Manufacturers Tell CIT Excise Tax Drawback Rules Lack Justification, Congressional Support

CBP's rule that ended the use of some drawback for goods subject to excise tax was unsupported by the economic analysis and the intent of Congress, the National Association of Manufacturers said in its legal challenge to the drawback changes. NAM, represented by Sidley Austin and Hogan Lovells, told the Court of International Trade that the rules should be vacated and "permanently enjoin the enforcement of the Rule to the extent that it purports to limit drawback granted on the export or destruction of substituted merchandise to the amount of taxes paid," it said. A legal challenge to the rules was widely anticipated (see 1812190011).

CBP's rule goes against the plain language of the statute, the trade group said. The statute specifically "requires drawback of federal excise taxes without regard to the tax status of the substitute goods; indeed, it expressly overrides any contrary restriction." The agency's position would also mean that CBP's past allowance of excise tax drawback on exported wine was actually illegal, it said. Also, if "every tax exempt exportation" may be considered a claim for drawback, substitution claims for customs duties or fees based on the same exported goods would also be prohibited, NAM said.

Even if the language weren't clear, "every relevant indicator of congressional intent -- including the language Congress used and the language it didn’t use, as well as the changes Congress made and those it didn’t make -- shows that Congress meant to permit substitution drawback for all manner of federal charges, including excise taxes," NAM said. Among other actions, "Congress deliberately expanded substitution drawback under TFTEA six years after CBP acknowledged that it had been paying excise-tax drawback on wine and petroleum for years and tried unsuccessfully to end the practice," the trade association said. The economic analysis was also flawed, the association said.

NAM also challenged CBP's application of the rule to claims filed before it became effective. The government's "attempt to apply the Rule to drawback claims filed under [the Trade Facilitation and Trade Enforcement Act] before the Rule’s February 19, 2019 effective date is improper," it said. "If those claims complied with the statutory requirements specified by Congress when they were filed, Defendants cannot now deny them based on a regulation that was not even proposed, much less in effect, until months later."

The NAM filing also includes declarations from executives at alcohol companies Sazerac, Pernod Ricard USA, and Diageo North America. The head of Charter Brokerage, Robert Waid, also filed a declaration that his company would see a major hit due to the rule. As a result of the limits to excise tax drawback, it's likely that the "costs for filing drawback will exceed the potential recovery, and Charter's beer, wine, and spirits drawback business -- 28% of Charter's drawback business in 2018 -- will be completely lost," the company said. CBP and the Treasury Department didn't comment.

Email ITTNews@warren-news.com for a copy of the complaint and declarations.