CIT Questions Statutory Interpretation of Deemed Liquidation of Drawback Claims

The statute on deemed liquidation for drawback claims "doesn't make sense as written," Judge Jane Restani said during April 18 oral arguments at the Court of International Trade. She said that both importer Performance Additives and the government are "adding terms to the statutes that aren't there," but said she understands because "none of this can work if we just read the words that are there" (Performance Additives v. United States, CIT # 22-00044).

The judge said there's a need to "stick things in" to the statute to have a party "win or lose here." At the end of the oral argument, the judge suggested requiring the parties to rewrite the statute in a way that would make the situation make sense.

Performance Additives filed suit in 2022 arguing that CBP illicitly liquidated its entries without its drawback claims. The statute says that a drawback claim not liquidated within one year is automatically liquidated at the requested drawback amount. The U.S. pointed to an exception, laid out in subparagraph (B) of the statute, which says that a drawback claim whose underlying entries haven't been liquidated and "become final within the 1-year period" will be deemed liquidated upon the claimant's request (see 2401220065).

The U.S. defined the phrase "and become final" as meaning the underlying entries have passed the 180-day mark post-liquidation, after which protests can't be filed, also noting that to make the drawback claim final, the importer must deposit estimated duties and submit a written request for CBP to liquidate the claims. The importer didn't take these steps, so the drawback claim for an underlying entry whose liquidation was extended wasn't deemed liquidated, the government argued.

In its complaint, Performance Additives said that it imported polymer chemicals and filed a drawback entry in March 2016. ACE lists the entry as having its liquidation "extended," and CBP said it liquidated the entry in May 2021 without drawback benefits "well over five years after the date of the filing of the entry." The importer said that even assuming the liquidation was "validly extended," the plain reading of the statute means the extension would have terminated "no later" than the "fourth anniversary of the date of the filing of the claim."

As for the company's other entries whose liquidations were not extended, the entries were liquidated with the drawback claim on the "first anniversary of the drawback claim," the brief said. In all, Performance Additives said that its drawback claims liquidated under subparagraph (A), which says deemed liquidation on a drawback claim happens within one year of the date of entry of the merchandise unless extended. Even for the lone underlying entry for which liquidation was extended, the drawback claim liquidated at most four years from the date the claim was filed.

The U.S. said the drawback claims actually fit under subparagraph (B) since the underlying entries didn't liquidate and become final within one year of the drawback claim being made.

Restani questioned the interplay between deemed liquidation and the finality of drawback claims under the statute, saying that the underlying entry is "deemed liquidated, but it's not really," asking John Peterson, counsel for Performance Additives, how the process works and saying she doesn't know what makes the claim final.

Peterson claimed that subparagraph (B) says the entry is deemed liquidated at the claimed rate and amount. Restani said in response that the statute doesn't say "rate and amount," but that's what everyone assumes it means "even though the words aren't there." After Peterson said this can be derived from Commerce's regulations, the judge said she's "not reading into a statute something that's in a regulation."

Peterson said at oral argument that subparagraph (B) only applies after the one-year timeline, meaning that the drawback liquidation had to be extended, which didn't happen here, save for the one entry, which was deemed liquidated at the "end of the second year."

Questioning the interplay of liquidation and drawback laws, Restani summarized Peterson's explanation by noting that the fact that the "underlying entry rates may change is totally separate from the idea that the original deemed liquidation was at your rate." This would allow for the entry to be liquidated but the drawback claim to change, since the underlying rate is not being challenged.

From there, Restani questioned whether the importer gives up its protest rights by pursing remedy under subparagraph (B). Peterson said that's "essentially correct," though he pointed to a CBP regulation that says that importers who overpay estimated duties on a drawback entry that's under 100% of the amount of the total duties are entitled to a 1% refund of those duties on the part of the goods recorded on the drawback entry.

DOJ attorney Alexander Vanderweide said that the importer gives up their right to file a protest under subparagraph (B) but said that the importer wouldn't mind since they're receiving a 99% drawback of their duties via the drawback claim. Peterson interjected and said this isn't always the case as there are drawback claims under subparagraph (B) which are under 99%.

The judge also expressed skepticism at the government's claim that the liquidation extension is a "nullity," noting that the U.S. is impacting the company's rights by not making a decision within a one-year period. She suggested that she has to read into subparagraph (A) that the "time period we're now concerned about is two years from the date of the entry or claim because you extended it for a year." Because otherwise, a party that receives a notice of extension would have to "sit and wait" for a year and wouldn't be able to claim the deemed drawback claim under subparagraph (B).

Vanderweide said the "period of time to trigger" subparagraph (B) here runs from one year from the claim's filing but before the underlying entries become "final."