Sigma-Tau HealthScience, Inc. v. United States

• Decision Date: 26 September 2016
• Docket Number: 2016–1125
• Citation: 838 F.3d 1272
• Parties: Sigma–Tau HealthScience, Inc., aka Sigma–Tau HealthScience, LLC, Plaintiff–Appellant v. United States, Defendant–Appellee
• Court: U.S. Court of Appeals — Federal Circuit

838 F.3d 1272

Sigma–Tau HealthScience, Inc., aka Sigma–Tau HealthScience, LLC, Plaintiff–Appellant

v.United States, Defendant–Appellee

2016–1125

United States Court of Appeals, Federal Circuit.

Decided: September 26, 2016

John C. Monica, Jr. , Porter Wright Morris & Arthur, Washington, DC, argued for Plaintiff–Appellant. Also represented by Leslie Alan Glick, Christopher Yook .

Alexander J. Vanderweide , Commercial Litigation Branch, Civil Division, United States Department of Justice, New York, NY, argued for Defendant–Appellee. Also represented by Amy M. Rubin; Benjamin C. Mizer, Jeanne E. Davidson , Washington, DC; Yelena Slepak , Office of Assistant Chief Counsel, U.S. Customs and Border Protection, United States Department of Homeland Security, New York, NY.

Before Newman, Dyk, and Reyna, Circuit Judges.

Dyk, Circuit Judge.

This Customs case concerns the classification of two chemical products, both stabilized forms of the compound carnitine, which were imported into the United States by Sigma–Tau HealthScience, Inc., a.k.a. Sigma–Tau HealthScience, LLC (“Sigma–Tau”). United States Customs and Border Protection (“Customs” or “the government”) initially classified these products under a subheading of the Harmonized Tariff Schedule of the United States (“HTSUS”) that carries a duty. Sigma–Tau protested, arguing that the products should be classified under HTSUS heading 2936 (which encompasses “provitamins and vitamins”), subheading 2936.29.50, a duty-free classification.

The Court of International Trade (“CIT”) concluded that Sigma–Tau's products should be classified under a different subheading, 2923.90.00, making them ineligible for duty-free treatment. Sigma–Tau HealthScience, Inc. v. United States (“Sigma–Tau ”), 98 F.Supp.3d 1365, 1377–78 (Ct. Int'l Trade 2015). On appeal, the parties agree that the only issue is whether Sigma–Tau's products are properly classified as vitamins under HTSUS heading 2936. We agree with Sigma–Tau that its carnitine products are properly classified under that heading, because carnitine is a vitamin in neonates. We therefore reverse and remand.

BACKGROUND

Customs classifications according to the headings and subheadings of the HTSUS determine the duties that importers must pay to the United States. The question here is the appropriate classification of Sigma–Tau's carnitine products.

Carnitine¹ is a naturally occurring amino acid derivative and an important nutrient in the human body, where it serves to transport long-chain fatty acids into mitochondria, the centers for energy production within each cell. Our bodies obtain carnitine exogenously, from food, and also produce it endogenously, by breaking down and reforming protein. (According to the Webster Comprehensive Dictionary , an “exogenous” compound originates outside the organism, while an “endogenous” compound is one originating or produced internally. See Exogenous , Webster Comprehensive Dictionary (Int'l ed. 2001); Endogenous , id. ) Stabilized forms of carnitine are formulated into tablets or capsules and sold as nutritional supplements ; they can also be incorporated into drinks, protein bars, and other products for human consumption. Carnitine is sometimes referred to as “vitamin Bt”; for example, the online version of Merriam Webster's Medical Dictionary identifies “vitamin Bt” as a synonym of “carnitine.” J.A. 1279. While carnitine is an organic compound, it is not listed by name in any heading or subheading of HTSUS Chapter 29, which covers “Organic Chemicals.”

Sigma–Tau imports carnitine products into the United States. The two carnitine products at issue are acetyl L–Carnitine taurinate hydrochloride with 1.5% silica, which Sigma–Tau sells under the brand name “L–Tauro,” and glycine propionyl L–Carnitine hydrochloride USP with 1.5% silica, which Sigma–Tau sells under the brand name “GlycoCarn.” These products, white powders manufactured in Italy, were imported in bulk. In 2010, Customs classified these products under HTSUS subheading 3824.90.92, which covers “Prepared binders for foundry molds or cores; chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included: Other: Other: Other: Other.” That subheading carries a 5% duty. Sigma–Tau timely protested this classification, arguing that the products qualify as vitamins under HTSUS subheading 2936.29.50, which covers “Provitamins and vitamins, natural or reproduced by synthesis (including natural concentrates), derivatives thereof used primarily as vitamins, and intermixtures of the foregoing, whether or not in any solvent: Vitamins and their derivatives, unmixed: Other vitamins and their derivatives: Other: Other.” That subheading is duty-free.

