National Association v. Treasury ( 2021 )

Case: 20-1734 Document: 70 Page: 1 Filed: 08/23/2021
United States Court of Appeals
for the Federal Circuit
______________________
THE NATIONAL ASSOCIATION OF
MANUFACTURERS, THE BEER INSTITUTE,
Plaintiffs-Appellees
v.
DEPARTMENT OF THE TREASURY, UNITED
STATES CUSTOMS AND BORDER PROTECTION,
JANET YELLEN, IN HER OFFICIAL CAPACITY AS
SECRETARY OF THE TREASURY, TROY MILLER,
IN HIS OFFICIAL CAPACITY AS SENIOR
OFFICIAL PERFORMING THE DUTIES OF THE
COMMISSIONER FOR U.S. CUSTOMS AND
BORDER PROTECTION,
Defendants-Appellants
______________________
2020-1734
______________________
Appeal from the United States Court of International
Trade in No. 1:19-cv-00053-JAR, Senior Judge Jane A. Re-
stani.
______________________
Decided: August 23, 2021
______________________
PETER D. KEISLER, Sidley Austin LLP, Washington,
DC, argued for all plaintiffs-appellees. Plaintiff-appellee
National Association of Manufacturers also represented by
BARBARA GUY BROUSSARD, TOBIAS SAMUEL LOSS-EATON,
Case: 20-1734 Document: 70 Page: 2 Filed: 08/23/2021
2 NATIONAL ASSOCIATION v. TREASURY
VIRGINIA ANNE SEITZ; CATHERINE EMILY STETSON, Hogan
Lovells US LLP, Washington, DC.
JAMES EDWARD TYSSE, Akin Gump Strauss Hauer &
Feld LLP, for plaintiff-appellee The Beer Institute. Also
represented by LARS-ERIK ARTHUR HJELM, LIDE E.
PATERNO, DEVIN S. SIKES.
AUGUST FLENTJE, Appellate Staff, Civil Division,
United States Department of Justice, Washington, DC, ar-
gued for all defendants-appellants. Also represented by
CLAUDIA BURKE, JEFFREY B. CLARK, JEANNE DAVIDSON,
JUSTIN REINHART MILLER, ALEXANDER J. VANDERWEIDE,
Commercial Litigation Branch, Civil Division, United
States Department of Justice, New York, NY; DANIEL J.
PAISLEY, United States Department of the Treasury, Wash-
ington, DC.
ALEXANDRA KHREBTUKOVA, Office of the Assistant
Chief Counsel, Bureau of Customs and Border Protection,
United States Department of Homeland Security, New
York, NY, for defendant-appellant United States Customs
and Border Protection.
JOHN MICHAEL PETERSON, Neville Peterson LLP, New
York, NY, for amicus curiae Customs Advisory Services,
Inc. Also represented by PATRICK KLEIN, RICHARD F.
O'NEILL.
______________________
Before LOURIE, PROST ∗, and REYNA, Circuit Judges.
REYNA, Circuit Judge.
∗
Circuit Judge Sharon Prost vacated the position of
Chief Judge on May 21, 2021.
Case: 20-1734 Document: 70 Page: 3 Filed: 08/23/2021
NATIONAL ASSOCIATION v. TREASURY 3
This case involves the interaction of federal excise
taxes and duty drawbacks for wine in the United States.
The United States Government appeals from a judgment
by the United States Court of International Trade holding
that a set of regulations, collectively described herein as
the Rule, promulgated in 2018 by the Department of Treas-
ury and the United States Customs and Border Protection,
are invalid as an unlawful interpretation of 19 U.S.C.
§ 1313(v).
The question presented on appeal is whether the Court
of International Trade erred when it invalidated the Rule
interpreting 19 U.S.C. § 1313(v) finding that the statute
was unambiguous at step one of Chevron. We conclude
that the Court of International Trade did not err in finding
that the Rule, which redefines “drawback” to include excise
tax liability on exports that have neither been “paid or de-
termined,” is contrary to the clear intent of Congress as ex-
pressed in the language and structure of the statute.
Accordingly, we affirm the judgment of the Court of Inter-
national Trade.
