United States: Court Of Appeals Rules That CF-29 Notices Of Action Cannot Overrule Customs Letter Rulings Without Following Notice And Comment Formalities

Importer Saves Millions of Clams in White Sauce Appeal

On April 14, 2014 the U.S. Court of Appeals for the Federal Circuit (CAFC) handed down an opinion, International Customs Products, Inc. v. United States, Ct. No. 2013-1176, which may set a significant precedent prohibiting U.S. Customs and Border Protection (CBP) from issuing CF-29 Notices of Action that have the effect of overturning earlier CBP private letter rulings, without going through proper notice and comment procedures for revoking rulings as required under U.S. law.

Background

The case concerns the classification of certain white sauce under the Harmonized Tariff Schedule of the United States (HTSUS). In 1999, International Customs Products (ICP) obtained from CBP a ruling letter that classified ICP's white sauce as "sauces and preparations therefor" under HTSUS 2103.90.9060. In 2005, CBP issued a CF-29 Notice of Action reclassifying all pending and future entries of white sauce as "[b]utter and ... dairy spreads" under HTSUS 0405.20.3000. CBP justified this action on the grounds that ICP's customer did not use the white sauce to make sauces, but rather to make cheese. At the time, there was a huge difference in the duty rates for the two different HTSUS provisions, such that reclassification resulted in an increase of approximately 2,400 percent. However, CBP did not officially revoke the 1999 ruling, but instead determined that the ruling did not apply to the pending entries because those entries would be used to make cheese rather than sauce as originally contemplated in the 1999 ruling.

After CBP denied ICP's protest, ICP filed suit at the U.S. Court of International Trade (CIT). ICP alleged the CF-29 Notice was null and void because it improperly revoked the 1999 ruling letter without following the notice and comment procedures under 19 U.S.C. § 1625(c). This provision states that a proposed interpretive ruling or decision which would –(1) modify or revoke a prior interpretive ruling or decision which has been in effect for at least 60 days; or (2) have the effect of modifying the treatment previously accorded by the Customs Service to substantially identical transactions, "shall" be published in the Customs Bulletin. The statute requires CBP to give interested parties an opportunity to submit comments on the correctness of the proposed ruling or decision. After consideration of comments, CBP must publish a final ruling or decision in the Customs Bulletin within 30 days, with the final ruling or decision effective 60 days after the date of publication.

The CIT held that the CF-29 Notice effectively revoked the 1999 ruling letter without adherence to the Section 1625(c) notice and comment procedures. The CIT held the CF-29 Notice void and ordered CBP to reliquidate the entry pursuant to the classification in the 1999 ruling letter. The Government then appealed to the CAFC.

Holding on Appeal

On appeal, the CAFC affirmed the CIT. Among other things, the Government argued that a CF-29 Notice is merely a "courtesy notice" that "cannot revoke or 'effectively' revoke a ruling" because a CF-29 Notice is an "entry specific document" that has no effect on a prior policy or ruling by CBP. The CAFC rejected this argument, holding that CBP "must be held to the broad scope of its reclassification even though it was communicated through a notice of action."

The Government also claimed that it is "administratively infeasible" to apply the notice and comment procedures set forth in § 1625(c) to a Notice of Action. The Government complained that "doing so would require 'an incalculable number of other "decisions" ... to undergo notice and comment, and publication,' which would be 'enormously time consuming' and 'serve no purpose whatsoever.'" The CAFC disagreed, noting that the CIT did not hold that all notices of action are now subject to notice and comment procedures. Instead, the CIT held only that the Notice of Action in this case—which effectively revoked the 1999 ruling letter and was issued after relevant agency deliberation—was subject to the procedures under Section 1625(c). In short, the CAFC held that "[t]o the extent the Government is not using notices of action to surreptitiously revoke ruling letters, its slippery slope argument is vastly overstated."

Significance

This ruling could be important to importers who have relied on a particular formal CBP classification ruling in determining how to classify their imported merchandise, only to discover that CBP later attempts to deny the benefit of the ruling through a simple Notice of Action that has the effect of overruling the prior private letter ruling. Even if the initial ruling was for a different importer, Section 1625(c) makes clear that decisions which "have the effect of modifying the treatment" previously accorded by CBP to "substantially identical transactions" require notice and opportunity for comment. What this ruling clarifies is that, depending on the breadth of the action taken, a CF-29 Notice could be deemed to be an "interpretive ruling or decision" subject to Section 1625(c), and thus CBP cannot simply ignore an on-point precedent from a prior letter ruling in a CF-29, without going through the formal public notice and comment procedures for revoking the prior ruling.

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