Federal Circuit Affirms CIT Rejection of Excise Tax Drawback Regulations
CBP cannot limit the amount of drawback that can be claimed on excise taxes, the U.S. Court of Appeals for the Federal Circuit said in an Aug. 23 opinion upholding the Court of International Trade's ruling. Holding that the CBP regulation defied the "clear intent of Congress," the appellate court ruled against the government appeal of CIT's decision, providing a win for the plaintiffs, the National Association of Manufacturers and The Beer Institute.
"The NAM is very gratified to see the court agreed in full with the trial court’s decision holding that Congress spoke clearly when it created and expanded the duty drawback program to support U.S. exports," said NAM Senior Vice President and General Counsel Linda Kelly in a statement. "Put simply, this program helps manufacturers in America level the playing field when they sell to overseas markets. We look forward to working with our members as they expand their operations and add jobs in the United States in light of today’s decision."
The rule in question was issued in 2018 as part of a broader overhaul of drawback regulations following the Trade Facilitation and Trade Enforcement Act of 2015. At issue in this case, it deemed exportation without payment of excise taxes to be a form of drawback, and limited the amount of drawback to the amount of taxes paid on the export that forms the basis for the drawback claim. The provisions meant that drawback claims that rely on excise-unpaid exports (such as domestic wine never sold for domestic consumption) were a form of prohibited “double drawback.”
CIT held that the rule violated the first part of the two-part Chevron test. Specifically, CIT found that the rule "conflicts with the unambiguous text of the statute" (see 2001270020).
On appeal, the government argued that a broadened definition of "drawback" should include transactions wherein excise tax liability is "extinguished under provisions where products are withdrawn for export without payment of tax." When these goods are withdrawn for export without paying taxes, they are not withdrawn "free of tax" since the tax liability runs from the time of production and is covered by bond and only canceled when exported, the government argued.
"This defies logic," the Federal Circuit said. "A tax that has never been paid or determined cannot be said to have been 'drawn back,' and goods that have been exported without payment of tax cannot give rise to a 'claim' for drawback, because there would be no refund to be paid out or cancellation of liability to be made. ... If bonded goods are withdrawn for export, however, tax liability is not computed and fixed for prepayment or deferred payment because a tax will never be paid at all. Thus, tax in that scenario would not be 'determined.'"
The government also argued that the legislative history of duty drawbacks does not support rejecting the regulation. Again, the Federal Circuit disagreed, holding that the history in fact shows that "Congress chose to expand access to drawbacks at the expense of excise taxes." For instance, Congress amended the governing statute to require that drawbacks be paid "notwithstanding any other provision of law" -- a key line central to this case's litigation. It is the words "any other provision of law" that actually "trumps" CBP's regulation and runs contrary the government's interpretation of the statute, the Federal Circuit said. The DOJ didn't immediately comment.
(The National Association of Manufacturers, et al. v. Department of the Treasury, et al., Fed. Cir. #20-1734, dated 08/23/21, Judges Lourie, Prost and Reyna. Attorneys: Peter Keisler of Sidley Austin for plaintiff-appellee National Association of Manufacturers; James Tysse of Akin Gump for plaintiff-appellee The Beer Institute; August Flentje for defendant-appellant U.S. government)