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HQ 222321


August 15, 1990

LIQ-11-CO:R:C:E 222321 PH

CATEGORY: ENTRY LIQUIDATION

District Director
U.S. Customs Service
3600 East Paisano, Building B, Room 134
Bridge of the Americas
Post Office Box 9516
El Paso, Texas 79985

RE: Protest 2402-6000006; Certification by surety required by 19 U.S.C. 1514(c)(2); Notice to surety of extension of period for liquidation; 19 U.S.C. 1504(b); 19 CFR 159.12(b).

Dear Sir:

The above-referenced protest was forwarded to this office for further review. We have considered the points raised by your office and the protestant. Our decision follows.

FACTS:

A United States company (the "importer") began importing cotton pants and overalls sewn overseas of United States materials in June of 1981. The importer entered the merchandise under item 807.00, Tariff Schedules of the United States (TSUS), which provided for the duty-free importation of certain articles assembled abroad of fabricated components which were the product of the United States (the corresponding provision in the Harmonized Tariff Schedule of the United States Annotated (HTSUSA) is subheading 9802.00.80).

The protestant claims that despite the classification of the merchandise under item 807.00, the importer failed from the beginning to provide Customs with the documents required to sustain its claim for such a classification. The protestant states that repeated requests were made by Customs to provide the necessary documents but that the importer substantially failed to comply. The protestant cites statements by the Customs officer handling the importer's entries and a former employee of the broker of the importer to this effect.

The protestant states that the importer submitted significantly deficient actual cost data substantially after the time established by the Customs Regulations for providing such information. According to the protestant, the actual cost data covering the period from March 13, 1981, through June 30, 1982, was submitted on August 17, 1983. Two subsequent reports were submitted in November of 1984. The protestant states that all of these submissions were deemed insufficient by Customs because of a lack of any materials in support of the figures in the submissions.

The protestant states that "[d]espite the unconscionable delays in submitting the requisite data and then when data was finally submitted, the failure of the submitted data to be complete, and the repeated requests by Customs for further data which went substantially unheeded, Customs for some unexplained reason continued not to liquidate past entries and to accept new [item] 807 entries from the [i]mporter." According to the protestant, this practice only ended in November of 1985 when Customs, for the first time, notified the importer of the denied classifications.

The protestant issued four general entry bonds, each in the amount of $100,000, in support of the importer's entries for the period July 1981 to June 1985. Each of the bonds was issued covering the period of July 1 to June 30. There follows a table describing the number of entries included within this protest with the amount due for each of the bond periods:

Period # of Entries Amount Due Liq. Date

07/01/81-06/30/82 5 $25,081.60 12/13/85
07/01/82-06/30/83 20 $125,270.50 12/06/85* 07/01/83-06/30/84 45 $271,487.53 12/06/85+ 07/01/84-06/30/85 None N/A N/A

* Three entries were liquidated on 12/13/85. + Ten entries were liquidated on 12/13/85.

According to the protestant's April 6, 1990, letter submitted with the file, a number of other entries covered by one of these bonds are the subject of a related protest, Protest No. 2402-6000014. The corresponding figures for the entries included within this other protest are:

Period # of Entries Amount Due Liq. Date

07/01/81-06/30/82 None N/A N/A
07/01/82-06/30/83 None N/A N/A
07/01/83-06/30/84 None N/A N/A
07/01/84-06/30/85 115 $870,192.59 02/28/86

The protestant states that the importer went out of business in 1985. Because of the dissolution of the importer, Customs has demanded payment from the protestant under the bonds issued by it (two demands are in the file, one dated February 1986 and the other dated May 1986).

The protestant filed the protest/application for further review under consideration on April 11, 1986, claiming that Customs disallowance of classification under item 807.00, TSUS, was substantively incorrect and requesting that it be given the opportunity to submit such additional information as is necessary to support its protest when it obtained the information. On April 28, 1986, the protestant amended the initial protest/application for further review, further claiming that the disallowance of classification under item 807.00 was a mistake of law and that the evidence already provided to Customs establishes that the merchandise is entitled to classification under item 807.00 in accordance with existing regulatory and legal standards. On April 30, 1986, the protestant further amended the initial protest/application for further review, claiming that the increase of dutiable value for the merchandise constitutes a mistake of law (i.e., arguing that the dutiable value of the entries should have been based solely upon the cost of foreign assembly of U.S. origin components, not upon the total cost of the imported articles) and that the entries were properly subject to tariff treatment under item 807.00, TSUS, and the valuation of the entries as fully dutiable was a mistake of law. The protestant's stated position was that the information submitted in connection with the importation provides for proper classification under item 807.00 or, in the alternative, that the entries were as a matter of law eligible for classification under item 807.00, regardless of any information previously submitted in connection with the importation of the entries.

