No Cause of Action for Counterclaim to Reclassify Entry and Increase Duty, Importer Argues

In defense of its own motion for judgment (see 2405020062) and opposing the government’s counterclaim, an importer again argued that the U.S. can’t counterclaim to reclassify an entry to increase the amount of duty owed on it higher than the rate initially assessed by CBP. Such a counterclaim lacks a cause of action, it said (BASF Corp. v. U.S., CIT Consol. # 13-00318).

BASF Corp. brought its case challenging the classification of its imported ethyl ester concentrates as “chemical products and preparations” under the basket Harmonized Tariff Schedule heading 3824, with a 4.6% duty rate. The importer argued its products are covered under the more specific HTS heading 1603 for fish extracts, which is duty-free, because they are rich in the omega-3 fatty acids derived from fish oil. In turn, in a counterclaim, the U.S. says that the products should instead be classified under HTS heading 2106, which carries a 6.4% duty.

BASF argued that the U.S. counterclaim failed to establish a cause of action, saying that, “at best, it is an affirmative defense.” But an affirmative defense doesn’t seek “affirmative relief upon which this Court can enter a judgment awarding defendant monetary damages,” it said.

Otherwise, no cause of action is granted under 28 U.S.C. Sections 1581, 1582 or 1583, it said. The U.S. argues that it has a basis for its counterclaim under Section 1583, but multiple cases have rejected this use of the section “where the defendant sought an affirmative cause of action to reclassify and rate advance entries in an action brought by an importer pursuant to section 1581 challenging a denied protest,” it argued.

It noted that “each of the recent decisions on counterclaim jurisdiction recast the alleged counterclaim as an affirmative defense.”

This doesn’t conflict with the court’s requirement to determine the most accurate tariff classification for a product, it said. When the court decides on an alternative classification, that “will now represent a statement of correct law, useful to future importers,” it claimed, citing the 1984 case Jarvis Clark v. United States, decided at the U.S. Court of Appeals for the Federal Circuit.

But the plaintiff in those situations doesn’t have to make up the difference “because the defendant had not raised a valid claim seeking affirmative relief,” it said -- as that case had noted.

The importer also defended its own proposed heading for its products and pushed back against CBP’s and DOJ’s, saying both entities had misinterpreted heading 1603 as a use provision, among other things.