NEW CIT DECISION GREENLIGHTS UP TO $383 MILLION IN REFUNDS

A Friday evening decision of the United States Court of International Trade (CIT) paves the way for quick refunds of up to $383 million to substitution drawback claimants. In National Association of Manufacturers v. Department of the Treasury, Slip Op. 20-67 (May 15, 2020), Senior Judge Jane A. Restani of the CIT ordered United States Customs and Border Protection to begin immediately processing and paying drawback claimants’ applications for “accelerated  payment” of substitution drawback claims involving Federal excise taxes.

The Court indicated it will enter an Order suspending final liquidation of affected drawback claims while the government pursues an appeal of a recent decision which struck down CBP’s excise tax drawback regulations.

Earlier in the case, the CIT, in Slip Opinion 20-9, had struck down Treasury drawback regulations which sought effectively to eliminate substitution drawback of excise taxes in cases where the substituted exported merchandise had not itself been assessed with taxes. Treasury’s regulations expanded the definition of “drawback” to include tax exemptions and remissions, and asserted that exporting non-tax-paid merchandise and claiming drawback constituted a prohibited “double drawback”. But the CIT held the regulations invalid, noting that the drawback statute, as amended by the Trade Facilitation and Trade Enforcement Act of 2015), required that drawback be paid in an amount equal to the tax which would have been imposed had the exported merchandise been imported. If Treasury was displeased with this result, the Court said, it needed to look to Congress (which had previously declined to adopt such a rule) rather than the courts.

The Court’s final Judgment, issued in February, 2020, ordered CBP to begin processing drawback claims, including claims for accelerated payment of drawback, which CBP had declined to process since the TFTEA amendments entered into force in February 2018.

Seeking a stay of enforcement of the judgment while it pursued an appeal, Treasury asked the court to suspend all processing of excise tax drawback claims pending the exhaustion of appeals. The court refused. Displeased that the government had apparently taken no action to implement the February 2020 judgment, the CIT noted that Treasury had little chance of success on the merits of the appeal, and did not face irreparable harm, since accelerated payments of drawback were fully bonded. On the other hand, a stay pending appeal would injure drawback claimants, by limiting their access to working capital and because drawback, when paid, is paid without interest. Finally, the Court indicated that the public interest favored paying claimants monies they had earned.

While ordering Treasury and CBP to begin processing paying claims, the court indicated that it would issue an order staying final liquidation of affected drawback claims while appeals were exhausted. Drawback claimants indicated they were amenable to such action.

Customs reacted quickly to the Court’s decision, indicating that necessary programming to ACE could be accomplished in  10 days (down from an earlier estimate of 3 months provided to the Court) and issued a Cargo Systems Messaging Service (CSMS) bulletin announcing that accelerated payments for  FET drawback claims would be processed immediately.