BACKGROUND
This appeal concerns a set of regulations, promulgated
in 2018 by the Department of the Treasury (“Treasury”)
and the United States Customs and Border Protection
(“CBP” or “Customs”), described herein as the Rule. 1 The
Rule is an interpretation of 19 U.S.C. § 1313(v), which
states in relevant part:
1 The Rule comprises the following regulations:
19 C.F.R. §§ 190.171(c)(3), 190.22(a)(1)(ii)(C), 190.32(b)(3),
191.171(d), 191.32(b)(4), the final sentence of 19 C.F.R.
§ 191.22(a), and the final sentence in the definition of
“drawback” and “drawback claim” in 19 C.F.R. § 190.2.
Case: 20-1734 Document: 70 Page: 4 Filed: 08/23/2021
4 NATIONAL ASSOCIATION v. TREASURY
Merchandise that is exported or destroyed to sat-
isfy any claim for drawback shall not be the basis
of any other claim for drawback . . . .
19 U.S.C. § 1313(v).
Generally, imported goods are subject to a variety of
payments, such as tariffs, duties, fees, and certain taxes,
such as an excise tax. A “drawback” is a customs transac-
tion involving the refund of any payments that were made
upon the importation of a good. Drawbacks are designed
to incentivize exports from the United States and allow
U.S. exporters to compete more fairly with overseas com-
petitors.
The most common form of drawback occurs when du-
ties that are paid when a good is imported are refunded
when the same good is exported. Another common form of
drawback, known as a “substitution drawback,” involves
the refund of duties, taxes, or fees that were paid upon im-
portation and refunded when similar goods, normally mer-
chandise classified under the same subheading of the
Harmonized Tariff Schedule of the United States
(“USHTS”), are exported. See 19 U.S.C. § 1313(j)(2),
19 C.F.R. § 191.22(a). The statute most relevant to substi-
tution drawbacks is 19 U.S.C. § 1313(j)(2), which states in
relevant part:
[W]ith respect to imported merchandise on which
was paid any duty, tax, or fee imposed under Fed-
eral law upon entry or importation […] that […]
notwithstanding any other provision of law, upon
the exportation or destruction of such other mer-
chandise an amount calculated pursuant to regula-
tions prescribed by the Secretary of the Treasury
under subsection (l) shall be refunded as drawback.
19 U.S.C. § 1313(j)(2).
Since 2008, substitution drawback has been allowed for
wine where the imported wine and exported wine are of the
Case: 20-1734 Document: 70 Page: 5 Filed: 08/23/2021
NATIONAL ASSOCIATION v. TREASURY 5
same color and the price variation between the imported
wine and the exported wine does not exceed fifty percent.
See Food, Conservation, and Energy Act of 2008, Pub. L.
No. 110-234, § 15421, 122 Stat. 923, 1547 (May 22, 2008)
(codified as amended at19 U.S.C. § 1313(j)(2)). Since this
change, companies that both import and export wine or
transfer its right to drawback have been claiming draw-
backs for taxes, fees, and duties paid on the imported wine
based on their exports of similar wine, i.e., substituted
wine. As an example, if a company imported 100 bottles of
red wine and then exported 100 bottles of similarly priced
red wine, that company could claim drawback for nearly all
charges assessed on the imported wine. J.A. 4. The sub-
stitution in the example can also result in a near total re-
fund of both tariffs and excise taxes 2 paid on the imported
wine. This can occur in situations where the substituted
exported wine was either not subject to any excise tax by
virtue of being exported from a bonded facility 3, or had re-
ceived a complete refund of any previously paid excise
taxes. This results in a “double drawback.” J.A. 4. As a
response to this practice, the Government promulgated the
Rule to prevent “double recovery” of excise tax. J.A. 18–19.
2 An excise tax is imposed on certain domestically
consumed goods, regardless of origin, such as wine, beer,
spirits, tobacco, and petroleum products. J.A. 2. Draw-
backs of excise taxes may occur in multiple ways.
3 An imported good is subject to tariffs, fees, and
taxes upon “entry” in the United States. A good is deemed
not to enter the United States if upon importation it is
placed in a customs bonded warehouse. If the good is taken
from a bonded warehouse and sold or consumed in the
United States, the good has entered the United States and
may be subject to tariffs and fees. But if the good is ex-
ported from a warehouse, no import duties are paid.
