A significant new decision of the United States Court of International Trade discusses the concept of “deemed liquidation” of drawback claims. In Performance Additives LLC v. United States, Slip Op 24-65 (May 31, 2024), the CIT made two significant determinations, as follows;

1. If all of the designated import entries in a drawback claim are liquidated “and final” within one year after filing of a drawback claim, the claim is “deemed liquidated” at the rate and amount of drawback claimed, pursuant to 19 U.S.C. §1504(a)(2)(A), unless Customs has timely extended liquidation of the entry pursuant to 19 U.S.C. §1504(b);
2. Where an importer requests liquidation of a drawback claim based on estimated duties pursuant to 19 U.S.C. §1504(b)(2)(B), this has the effect of overcoming any extension of the liquidation period, and results in the drawback claim being “deemed allowed” at the amount of drawback asserted in the claim.

As a result of the Performance Additives decision, many claimants may find that drawback claims that have been languishing with Customs are in fact already allowed. Other claimants may want to seek deemed liquidations under 19 U.S.C. §1504(b)(2)(B). Further appellate proceedings in the case may further expand the scope of “deemed liquidation” of drawback claims.

Facts of the Case

Pennsylvania-based Performance Additives LLC filed substitution unused merchandise drawback claims [19 U.S.C. §1313(j)(2)] in respect of certain chemicals. Customs paid the company accelerated payment of drawback in respect of these claims. Later, in 2022, Customs liquidated the claims “no drawback”. Performance Additives protested these liquidations as invalid, asserting that the entries had previously been liquidated by operation of law.

Two drawback entries were involved in this case; (1) a 2020 entry for which all the designated import entries had been liquidated before the one year deadline set out in 19 U.S.C. §1504(a)(2)(A)[1], and (2) a 2016 entry for which Customs had twice extended the liquidation period, but filed to liquidate before the extension expired.

 

The Court’s Decision

A. Operation of the “Deemed Liquidation” Statute, 19 U.S.C. §1504(a)(2)(A)

Section 504(a)(2)(A) indicates that, unless Customs acts to extend liquidation, a drawback claim “not liquidated within 1 year from the date of entry or claim shall be deemed liquidated at the drawback amount asserted by the claimant or claim”.

The CIT controversially read two conditions into the language of the statute. First, citing the prefatory language “Except as provided in subparagraph (B) or (C),” the Court read the procedure set out at 19 U.S.C. §1504(a)(2)(B) as a general exception to the deemed liquidation rule[2]. That statute provides:

(B) Unliquidated imports

An entry or claim for drawback whose designated or identified import entries have not been liquidated and become final within the 1-year period described in subparagraph (A), or within the 1-year period described in subparagraph (C), shall be deemed liquidated upon the deposit of estimated duties on the unliquidated imported merchandise, and upon the filing with the Customs Service of a written request for the liquidation of the drawback entry or claim. Such a request must include a waiver of any right to payment or refund under other provisions of law. The Secretary of the Treasury shall prescribe any necessary regulations for the purpose of administering this subparagraph.

Second, the CIT interpreted the term “liquidated and become final”, as it appears in this statute to mean “liquidated and not protested within 90 days”, looking to the definition of “final liquidation” set out at Section 514(a) of the Tariff Act, 19 U.S.C. §1514(a).

The CIT then read these requirements back onto 19 U.S.C. §1504(a)(2)(A), holding that a drawback claim is “deemed liquidated” by operation of law only if, on the one year anniversary of the claim filing, all designated import entries in the claim had then “liquidated and become final”.

In Performance Additives’ case, all of the designated import entries were liquidated as of the one-year period, but some had been liquidated for less than 180 days. The Court thus held the claims had not been deemed liquidated, and that Performance Additives had not availed itself of the procedure in 19 U.S.C. §1504(a)(2)(B) to obtain a “deemed liquidation”.  It upheld the 2022 “no drawback” liquidation.

