CLA-2-RR:CR:GC 967284 IOR
Tariff No.: 8507.20.80; 9903.08.14
Port Director
Customs and Border Protection
111 West Huron St.
Rm. 603
Buffalo, NY 14202
Attn: Sharon M. Swiatek, SIS
Re: Protest AFR No. 0901-04-100195; classification of lead-acid storage batteries; extension of liquidation
Dear Port Director:
This is our decision on the application for further review (AFR) of protest no. 0901-04-100195, filed against your classification of lead-acid storage batteries, under the Harmonized Tariff Schedule of the United States (HTSUS). The subject two entries were liquidated on March 26, 2004 and this protest and AFR was timely filed on June 3, 2004. Our decision follows a teleconference held on March 9, 2005, between counsel for the protestant and members of the staff of the Office of Regulations and Rulings, General Classification Branch.
FACTS:
Two entries of batteries were made on January 22, 2001. The entry summaries identified the merchandise as “lead-acid stor batteries, other”, imported from Canada, and the entered classification was subheading 8507.10.0090, HTSUSA. The commercial invoices identified the merchandise as “UN2794, Group III, Class 8 Batteries” made in Germany.
According to the Customs and Border Protection (“CBP”) Automated Commercial System (“ACS”), the liquidation of the entries was extended three times. Specifically, according to ACS, the liquidation of the entries was extended on January 5, 2002, November 23, 2002, and November 15, 2003. For each extension, ACS records indicate that a notice of extension was sent to the importer and the importer’s surety. ACS reflects separate addresses for the importer and the surety. Two Notice of Action forms, CF 29, both dated October 8, 2003, were issued with respect to the two entries. Both informed the protestant that the entered batteries would be rate advanced to reflect the proper classification of the batteries under subheadings 8507.20.8090, HTSUS, and 9903.08.14, HTSUS, to reflect the 100% duties applicable to merchandise from the European Union (“EU”). The notices stated that “these batteries are used as reserve power supply in telecommunications equipment and industrial plant and also in safety power supply equipment.” The notices referenced and had attached HQ 963685, dated December 12, 2000.
The protestant, the importer, has provided documentation received through a Freedom of Information Act (“FOIA”) request pertaining to an enforcement issue with regard to the batteries. The unredacted versions of these documents have been provided to this office by the port. Specifically, an Enforcement Evaluation Referral Form, dated August 14, 2001, indicates that in August, 2000, CBP was evaluating whether importations of batteries such as the subject batteries were an evasion of the 100% duties applicable to merchandise from the EU. The document states that with respect to another entry or entries, a classification decision was made, and “this” entry was liquidated and the duty bill was paid without protest. The document refers to HQ 963685, supra, which pertains to the classification of lead acid storage batteries, and the 100% EU duties. In a second document consisting of the Enforcement Evaluation Team’s (“EET”) “notes to file,” the last note was made on November 21, 2001, and questions the availability of additional information pertaining to the merchandise and the appropriateness of the 100% duty, as well as raises the possibility of unsetting the entries and issuing a proposed rate advance.
Prior to the subject entries of batteries, other entries of similar batteries had been rate advanced and liquidated as classified under subheading 8507.20.80, HTSUS, and therefore subheading 9903.08.14, HTSUS, with the 100% duties, without any protests being filed. According to the CBP officials at the port, subsequent to the protestant’s entries, an entry of batteries similar to those entered by the protestant was made on March 8, 2001, under subheading 8507.10.00, HTSUS. That importer provided information to CBP pertaining to the batteries, asserting that they had qualities suitable for starting piston engines, and therefore were not subject to 100% duties. Liquidation of the subject entries was delayed pending receipt of supporting information regarding the March 8, 2001 entry of similar batteries, in the belief that supporting evidence of assertions would be provided. The information was expected to be potentially applicable to the subject entries as well. Verification of the assertions by means of a section 1592 investigation was considered. In addition, the subject entries pertained to batteries received by the importer from the same shipper as the other earlier entries for which the 100% duties had been assessed and not protested, giving rise to the enforcement evaluation request, dated August 14, 2001, pertaining to the shipper.
