CBP Must Refund Interest on Repayment Given With Prior Disclosure, Importer Argues

The government owes interest on refunded duty overpayments made with a prior disclosure, importer Otter argued in a Feb. 16 motion at the Court of International Trade. Government arguments that repayments of voluntary tenders are not subject to interest accruals means that penalties for prior disclosures could never be enforced if they were made before a penalty was issued, Otter said (Otter Products v. United States, CIT #22-00033).

Phone case importer Otter Products paid customs a 20% duty rate as part of a prior disclosure for merchandise entered under Harmonized Tariff Schedule subheading 4202.99.00. Following litigation at CIT and the U.S. Court of Appeals for the Federal Circuit, the classication for the subject items was found to fall under subheading 3926.90.99, with a corresponding 5.3% duty rate. In 2016, Otter sought refunds of its overpayments in the amount of the 14.7 percentage point difference with interest. CBP refunded Otter the differences in duties paid for the three prior disclosures but said that it had "no statutory authority to pay interest when refunding money voluntarily tendered with a prior disclosure." Otter then sued CIT, seeking interest accrued. Otter filed a motion for judgment on Sept. 12, in which it argued that 19 U.S.C. 1520(a)(3) "unambiguously authorizes" the government to refund duties whenever money is deposited in the Treasury (see 2209130029).

CBP replied in its own Dec. 15 motion that it has no authority to pay interest when refunding money voluntarily tendered with prior disclosures. Those disclosures do not undergo liquidation and voluntary payments are not a "fine, penalty, or forfeiture" subject to accrued interest on repayment, CBP argued (see 2212210057).

The government's attempt to create a distinction between the "closing" of a prior disclosure and liquidation is contrary to its previous positions when it has attempted to collect interest on underpaid tenders associated with voluntary disclosures, Otter said. The tender associated with Otter's prior disclosures were not voluntary, but were instead an "involuntary 'charge or exaction'" as contemplated by the statute, Otter said. The stature merely requires that money is deposited “on account of a fine, penalty or forfeiture which did not accrue...," Otter said. "Nothing in this language limits the applicable circumstances to those in which a penalty has been officially charged against a person and later eliminated or diminished."