Clarendon Marketing, Inc. v. U.S.

• Decision Date: 22 May 1998
• Docket Number: No. 97-1284,97-1284
• Parties: CLARENDON MARKETING, INC., Plaintiff-Appellee, v. The UNITED STATES, Defendant-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1464

144 F.3d 1464

CLARENDON MARKETING, INC., Plaintiff-Appellee, v. The UNITED STATES, Defendant-Appellant.

No. 97-1284.

United States Court of Appeals Federal Circuit.

May 22, 1998.

David P. Langlois, Piper & Marbury, L.L.P., New York City, argued for plaintiff-appellee. With him on the brief was John L. Moore, Jr.

Mikki Graves Walser, Civil Division, Commercial Litigation Branch, Department of Justice, International Trade Field Office, New York City, argued for defendant-appellant. With her on the brief were Frank W. Hunger, Assistant Attorney General, and David M. Cohen, Director, Washington, DC, and Joseph I. Liebman, Attorney in Charge, International Trade Field Office. Of counsel on the brief was Edward N. Maurer, Office of Assistant Chief Counsel, International Trade Litigation, U.S. Customs Service, New York City.

Milton B. Whitfield, Shaw, Pittman, Potts & Trowbridge, Washington, DC, for amici curiae Aectra Refining & Marketing, Inc. and ITOCHU International, Inc. Of counsel was Imad D. Abyad.

Before PLAGER, RADER, and BRYSON, Circuit Judges.

PLAGER, Circuit Judge.

This case presents us with a sticky question of statutory construction, one of first

impression, regarding the tariff classification of imports of certain petroleum products. The merchandise falls within the accepted definition of "naphthas," but is also suitable and commonly used as a motor fuel blending stock. The constructional question is whether the merchandise should be classified under the tariff subheading "Naphthas (except motor fuel or motor fuel blending stock)," or under the subheading "Motor fuel blending stock," the latter carrying a substantially higher duty. The parties presented the question to the United States Court of International Trade by way of cross-motions for summary judgment. As could be expected, the Government favored classification under the higher duty subheading, i.e., the blending stock subheading, arguing that that is the sensible reading of the statute, whereas the importer, Clarendon Marketing, Inc. ("Clarendon"), argued for classification under the naphthas subheading, on the ground that that is what the statute clearly says. The Court of International Trade agreed with Clarendon's reading of the statute, and accordingly granted summary judgment in Clarendon's favor, setting forth its analysis in a thorough opinion. Clarendon Mktg., Inc. v. United States, 955 F.Supp. 1501 (C.I.T. 1997). The Government appeals the judgment. Because the plain meaning of the relevant legislation mandates the conclusion reached by the Court of International Trade, we affirm.

BACKGROUND

Only a few background facts remain beyond the introduction already given. The petroleum products at issue (specifically, refined liquid hydrocarbon mixtures) were imported by Clarendon in 1989. Clarendon entered the merchandise as naphthas, under subheading 2710.00.25, "Naphthas (except motor fuel or motor fuel blending stock)," of the Harmonized Tariff Schedule of the United States ("HTSUS") (herein the "naphthas subheading"). The naphthas subheading imposes a duty of 10.5 cents per barrel.

However, the District Director of the U.S. Customs Service liquidated the merchandise as motor fuel, under HTSUS subheading 2710.00.15, "Motor fuel" (herein the "motor fuel subheading"), which imposes a duty of 52.5 cents per barrel. Clarendon protested, and in response, the U.S. Customs Service Headquarters ruled that the correct classification of the merchandise was motor fuel blending stock, under HTSUS subheading 2710.00.18, "Motor fuel blending stock" (herein the "blending stock subheading"), which also imposes a duty of 52.5 cents per barrel. Clarendon then filed suit in the Court of International Trade and promptly moved for summary judgment. The Government in turn cross-moved for summary judgment. As already noted, the Court of International Trade ruled in Clarendon's favor, holding that Customs had erred in liquidating the merchandise under the blending stock subheading and that the merchandise instead had to be classified under the naphthas subheading.

The parties have stipulated that the imported merchandise is accurately referred to as "naphtha," as that term is known and used chemically and commercially. The HTSUS uses the plural form of that term, i.e., "naphthas," and the parties agree that the merchandise fits within the meaning of "naphthas" as used in the naphthas subheading; the parties however disagree as to the effect of the subheading's parenthetical exception, "except motor fuel or motor fuel blending stock." On the other hand, the parties also agree that the primary use for naphthas such as the merchandise at issue here is as a motor fuel blending stock. It is also undisputed that neither party has established (or attempted to establish) the actual use made of the imported merchandise; thus, the actual use is unknown.

