Importer Katana Racing Could Not Revoke of Statute of Limitations, US Tells CAFC in Unpaid Duty Case
The Court of International Trade was wrong to dismiss the government's case against importer Katana Racing seeking to collect over $5.7 million in unpaid duties due to an expired statute of limitations, the U.S. argued in its Sept. 13 opening brief at the U.S. Court of Appeals for the Federal Circuit. The government's suit was in fact timely filed since Katana could not revoke its waiver of the statute of limitations, the brief said. The U.S. said no law backs the finding that such a waiver could be revoked and stop the government from filing suit for unpaid duties, and that the trade court's ruling "leads to absurd results" (U.S. v. Katana Racing, Fed. Cir. #22-1832).
Sign up for a free preview to unlock the rest of this article
Timely, relevant coverage of court proceedings and agency rulings involving tariffs, classification, valuation, origin and antidumping and countervailing duties. Each day, Trade Law Daily subscribers receive a daily headline email, in-depth PDF edition and access to all relevant documents via our trade law source document library and website.
The case involves 386 entries of tires between 2009 and 2012 that Katana claims were the result of identity theft. The company said individuals taking advantage of them used identifying information to falsely declare Katana as the importer of record on hundreds of entries. Following the 2009 imposition of safeguard tariffs on tires from China, Katana says it was persuaded by Chinese suppliers to enter into a delivered duty paid (DDP) contract, which obligated the suppliers to pay all import duties. Katana proceeded without suspicion until 2012, when CBP contacted Katana in order to conduct a “Quick Response Audit” on 61 entries. After internally investigating, Katana theorized that it had been the victim of fraud and notified CBP via a voluntary prior disclosure.
In April 2013, CBP issued a report finding that duties had been underpaid on the 61 entries in the aggregate amount of $792,053 but included notes that said that Katana claimed it did not direct the import of the entries. In May 2014, Katana executed a two-year waiver of the statute of limitations period in response to CBP’s request. In 2016, CBP issued a revised duty demand, requesting payment of a revenue loss of $5.7 million. Katana submitted another waiver of the statute of limitations, good through July 15, 2019, so that the importer could carry out any administrative proceeding. CBP in 2019 then issued a summary demand for the duties with just 25 days remaining in the waived limitations period. In response, Katana revoked its 2016 waiver of the statute of limitations, saying that the waiver had been procured under “false pretenses” and that CBP hadn't intended to conclude an administrative proceeding.
The trade court upheld Katana's justification for its revocation in March, citing "CBP’s apparent recalcitrance in specifying to the defendant the actual §1592(a) violation it committed" and noting that CBP had previously "acknowledged Katana’s DDP agreement ... [which] absolved it of the problems caused by those who actually inflicted injury on the Treasury through misuse of defendant’s name" (see 2203280047). Katana had granted the waiver only after CBP told the importer it would consider the identity theft, and was justified in revoking it when it became apparent the agency would fail to do so.
The U.S. then took its case to the Federal Circuit, where it argued that Katana could not revoke its statute of limitations waiver since a valid waiver is irrevocable. "Because the waiver of an applicable statute of limitations is a voluntary, unilateral action, the court erred when it began analyzing Katana’s waiver based on whether it got the full benefit of its purported bargain (i.e., an extensive administrative procedure)," the brief said. "This analysis treats Katana’s waiver like a contract in direct contradiction of applicable precedent."
Further, no law backs CIT's finding that Katana could revoke its statute of limitations waiver under these circumstances, the U.S. told the appellate court. The U.S. acknowledged that there could be "very limited circumstances" where such a waiver could be revoked, including government malfeasance or misconduct. However, no such allegations are present in this case, the U.S. said. "Absent affirmative misconduct, which is not present or alleged here, a validly executed waiver should not be able to be unilaterally revoked," the brief said. Then, even if such conditions could be proved, a party cannot revoke a waiver retroactively, the government argued.
"Indeed, as a matter of policy, the trial court’s rationale leads to absurd results," the brief said. "If a statute of limitations waiver could be revoked effectively at any time after the original expiration of the statute of limitations, the Government could never rely on the waiver. CBP could never complete its administrative proceedings, including fully developing any investigation, in reliance on such a waiver because the waiving party could revoke the waiver rendering an immediate action by the Government untimely. Thus, the Government could not postpone filing suits based on such waivers, to the detriment of the Government and investigated persons alike."
The U.S. also said that CIT erred in finding that CBP was required to exhaust administrative proceedings before collecting duties under the law. The law says that if the U.S. is deprived of duties, CBP shall require that these duties be restored "whether or not a monetary penalty is assessed." Since the statute does not add any further administrative process as a condition to the duty demand, CIT erred when it "held CBP to a standard that the law does not require," the brief said.