CIT Rules BP Oil Drawback Case to Go to Trial on Interchangeability, Prior Use

The Court of International Trade has ruled to move to trial a case involving BP Oil Supply Company's challenge against a U.S. Customs and Border Protection denial of BP protests claiming substitution drawback on unused merchandise. The CIT ruled that a jury could return a verdict on dispute over facts surrounding the commercial interchangeability and prior use of the merchandise for which BP sought drawback.

Customs Denied BP Protests for Failing to Show Goods Were Interchangeable

The substitute merchandise was Alaska North Slope (ANS) class III¹ crude petroleum and the imported merchandise consisted of various foreign class III crudes. Customs denied BP's protests seeking substitution drawback after finding that BP failed to establish that the imported crudes were commercially interchangeable with ANS.

(Pursuant to 19 USC 1313(j)(2), claims for substitution drawback require that (i) the substitute merchandise (for export) is commercially interchangeable with the imported merchandise; (ii) is either exported or destroyed under supervision; and (iii) before such exportation or destruction, was not used within the U.S. and was in the possession of the party claiming drawback.)

CIT Rules Case Should Go to Trial on Commercial Interchangeability & Prior Use

The CIT found that trial is required as there is genuine dispute over the facts surrounding the commercial interchangeability of the merchandise for which BP claimed drawback. Additionally, as neither party provided sufficient evidence to clear the dispute over material facts, the CIT stated trial would also test the admissible evidence on whether the exported ANS was used in the U.S. and in BP's possession prior to export.

Also Ruled on Protest Specificity, Claims for MPF, Environmental Tax Drawback

Specificity of BP protests were sufficient for jurisdiction. Customs argued that the CIT lacked subject matter jurisdiction over the drawback claims because BP's protests didn't "specifically reference" the crude imports and cannot now be amended. The CIT held that the assumption that drawback protests must describe the import merchandise with exacting terminology or trade names is a stricter standard of specificity than is required for jurisdictional purposes. Even though not identified on the import entry summaries, the CIT stated crudes' types or names typically appear by way of the commercial laboratory or gauger reports that are part of the drawback entries, which is sufficient for jurisdictional purposes.

Too early to determine proof for environmental tax claims. While Customs argued BP failed to provide the proof required to support its drawback claims for environmental taxes, the CIT stated that it was premature to determine the proof necessary for BP to satisfy its burden of proof as its environmental tax claims are derivative and depend on the customs duty drawback claims.

MPF may be obviated by trial. BP also sought drawback for merchandise processing fees (MPFs). Customs' had argued that BP's drawback claims in their entirety (for customs duties, taxes, and fees) must be dismissed because BP first raised its claims for MPF drawback in its protests, thereby showing that complete claims for drawback were never filed within the three-year statute of limitations. The CIT found Custom's position on these drawback claims involving both undisputed aspects (e.g. customs duties paid) and arguable points of law or fact (with respect to other drawback elements, e.g. fees or taxes) "patently absurd" and rejected them. Like the environmental tax, the CIT stated the MPF drawback claims are derivative and may be obviated by trial.

¹According to the American Petroleum Institute (API) standards.

(Slip Op. 11-116, dated 09/16/11)