504, an entry of merchandise not liquidated within 1 year from the date of entry of such merchandise shall be deemed liquidated at the rate of duty, value, quantity, and amount of duties asserted at the time of entry by the importer of record, unless this one-year
period for liquidation is extended. The statute sets forth the reasons for which liquidation may be extended. Authority is provided for regulations prescribing the procedures for such extensions of liquidation.

The Customs Regulations issued under this statute are found in 19 CFR 159.12. Under ?159.12(a)(1)(i), the port director may extend the 1-year statutory period for liquidation for an additional period not to exceed 1 year if information needed by Customs for the proper appraisement or classification of the merchandise is not available. Under ?159.12(b), if the port director extends the time for liquidation as provided above, he is required to promptly notify the importer or the consignee and his agent and surety that time has been extended and the reasons for doing so. Under ?159.12(d), if the port director extends the time for liquidation under 159.12(a)(1)(I), the period of time may be extended for an additional year, if the port director determines that more time is needed. Section 159.12(e) provides that the total time for which extensions may be granted by the port director, may not exceed 3 years.

In this case, the evidence in the file is sufficient to create the presumption that proper notices of extension were given (see e.g., International Cargo & Surety Insurance Co. (Data Memory Corp.) v. United States, 779 F.Supp. 174 (C.I.T. 1991)). In such a case, when the protestant fails to rebut that presumption, "the only issue to be decided is whether the extension was permissible under the statute," (15 CIT at 545).

Protestant contends that the subject entries deemed liquidated because Customs lacked statutory authority to extend liquidation. Protestant further contends that liquidation can be extended only if additional information needed for the proper appraisement or classification of the merchandise is not available to the Customs officer. Such a reading of the applicable statutory provision is contrary to published Court decisions. Contrary to protestant's narrow interpretation of the applicable statute, the few cases which address the applicability of section 1504 have interpreted it broadly. The court in International Cargo, quoting from Ambassador Div. of Florsheim Shoe v. United States, 748 F.2d 1560 (Fed. Cir. 1984), stated:

If the Customs officers need more information for the proper appraisement or classification of merchandise, they may suspend. Information as to subsidies is not either appraisement or classification, exactly, but if information is equally necessary, it is an anomaly if the right to suspend to obtain it is denied... The implication of this language is that 1504 (b)(1) should be construed sufficiently broadly for Customs to perform its obligations in a competent manner. Thus, liquidation may be extended when the delay is motivated by the legitimate need for additional information from within the government.

International Cargo, 779 F.Supp. at 179.

This reasoning was adopted by the Court of Appeals for the Federal Circuit in St. Paul Fire & Marine Ins. Co. [Carreon] v. United States, 6 F.3d 763 (Fed. Cir. 1993)(reversing the CIT decision (16 CIT 663, 779 F.Supp. 120 (1992)), wherein the court concluded:

...Customs may, for statutory purposes and with the requisite notice, employ up to four years to effect liquidation so long as the extensions it grants are not abusive of its discretionary authority. Such an abuse of discretionary authority may arise only when an extension is granted even following elimination of all possible grounds for such an extension. There is, in sum, a narrow limitation o Customs discretion to extend the period of liquidation. (6 F.3d at 768)

The court went on to state that "Customs decisions to extend are entitled to a presumption of legality unless [the plaintiff] can prove that these decisions were unreasonable." (6 F.3d at 768) Thus, the courts are in agreement that Customs has the discretion to extend liquidation pending receipt of additional information which is necessary for liquidation of the entry. The only limit imposed by the courts is that a legitimate need for extension must exist.

