CAFC Rules that CBP Could Not Apply New Regulation to 1625(c) in Order to Deny Drawbacks on Steel Scrap Exports
In California Industrial Products, Inc. v. United States, the U.S. Court of Appeals for the Federal Circuit ruled that based upon Customs' prior favorable treatment of substantially identical transactions and its failure to conduct notice and comment proceedings before changing that prior treatment, CIP was entitled to substitution manufacturing drawback (19 USC 1313(b)) on its steel scrap exports.
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According to the CAFC, on January 2, 1998, Customs denied two of CIP's drawback claims for steel scrap exports on the grounds that scrap was "waste" and not eligible for drawback.
However, Customs had previously liquidated 145 entries filed by other companies between June of 1992 and November of 1997 that had allowed drawback on steel scrap. CIP filed a request for further review, timely protesting Customs' denial of its claims, arguing that Customs had impermissibly changed a treatment previously accorded to substantially similar transactions without first following the notice and comment requirements of 19 USC 1625(c).
On March 3, 1998, Customs issued a protest review decision to CIP affirming its January 2, 1998 denial of its drawback claims. Customs based its denial of CIP's protest on HQ 227375 (October 10, 1997) which was issued to another company.
The CAFC upheld the Court of International Trade's ruling that pursuant to 19 USC 1625(c), Customs was required to follow notice and comment procedures before issuing HQ 227375. The CAFC also agreed with the CIT that Customs' protest review decision on CIP's claims was a "decision" subject to 19 USC 1625(c), and that the prior transactions of companies other than CIP which involved "trim" were "substantially identical" to CIP's "scrap" transactions for purposes of a treatment.
In addition, the CAFC ruled on 19 CFR 177.12(c)(1)(iii)(A), which was promulgated by Customs in 2002 to limit "substantially identical transactions" that give rise to a 1625(c) treatment to only those transactions between Customs and the person claiming entitlement to the 1625(c) notice and comment period. According to the CAFC, no Chevron deference is due on this regulation as Congress clearly intended "substantially identical transactions" forming a single "treatment" to include the transaction of parties other than the party claiming the benefit of 19 USC 1625(c).
In conclusion, the CAFC affirmed the decision of the CIT, that Customs was bound by its previous favorable treatment as it failed to follow 19 USC 1625(c).
CIT Slip Op. 04-122 (dated 09/22/04) available at http://www.cit.uscourts.gov:8080/cs.html?charset=iso-8859-1&url=http%3A//www.cit.uscourts.gov/slip_op/Slip_op04/Slip%2520Op%252004-122%2520(public).pdf&qt=californiaindustrialproducts&col=uscit&n=1&la=en
CAFC Docket 05-1087 (dated 02/01/06) available at http://www.fedcir.gov/opinions/05-1087.pdf