Petition for Writ of Certiorari — Ammex, Inc. v. United States

O ' oe cp un

031004 JAN 5 onng

Inthe

Supreme Court of the United States

AMMEX, INC.,

Petitioner,

v.

UNITED STATES,

Respondent.

’ On Petition for a Writ of Certiorari to the

United States Court of Appeals for the Federal Circuit

eal —

ee | ves

PETITION FOR A WRIT OF CERTIORARI

er worms

Christopher S. Olson

Counsel of Record

Craig L. John

DYKEMA GOSSETT PLLC

39577 Woodward Avenue,

Suite 300

i Bloomfield Hills, MI 48304-2820

(248) 203-0700

Attorneys for Petitioner

CURRY & TAYLOR @ WASH D.C. @ (202) 223-3160 @ USSCINFO.COM

Il.

i

QUESTIONS PRESENTED

Whether the United States Customs Service

(“Customs”) has the power to contravene the

Court of International Trade's (“CIT’s”) prior

construction of Sections 555 and 557 of the

Omnibus Trade and Competitiveness Act of 1988

(““OTCA”), 19 U.S.C. §§ 1555 and 1557, which the

CIT held permitted the duty-free sale of motor

fuel from a duty-free sales enterprise.

Whether the federal motor fuel excise tax, 26

U.S.C. § 4081, which was applicable during the

prior litigation, is a "new fact" sufficient to avoid

res judicata effect in a second litigation to

enforce the CIT’s prior determination that the

OTCA permitted a duty-free sales enterprise to

sell motor fuel on a duty-free basis.

il

CORPORATE DiSCLOSURE STATEMENT

Centra, Inc. is Petitioner’s parent corporation.

No publicly held companies own 10 percent or more of

the stock of Petitioner.

iii

TABLE OF CONTENTS

pages

QUESTIONS PRESENTED........sscscsssssesssersscenssssassessssessssesssees i

CORPORATE DISCLOSURE STATEMENT. .........ssessssesseseeeees li

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OPINIONS BELOW ..........scsssssssssssersssscsssesececssssceesecessensvesssees 1

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REASONS FOR GRANTING THE WRIT ........sssssssssceseeeeees 11

ITI i cahdssineianconepinbinasiesenasanenenceadtvnnnsestanesonsaene 20

APPENDIX

CIRCUIT COURT DECISION ...scscssssssessssssssessssesssccssecsssee la

COURT OF INTERNATIONAL TRADE

SII aise slaniiintmnasbbeninuennniannnsionnseedssoononemnntos 12a

ORDER DENYING REHEARING ...........ssccrssssocssscseeeeees 24a

COURT OF INTERNATIONAL TRADE

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COURT OF INTERNATIONAL TRADE

I CEI Bois usinsssnersevemnonnnssinnmnboconcsoonnconseancesonsl 42a

—————— —

iv

CUSTOMS HEADQUARTERS RULING

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CUSTOMS HEADQUARTERS RULING

eee Es Bs BD cricinsncdnsdcncicnontaisesisanciilnistinitaeti one OO

19 U.S.C. § 1555. BONDED

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19 U.S.C. § 1557. ENTRY FORK

Te IEEE cdicunceihsinichtiashanuncaddisepuaeaudadcoceumennceanies 75a

19 U.S.C. § 4081. IMPOSITION

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a cas ie Pe ics Dectnatnneichielauaiedeaodincasemamieniamaonnn 87a

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CUSTOMS BULLETIN AND DECISIONS,

VOL, Gb, NO. Zo GIUNE 1, BOOT) sesiscesceasssenseccscsssvceseeness 95a

CUSTOMS BULLETIN AND DECISIONS,

VOL. 35, NO. 47, & CNOV. TF, BIO) cccccecsssecsccecescosesnasese 10la

V

TABLE OF AUTHORITIES

pages

Cases

AMMEX, INC. V. UNITED STATES, 116 F.

SUPP. 2D 1269 (CT. INT'L TRADE 2000).........s00004 passim

AMMEX, INC. V. UNITED STATES, 193 F.

Supp. 2D 1325 (CT. INT'L TRADE 2002).........ccc0e0 passim

AMMEX, INC. V. UNITED STATES, 334 F.3D

1088 CRED. CIR, FOC) ccicseciseecrsececasssnysessnccnconons 1,4, 16,17

ASTORIA FEDERAL SAVINGS & LOAN

Ass'N v. SOLIMINO, 501 U.S. 104 (1991) ...........esseseeeee 15

BANKER'S TRUST NEW YORK CORP. V.

UNITED STATES, 225 F.3D 1868 (FED

CUD, FI viiccicesevinsesscrsasncianciancsnuehasidaniateonciainaieamas 13, 14

BRAND X INTERNET SERVICES V. F.C.C.,

345 FSD 1190 COTH CER, BOOB) eevececeecscsnssnvensotenniunsnnesiies 13

BROWN V. FELSEN, 442 U.S. 127 (1979) ..........000 15, 16, 17

CHICAGO & SOUTHERN AIR LINES, INC. V.

WATERMAN S.S. CORP., 333 U.S. 103

OTE dv cinsesisassiecincnenanscnredcnainianasonsaaiesiamnipemniteiatts 13

CHICOT COUNTY DRAINAGE DIST.

v. BAXTER STATE BANK, 308 U.S.

