HQ 229545 - Protest number 1001-01-103347; Korg, USA, Inc.; interest on duty refunded; refund of duty; duplicate entry; 19 USC § 1505. - United States International Trade Commision Rulings

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HQ 229545

August 1, 2002

LIQ-9-01; PRO-2-02; PRO-2-01 RR:CR:DR
229545 RDC

CATEGORY: PROTEST

U.S. Customs Service
Port Director,
Port of Newark, New York
C/O Residual Liquidation and Protest Branch 1210 Corbin St.
Elizabeth, NJ 07201
Att: Susan M. Masser

RE: Protest number 1001-01-103347; Korg, USA, Inc.; interest on duty refunded; refund of duty; duplicate entry; 19 USC § 1505.

Dear Sir or Madam:

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:

The importer of record and Protestant, Korg, USA, Inc., (“Korg”) filed the instant Protest number 1001-01-103347 on August 7, 2001. Korg is seeking the payment of interest on duty refunded to it. This duty was refunded to Korg as the result of the approval of a previous Protest, number 1001-01-100625. That Protest requested a refund of duty paid on entry number 110-xxxx673-7 because this entry was a duplicate of entry number 110-xxxx895-6.

According to Customs Electronic Data Collection system (ACS), entry number 110-xxxx673-7 was entered on February 17, 2000. It was liquidated three times. On July 13, 2001, this entry was liquidated the third and final time and a refund of $45,452.78 ($43,406.83 in duty; $485 merchandise processing fee and $1560.95 in Harbor Maintenance fee) was issued. The Supervisory Customs Liquidator states that “since entry [number 110-xxxx673-7 was] already liquidated and there is no mechanism in ACS to refund and cancel a liquidated entry, the entry was refunded through ALQR with no interest.” ALQR is the reliquidation function in Customs’ electronic system, ACS. The Protestant states that it is entitled to interest on this refund. Entry number 110-xxxx895-6 was entered on February 19, 2000. It was liquidated twice; the final liquidation was on August 11, 2000.

ISSUE: Is the Protestant entitled to interest per 19 USC § 1505 on the duty refunded to it?

LAW AND ANALYSIS:

Initially we note that this protest was timely filed pursuant to 19 USC § 1514(c)(3), i.e. within 90 days of the decision protested. The entry was liquidated on July 13, 2001, and the protest was filed on August 7, 2001. However, this Application for Further Review does not meet the requirements of 19 CFR §174.24 and is therefore not entitled to review by this office and therefore, we will treat this application as a request for internal advice per 19 CFR § 177.11.

19 USC § 1505, as revised by the Customs Modernization Act in 1993, provides for interest to be paid on excess duty deposited which is refunded (see T.D. 99-75, October 27, 1999, Customs Bulletin and Decisions Vol. 33, No. 43, 64 FR 56433). Section 1505(b) provides in pertinent part,

The Customs Service shall . . . refund any excess moneys deposited, together with interest thereon, as determined on a liquidation or reliquidation. . . . . Refunds of excess moneys deposited, together with interest thereon, shall be paid within 30 days of liquidation or reliquidation.

(Emphasis added.) Section 1505(c) as amended provides in relevant part, for the calculation of interest,

Interest on excess moneys deposited shall accrue, at a rate determined by the Secretary, from the date the importer of record deposits estimated duties, fees, and interest . . . to the date of liquidation or reliquidation of the applicable entry or reconciliation. .

(Emphasis added.) Thus, § 1505(b) provides for interest to be paid on “excess moneys deposited as determined on a liquidation or reliquidation.” Therefore, interest is only payable to the Protestant if the refund of duty it received qualifies as first, "excess moneys deposited,” and second “as determined on a liquidation or reliquidation" under section 1505(b), and if so qualifying, interest on the refunded duty accrues, as specified by 1505(c), from the date of deposit.

The Federal Circuit Court of Appeals recently stated the following regarding the definition of “excess moneys deposited,”

Section 1505 provides no express definition of "excess moneys deposited." The Oxford English Dictionary defines "excess" as "beyond the usual or specified amount; beyond what is necessary, proper or right." Oxford English Dictionary (2d ed. 1989). This definition is consistent with 19 U.S.C. § 1520(a)(1) (2000), which authorizes refunds on "excess deposits" "whenever it is ascertained on liquidation or reliquidation of an entry or reconciliation that more money has been deposited or paid as duties than was required by law to be so deposited or paid."

Hartog Foods Int’l Inc. v. United States, 2002 U.S. App. LEXIS 9517 (Fed. Cir. May 17, 2002), affirming Hartog Foods Int'l, Inc. v. United States, 138 F. Supp. 2d 1309, (Ct. Int'l Trade 2000)). The CAFC in Hartog held that since drawback paid to the claimant five years after the claim was not “excess moneys deposited” interest was not payable. In Hartog Foods the Court of Appeals quoted its decision in Travenol Labs Inc. v. United States, 118 F.3d 749, 753 (Fed. Cir. 1997):
this court stated that "section 1505(c) [ ] relates to interest - specifically, interest owed for either an underpayment or overpayment of estimated duties." [118 F.3d at 753.] Hence, the ordinary meaning of "excess," the definition of "excess deposits" in a related statutory provision, and this court's case law lead to the same conclusion -- "excess moneys deposited" refers to an overpayment of estimated duties, i.e., the deposit or payment of money beyond legal requirements.

