This week we are previewing three cases on the Federal Circuit’s oral argument schedule next week that attracted amicus briefs. Today we highlight a tax case, National Association of Manufacturers v. Department of the Treasury. In this case, the Department of the Treasury appeals a decision by the U.S. Court of International Trade holding that regulations promulgated by the Treasury to curtail “double drawback” (two tax refunds for the same exported merchandise) are invalid. This is our argument preview.
In its opening brief, the Department of the Treasury explains that, despite 19 U.S.C. § 1313(v) prohibiting an exported product from serving as the basis for more than one drawback claim, Customs and Border Protection (CBP) “processed certain drawback claims that resulted in wine producers (but no other commodity-producers) improperly receiving two drawbacks of federal excise tax on the basis of one exported product.” The Treasury argues that the relevant regulations curtailing double drawback (what the parties call “the Rule”) reasonably interpret § 1313(v) “to prohibit a claim for the drawback of excise tax on the basis of a substituted export where no or insufficient excise tax was paid, or where the excise-tax liability was cancelled.”
In particular, the Treasury argues that, since the statute does not define the term “drawback,” the Rule reasonably defines the term to include both a refund and a cancellation of an excise tax, and the trial court erred in limiting the term to only those paid and refunded. The Treasury contends that this interpretation is in line with the statute’s unambiguous meaning, there are no irreconcilable statutory conflicts, and irrational results arise under the court’s interpretation of the statute.
In its response brief, the National Association of Manufacturers (NAM) looks to 19 U.S.C. § 1313(j)(2), which states that when criteria are met, CBP must pay substitution drawback “notwithstanding any other provision of law.” NAM argues that Congress added the “notwithstanding” clause in 2004 “specifically to overrule a series of Customs rulings holding excise taxes ineligible for substitution drawback.” NAM contends the Rule would reinstate the same regime by relying on an “other provision of law,” § 1313(v). Thus, NAM maintains, the Rule is invalid at Chevron‘s step one because the statute is unambiguous and, in the alternative, fails Chevron‘s step two because it “thwarts Congress’s consistent policy judgment.”
In a separately filed response brief, Beer Institute argues that, regardless of whether the Rule is valid, the restrictions were impermissibly applied retroactively to claims filed before the restrictions became effective. Beer Institute contends that retroactive application of the restrictions is impermissible because the Rule constitutes a significant change in the law and because retroactive application offends fair notice and settled expectations.
In its reply brief, the Treasury primarily addresses the NAM brief. It argues that the Rule reasonably harmonizes §§ 1313(v) and 1313(j)(2), and that NAM’s interpretation “leads to windfalls that Congress could not have intended.” The Treasury argues that § 1313(v) and other provisions in § 1313 apply appropriate limits to substitution drawback, and thus that the Rule is a reasonable way of reconciling the two provisions. The Treasury addresses arguments by Beer Institute in one paragraph, stating: “In no way does the Rule have a retroactive effect on any commodity warranting anything other than a total double drawback provision.”
Customs Advisory Services, Inc. filed an amicus brief in support of NAM and affirmance of the trial court. In it, Customs Advisory Services argues that the court correctly invalidated the Rule under Chevron‘s step one because the Rule conflicts with the legislative history of the statute, undermines the clear congressional intent to expand substitution drawback, and improperly applies the “double drawback” prohibition of §1313(v) because exemptions are distinguishable from drawback.
Oral arguments will be heard one week from today on Monday, March 1. We will keep track of this case and report on any developments.