As stated by the CAFC in St. Paul Fire, supra, Customs decision to extend liquidation is entitled to a presumption of legality unless the importer can prove that such decision was unreasonable. The protestant has not met its burden in this regard. There is no evidence in the file, submitted by the protestant or otherwise, proving that Customs decision was unreasonable and that all possible grounds for extension of liquidation had been eliminated. That is, there was an ongoing investigation as to the origin of the subject merchandise which ultimately concluded that the true country of origin was China. The CF 6445A indicates that Customs extended the period for liquidation of the subject merchandise in order to allow OI to conclude its investigation. The protestant has provided no evidence to establish the elimination of all grounds for extension, nor has the protestant proved that the decision was unreasonable. We do not find the fact that liquidation was extended in order to allow an investigation into the country of origin to be dispositive on this issue. As a matter of fact, in HQ 954219, dated April 25, 1994, it was determined that an extension of liquidation was proper based on an investigation into the possible importation of counterfeit shoes even though such an investigation focused on the admissibility of the merchandise and not the appraisement or classification of the same.

Regarding protestant's contention that the notices were defective because they failed to state a valid statutory basis for extension, this argument fails in view of the CAFC's decision in Intercargo Insurance Company f/k/a International Cargo & Surety Co., (Surety for M. Genauer) v. United States, 83 F.3d 391 (Fed. Cir. 1996), cert. denied, 117 S. Ct. 943 (1997)(reversing the CIT decision (879 F.Supp. 1338)). In that case the liquidation extension notices in question read verbatim as the notices at issue herein. The plaintiff claimed that the liquidation extensions were invalid, and the entries therefore deemed liquidated by operation of law, because the extension notices did not recite one of the statutory reasons for obtaining additional time for liquidations as set forth in 19 U.S.C. ?1504. The CAFC determined that fact alone did not render the extended liquidations invalid so long as Customs error in this regard had no prejudicial impact on the plaintiff. In determining that no such prejudicial impact existed in that case, the court stated that the purpose of the notice ("to increase certainty in the customs process by apprising the importer and its surety of the precise period within which final action would be taken on the liquidation") was met. Moreover, the court stated that if the plaintiff believed that Customs did not have a valid statutory reason for the extension, the plaintiff could seek to have them judicially invalidated on that ground.

Using the analysis of the CAFC in Intercargo, supra, we reach the same conclusion with respect to the protest under consideration. Since the importer was advised of the subject extensions, and it was not deprived of the opportunity to challenge the extensions in court on the ground that extensions were not obtained for a statutorily valid reason, the importer did not suffer any prejudicial impact justifying an invalidation of the liquidation extensions in question.

Finally, protestant seems to be alleging that valid notices of extension covering each of the entries were not received. Protestant states that it has filed a Freedom of Information Act request to determine if timely notices were issued. Protestant does not indicate whether or not it received any of the extension notices. In regard to this possible contention, see HQ 224792 dated October 28, 1994 and HQ 224397 dated March 8, 1994, and the Court decisions discussed therein. In this protest, Customs has evidence that notices of extension were properly issued to the protestant (i.e., the ACS record for each entry (see International Cargo & Surety Insurance Co. [Data Memory Corp.] v. United States, 779 F.Supp. 174 (CIT 1991)). Under this case and the court decisions cited and analyzed in HQ 224792 and 224397, the Customs evidence in this case establishes a presumption that proper notice was given. Protestant has not presented any evidence to rebut this presumption.

Regarding protestant's claim that it is not the importer of record on entry number 110-XXXX084-4, the protest should be GRANTED. A check of the ACS records for this entry discloses that the importer of record is an entity other than the protestant.

II Marking Duties

Protestant's second claim is that Customs should be precluded from imposing marking duties on the entries because Customs did not issue a timely notice advising the importer that the imported merchandise was improperly marked. Protestant contends that the Customs regulations require that Customs issue marking notices. It points out that under 19 CFR 141.113(a), if merchandise is found after release not to be legally marked, the port director may demand its return to Customs custody for the purpose of requiring it to be properly marked or labeled. The regulation states that the demand for redelivery for marking or labeling shall be made not later than 30 days after either the date of entry or the date of examination in the case of merchandise examined at the importer's premises or such other appropriate places as determined by the port director. See also19 CFR 134.3

Protestant maintains that Customs should have followed its own procedures, and issued timely redelivery/marking notices, which allegedly was not done in this case. Protestant asserts that because Customs did not issue a marking notice and there was a four year delay after entry and release of the merchandise before Customs informed the importer about the marking problems, the importer could not examine the merchandise to assess the correctness of Customs' claims and could not take advantage of its statutory right to return the merchandise to Customs custody, to export it or to destroy it. Therefore, Protestant maintains that Customs should be barred from assessing marking duties because the undue delay in providing notice regarding the improper marking on the merchandise prejudiced the importer.