Hence, it must be determined if Korg’s refunded duty was “an overpayment of estimated duties, i.e., the deposit or payment of money beyond legal requirements.” It seems that the duty paid by the Protestant on the second, duplicate entry may be deemed a “payment of money beyond legal requirements.” The duty required to be paid on the goods that were entered with this duplicate entry was, in fact, paid with entry 895-6. Hence, the duty paid with the duplicate entry was in essence, excess moneys deposited.

To illustrate when the payment of interest is required by § 1505(b) the Court in Hartog Foods (supra) used the example of a classification error, where an importer enters goods under the incorrect tariff subheading and deposits duty based on that rate. At liquidation it is determined that the correct classification is at a lower rate of duty, thus necessitating a refund to the importer. This refund is categorized by the Court as “the excess” because it represents “the difference between the initial deposit and the required amount (i.e., the excess)” and interest is due on this refund. The duty deposited by Korg on the duplicated entry is also excess because it represents the difference between the duty deposited (on both entries) and the required amount (duty deposited on the correct entry).

With regard to the meaning of “as determined on a liquidation or reliquidation" under section 1505(b), we find the Court of International Trade’s decision in Dal-Tile Corp. v. United States particularly instructive. In that case, upon liquidation the Plaintiff protested the classification of hundreds of entries of tiles from Mexico. Pursuant to a contract of settlement between Dal-Tile and the Customs Service, some of the protests were granted and $8 million in duty refunded. The remaining protests were denied.

In order to refund the duty due Dal-Tile under the contract of settlement, Customs reliquidated "nine representative entries" from the many entries for which the protests were granted. Customs modified its electronic records for these entries so that the correct refund amount would be generated upon reliquidation because the amount of duty deposited for the representative entries did not correspond to the refund amount. When these entries were reliquidated the proper refund amount was sent to Dal-Tile, but no interest was paid to it on the amount. Dal-Tile filed a protest and the subsequent action in the CIT to compel Customs to pay interest on the duty refunded.

In its defense Customs argued that it was obligated to pay interest under § 1505(b) only on the amount of refunded estimated regular customs duty deposited on the nine entries that were reliquidated - § 1505(b) did not provide for payment of interest on refunds where an entry was not liquidated or reliquidated or where no duties were deposited on an entry. Customs also argued that absent express congressional consent – not present in § 1505 under the Dal-Tile facts - the United States is immune from paying interest.

Court of International Trade held that,

The Court finds the language of section 1505(b) plain and unambiguous. It is clear in order for Customs to be liable for interest, a refund must be "determined on a liquidation or reliquidation." Indeed, under the statute it is a liquidation or reliquidation which triggers interest liability. The Court notes this understanding of section 1505(b) is supported by the United States Court of Appeals for the Federal Circuit. See Travenol, 118 F.3d at 753 n.5 (stating the "event that gives rise to interest liability is liquidation or reliquidation"); Novacor Chem. Inc. v. United States, 171 F.3d 1376, 1382 (Fed. Cir. 1999) (reliquidation "is the triggering event in a dispute surrounding an award of interest").

(Dal-Tile Corp. v. United States, 116 F. Supp. 2d 1309, 1314 (Ct. Intl. Trade 2000.) The CIT further held,

Based on the plain meaning of the statute, the Court finds Customs liable to plaintiff for interest under 19 U.S.C. § 1505. On reliquidation of the nine modified "representative" entries, Customs determined n12 to refund eight million dollars to Dal-Tile. Therefore, Customs is liable for interest under the statute.

(Id. at 1315.) Footnote 12 states,

The Court notes the fact Customs was bound to the eight million dollar figure by entering into the contract of settlement is not relevant as to whether the determination to refund excess moneys deposited was made on reliquidation. The contract of settlement obligated Customs to grant Dal-Tile's protests to the extent of refunding it eight million dollars, and Customs chose to effectuate the grant by reliquidation. Because all decisions and findings by Customs are merged in and become part of the liquidation or reliquidation against which a protest will lie, see United States v. Utex Int'l, Inc., 857 F.2d 1408, 1410 (Fed. Cir. 1988) (citations omitted); Commonwealth Oil Refining Co., Inc. v. United States, 67 Cust. Ct. 155, 332 F. Supp. 203, 209 (Cust. Ct. 1971); Dow Chemical Co. v. United States, 10 C.I.T. 550, 557, 647 F. Supp. 1574, 1581 (1986) (quoting United States v. B. Holman, Inc., 29 C.C.P.A. 3, 14 (1941)), Customs's decision to grant Dal-Tile's protest and refund it eight million dollars became part of its determinations on reliquidation regarding the amount of excess moneys deposited. Cf. Travenol, 118 F.3d at 753 (reliquidation is when Customs "determines whether there has been an overpayment or underpayment" of duties deposited).

(Id. at 1315.) The facts and the CIT’s decision in Dal-Tile necessitates the same result in the instant protest.

In the plain meaning of § 1505 the Protestant’s duty deposited on the duplicate entry is “excess money deposited.” Further, Customs’ decision to grant Korg’s protest and refund it the duty paid on the duplicate entry became part of Customs determinations on reliquidation regarding the amount of excess moneys deposited. Hence, since the requirements of 19 USC § 1505(b) have been fulfilled, Customs is liable for interest on the refund of duty to the Protestant.

HOLDING: Therefore, it is the position of this office that the subject Protest should be granted in full. A copy of this letter is to be included with the CF 19.

You are to mail this decision to the internal advice applicant no later than 60 days from the date of this letter. On that date, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.treas.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Myles Harmon, Acting Director

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