Appeals Court Affirms CIT Ruling on Classification of Tuna Packed 'In Oil'
The U. S. Court of Appeals for the Federal Circuit affirmed on Sept. 16 a lower court decision that found Del Monte’s tuna product, packed in small amounts of oil, should nonetheless be classified in the Harmonized Tariff Schedule as having been packed “in oil.” The Court of International Trade had in October said the amount of oil was irrelevant for classification purposes, because neither the HTS nor prior court rulings set a minimum threshold for what it means to be packed “in oil” (see 12101601). CAFC agreed, finding it unnecessary to look beyond the terms of the tariff schedule. The Appeals Court also upheld CIT’s ruling on valuation “formulas.”
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The case revolved around two types of packaged tuna product imported by Del Monte from Thailand. Tuna strips made up about 80 percent of the weight of each type of tuna product, with different sauces accounting for the remaining 20 percent. Del Monte said small amounts of oil were added to the sauce as a “dispersant.” One type of tuna product contained a total of 2.48 percent oil, while the other had only 0.62 percent oil. CBP classified the merchandise in subheading 1604.14.10 (“Tunas and skipjack: in airtight containers: in oil”), dutiable at 35 percent. Del Monte said it should instead be classified under HTS subheading 1604.14.22 (“Tunas…In airtight containers:…Not in oil”), dutiable at 6 percent, or “Tunas…In airtight containers: …Not in oil:…Other”), dutiable at 12.5 percent.
Just as CIT had done in October, CAFC agreed with CBP’s classification of the tuna as packed in oil. The Appeals Court pointed to Additional Note 1 to Chapter 16, which says “the term ‘in oil’ means packed in oil or fat, or in added oil or fat and other substances, whether such oil or fat was introduced at the time of packing or prior thereto.” The note includes mixtures of oil and other substances, and sets no minimum oil content, CAFC said. Faced with such clear instructions in the HTS, the Appeals Court said it saw no need to look beyond.
CAFC Says Valuation ‘Formulas’ Need to be Formalized
The other issue that Del Monte appealed was CBP’s valuation of the imported tuna. The price charged by Del Monte’s supplier in Thailand, Chotiwat Manufacturing, depended on the cost of packing and the amount of tuna recoverable for other uses. When Chotiwat found that its costs were higher than originally estimated, it charged Del Monte higher prices. Del Monte paid, and the invoice for the transaction reflected the higher amount. Del Monte and Chotiwat then entered into negotiations, and after 10 months Chotiwat refunded $1.5 million to Del Monte. But CBP declined to lower the transaction value accordingly, finding that the refund was a later rebate that shouldn’t be included in transaction value, and computed the duties owed based on the higher original price.
Del Monte said the payment was not a rebate, but that the price was instead determined by a “formula” as permitted by CBP regulations of transaction value. The formula was based on the cost of packing and the amount of tuna recoverable. The Appeals Court, however, said the transaction didn’t qualify. If a formula is used to determine transaction value, then it has to be clearly defined, CAFC said. Otherwise, the use of “formulas” would overwhelm the legal prohibition on post-importation payments to lower dutiable value. In Del Monte’s case there was no written contract or formal agreement with Chotiwat, and the informal process used to determine the price was not enough to overcome the legal mandate to disregard post-importation decreases to the price actually paid, said CAFC.
(Del Monte Corporation v. U.S., CAFC No. 2013-1105, dated 09/16/13, Judges Prost, O’Malley, and Taranto)
(Attorneys: Brett Harris of Pisani & Roll for plaintiff Del Monte; Alexander Vanderweide for defendant U.S. government)