There are serious problems with this analysis, since Performance Additives could not have used the procedure in Section 504(b)(2)(B). That provision deals with “unliquidated imports”, and after the one year anniversary of its claim – indeed, well before – Performance Additives had no unliquidated imports. Moreover, the statute calls for payment of drawback based on “estimated” duty deposits – Performance Additives had no estimated duties in its claims, only liquidated duties.

Moreover, in reading the concept of “liquidated and final” import entries back into the deemed liquidation provision, 19 U.S.C. §1504(a)(2)(A), the court is reading words into the statute that do not appear there. The statute says that if CBP does not extend liquidation within one year a drawback claim is deemed liquidated as filed. It does not address the status of underlying import entries.

These issues may be further explored on appeal.

B. Operation of 19 U.S.C. §1504(a)(2)(B)’s “Deemed Liquidation’ Procedure

The Performance Additives decision also sheds light on the “deemed liquidation” procedure set out in 19 U.S.C. §1504(a)(2)(B). While Customs has a regulatory preference to not “work” a drawback claim until all underlying import entries are liquidated and final [19 C.F.R. §190.81], a claimant making the election under Section 504(a)(2)(B) does not merely get its claim ready to be worked, it gets a deemed liquidation and allowance of its claim. This is somewhat remarkable, because CBP may not have even looked at the claim substantively. However, such a “deemed liquidation” would be subject to reliquidation by CBP within 90 days.[3]

C. Entries Whose Liquidation Was Extended

Customs twice extended the liquidation period for Performance Additives’ 2016 entry, but failed to act on the entry before the extended liquidation period expired. The Court held that this entry was liquidated by operation of law, and CBP’s attempted 2022 liquidation was void.

Implications of the Performance Additives Decision

The Performance Additives decision has several potential implications.

First, it holds that if all of a drawback claim’s designated import entries are liquidated and final before the one-year anniversary of the filing of the claim, the claim is “deemed liquidated” as filed. Since CBP is less than assiduous in extending liquidation of drawback claims, many claimants may learn that the claims they are waiting upon have already been deemed allowed by law.

Second, it confirms that by requesting liquidation of the claim based on “estimated duties” pursuant to 19 U.S.C. §1504(a)(2)(B), a claimant not only gets Customs to “start working” the claim, but obtains a deemed liquidation in its favor. If a claimant made such a request, and Customs took no action within 90 days, that claimant would appear to have an allowed claim.

Third, however, it creates a “no man’s land’ for claimants (like Performance Additives) whose designated import entries were liquidated but not final within the one year period set out in 19 U.S.C. §1504(a)(2)(A). They cannot take advantage of the “deemed liquidation” procedure in §1504(a)(2)(B), and their claims may be left in limbo. The 4-year outside period for liquidation specified in 19 U.S.C. § 1504(b)(2) only applies to drawback claims “the liquidation of which has been extended by Customs”. It appears that CBP may be able to delay processing such claims indefinitely.

Questions?

If you have any questions concerning the Performance Additives decision or its implications, please contact a Neville Peterson professional.

[1] 19 U.S.C. §1504(a)(2)(A) provides:

(2) Entries or claims for drawback

(A) In general

Except as provided in subparagraph (B) or (C), unless an entry or claim for drawback is extended under subsection (b) or suspended as required by statute or court order, an entry or claim for drawback not liquidated within 1 year from the date of entry or claim shall be deemed liquidated at the drawback amount asserted by the claimant or claim. Notwithstanding section 1500(e) of this title, notice of liquidation need not be given of an entry deemed liquidated.

[2] Subsection (C) of the statute was a transitional rule dealing with drawback claims filed prior to 2004.

[3] An affirmative liquidation by Customs and a deemed liquidation pursuant to 19 U.S.C. §1504(a)(2)(B) are subject to reliquidation by Customs. A deemed liquidation pursuant to 19 U.S.C. §1504(a)(2)(A) is not.