CIT Rules Against CBP Valuing Fraudulent Goods at 2X Entered Value

The Court of International Trade has denied the amount of CBP’s 1592 penalty against a corporation for fraudulently introducing entries of primrose oil capsules into the U.S., which, at the time of import, could not be lawfully imported. CBP stated the $17.7 million penalty amount was set at double the entered value of the merchandise; however, the court concluded that CBP did not follow its regulations in arriving at this figure, and ordered CBP to arrange for a new appraisal.

CBP Sought $17.7M Penalty for Imported Primrose Oil Not Deemed Safe by FDA

U.S. Customs and Border Protection applied for a 19 USC 1592 judgment by default against Callanish Ltd., a British corporation, upon a claim that Callanish, by means of fraud, introduced, or aided and abetted the entry or introduction of, certain merchandise into the commerce of the U.S. The imported merchandise consisted of 52 entries of "evening primrose oil" capsules, which are used as a dietary supplement but, at the time of importations in question, could not be imported lawfully because it was not recognized as safe for such use by the Food and Drug Administration.

In May 2010, CBP effected service of process upon Callanish, which entered in default after it failed to appear before the court and to plead or otherwise defend itself. CBP sought to recover a $17,734,926 civil penalty, which CBP alleged was the sum of the domestic value of the merchandise. However, the CIT denied CBP's complaint and its subsequent amendment as CBP lacked sufficient evidence on how it determined the domestic value of the entries. (See ITT's Online Archives 10111011 for summary of the CIT's 2010 denial of CBP's compliant.)

CIT Ruled CBP's Doubled Entered Value Appraisement Method Inconsistent with Regs

According to the court, domestic value is defined in 19 CFR 162.43(a) as the price at which the merchandise or similar merchandise was freely offered for sale in the ordinary course of trade. While this definition applies to the appraisal of seized property, the court states that Customs regulations apply this definition to property not under seizure by requiring the domestic value to be determined as of the date of the violation, which in this case is the date of entry.

However, the CIT stated that CBP did not specifically allege that such a procedure was followed. Instead, CBP stated it had calculated the domestic value of the merchandise by multiplying the entered value of the merchandise by two. The CIT found this method of appraisement was inconsistent with that required by 19 CFR 162.43. Thus, the CIT ruled CBP's appraisement was not conducted in accordance with law and that lawful judgment by default could not be entered.

Ordered CBP to Arrange for and Provide Report of a New Appraisal

The CIT ordered CBP to arrange for a new appraisal of the imported merchandise and file with the court a report of the new appraisal no later than 60 days from the date of the court's order. The CIT also ordered to hold CBP's application for a judgment by default in abeyance pending these further procedures. In absence of a timely filing of the report of a new appraisal, CBP will required, through a subsequent order, to show cause why this case should not be dismissed.

(Slip Op. 12-15, dated 02/01/12)