On March 28, 1988, the protest/application for further review was forwarded from your office to the Regional Commissioner. Your office recommended denial of the protest for the reasons given in the Customs Protest and Summons Information Report forwarded with the file. On February 27, 1990, the file was forwarded by the Regional Commissioner to the Customs Information Exchange for further review. By letter of April 6, 1990, pursuant to discussions between the Customs Information Exchange and the protestant, the protestant made additional arguments. On April 12, 1990, the file was forwarded by the Customs Information Exchange to this office.

In its April 6, 1990, letter, the protestant states that, based on the facts known to it, it questions whether liquidation of a majority of the entries at issue was ever properly extended by notice to the importer. The protestant states that it was never notified of any extensions of the date of liquidation and was not aware that liquidation was not occurring in a timely manner until Customs sent the demand notice to it in 1986. The protestant states that this demand notice was the only notification it ever received that there was an ongoing problem with the importer.

ISSUE:

Is a protest/application for further review filed by a surety under 19 U.S.C. 1504(c)(2) defective when it is filed more than 90 days after the date of liquidation of the entries concerned but within 90 days of the date of mailing of a notice of demand for payment against the surety's bond and the surety fails to make the certification required by section 1504(c)(2) that the protest is not being filed collusively to extend another authorized person's time to protest?

LAW AND ANALYSIS:

The statutory provisions regarding protests against the decisions of Customs officers are found in sections 514 and 515, Tariff Act of 1930, as amended (19 U.S.C. 1514 and 1515). Under 19 U.S.C. 1514(c)(2):

A protest of a decision, order, or finding described in subsection (a) of this section shall be filed with such customs officer within ninety days after but not before--

(A) notice of liquidation or reliquidation, or

(B) in circumstances where subparagraph (A) is inapplicable, the date of the decision as to which protest is made.

A protest by a surety which has an unsatisfied legal claim under its bond may be filed within 90 days from the date of mailing of notice of demand for payment against its bond. If another party has not filed a timely protest, the surety's protest shall certify that it is not being filed collusively to extend another authorized person's time to protest as specified in this subsection. [Emphasis added.]

The protest/application for further review in this case was made more than 90 days after the date of liquidation of the entries but within 90 days from the date of mailing of notice of demand for payment against the bond. However, there is no evidence in the file that the certification required by 19 U.S.C. 1514(c)(2) (see underlined material above) was made. Pursuant to the Court of International Trade case of Washington International Insurance Co. v. United States, Slip Op. 89-17 (23 Cust. Bull. & Dec. 10, March 8, 1989, p. 71) (707 F. Supp. 561), this omission is fatal to the protest/application for further review. The protest/application for further review should be denied on this basis.

For your information, we will address the arguments made by the protestant. The protestant argues that all of the entries which were liquidated more than one year from the date of entry should have been deemed liquidated as entered (see p. 4 of protestant's April 6, 1990, letter). The protestant states that its information "reveals that Customs did not extend the liquidation date of any of these entries." You state that extensions of the time for liquidation were made pursuant to section 504(b), Tariff Act of 1930, as amended (19 U.S.C. 1504(b)), on the basis that necessary information to appraise, classify, and liquidate the entries was not available. Assuming that proper extensions and re-extensions of the time for liquidation were made and notice of those extensions and re- extensions was properly given to the importer, his consignee, or agent, this claim by the protestant would be denied. The only exception to this is the one entry which was liquidated more than four years from the date of entry (the entry was made December 16, 1981, and liquidated December 20, 1985) (see 19 U.S.C.

The protestant also argues that, assuming that the entries were not deemed liquidated as entered, the failure of Customs to liquidate the entries within one year from the date of entry was a violation of 19 U.S.C. 1504 which resulted in a material breach of the surety bond sufficient to discharge the protestant from its obligations under the bond. Because Customs did not notify the protestant of the extension, protestant claims that it was materially prejudiced by the delayed liquidation.

As indicated above, assuming that proper extensions and re- extensions of the time for liquidation were made and notice of those extensions and re-extensions was properly given to the importer, his consignee, or agent, the failure of Customs to liquidate the entries within one year from the date of entry was not a violation of 19 U.S.C. 1504. With regard to the propriety of the extensions and re-extensions of the time for liquidation, the protestant argues that you improperly exercised your discretion in granting the extensions and re-extensions because you had no basis for doing so. That is, the protestant states, the importer's consistent failure to comply with the regulations (19 CFR 10.11-10.24) should have led Customs to realize that the importer could not support classification under item 807.00, TSUS, and to have immediately (upon this realization) liquidated the entries with a denial of item 807.00, TSUS, treatment (citing C.S.D. 80-250).

