CIT Denies Constitutional Challenge of Duty Payment Requirement in Classification Cases
The Court of International Trade denied on Sept. 4 a constitutional challenge to the requirement that importers pay duties in full before challenging a customs protest. International Custom Products had argued that it faced payment of an insurmountable sum, but the court said the requirement is set in stone. The challenge revolved around a CBP notice of action that CIT had found in November to have improperly revoked an earlier ruling letter on the classification of ICP’s white sauce (see 12112123). That had resulted in a 2,400 percent increase in duty liability for ICP (see 12121239). But while ICP in November was successful in getting a refund on one of 99 entries affected by the notice of action, CIT on Sept. 4 dismissed ICPs challenge related to another 13 entries because the company hadn’t yet paid the required $28 million in additional duties.
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CIT’s November decision found that a notice of action reclassifying 99 entries of ICP’s white sauce improperly revoked an earlier ruling. The 1999 ruling had said the white sauce was classified as a sauce and dutiable at 6.6%. But the 2005 notice of action instead said 99 entries of white sauce made subsequent to the ruling were instead dairy products, which were subject to a duty of $1,996/kg, which represented a 2,400 percent increase in duty liability on the 99 ICP white sauce entries. CIT said the notice of action was in effect an “interpretive ruling or decision” that improperly revoked the earlier ruling letter without the notice and comment period required by 19 USC 1625(c). It granted a refund on the single entry subject to the November case.
But while ICP had paid the duties owed on that single entry, it didn’t pay the $28 million in duties owed on another group of 13 entries subject to the 2005 notice of action. Although the court had already ruled that the notice of action was illegal, CIT on Sept. 4 said it didn’t have jurisdiction to hear the case because payment of duties is required before an import files a challenge of a protest.
ICP argued that the case is a special circumstance. The requirement that the company pay $28 million in duties is tantamount to depriving it of its First Amendment right to petition through the courts, and its Fifth Amendment right to due process. So ICP the requirement that the duties be paid in full before filing a protest challenge “be struck down or dispensed with in this case.”
The court realized there were special circumstances behind ICP’s request for “unprecedented and startling relief.” CIT said it isn’t aware of any other case where the protest and reclassification resulted in such a large increase in duties owed by an importer. And in circumstances like these, the prepayment requirement could allow CBP to arbitrarily reclassify entries with no judicial review.
But at the same time, it wasn’t aware either of a single case from the previous two and a quarter centuries where the court waived the duty payment requirement. While tax cases can be filed before payment is made, they are different because Congress expressly created the U.S. Tax Court to allow lawsuits before payment. On the contrary, Congress has required payment of duties before court challenges since 1845. And the principle has been a feature of common law since at least 1774, CIT said. And the Supreme Court affirmed it in its 1875 ruling in Cheatham v. United States. Although in this case the requirement that the duties be paid before the challenge is filed may seem “both harsh and unfair,” CIT was “”not persuaded … that the harshness and unfairness of this result rises to the level of unconstitutionality.”
(International Customs Products v. U.S., Slip Op. 13-120, dated 09/04/13, Judge Carman)
(Attorneys: Gregory Teufel of Eckert Seamans for plaintiff International Custom Products, Inc.; Edward Kenny for defendant U.S. government)