LIQ-9-CO:R:C:E 223909 C
Regional Director, Regulatory Audit Division
U.S. Customs Service
Pacific Region
One World Trade Center
Long Beach, California 90831-0700
RE: Request for internal advice concerning computation of lost
revenue (lost duties) to be tendered to Customs in a prior
disclosure situation under 19 U.S.C. 1592(c)(4); offsets; lost
revenue; lost duties; final liquidation; 19 U.S.C. 1514
Dear Mr. Allen:
This responds to the referenced internal advice request
(your memorandum AUD-8-O:R JO, dated February 24, 1992). We have
reviewed all relevant materials and our response follows.
FACTS:
An importer, through counsel, submitted, over a period of
time, several prior disclosure notices to the district director
under 19 U.S.C. 1592(c)(4), admitting therein to filing entries
that did not accurately reflect the value of entered merchandise.
These undervaluations produced underpayments of duty. In
accordance with the prior disclosure provision, the importer
tendered estimated lost duties. Subsequently, the importer
notified Customs that there had been some misclassifications
involved in the same entries that were subject to the prior
disclosures already filed, as well as to those yet to be filed.
These misclassifications caused duties to be higher than they
should have been in some cases and lower than they should have
been in other cases. Thus, the misclassifications led to both
underpayments and overpayments of duty. These classification
errors were not identified by the importer as section 1592(a)
violations, nor did Customs find them to be violations.
Subsequently filed prior disclosure notices calculated lost
duties based on the correct duty rate (classification), not the
duty rate applied at liquidation. In addition, the importer
notified Customs that its tender of lost duties made before
discovery of the classification errors should be recalculated in
order to take into account higher and lower duties paid as a
consequence of the misclassifications. Based on the importer's
recalculation, its tender was excessive by $555,000. The essence
of the importer's position is that the correct duty rate
(classification) should be applied to both the value reported in
the original entries as well as the undervaluation later
disclosed. Customs position is that the duty rate
(classification) that was applied at liquidation should be
applied to the undervaluation in order to determine the lost
duties.
ISSUE:
In determining lost duties to be tendered to Customs in a
prior disclosure situation, in accordance with 19 U.S.C.
1592(c)(4), is it proper to offset the duties lost as a
consequence of the section 1592(a) violation by reducing
therefrom the amount of an overpayment of duty made as a
consequence of an error not related to the 1592(a) violation and
not found to be the basis of a separate section 1592(a)
violation?
LAW AND ANALYSIS:
The prior disclosure provision, 19 U.S.C. 1592(c)(4), is
implemented by Customs Regulation 162.74(h):
"A person who disclosed the circumstances of the
violation shall tender any actual loss of duties at the
time of the disclosure or within 30 days after the
district director notifies the person in writing of his
calculation of the actual loss of duties." (Emphasis
added.) 19 C.F.R. 162.74(h).
Under section 162.71(a)(1) of the Customs Regulations,
"actual loss of duties" is defined as follows:
" . . . the duties of which the Government has been
deprived by reason of the violation in respect of
entries on which liquidation had become final."
(Emphasis added.) 19 C.F.R. 162.71(a)(1).
The foregoing regulatory provisions were applied by Customs
in a 1988 ruling involving similar facts. After quoting the
regulations as above, Customs held that "the loss of duties
resulting from a violation of section 1592 cannot represent the
net difference between overpayments and underpayments relating to
the merchandise involved in the violation." (Emphasis in
original.) (See Customs Ruling Letter 654902, January 19, 1988.)
This means that the actual loss of duties is strictly limited to
the duties the Government was deprived of by reason of the
violation. It is not calculated by determining the amount of
duties the Government was deprived of and then subtracting from
that amount the amount of any overpayments arising from mistakes
unrelated to the section 1592(a) violation. (See also ruling
653324, dated June 21, 1983, wherein it was held, in part, that
underpayments of duty (in contrast to overpayments of duty)
consequent of undeclared assists that were not the basis of
section 1592(a) violations could not be considered in
calculations under either section 1592(c) or 1592(d) (copy
attached).)
We agree with the reasoning you provided in taking the
position that the duty rate (classification) to be applied to the
undervaluation is the rate applied at liquidation. As you
explained, the classification decision, which determines the duty
rate, had become final since it was not protested within 90 days
of the liquidation as required under 19 U.S.C. 1514(c)(2). To
allow the classification error to be corrected at this stage
would be to permit what is in effect an extension of the
statutory time limitation of the protest procedure. Customs can
collect duties owed as a consequence of a section 1592(a)
violation, where liqudation has become final, only because such
collection, and any recalculation involved, is authorized under
the statute. This action is strictly limited, however, to losses
deriving directly from section 1592(a) violations. Since the
classification errors are not 1592(a) violations, they cannot be
taken into account in the calculation of lost duties (to be
tendered) under section 1592(c)(4). The only means under the
Customs laws to correct these mistakes was the protest procedure
or, if applicable, the reliquidation provision of 19 U.S.C.
1520(c)(1). Since the classification decisions were not
protested, they have become final and binding on the importer and
the Government.
HOLDING:
In determining lost duties to be tendered to Customs in a
prior disclosure situation, in accordance with 19 U.S.C.
1592(c)(4), the calculation shall take into account only the
duties the Government was deprived of by reason of the section
1592(a) violation. There shall not be allowed any offsets based
on overpayments deriving from other errors in the same entries
not identified as section 1592(a) violations.
Sincerely,
John Durant, Director
Commercial Rulings Division