Section 1504(b)(1) provides for the extension of the time for liquidation if "information needed for the proper appraisement or classification of the merchandise is not available to the appropriate Customs officer". Clearly, that was the case with these entries; information needed for the proper appraisement or classification of the merchandise was not available to Customs. In the Court of International Trade case of Detroit Zoological Society v. United States, 10 C.I.T. 133, 630 F. Supp. 1350 (1986), the Court stated:

Ordinarily, the court should defer to Customs' determination that it needs additional information to liquidate an entry and therefore requires an extension of the statutory time period. As stated by the Temporary Emergency Court of Appeals, "deference to an agency's judgement is especially appropriate when the issue is the ability of that same agency to perform certain tasks." Basin, Inc. v. Federal Energy Administration, 552 F. 2d 931, 937 (Temp. Emer. Ct. App. 1977) .... [10 C.I.T. at 138.]

We are not convinced that the extensions and re-extensions of the time for liquidation in this case were an improper exercise of your discretion.

The protestant argues that Customs violated an established and uniform practice by not rejecting the importer's entries under item 807.00, TSUS, after "in 1983 and again in 1984 Customs received significantly deficient cost submissions." (See p. 9 of the protestant's April 6, 1990, letter. The protestant continues: "[w]e submit that there can be no dispute that Customs was under a duty after August 1983 and clearly after November 1984 to reject Importer's entries under item 807.00, TSUS ....") The basis for protestant's claim of an established and uniform practice is T.D. 75-230, which promulgated 19 CFR 10.21. This section of the Customs Regulations provides in pertinent part, with regard to cost data and other information to be furnished to Customs concerning entries under subheading 9802.00.80, HTSUSA (formerly item 807.00, TSUS), that:

... Actual cost data must be submitted as soon as accounting procedures permit. To insure that information used for Customs purposes is reasonably current, the importer shall ordinarily be required to furnish updated cost and assembly data at least every six months, regardless of whether he considers that significant changes have occurred. The 6-month period for the submission of updated cost or other data may be extended by the district director if such extension is appropriate for the type of merchandise involved, or because of the accounting period normally used in the trade, or because of other relevant circumstances. [Emphasis added.]

In view of the portions of section 10.21 which are emphasized above, we do not believe that Customs violated any established and uniform practice in this regard.

The Court of International Trade case of Old Republic Insurance Co. v. United States, 10 C.I.T. 589, 645 F. Supp. 943 (1986), is particularly apposite with regard to the protestant's argument that the failure of Customs to notify it of the extensions resulted in its being materially prejudiced by the delayed liquidation of the entries. In that case the notice of extension was given to the importer but the surety claimed that it was not given such notice. The Court noted the difference between the requirements for notice of an extension of the time for liquidation in 19 U.S.C. 1504(b) and the corresponding notice requirements in 19 CFR 159.12(b). In the former, the extension may be effected by giving notice to "the importer, his consignee, or agent" and in the latter notice is required to be given to "the importer or the consignee and his agent and surety." The Court held that notice to the importer "was sufficient to effectuate the extension of time for liquidation [and that] [i]n order to be consistent with the statute, the customs regulation cannot be read to effect a deemed liquidation in this case." (10 C.I.T. at 596.)

The Court in Old Republic addressed the question of whether the failure of Customs to give notice to the plaintiff (a surety) of the extension pursuant to 19 CFR 159.12(b) discharged the surety from its surety obligations. Although the Court held that the failure to give notice to the surety of the extension as required by section 159.12(b) did not result in the voiding of the extension (see above), the Court also held that the right to receive notice of an extension of the liquidation period provided for by section 159.12(b) must be considered a term of the bond (10 C.I.T. at 602). Having made that determination, the Court stated that:

Thus, the question is whether failure to provide notice materially increased the surety's risk in this case. If so, the surety is discharged. If not, the surety's obligation will be reduced to the extent of its actual loss. [10 C.I.T. at 602.]

In the absence of more information than is available in the file, we are unable to determine whether the failure by Customs to give the protestant notice of the extension of the liquidation period "materially increased the surety's risk in this case." However, there appears to us to be a good likelihood that the protestant could demonstrate a material increase in its risk which it could use as a defense against a suit by the Government.

HOLDING:

A protest/application for further review filed by a surety under 19 U.S.C. 1504(c)(2) is fatally defective when it is filed more than 90 days after the date of liquidation of the entries concerned but within 90 days of the date of mailing of a notice of demand for payment against the surety's bond and the surety fails to make the certification required by section 1504(c)(2) that the protest is not being filed collusively to extend another authorized person's time to protest (see Washington International Insurance Co. v. United States, Slip. Op. 89-17 (23 Cust. Bull. & Dec. 10, March 8, 1989, p. 71) (707 F. Supp. 561)). The protest/application for further review is denied on this basis.

Sincerely,

John Durant, Director

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