Subsequent to the events of September 11, 2001, the entries were returned by the EET to the port for handling. At the port, due to staffing changes the classification issue was not resolved without delay. Prior to September 11, 2001, the two Industry Group V teams, 157 and 158, in the Port of Buffalo each had one Field National Import Specialist (FNIS) team leader, and shared three Associate Import Specialists (AIS). Team 158 was assigned the subject entries. Following September 11, 2001, the AIS’s were assigned on a rotational basis to other duties at the release sites within the port. This assignment continued until January, 2003, and during this period, at any given time, two of the three AIS’s assigned to teams 157 and 158 may have been working at the release sites. In addition, from April, 2002 until June, 2003, the FNIS team leader of team 158 was responsible for both teams 157 and 158, due to the departure from CBP of the FNIS team leader of team 157. The team leader position for team 157 was not filled until June, 2003. In addition, the staffing of the Commercial Violations Team at the port was cut in half for the period from September 11, 2001 to January, 2003. The Enforcement Examination continued to be in effect until the issue was closed by the Enforcement Examination Team on August 18, 2004, based on the conclusion that the case lacked merit under section 1592. It was stated by the port that the extensions were reasonable in light of uncertainty in pursuing enforced compliance given the shifting priorities of CBP in the post 9/11 environment.
The subject entries were liquidated on March 26, 2004. We note that the appraised value of the merchandise remained as entered. The entries of similar batteries made on March 8, 2001, were not liquidated until February, 2005.
The protestant takes the position that more than one year passed after entry without the issuance of any valid extensions or suspensions, and therefore the entries were deemed liquidated. In the protest submission, it is asserted that neither the importer nor its surety received any notice of extension until the importer received on November 20, 2003, notices of extension dated November 15, 2003. Further the protestant asserts that as of August 14, 2001, CBP had all the information necessary to classify the entered merchandise and issue a rate advance. The protestant asserts the documentation submitted establishes that CBP did not need any additional information to appraise and classify the entered merchandise and therefore had no legitimate statutory basis to delay the liquidations for the length of time between entry and liquidation, and that the extensions were therefore unlawful.
With respect to the classification of the entered merchandise, the protestant takes the position that subheading 8507.10.0090, HTSUSA, does not mandate that the principal use must be for starting piston engines, in order for lead acid storage batteries to be classified therein, when the only alternative is a basket provision. The protestant also takes the position that a battery capable of being used for starting piston engines qualifies to be classified in subheading 8507.10.0090, HTSUSA. The protestant acknowledges that the batteries in question have multiple uses, including starting piston engines, telecommunications, emergency lighting, microwave radio systems, power generation plants, and photo voltaics. The protestant does not assert that any one of the foregoing uses predominates over the others.
Finally, the protestant claims that the changes in classification and value are unenforceable by reason of the equitable doctrine of laches, and that the protestant was severely prejudiced by the unreasonable delay of the government in liquidating the entries.
ISSUES:
Whether the entries liquidated by operation of law.
Whether the protestant is entitled to equitable relief.
Whether the lead-acid storage batteries are classifiable as electric storage batteries under subheading 8507.10.0090, HTSUS, as lead-acid storage batteries, of a kind used for starting piston engines, or subheading 8507.20.8090, HTSUS, as other lead-acid storage batteries.
LAW AND ANALYSIS:
Initially we note that the matters protested are protestable under 19 U.S.C. §1514(a)(2) and (5), as decisions on classification, and the liquidation of an entry.