Sigma–Tau brought suit in the CIT, requesting that the court set aside Customs' classification decision and hold that the L–Tauro and GlycoCarn products are properly classified as vitamins under HTSUS subheading 2936.29.50 (and, therefore, deserving of duty-free treatment). Sigma–Tau also requested that the CIT instruct Customs to re-liquidate the entries for these products and to award damages for alleged overpayment of duties. Sigma–Tau moved for summary judgment. The government cross-moved for summary judgment, arguing that Customs' initial classification of the merchandise under HTSUS heading 3824 was erroneous but that HTSUS subheading 2923.90.00 (covering “Quaternary ammonium salts and hydroxides; lecithins and other phosphoaminolipids, whether or not chemically defined: Other”), not 2936.29.50, was in fact the proper classification.

The CIT found that Sigma–Tau's products were prima facie classifiable both as vitamins under HTSUS heading 2936 and as quaternary ammonium salts under heading 2923. Sigma–Tau , 98 F.Supp.3d at 1374–76. Where an item is prima facie classifiable under more than one heading, the General Rules of Interpretation provide guidance as to which heading should be used. See Dell Prods. LP v. United States , 642 F.3d 1055, 1057 (Fed. Cir. 2011). Relying on HTSUS General Rule of Interpretation 3 (“GRI 3”), which specifies that when “goods are, prima facie, classifiable under two or more headings” “[t]he heading which provides the most specific description shall be preferred to headings providing a more general description,” HTSUS, General Notes, at 1, the CIT concluded that “the term ‘quaternary ammonium salts' more specifically describes L–Carnitine than ‘vitamins' ” and thus that Sigma–Tau's products were properly classified as quaternary ammonium salts under subheading 2923.90.00, Sigma–Tau , 98 F.Supp.3d at 1377.

The CIT consequently granted summary judgment in favor of the government and denied Sigma–Tau's motion for summary judgment. Id. at 1378. Sigma–Tau appeals, asking us to hold that the proper classification of its merchandise is under HTSUS subheading 2936.29.50, as a vitamin. We have jurisdiction under 28 U.S.C. § 1295(a)(5).

DISCUSSION

“The interpretation of the headings and subheadings of the HTSUS is a question of law, which we review without deference.” Deckers Corp. v. United States , 532 F.3d 1312, 1314 (Fed. Cir. 2008) ; see also Airflow Tech., Inc. v. United States , 524 F.3d 1287, 1290 (Fed. Cir. 2008). “A classification decision involves two underlying steps: (1) determining the proper meaning of the tariff provisions, which is a question of law; and (2) determining which heading the particular merchandise falls within, which is a question of fact.” Deckers , 532 F.3d at 1314–15. “We review questions of law de novo, including the interpretation of the terms of the HTSUS, whereas factual findings of the Court of International Trade are reviewed for clear error.” Id. at 1315 ; see also La Crosse Tech., Ltd. v. United States , 723 F.3d 1353, 1358 (Fed. Cir. 2013). However, “if there is no genuine dispute over the nature of the merchandise, ... the proper classification under which it falls [is] the ultimate question in every classification case and one that has always been treated as a question of law.” Bausch & Lomb, Inc. v. United States , 148 F.3d 1363, 1366 (Fed. Cir. 1998) ; see also Gen. Elec. Co. – Med. Sys. Grp. v. United States , 247 F.3d 1231, 1235 (Fed. Cir. 2001).

The government concedes that the CIT erred when it applied the rule of relative specificity of GRI 3 to classify Sigma–Tau's products. The government acknowledges that Note 3 to Chapter 29 of the HTSUS (“Chapter Note 3”) is instead applicable. Chapter Note 3 specifies that “[g]oods which could be included in two or more of the headings of this chapter are to be classified in that one of those headings which occurs last in numerical order.” HTSUS, Ch. 29, Note 3, at 29–1. We have held that “[t]he Section and Chapter Notes [of the HTSUS] are not optional interpretive rules, but are statutory law.” BenQ Am. Corp. v. United States , 646 F.3d 1371, 1376 (Fed. Cir. 2011) (internal quotation marks omitted). Consequently, if Sigma–Tau's merchandise is prima facie classifiable as both a quaternary ammonium salt (HTSUS heading 2923) and as a vitamin (HTSUS heading 2936), Chapter Note 3 dictates that it be classified as the latter, as 2936 “occurs last in numerical order.”

Thus, the only issue before us is whether Sigma–Tau's L–Tauro and GlycoCarn products are prima facie classifiable as vitamins under HTSUS heading 2936. If they are, that heading applies; if they are not, heading 2923 applies, as both sides agree that the products are prima facie classifiable as quaternary ammonium salts.²

I

We first address the government's contention that the products are not vitamins because they contain stabilizers. The two products at issue are stabilized forms of carnitine : acetyl L–Carnitine taurinate hydrochloride with 1.5% silica (L–Tauro) and glycine propionyl L–Carnitine hydrochloride, USP with 1.5% silica (GlycoCarn). The CIT treated the products as equivalent to carnitine itself. At the CIT, the parties agreed...