We disagree with Protestant's contentions. According to 19 U.S.C. 1304(h), 10 percent marking duties shall be levied, collected and paid if an imported article is not properly marked with the country of origin at the time of importation and such article is not exported, destroyed or properly marked under Customs supervision prior to liquidation. Under this provision, such duties shall not be remitted wholly or in part nor shall payment thereof be avoidable for any cause. (Emphasis added).

In HQ 731775 (November 3, 1988), Customs ruled that two prerequisites must be present in order for it to be proper to assess marking duties under 19 U.S.C. 1304(h). These two prerequisites are:

1. the merchandise was not legally marked at the time of importation, and
2. the merchandise was not subsequently exported, destroyed or marked under Customs supervision prior to liquidation.

In this case, both prerequisites for assessing marking duties cited above are present. Based on a report of investigation, the record indicates that the subject merchandise was not legally marked at the time of importation. At the time of importation, the merchandise was marked as products of Portugal, Zimbabwe and Mozambique. However, an investigation established that this marking was false and in fact, the merchandise was actually produced in China. The investigation was conducted through a series of personal interviews and on-site inspections. It showed that through an elaborate scheme using counterfeit documents and phony corporations, Chinese origin garments were transshipped and entered into the U.S. with a false country of origin designation. Thus, at the time of importation the merchandise was not legally marked, which the protestant has not contested.

Although Protestant claims that the assessment of marking duties is inappropriate because the importer was not informed that the goods were not legally marked until the entry was liquidated, which was four years after the merchandise was released from Customs Custody, as indicated above, 19 U.S.C. 1304(h) specifies that marking duties shall not be remitted wholly or in part nor shall payment thereof be avoidable for any cause. The fact that a redelivery/marking notice was not issued pursuant to a regulatory prerequisite for the assessment of a claim for liquidated damages (i.e. 19 CFR 141.113 (h)), does not void the original statutory basis for the assessment of marking duties. See A.N. Deringer, Inc. v. United States, C.D. 2408, 51 Cust. Ct. 21 (1963). (See also HRL 734103 dated April 13, 1992, where we held that the contents of a marking notice would not bar the assessment of marking duties.) Consequently, we find that the delay in advising the importer that the merchandise was not legally marked until after the investigation was completed does not prevent the assessment of marking duties. If the goods were not legally marked at the time of importation and were not exported, destroyed or marked under Customs supervision, then marking duties are to be assessed. Protestant has not challenged your office's determination that the merchandise was not legally marked at the time of importation. Therefore, because the Protestant has not shown that the merchandise was legally marked at the time of importation, or that the merchandise was exported, destroyed or marked under Customs supervision prior to liquidation, the assessment of marking duties was correct in this case.

HOLDING:

Protestant has not met its burden of proving that Customs extension of liquidation was unreasonable, that all possible grounds for extension of liquidation may be eliminated, nor did protestant suffer prejudicial impact resulting from the liquidation extension notices. The assessment of marking duties under 19 U.S.C. 1304(h) was proper in this case due to the fact that the merchandise was not legally marked at the time of importation nor was it subsequently marked exported or destroyed under Customs supervision prior to liquidation. The fact that the CF 4647 (Notice of Redelivery and Marking) was not issued within 30 days of the date of the subject entries does not preclude the assessment of marking duties. Thus, this protest should be DENIED, except with respect to entry number 110-XXXX084-8, for which the protest should be granted.

Sincerely,

John Durant, Director
Commercial Rulings Division

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