Case: 20-1734 Document: 70 Page: 6 Filed: 08/23/2021
6 NATIONAL ASSOCIATION v. TREASURY
The Rule makes two fundamental changes to the draw-
back regime. First, it includes within the definition of
“drawback” and “drawback claim” a “refund or remission of
other excise taxes pursuant to other provisions of law.”
19 C.F.R. § 190.2. Under this definition, the export of mer-
chandise even without payment of an excise tax counts as
a claim for drawback. See J.A. 5. Second, the Rule limits
drawbacks to the amount of taxes paid and not previously
refunded. See 19 C.F.R. §§ 190.171(c)(3),
190.22(a)(1)(ii)(C), 190.32(b)(3), 191.171(d), 191.22(a), and
191.32(b)(4). This second change prevents a domestically
produced exported good, which would have been subject to
the excise tax if made available for domestic use (sold or
consumed), from qualifying for a claim for substitution
drawback under the language of 19 U.S.C. § 1313(j)(2).
J.A. 5.
The National Association of Manufacturers (“NAM”)
along with Intervenor, The Beer Institute, 4 brought suit
against the Treasury and CBP arguing that the Rule is con-
trary to law, arbitrary and capricious, and impermissibly
retroactive. J.A. 5. NAM raised three primary arguments:
(1) the language of the statute dealing with substitution
drawbacks, § 1313(j)(2), forecloses the agencies’ interpreta-
tion of § 1313(v) because § 1313(j)(2) states that under cer-
tain conditions, the drawback shall be refunded
“notwithstanding any other provision of law”; (2) the Rule’s
interpretation of § 1313(v) conflicts with § 1313(l)(2), which
provides for the calculation of substitution drawback; (3)
the Rule includes a prohibition not contemplated in
§ 1313(v), namely the prohibition of a substitution draw-
back for excise taxes paid on imported goods where the
4 The Beer Institute submitted a brief concerning the
retroactive application of the Rule. Because this court in-
validates the Rule, those arguments are moot.
Case: 20-1734 Document: 70 Page: 7 Filed: 08/23/2021
NATIONAL ASSOCIATION v. TREASURY 7
substitute exported goods were exempt from excise tax.
J.A. 5–6.
The Government responded that the Treasury and
CBP’s interpretation of § 1313(v) is “reasonable, histori-
cally supported, and necessary to reconcile the purpose of
federal excise tax with the drawback regime.” J.A. 7. The
Government further argued that a drawback is not only
limited to taxes paid, but rather a drawback can extend to
cover tax exemptions in order to prevent improper “piggy-
backing” of exception benefits onto drawback benefits. Id.
(citing H.R. Rep. No. 103–361 at 130 (1993), reprinted in
1993 U.S.C.C.A.N. 2552, 2680 (stating that 19 U.S.C.
§ 1313 “codifies current Customs practice against ‘piggy-
backing’ other duty exemption benefits (foreign-trade
zones, bonded warehouses and duty-free temporary impor-
tation) onto the drawback benefits.”).
NAM replied that the Government improperly at-
tempts to revert the statute back to CPB’s pre-2004 regime,
which Congress rejected by allowing for the drawback of
excise taxes. J.A. 7–8.
The United States Court of International Trade (“CIT”)
applied the two-part Chevron test to find that the Rule is
unlawful as to the challenged provisions. Specifically, the
CIT addressed whether Congress had “directly spoken to
the precise question at issue.” J.A. 8. If Congress’s intent
was clear, the CIT explained, then “that is the end of the
matter,” as the agency and the court must “give effect to
the unambiguously expressed intent of Congress.” Id. (cit-
ing See Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837,
842–43 (1984)). But if the statute is “silent or ambiguous
with respect to the specific issue” then the court must de-
termine whether the agency’s interpretation is “based on a
permissible construction of the statute.” J.A. 9. Applying
those principles, the CIT determined that the inquiry ends
at step one because the Rule conflicts with the unambigu-
ous text of the statute. Id.Case: 20-1734 Document: 70 Page: 8 Filed: 08/23/2021
8 NATIONAL ASSOCIATION v. TREASURY
The CIT also concluded that, while the CBP identified
the aforementioned “double-drawback” issue and ex-
pressed its concern on multiple occasions to Congress, Con-
gress took no steps to curtail the practice. J.A. 4.
Specifically, referring to certain portions of the legislative
history, the CIT observed that “it appears that Congress
has repeatedly chosen to expand access to drawback at the
expense of lost excise tax revenue. The agencies cannot
now attempt to alter this policy choice by way of a regula-
tion that does not comport with the animating statute.”
