CAFC Rules Against 1505 Compensatory Interest for Final Liquidations
In U.S. v. National Semiconductor Corporation, the Court of Appeals for the Federal Circuit vacated the Court of International Trade's final judgment and remanded the case to the CIT to determine an appropriate penalty for negligence and any prejudgment interest related to an underpayment of merchandise processing fees (MPFs) under 19 USC 1592 (See NSC III CIT Slip OP. 06-138).
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NSC voluntarily tendered unpaid MPFs in the amount of $948,159.13 after it had discovered during an internal compliance review that it had undervalued certain imports of integrated circuits, micro-assemblies, and parts. After accepting the tender, Customs also assessed a negligence penalty under 19 USC 1592 in the amount of $250,840.21, which represented interest on the unpaid MPFs from the date of liquidation. NSC protested this action, and both parties filed motions for summary judgment. The CIT denied both motions stating the matter needed further fact finding and interpretation (See NSC I CIT Slip OP. 05-9).
On review, the CIT stated that the NSC payment of the unpaid MPFs and the imposition of the penalty of $10,000 would not adequately compensate the government for the interest it had lost. Therefore, the CIT ruled that compensatory interest under 19 USC 1505 should also be paid to the government (See NSC II CIT Slip-Op. 06-90).
On reconsideration of this decision, the CIT ruled that the final judgment should be $260,840.21, consisting of a compensatory interest award of $250,840.21, which equaled the amount of interest Customs had calculated on MPFs, plus a $10,000 penalty award (See NSC III CIT Slip OP. 06-138).
On appeal, the CAFC noted that the entries at issue in this case had all been liquidated for more than a year and were final as a matter of law when NSC notified Customs of their error. Thus, no liquidation or re-liquidation under 19 USC 1505, on which the compensatory interest had been based, could occur. Further, the court noted that there is nothing in the statutory language under 19 USC 1592 for the awarding of compensatory interest.
The CAFC ruled that the CIT erred in awarding compensatory interest and remanded this case back to the CIT to determine any negligence penalty under 19 USC 1592 and, in addition, whether any prejudgment interest should be applied to such award.
CAFC decision 07-1007 (dated 07/27/07) available at http://www.cafc.uscourts.gov/opinions/07-1007.pdf
CIT Slip Op. 05-9 (dated 01/26/05) available at http://www.cit.uscourts.gov/slip_op/Slip_op05/05-9.pdf
CIT Slip Op. 06-90 (dated 06/16/06) available at http://www.cit.uscourts.gov/slip_op/Slip_op06/06-90.pdf
CIT Slip Op. 06-138 (dated 09/08/06) available at http://www.cit.uscourts.gov/slip_op/Slip_op06/06-138.pdf