CIT Denies Gov't Penalty Motion for Tariff Misclassification on Technicality
The Court of International Trade granted a reprieve to an importer facing penalties for tariff misclassification, but didn’t let the importer off the hook entirely. On Oct. 30, the court rejected a government request for penalties based on technicalities related to the calculation of the penalty amount. The government sought $324,687 against importer Lafidale for misclassification of handbags and wallets. CIT found that the importer was liable for penalties for gross negligence, but said the government’s muddled calculations prevented it from allowing the penalty to proceed. Although it denied the government’s motion, CIT said it would allow the government to correct its mistakes and refile.
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Between 2006 and 2009, Lafidale imported handbags and wallets into the U.S. On entry documentation, Lafidale classified the handbags under Harmonized Tariff Schedule subheading 4202.29.10, and the wallets under subheading 4202.39.50, both of which are for handbags or wallets that are “wholly or mainly covered with paper.” But Lafidale’s handbags and wallets weren’t covered with paper. Instead, they should have been classified under subheading 4202.22.15, for handbags and wallets with an outer surface of sheeting of plastic. The difference in duty rates was substantial. The duty for handbags and wallets covered in paper 5.3% and 7.8%, respectively. The duty on plastic handbags and wallets is 16%. The government said it lost $81,171.63 in revenue on 46 entries with a domestic value of $753,929
CBP sought penalties for gross negligence under 19 USC 1592(a). Lafidale was declared in default after failing to respond to the lawsuit, which means the court had to consider the government’s allegations to be true. That being the case, CIT found Lafidale to be grossly negligent under Section 592. “Lafidale classified its merchandise in 46 separate entries as ‘wholly or mainly covered with paper,’ and every entry lacked this obvious characteristic,” the court said.
Despite its finding that Lafidale was guilty, CIT nevertheless declined to allow penalties against the importer. The maximum penalty for Section 592 violations is the lesser of (i) the domestic value of the merchandise, or (ii) four times the loss of government revenue. The government said its requested penalty of $324,687 was four times its lost revenue of $81,173.63. But the government request said the “dutiable value” of the merchandise was $754,929, and made no mention of the domestic value. That meant CIT couldn’t determine whether the requested penalty was below the domestic value, as required by Section 592. CIT also faulted the government’s calculation of the amount of lost revenue, because it appeared that the government based the figure entirely on actual payment of a 5.3% duty rate. That would overinflate the duty lost on the wallets, upon which a 7.8% duty was paid.
(U.S. v. Lafidale, Slip Op. 13-133, dated 10/30/13, Judge Restani)
(Attorneys: Carrie Dunsmore for plaintiff U.S. government; defendant Lafidale, Inc. in default)