J.A. 18; see also J.A. 20.
DISCUSSION
We review the CIT’s interpretation of statutes and reg-
ulations de novo. Abbott Labs. v. United States, 573 F.3d
1327, 1330 (Fed. Cir. 2009). Courts review agencies’ inter-
pretations of statutes by applying the two-step Chevron
framework. See 467 U.S. at 842–43 & n.9. In applying
Chevron, the Court first uses “traditional tools of statutory
construction” to determine whether Congress has “directly
spoken to the precise question at issue”; if so, “that is the
end of the matter.” Id. at 843 & n.9. If not, the Court asks
whether the regulation reflects “a permissible construc-
tion.” Id. at 843.
To prevail, the Government must succeed in both its
redefinition of “drawback,” particularly for the purposes of
the “double drawback” prohibition of 19 U.S.C. § 1313(v),
and in its interpretation of numerous subsections of
19 U.S.C. § 1313.
I
The Government argues that “claim for drawback” in-
cludes not only refunds of already-paid excise taxes on im-
ports under the Tariff Act, 19 U.S.C. § 1313(d), but also
includes cancellation of excise-tax liability for exports that
have neither been “paid or determined” under the Internal
Revenue Code (“IRC”), 26 U.S.C. § 5362(c). See Appellant’s
Case: 20-1734 Document: 70 Page: 9 Filed: 08/23/2021
NATIONAL ASSOCIATION v. TREASURY 9
Br. 6–7. The Rule was created to reconcile the two separate
provisions to address the non-collection of taxes on certain
exported merchandise. See J.A. 7. 19 U.S.C. § 1313(d)
reads in relevant part:
Upon the exportation of bottled distilled spirits and
wines manufactured or produced in the United
States on which an internal-revenue tax has been
paid or determined, there shall be allowed, under
regulations to be prescribed by the Commissioner
of Internal Revenue, with the approval of the Sec-
retary of the Treasury, a drawback equal in
amount to the tax found to have been paid or deter-
mined on such bottled distilled spirits and wines.
19 U.S.C. § 1313(d) (emphasis added). 26 U.S.C. §5362(c)
of the IRC states, in relevant part, that wine, “on which tax
has not been paid or determined” may be withdrawn from
a bonded facility 5 “without payment of tax for export.”
Prior to the Government’s promulgation of the Rule,
the applicable regulation defining drawback was the fol-
lowing:
Drawback means the refund or remission, in whole
or in part, of a customs duty, fee or internal reve-
nue tax which was imposed on imported merchan-
dise under Federal law because of its importation,
and the refund of internal revenue taxes paid on
domestic alcohol as prescribed in 19 U.S.C. 1313(d).
5 According to 19 U.S.C. § 1555(b)(1), “[d]uty-free
sales enterprises may sell and deliver for export from the
customs territory duty-free merchandise in accordance
with this subsection and such regulations as the Secretary
may prescribe to carry out this subsection” from a bonded
facility.
Case: 20-1734 Document: 70 Page: 10 Filed: 08/23/2021
10 NATIONAL ASSOCIATION v. TREASURY
19 C.F.R. § 191.2(i) (2015); see also id. § 191.3. The new
regulation, as part of the Rule, reads:
Drawback, as authorized for payment by CBP,
means the refund, in whole or in part, of the duties,
taxes, and/or fees paid on imported merchandise,
which were imposed under Federal law upon entry
or importation, and the refund of internal revenue
taxes paid on domestic alcohol as prescribed in 19
U.S.C. 1313(d). More broadly, drawback also in-
cludes the refund or remission of other excise taxes
pursuant to other provisions of law.
19 C.F.R. § 190.2 (emphasis added). The final sentence of
the new regulation within the Rule expands the definition
of drawback to encompass the “refund or remission” of ex-
cise taxes on exports.
In support of its broadened definition of drawback, the
Government asserts that § 1313(v)’s reference to any
“claim for drawback” includes the cancellation of any ex-
cise-tax liability that has been paid or determined on ex-
ports. 19 U.S.C. § 1313(v). The Government relies on the
language in 19 U.S.C. § 1313(d), which states that “a draw-
back [is] equal in amount to the tax found to have been paid
or determined on such bottled distilled spirits and wines.”