DISCUSSION

1.

There are no factual issues in this case. The propriety of the summary judgment turns on the proper construction of the HTSUS, which is a question of law. See Bauerhin Techs. Ltd. v. United States, 110

F.3d 774, 776 (Fed.Cir.1997). On questions of law, we defer to neither the Court of International Trade nor Customs. See Universal Elecs. Inc. v. United States, 112 F.3d 488, 493 (Fed.Cir.1997). Therefore, our review of the purely legal issue is plenary. See id.

2.

Subheading 2710.00.25, the naphthas subheading, literally contains three types of tariff classification provisions: an eo nomine provision, an actual use provision, and a principal use provision. An eo nomine classification provision is one which describes a commodity by a specific name. See Nidec Corp. v. United States, 68 F.3d 1333, 1336 (Fed.Cir.1995). In contrast, as their names suggest, actual use and principal use provisions classify commodities by use. See 2 Ruth F. Sturm, Customs Law & Administration § 53.3, at 15 (3d ed.1995). The naphthas subheading, "Naphthas (except motor fuel or motor fuel blending stock)," contains elements of each of these three types.

The parties agree that the term "naphthas" in the subheading is an eo nomine provision, and they agree that the term "naphthas" describes the merchandise by name. However, as the Government points out, this eo nomine term is limited by the parenthetical "except motor fuel or motor fuel blending stock."

The "motor fuel" clause of the parenthetical corresponds to the motor fuel subheading, HTSUS subheading 2710.00.15. As defined by Additional U.S. Note 3 to Chapter 27 of the HTSUS, the motor fuel subheading is a principal use provision: " 'motor fuel ' is any product ... which is principally used as a fuel in internal-combustion or other engines." Thus, a naphtha whose principal use is as a motor fuel is excluded from the naphthas subheading by way of the parenthetical, and is instead classified under the motor fuel subheading, unless some other provision requires otherwise. See Additional U.S. Rule of Interpretation 1(a) of the HTSUS. As observed by the Court of International Trade, Clarendon Mktg., 955 F.Supp. at 1506-07, a principal (or chief) use provision such as the motor fuel subheading may function as a controlling legal label, in the sense that even if a particular import is proven to be actually used inconsistently with its principal use, the import is nevertheless classified according to its principal use.

The second part of the parenthetical in the naphthas subheading, "motor fuel blending stock," corresponds to the motor fuel blending stock subheading, HTSUS subheading 2710.00.18. Additional U.S. Note 4 to Chapter 27 of the HTSUS specifies that " 'motor fuel blending stock ' means any product (except naphthas of subheading 2710.00.25) ... to be used for direct blending in the manufacture of motor fuel." The inclusion in this definition of the words "to be used for" makes classification under the blending stock subheading dependent upon the actual use of the merchandise, i.e., the subheading is an actual use provision, as pointed out by the Court of International Trade. Clarendon Mktg., 955 F.Supp. at 1504 (citing Sturm, supra, § 53.3(b), at 25); accord E.M. Chemicals v. United States, 923 F.Supp. 202, 206 n. 4 (C.I.T. 1996).

Additional U.S. Rule of Interpretation 1(b) of the HTSUS sets forth specific requirements for classification under an actual use provision such as the blending stock subheading:

In the absence of special language or context which otherwise requires--

....

(b) a tariff classification controlled by the actual use to which the imported goods are put in the United States is satisfied only if such use is intended at the time of importation, the goods are so used and proof thereof is furnished within 3 years after the date the goods are entered [.]

(Emphasis added.) These requirements have been formalized in the Code of Federal Regulations under the heading "Rate of Duty Dependent Upon Actual Use." 19 C.F.R. §§ 10.131--10.139 (1994).

According to the plain language of Additional U.S. Rule of Interpretation 1(b), classification under an actual use provision such as the blending stock subheading is proper only if the actual use made of the imports in the United States is proven to be that of the actual use provision. Actual use provisions such as the blending stock subheading can also function as a controlling legal label, in the sense that an import actually used in accordance with the actual use provision will not be classified as such unless its actual use is proven (or unless "special language or context ... otherwise requires," a point to be addressed below).

In the context of this case, a naphtha that is suitable for use as a motor fuel blending stock is not considered such for purposes of...