Under 19 U.S.C. §1504, an entry of merchandise not liquidated within one year from the date of entry of such merchandise shall be deemed liquidated at the rate of duty, value, quantity, and amount of duties asserted at the time of entry by the importer of record, unless the one year period for liquidation is extended. The statute authorizes reasons for which liquidation may be extended, including that information needed for the proper appraisement or classification of the merchandise, or for insuring compliance with applicable law, is not available. Authority is provided for regulations prescribing the procedures for such extensions of liquidation.
The CBP regulations issued under this statute are found in 19 CFR §159.12. Under §159.12(a)(1)(i), the port director may extend the one year statutory period for liquidation for an additional period not to exceed one year if information needed by CBP for the proper appraisement or classification of the merchandise is not available. Under §159.12(b), if the port director extends the time for liquidation as provided above, he is required to promptly notify the importer or the consignee and his agent and surety that the time has been extended and the reasons for doing so. Under §159.12(d), if the port director extends the time for liquidation under 159.12(a)(1)(i), the period of time may be extended for an additional year, if the port director determines that more time is needed. Section 159.12(e) provides that the total time for which extensions may be granted by the port director, may not exceed three years.
According to ACS, notices of extension to the importer and surety were processed on January 5, 2002, November 23, 2002 and November 15, 2003, for both entries. In C.S.D. 83-20, the third holding stated “[w]here Customs computer indicated a notice of extension has been sent to the surety, Customs routine office practice of mailing such notices of extension within a week after such notices are generated is sufficient evidence of mailing the notice, even though a surety claims it did not receive such notice.” (C.S.D. 83-20 originally contained three holdings; however, the first two holdings were reversed by a Headquarters Ruling Letter dated March 24, 1983, leaving only the remaining third holding valid. See 17 Cust. Bull. No. 19 at 8 (May 11, 1983)).
In this case, the ACS records of the processing of the notices of extensions are sufficient evidence to create the presumption that proper notice of extension was given (see e.g., International Cargo & Surety Insurance Co. (Data Memory Corp.) v. United States, 15 CIT 541, 779 F.Supp. 174 (1991)). A presumption of regularity attaches to the acts of government officials. See, e.g., International Cargo & Surety Ins. Co., v. United States, supra. In addition, proof of mailing raises a presumption of delivery. See, Intra-Mar Shipping Corp. v. United States, C.D. 4160, 66 Cust Ct. 3,5 (1971). The presumption of delivery is rebuttable by proof of nonreceipt. Id. See Hanover Insurance Co. v. United States, (23 Int'l Trade Rep. (BNA) 1495 (Ct. Intl. Trade 2001)), in which affidavits from the importer’s employees and the broker responsible for handling suspension notices from CBP, asserting no recollection of receiving or reviewing such notices, were required to rebut the presumption that notice was not given.
The issue of "nonreceipt" of notice was addressed in A.N. Deringer v. United States, 20 C.I.T. 978 (1996). In Deringer, the broker acting as the importer of record, challenged CBP’s decision denying the plaintiff's protest against CBP’s liquidation of the subject merchandise. The plaintiff alleged that it did not receive any notices of extension or suspension of liquidation from CBP after the date of entry. The court found that CBP introduced sufficient evidence to invoke the presumption of regularity that attaches to acts of government officials. Secondly, proof of mailing gave rise to the presumption of delivery, which the plaintiff failed to rebut by proof of nonreceipt. Id. at 72. Accordingly, the court found that CBP was presumed to have generated and mailed the notices that were at issue. Therefore, the burden to prove non-receipt of the notice is then on the protestant. In the instant protest, the protestant provides no evidence that neither it not its surety received the notice. Mere assertions made by counsel are not evidence. See Bar Bea Truck Leasing Co., Inc. V. United States, 5 CIT 124, 126 (1983).