19 U.S.C. § 1313(d) (emphasis added). The Government
adds that the IRC uses the term “drawback” similarly. See
26 U.S.C. § 5062(b) (“there shall be allowed . . . a drawback
equal in amount to the tax found to have been paid or de-
termined . . . .” (emphasis added)). NAM does not contest
this point as to taxes that are paid. See Appellant’s Br. 15.
However, the Government goes further and argues that
“drawback” encompasses the cancellation of excise taxes
imposed on domestic products that are exported without
the payment of tax.
Herein lies the crux of the dispute. The Government
contends that the term “drawback” should also be used to
describe transactions in which excise-tax liability is
Case: 20-1734 Document: 70 Page: 11 Filed: 08/23/2021
NATIONAL ASSOCIATION v. TREASURY 11
extinguished under provisions where products are with-
drawn for export without payment of tax. See 26 U.S.C.
§ 5362(c) (stating that wine exported without tax having
been “paid or determined” does so without payment of tax);
J.A. 12–13; Appellant’s Br. 19. The Government’s ra-
tionale is that, when products are withdrawn “without pay-
ment of tax” for export, they are not withdrawn “free of tax”
because tax liability attaches at the time of production and
is covered by bond and cancelled only upon proof of expor-
tation. Appellant’s Br. 28; compare 26 U.S.C. § 5362(c)(1)
(“without payment of tax for export”) with § 5362(c)(7)–(9)
(“free of tax” for various uses including experimental and
research purposes). We disagree.
The Rule’s broadened definition of “drawback” includes
a drawback of excise tax that was never “paid or deter-
mined” on exported merchandise. See 26 U.S.C. §§ 5704(b),
5214(a), 5362(c). This defies logic. A tax that has never
been paid or determined cannot be said to have been
“drawn back,” and goods that have been exported without
payment of tax cannot give rise to a “claim” for drawback,
because there would be no refund to be paid out or cancel-
lation of liability to be made.
The Government’s argument that taxes on bonded
wine products have been “determined” at the point of pro-
duction and “cancelled” upon exportation cannot be recon-
ciled with 26 U.S.C. § 5362(c). “Determined” within the
IRC refers to situations where tax is both determined and
paid at the time the goods are withdrawn from bond, or
where “the amount of the tax to be paid is computed and
fixed” upon withdrawal, “with payment to be made by re-
turn” later for either prepayment or deferred payment. S.
Rep. No. 85-2090, at 100 (1958), reprinted in
1958 U.S.C.C.A.N. 4395, 4492; see also Appellee’s Br. 52.
If bonded goods are withdrawn for export, however, tax li-
ability is not computed and fixed for prepayment or de-
ferred payment because a tax will never be paid at all. See,
e.g., 26 U.S.C. § 5041(a) (stating that wine tax is
Case: 20-1734 Document: 70 Page: 12 Filed: 08/23/2021
12 NATIONAL ASSOCIATION v. TREASURY
“determined as of removal for consumption or sale” (em-
phasis added)). Thus, tax in that scenario would not be
“determined.” The Government’s assertion that the tax is
determined at the time of production is unpersuasive and
does not explain the statutory distinction appearing in
other IRC provisions between a tax that has been “paid or
determined” and one that “has not been paid or deter-
mined.” Compare 26 U.S.C. § 5062(b) with 26 U.S.C.
§ 5214(a)(4). Moreover, had Congress intended “drawback”
to describe all the instances in § 1313 and the IRC to which
the agencies attempt to apply the term, it would not have
selectively used the term in some sections, but not others.
See Russello v. United States, 464 U.S. 16, 23 (1983) (“It is
generally presumed that Congress acts intentionally and
purposely in the disparate inclusion or exclusion” of lan-
guage.); see also BP P.L.C. v. Mayor & City Council of Bal-
timore, 141 S. Ct. 1532, 1539, 209 L. Ed. 2d 631 (2021) (“In
the end, all of the parties’ fencing about language Congress
didn't use persuades us of only one thing—that we are best
served by focusing on the language it did employ.”). Nota-
bly, both § 1313 and the IRC do not use the term “draw-
back” to refer to exportation without payment or
determination of tax. Therefore, we conclude that the ex-
pansive definition in the Rule, which extends drawback to
situations in which tax is never paid or determined, con-
flicts with the unambiguous text of the statute.
