Campbell Soup Co., Inc. v. U.S.

• Decision Date: 03 March 1997
• Docket Number: No. 94-1435,94-1435
• Citation: 107 F.3d 1556
• Parties: CAMPBELL SOUP COMPANY, INC., Plaintiff-Appellant, v. The UNITED STATES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1556

107 F.3d 1556

18 ITRD 2441

CAMPBELL SOUP COMPANY, INC., Plaintiff-Appellant, v. The UNITED STATES, Defendant-Appellee.

No. 94-1435.

United States Court of Appeals Federal Circuit.

March 3, 1997.

Rehearing Denied; Suggestion for Rehearing In Banc Declined

July 8, 1997.

Ronald W. Gerdes, Sandler, Travis & Rosenberg, P.A., Washington, D.C., argued, for plaintiff-appellant. With him on the brief was Teresa M. Polino.

Bruce N. Stratvert, Civil Division, Commercial Litigation Branch, Department of Justice, International Trade Field Office, New York City, argued, for defendant-appellee.

With him on the brief was Joseph I. Liebman. Also on the briefs were Frank W. Hunger, Assistant Attorney General of the United States, David M. Cohen, Director, Washington, D.C. Of counsel on the brief was Jack D. Diamond, Office of Assistant Chief Counsel, International Trade Litigation, United States Customs Service, New York City.

Before ARCHER, Chief Judge, and NEWMAN and MAYER, Circuit Judges.

Opinion for the court filed by Chief Judge ARCHER. Concurring-in-part/dissenting-in-part opinion filed by Circuit Judge NEWMAN.

ARCHER, Chief Judge.

Campbell Soup Company, Inc. (Campbell) appeals the summary judgment of the United States Court of International Trade, Campbell Soup Co. v. United States, 853 F.Supp. 1443 (Ct. Int'l Trade 1994), holding that Campbell was not entitled to deduct Mexican tax rebates or freight costs in determining the computed value under 19 U.S.C. § 1401a(e) (1994) of imported merchandise for assessment of import duties. We affirm-in-part and reverse-in-part.

BACKGROUND

Campbell imports tomato paste from a wholly-owned Mexican subsidiary, Sinalopasta, S.A. de C.V. (Sinalopasta). Upon entry into the United States, Campbell submitted a Cost Submission, Customs Form 247 (CF 247), to the United States Customs Service (Customs), which set forth the computed value of the merchandise. In calculating the computed value of the imported merchandise on the CF 247, Campbell deducted $1,327,284 in rebated internal Mexican taxes received from the Mexican government. It also reported certain freight costs as part of the cost of materials used to produce the merchandise. Customs questioned the treatment of these items on the CF 247 and had its Office of Regulatory Audit (ORA) verify the data through an audit of the accounting books and records of Campbell and Sinalopasta.

Under a Mexican export program, "Certificado Export de Devolucion de Impuestos" (CEDIS), the Mexican government issued tax certificates to producers in amounts equal to a percentage of the value of exported merchandise. The recipients can apply the certificates as credit toward payment of Mexican taxes. On its financial records, Sinalopasta recorded the CEDIS rebates as "miscellaneous profit." On CF 247, the rebates were deducted from its "general expenses."

When ORA audited the financial records, it concluded that Sinalopasta had improperly deducted the tax rebates from expenses on the CF 247. It further determined that the transportation costs should have been treated as selling expenses rather than material costs and were not deductible in arriving at computed value. Customs adopted the findings of the ORA audit.

Campbell filed a protest in which it contended that the rebates of internal Mexican taxes were applicable to materials used to produce the finished tomato paste and should have been allowed as a reduction of material cost in accordance with 19 U.S.C. § 1401a(e)(2)(A) in arriving at computed value. Campbell also protested Customs' determination that $416,324 for the transportation of the finished tomato paste from Sinalopasta's loading dock in Mexico to the United States border was properly regarded as selling expenses and should not be allowed as a deduction in arriving at the computed value of the merchandise. These freight costs had been treated as "production costs" on Sinalopasta's financial records and as "material component costs" on the CF 247. Although admitting that the way freight costs had been reported on the financial records complied with generally accepted accounting principles in Mexico and that the original CF 247 had erroneously treated freight as part of material costs, Campbell argued in its protest that the freight should have been deducted in arriving at computed value.

When the protest was denied, Campbell appealed to the Court of International Trade. The court entered summary judgment in favor of Customs.