In such a case, when the protestant fails to rebut that presumption that proper notice of extension was given, "the only issue to be decided is whether the extension was permissible under the statute," (International Cargo & Surety Insurance Co., 15 CIT at 545). The issue of the permissibility of extension of liquidation was addressed by the Court of Appeals for the Federal Circuit in St. Paul Fire & Marine Ins. Co. [Carreon] v. United States, 6 F.3d 763 (Fed. Cir. 1993) (reversing the CIT decision (16 CIT 663, 779 F.Supp. 120 (1992)), wherein the court concluded:
...Customs may, for statutory purposes and with the requisite notice, employ up to four years to effect liquidation so long as the extensions it grants are not abusive of its discretionary authority. Such an abuse of discretionary authority may arise only when an extension is granted even following elimination of all possible grounds for such an extension. There is, in sum, a narrow limitation on Customs discretion to extend the period of liquidation.
(6 F.3d at 768). The court went on to state that "Customs decisions to extend are entitled to a presumption of legality unless [the plaintiff] can prove that these decisions were unreasonable." (6 F.3d at 768).
In Ford Motor Co. v. United States, 286 F.3d 1335 (Fed. Cir. 2002), the Court found a 30 month period of almost no substantive work during a 44 month investigation including two periods of inactivity totalling 22 months was unreasonable as a manner of conducting an investigation, and the length of time was unreasonable. In Ford, it was alleged that CBP had abused its discretion in extending the liquidation of entries three times. In that case the entries were also the subject of an investigation. Customs took the position that it extended the entries while waiting for further information to ensure the correct classification and appraisement of the imported merchandise, and that it extended the liquidations because it was the policy to extend liquidation pending a section 1592 investigation, and it was reasonably expected that the investigation could produce information affecting the classification or appraisement of the merchandise.
While the court in Ford affirmed its decision in St. Paul Fire & Marine Ins. Co., where it acknowledged that CBP “possesses broad discretion concerning whether a liquidation extension is warranted,” the court did not find the reasons given for the delays in Ford to be reasonable excuses. 286 F.3d at 1340. However, the court did consider the setting in which the delays occurred, as follows:
We do not hold that, in times of natural or national calamity, repeated extensions of liquidation and periods of inactivity could not withstand judicial scrutiny for reasonableness. Customs’ delay in this case did not occur in such a setting, however. Rather, Customs sought to explain its delay in conducting the fraud investigation by pointing to typical day-to-day workplace exigencies, such as competing responsibilities, an agent taking sick leave, and the various tasks associated with starting a new office. Acceptance of these exigencies as excuses for Customs’ lengthy delay in this case would leave the statutory objective of prompt liquidation, and this court’s requirement that any liquidation delays be reasonable, largely meaningless.
Id., at 1343.
In Stemcor USA, Inc. v. United States, Slip op. 2002-149, 24 Int’l Trade Rep. (BNA) 2259 (Ct. Int’l Trade 2002), the importer claimed CBP had acted unreasonably in issuing a notice of extension, just before the one year anniversary of the entry, claiming that CBP’s continuing need for information was due to CBP’s laxity. The court held that showing laxity is not sufficient, but it must be established that the laxity was unreasonably so. The court considered evidence that CBP was actively considering the matter at issue, and concluded that lack of evidence of “any other conversations or ongoing discussions does not prove that [CBP] was not considering the matter….” The court held that the importer had failed to eliminate all possible grounds for CBP’s extension of the liquidation period, and thus failed to overcome the presumption of correctness afforded to CBP’s decisions.
As the protestant asserts that the extension of the liquidation of the entries was an abuse of discretion, we will consider whether it appears that between January 22, 2001 and March 26, 2004 Customs took an unreasonable amount of time in which to liquidate the entries. In the instant case, the evidence shows that the extensions of January 5, 2002 and November 23, 2002 occurred during the period between September 11, 2003 and January, 2003, when the staff of the Industry Group responsible for the subject entries, and the staff of the Commercial Violations Team was significantly reduced. The extension of November 23, 2002 occurred when even the duties of the team leader of team 158 were increased to include those of team 157. The third extension of November 15, 2003, occurred only five months after the team leader of team 158, was relieved of the additional responsibility for team 157.