II
The Government also argues on appeal that the CIT
erred in invalidating the Rule by erroneously reading the
Rule to create irreconcilable statutory conflicts and irra-
tional results. Appellant’s Br. 38 (citing J.A. 13).
With respect to statutory conflicts, the Government ar-
gues that Congress’s addition of the “notwithstanding”
clause in § 1313(j)(2), which requires a drawback of “any”
tax imposed on importation “notwithstanding another pro-
vision of law,” is not indicative of Congress’s intent to allow
Case: 20-1734 Document: 70 Page: 13 Filed: 08/23/2021
NATIONAL ASSOCIATION v. TREASURY 13
for a substitution drawback even if excise tax has not been
paid on the export because the Supreme Court has ex-
plained that a “notwithstanding” clause should not be “un-
reasonably expanded” to “narrow so dramatically an
important provision that [Congress] inserted in the same
statute.” Appellant’s Br. 39 (quoting Ministry of Def.&
Support for the Armed Forces of the Islamic Republic of
Iran v. Elahi, 556 U.S. 366, 386 (2009)). Next, the Govern-
ment argues that the CIT erred in finding that the calcula-
tion methodology set forth in § 1313(l) is nullified by the
Rule. With respect to the CIT’s finding that the Rule pro-
duces irrational results by preventing “an untaxed export
from serving as substituted merchandise in a drawback
claim on a corresponding import in any capacity,” the Gov-
ernment argues that the Rule does not prohibit this result
but merely prohibits double recovery of the same tax. Ap-
pellant’s Br. 44 (citing J.A. 17). Additionally, the Govern-
ment argues that the legislative history of the drawback
regime does not support invalidating the Rule. We disa-
gree and address each of the Government’s arguments be-
low.
In 2004, Congress amended 19 U.S.C. § 1313(j)(2) to re-
quire drawback of “any” tax imposed on importation, “not-
withstanding any other provision of law.” 19 U.S.C.
§ 1313(j)(2). Section 1313(j)(2) provides the criteria for sub-
stitution drawback, which, as the CIT points out, does not
include a requirement that a company must have already
paid tax on its exports to receive a drawback. See J.A. 14–
15. When the criteria are met, the CBP must pay a substi-
tution drawback “notwithstanding any other provision of
law.” 19 U.S.C. § 1313(j)(2). Congress added this “notwith-
standing” clause in 2004 specifically to overrule a series of
Customs rulings holding excise taxes ineligible for substi-
tution drawback and to make excise taxes eligible for sub-
stitution drawback, like other federal charges imposed
“upon entry or [importation].” Pub. L. No. 108-429,
§ 1557(a), 118 Stat. 2434 at 2579 (Dec. 3, 2004); NLRB v.
Case: 20-1734 Document: 70 Page: 14 Filed: 08/23/2021
14 NATIONAL ASSOCIATION v. TREASURY
SW Gen., Inc., 137 S. Ct. 929, 940 (2017) (explaining that a
“notwithstanding” clause can be used to “show[] which of
two or more provisions prevails in the event of a conflict”).
By relying on an “other provision of law”—specifically, sub-
section (v)—the Rule would trump paragraph (j)(2) and
render the “notwithstanding” clause meaningless. See
J.A. 14. Accordingly, the interpretation of § 1313(v) as set
forth in the Rule creates a conflict with the amended lan-
guage of §1313(j)(2) and thus cannot support the Govern-
ment’s interpretation.
Next, with respect to the Government’s argument that
the CIT erred in finding that the calculation methodology
set forth in § 1313(l) is nullified by the Rule,
§ 1313(l)(2)(B)–(C) provides that the amount of drawback
available based on substituted merchandise shall be “equal
to 99 percent of the lesser of (i) the amount of duties, taxes,
and fees paid with respect to the imported merchandise; or
(ii) the amount of duties, taxes, and fees that would apply
to the [substituted] exported article if the exported article
were imported.” 19 U.S.C § 1313(l)(2)(B)–(C). Essentially,
§ 1313(l)(2) provides the amount of drawback that the CBP
must pay if the substitution statute, § 1313(j)(2), is satis-
fied. As the CIT properly stated, § 1313(l)(2) requires that
a refund be paid on imported goods upon the timely expor-
tation of other goods with the same USHTS code regardless
of whether taxes were paid on those other goods. See J.A.