DISCUSSION

A grant of summary judgment by the Court of International Trade is reviewed "for correctness as a matter of law, deciding de novo the proper interpretation of the governing statute and regulations as well as whether genuine issues of material fact exist." St. Paul Fire & Marine Ins. v. United States, 6 F.3d 763, 767 (Fed.Cir.1993). When reviewing a decision by the Court of International Trade, this court applies anew the standard of review applied by that court to the agency's decision. Kemira Fibres Oy v. United States, 61 F.3d 866, 871 (Fed.Cir.1995). ¹ A presumption of correctness is accorded to the decision of Customs, Jarvis Clark Co. v. United States, 733 F.2d 873, 878 (Fed.Cir.1984), and to overcome this presumption, the importer has the burden of proof. St. Paul Fire & Marine, 6 F.3d at 767.

I.

A. The first issue concerning the appraisement of the imported merchandise involves the proper treatment of internal Mexican taxes applicable to the cost of raw materials purchased by Sinalopasta which were rebated upon exportation of the finished tomato paste. Campbell asserts that in determining the computed value of the merchandise these CEDIS rebates should have been deducted from Sinalopasta's cost of materials and that its profits should not have included the rebates. Campbell argues that when Customs disallowed the deduction of the rebates from Sinalopasta's expenses it did not correspondingly reduce the profits by the same amounts. As a result, the appraised value of the merchandise was increased by the amount of the rebates, instead of being reduced.

Both parties agree that the merchandise in question is properly subject to appraisement under the provisions for computed value found at 19 U.S.C. § 1401a(e) (1994). The formula for determining the computed value of imported merchandise for duty assessment purposes is set forth in the statute, as follows:

(1) The computed value of imported merchandise is the sum of--

(A) the cost or value of the materials and the fabrication and other processing of any kind employed in the production of the imported merchandise;

(B) an amount for profit and general expenses equal to that usually reflected in sales of merchandise of the same class or kind as the imported merchandise that are made by the producers in the country of exportation for export to the United States;

(C) any assist, if its value is not included under subparagraph (A) or (B); and

(D) the packing costs.

19 U.S.C. § 1401a(e)(1) (1994). The statute also provides for an exclusion of certain refunded taxes in calculating the cost or value of the materials under paragraph (1)(A):

(2) For purposes of paragraph (1)--

(A) [t]he cost or value of materials under paragraph (1)(A) shall not include the amount of any internal tax imposed by the country of exportation that is directly applicable to the materials or their disposition if the tax is remitted or refunded upon the exportation of the merchandise in the production of which the materials were used.

19 U.S.C. § 1401a(e)(2) (1994).

The Court of International Trade specifically found that "Sinalopasta received [CEDIS] rebates of $1,327,284 from the Mexican government for domestic taxes the company had paid on manufacturing input materials," citing the parties' agreed statement of facts. These statutory provisions are unambiguous; remitted or refunded internal taxes directly applicable to materials, like the CEDIS rebates at issue in this case, are to be excluded from the cost or value of the material calculated under paragraph (1)(A). Under the plain language of sections 1401a(e)(1)(A) and (2)(A), therefore, Customs was required to exclude the CEDIS rebates from the cost or value of materials in determining the computed value of the imported merchandise.

The Court of International Trade did not consider adequately the provisions of sections 1401a(e)(1)(A) and (2)(A), stating that Campbell's reliance on the latter section was misplaced because it "seeks a deduction from 'general expenses,' the calculation of which depends on the application of § 1401a(e)(1)(B), (e)(2)(B)." ² While it is true that Campbell deducted the CEDIS rebates from general expenses on CF 247 and Customs disallowed such deduction, as noted in footnote 4 of the court's opinion, the disallowance of the deduction from expenses does not appear to have been challenged in Campbell's protest to Customs. Rather, the record before Customs indicates that Campbell sought a deduction of the CEDIS rebates from the cost or value of materials. Thus, it was error for the court not to consider the applicability of sections 1401a(e)(1)(A) and (2)(A).

Similarly, the government in its brief in this appeal does not directly respond to Campbell's argument as to the deductibility of the CEDIS rebates from material costs, but instead repeats the court's holding that the rebates were not deductible from general expenses and urges affirmance on this basis.

Campbell argues on appeal that "the fact that the deduction on the [CF 247] was made erroneously to general expenses and not to material costs, does not now preclude a judicial finding that a deduction to material costs is appropriate." Under the circumstances of this case, we agree. The question of whether the CEDIS rebates were properly deductible under sections 1401a(e)(1)(A) and (2)(A) was presented to Customs during the protest stage and was ruled on by Customs. It was, thus, properly raised as an issue before the Court...