In this case, the total time between entry and liquidation was 38 months. Unlike in Ford, there is no evidence of periods of total inactivity. Further, a significant portion of the 38 months was impacted by the events of September 11, 2001, which could be considered a national calamity. The total period of time during which CBP had to work on the subject entries, and which was not impacted by the staffing changes after September 11, or the increased responsibilities of the responsible team leader, until the third extension, was from January 22, 2001 to September 11, 2001, a period of almost nine months, and from June, 2003 to November 2003, a period of five months, for a total of fourteen months. During those fourteen months, the issue had been referred to the EET for consideration, for a period of just over three months. Had the fourteen months occurred consecutively, it would be arguable even then that one year after liquidation it was reasonable to seek an extension to resolve the issue of the classification of the batteries.
There is evidence that the battery issue was being actively considered from the time of entry to November 21, 2001, and no evidence that CBP was not actively considering the matter during the period after November 21, 2001. The protestant takes the position that the entries could have been liquidated as of November 21, 2001, however, the documentation does not support that. The EET’s note of November 21, 2001 indicates that as of that date, the classification issue had not been resolved because there was still a question whether other information was available to finally resolve the classification issue. The March 8, 2001 entry of batteries had raised issues not present at the time of the liquidation of the batteries entered prior to the subject batteries and referred to in the enforcement evaluation request of August 14, 2001. Even assuming complete inactivity on the subject entries during the period of November 22, 2001 to January, 2003, a period of almost 14 months, during the staffing shortages due to September 11, delays under these circumstances, are more likely to withstand judicial scrutiny for reasonableness under the decision in Ford, supra, than the delays in Ford, given the enormity of the impact of the events of September 11 in general and upon CBP in particular. In this case, according to the port, the issue of the batteries was under active consideration, and was not resolved until the entries were liquidated. Under Stemcor USA, the protestant must establish that not only was CBP lax in its consideration of the entries, but was unreasonably so.
Therefore, we conclude that the delay in liquidating the entries was not so unreasonable as to constitute an abuse of discretion and thereby invalidate the extensions of the subject entries, and that the protestant has not eliminated all possible grounds for CBP’s extension of the liquidation period.
Protestant contends that relief should be granted on the basis of laches. The legal doctrine of laches precludes enforcement of a legal right or claim if a long delay in asserting the right or claim has prejudiced the adverse party. We note that laches is an equitable doctrine (see, e.g., A.C. Aukerman Co. v. R.L. Chaides Const. Co., 960 F. 2d 1020, 1030-1031 (Fed. Cir. 1992); Robins Island Preservation Fund v. Southold Dev., 959 F. 2d 409, 423-424 (2nd Cir. 1992)). Equitable principles do not operate against the Government in cases involving the collection or refund of duties on imports (Air-Sea Brokers, Inc. v. United States, 66 CCPA 64, 67-68, C.A.D. 1222, 596 F. 2d 1008, 1011 (1979); see also Mitsubishi Electronics America, Inc. v. United States, 18 CIT 929, 932 (1994). Since this is a case involving the collection or refund of duties on imports, the doctrine of laches is not available in this case. See e.g. HQ 224650, dated November 25, 1994; HQ 229330, dated March 12, 2002.
With respect to the classification of the batteries, classification under the HTSUS is made in accordance with the General Rules of Interpretation (GRIs). GRI 1 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative Section or Chapter Notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs may then be applied. When the issue is based on competing subheadings, for purposes of determining the subheading, GRI 6 is applied. GRI 6 provides that "for legal purposes, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related subheading notes and mutatis mutandis, to [rules 1 through 5], on the understanding that only subheadings at the same level are comparable."
The HTSUS subheadings under consideration are as follows:
Electric storage batteries, including separators therefor, whether or not rectangular (including square); parts thereof:
Lead-acid storage batteries, of a kind used for starting piston engines…………………………………………………………….