3. This is another example of how the Rule’s interpretation
of § 1313(v) creates a conflict with § 1313(l) and cannot
support the Government’s interpretation.
Third, we address the Government’s contention that
the CIT erred when it recognized that the Rule would cre-
ate an irrational or absurd result by “prevent[ing] an un-
taxed export from serving as substituted merchandise in a
drawback claim on a corresponding import in any capacity”
or, in other words, would bar recovery of any duties, taxes
and fees on the import, including the excise tax. J.A. 17.
In response, the Government simply contends that the
Case: 20-1734 Document: 70 Page: 15 Filed: 08/23/2021
NATIONAL ASSOCIATION v. TREASURY 15
Rule does not prohibit this result but merely prohibits dou-
ble recovery of the same tax. Appellant’s Br. 44. However,
once exported merchandise has been used “to satisfy [one]
claim for drawback,” § 1313(v), it cannot be used for that
purpose again under the Rule. Thus, every untaxed expor-
tation of domestic goods creates a “claim for drawback” that
triggers this restriction under the Rule. Consequently,
such goods can never “be the basis of any other claim for
drawback.” 19 U.S.C. § 1313(v); see also Ark. Dairy Coop.
Ass’n v. U.S. Dep’t of Agric., 573 F.3d 815, 829 (D.C. Cir.
2009) (finding that an interpretation producing “absurd”
results “fails at Chevron step one”). Thus, under the Gov-
ernment’s interpretation, the Rule reads into § 1313(v) a
restriction that does not exist. The CIT was correct in its
finding that this produces an absurd result that fails at
Chevron step one.
As to the Government’s final argument, that the legis-
lative history does not support invalidating the Rule, the
Government argues that Congress was clear in guarding
against abuse of the substitution-drawback privilege by
prohibiting an importer or exporter from counting a draw-
back twice. The Government concedes that if the CIT’s
analysis were credited, it suggests, at most, that Congress
was aware of, but failed to correct, this issue as to wine.
Appellant’s Br. 49. The Government further contends that
the agencies’ estimated revenue loss supports its position
more so than the CIT’s review of congressional inaction
through the legislative history. We disagree.
Here, the legislative history of the drawback regime
demonstrates that Congress chose to expand access to
drawbacks at the expense of excise taxes. For example, af-
ter § 1313(v) was added in 1993, in 2004, Congress
amended 19 U.S.C. § 1313(j)(2) to require that drawbacks
be paid “notwithstanding any other provision of law,” as
discussed above. Then, in 2008, Congress liberalized sub-
stitution drawback for wine by allowing substitution based
on any wine that is the same color and within 50 percent of
Case: 20-1734 Document: 70 Page: 16 Filed: 08/23/2021
16 NATIONAL ASSOCIATION v. TREASURY
the same price. See Pub. L. No. 110-234 § 15421, 122 Stat.
at 1547 (codified as amended at 19 U.S.C.
§ 1313(j)(2)(2008)). Thereafter, the Treasury and the CBP
proposed a regulation to limit drawback granted on exports
to only the amount of taxes actually paid. Drawback of In-
ternal Revenue Excise Tax, 74 Fed. Reg. 52,928, 52,931
(Oct. 15, 2009); J.A. 267. In response to opposition from
legislators, the agencies eventually withdrew the proposed
regulation. See Drawback of Internal Revenue Excise Tax,
75 Fed. Reg. 9,359–60 (Mar. 2, 2010); J.A. 273–74. No fur-
ther action was taken by Congress.
As the CIT noted, “Congress is presumed to know that
the wine industry was filing substitution-drawback claims
in situations where no excise tax had been paid and . . . ap-
pears to have at least indirectly sanctioned the practice.”
J.A. 20. “This history demonstrates that Congress made a
policy choice to encourage exports by expanding the ability
to claim drawback, even with the knowledge that indus-
tries may then avoid some payment of excise tax.” Id. We
agree.
CONCLUSION
We conclude that the challenged provisions of the Rule
contravene the unambiguous text of the statute and, there-
fore, the inquiry ends at Chevron step one. Accordingly, we
affirm the judgment of the CIT that the Rule is unlawful
as to the challenged provisions. We have considered the
parties’ remaining arguments and determine that we need
not address them in light of our decision.
AFFIRMED