Other lead-acid storage batteries:
Other………………………………………………………..
Articles the product of Austria, Belgium, Finland, France, the Federal Republic of Germany, Greece, Ireland, Italy, Luxembourg, Portugal, Spain, Sweden, or the United Kingdom:
Lead-acid storage batteries, other than of a kind used for starting piston engines or as the primary source of electrical power for electrically powered vehicles of subheading 8703.90 (provided for in subheading 8507.20.80)…………………………………………..
In order for subheading 8507.10.00, HTSUS, to be applicable, the batteries must be of a kind used for starting piston engines. In Primal Lite Inc. v. United States, 182 F.3d 1362 (Fed. Cir. 1999), aff’g 15 F.Supp. 2d 915 (Ct. Int’l Trade 1998), the court construed the “of a kind used” language in a different subheading of the HTSUS, and stated that Additional U.S. Rule of Interpretation 1 of the HTSUS dictates how tariff classifications should be construed when the classification decision is controlled by use. The court further stated that as a principal use provision, the “of a kind used” provision at issue is governed by Additional U.S. Rule of Interpretation 1(a), which provides:
In the absence of special language or context which otherwise requires –
a tariff classification controlled by use (other than actual use) is to be determined in accordance with the use in the United States at, or immediately prior to, the date of importation, of goods of that class or kind to which the imported goods belong, and the controlling use is the principal use.
In accordance with the Primal Lite decision, we construe subheading 8507.10.00, HTSUS, as a principal use provision. See also HQ 963685, dated December 12, 2000, in which the Primal Lite decision was applied to another subheading with the language “of a kind used.”
We find that the protestant has not provided any evidence that the subject batteries are principally used for starting piston engines, that is, that in accordance with Additional U.S. Rule of Interpretation 1(a), the largest use in the United States at the time of importation of articles of the same class or kind as the imported article, is for starting piston engines. The protestant acknowledges that the subject batteries have multiple uses, and does not take the position that any one use of the batteries predominates over the others.
The protestant further takes the position that it is not mandated that the principal use of the batteries must be for starting piston engines when the only alternative is a basket provision. The word “other” generally indicates a basket provision. See The Item Company v. United States, 98 F.3d 1294, 1296 (Fed. Cir. 1996). The protestant’s argument is without merit. In the Primal Lite case, when the merchandise at issue did not meet the requirements of the principal use provision, the merchandise was held to be classified in a basket provision. That was also the result in HQ 963685, supra.
The imported batteries are classified in subheading 8507.20.80, HTSUS, which provides for: “[e]lectric storage batteries, including separators therefore, whether or not rectangular (including square); parts thereof: Other lead-acid storage batteries: Other,” which are subject to the 100% duty rate under subheading 9903.08.14, HTSUS, which provides for: “[a]rticles the product of… Germany…: Lead-acid storage batteries, other than of a kind used for starting piston engines or as the primary source of electrical power for electrically powered vehicles of subheading 8703.90 (provided for in subheading 8507.20.80).”
HOLDING:
By application of GRIs 1 and 6, imported batteries are classified in subheading 8507.20.80, HTSUS, which provides for: “[e]lectric storage batteries, including separators therefore, whether or not rectangular (including square); parts thereof: Other lead-acid storage batteries: Other,” which are subject to the 100% duty rate under subheading 9903.08.14, HTSUS, which provides for: “[a]rticles the product of… Germany…: Lead-acid storage batteries, other than of a kind used for starting piston engines or as the primary source of electrical power for electrically powered vehicles of subheading 8703.90 (provided for in subheading 8507.20.80),” with a column one, general duty rate of 100% ad valorem. Duty rates are provided for your convenience and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on the internet at www.usitc.gov/tata/hts/.
The protest should be DENIED. In accordance with the Protest/Petition Processing Handbook (CIS HB, June 2002, pp. 18 and 21), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial Rulings Division