B71 CIDA) iiikiinisracercinntemmoniiisemiceniniainnainn 15, 16, 17, 19

vi

COMMODITIES EXPORT Co. v. UNITED

STATES CUSTOMS SERVICE, 957 F.2p 223

UP Falit:, WUEE ssaricientaennnconeatliueie ite eiear tage arg ka 14

CROMWELL V. COUNTY OF SAC, 94 U.S.

TPE COMET FD winsintctaniticthitniasmnsnaciapnedne mami 15, 16, 17, 19

FEDERATED DEPT. STORES, INC. V.

MOITIE, 452 USS. 394 (1981)........cccccsccsessscssssscesecceseseees 14

GRUBB V. PUBLIC UTILITIES COMM'N, 281

Ao tas Ee A SE hetsiuiiciiuenammmeenae 15, 16, 19, 20

JET, INC. V. SEWAGE AERATION SYS., 223

F.3D 1360 (FED. CIR. 2000) ...........ccssesececososesesececesssessees 16

MARBURY V. MADISON, 5 U.S. (1 CRANCH)

BEE ID iisncininrrsemnetntcnnlcsdediamiimen nt ae 13

MCGOLDRICK V. GULF OIL Co., 309 U.S.

BG LT siiknssininscivceaedaaacaea 12

NEAL V. UNITED STATES, 516 U.S. 284

IPED isnicssaniicesintiniasianguunaier ee 13

NEVADA V. UNITED STATES, 463 U.S. 110

(ASD wicwssnimasiisieniinnamesitads eee passim

RIVERS V. ROADWAY EXPRESS, INC., 511

170d: SO 4 IME) sisoicdahseseniasdoaicenielaands Uacadaeaeaaneaaeaee 13

UNITED STATES V. CALIFORNIA &

OREGON LAND CO., 192 U.S. 355 (1904) ..ccceccccescecee 15, 16

vil

UNITED STATES V. MEAD CorP., 533 U.S.

BA IID incccesccsimiscstnorstattniemeninninmnninnantaanns 13

UNITED STATES V. MENDOZA, 464 U.S. 154

CI i vcscicnicssnrsendinthnciiennanmbaderusseneséentiemnieessiandeiancatianiats 15

UNITED STATES V. STAUFFER CHEMICAL

CO., 464 U.S. 165 (1984).....csscrrccrscoscossecsccsesssensonsesssenonee 15

WERLEIN V. NEW ORLEANS, 177 U.S. 390

ETT Y bs vunccieissssesiedicnbiscininasadanieiachiecamcaunanansannbenionianitets 15, 16

XEROX CorpP. V. CTY. OF HARRIS, TEXAS,

BE TF TB Ci ieissnicnesn ch sthteievierntianneiinientindeneinioe 11,12

Statutes

1D Uy Ba A © Ti iiseisccsninssresinensosensirnsuiinioinnnmennnsenveneanh passim

FO TT BS. OE wicraciicscsicsisissnstinisinscnieininiiiienaanaanmanionanes passim

TT eS © I iisihecdiicitictiscictninshiasetinciabiaieninieenneinads 7, 8,18

UT 0: O Ta iciniticcesicntcctieiediccernercinnsaminsictdonmanaaiens 1

Other Authorities

Customs Bulletin and Decisions, Vol. 35,

No. 2B Rae 1, DOOD) acccessessricesversrescscsincsocerasssocsoennscindte oor

Customs Bulletin and Decisions, Vol. 35,

No. 47, 5 CNV. 7, 2001) ..ccoccnrssrecrscensersecaseococssesssnoeonssensses 7

Customs Headquarters Ruling 225287

Catt F, BIG ccsnasvninciveniseversiascenesnntesntctiniinatanascions 5,17

Viil

Customs Headquarters Ruling 227385

og 2 ee ED 5,17

FO: Wie S00 a I< Wicennscrniconssonsnissinuiiuitnensninbatacsinaninunniiicinetin 19

Wright, Miller & Cooper, Federal Practice and

Procedure: Jurisdiction 2d § 4406 ............ssssssscsesssseesees 16

1

OPINIONS BELOW

The opinion of the Federal Circuit Court of

Appeals is reported at Ammezx, Inc. v. United States,

334 F.3d 1052 (Fed. Cir. 2003) (“Opinion”) (App., infra,

la). The CIT opinions are reported at Ammez, Inc. v.

United States, 116 F. Supp. 2d 1269 (Ct. Int’l Trade

2000) (“Ammex I’) (App., infra, 26a) and Ammex, Inc.

v. United States, 193 F. Supp. 2d 1325 (Ct. Int’l Trade

2002) (“Ammesx IT’) (App., infra, 12a).

JURISDICTION

The judgment of the United States Court of

Appeals for the Federal Circuit was entered on July 1,

2003 (App., infra, 1a). A timely petition for rehearing

en banc was denied on October 7, 2003 (App., infra,

24a). The jurisdiction of this Court is invoked under 28

U.S.C. § 1254(1).

Since the United States is a party in this lawsuit,

the Solicitor General of the United States has been

served with this Petition for Certiorari via United

States Mail, at Room 5614, Department of Justice, 950

Pennsylvania Avenue, N.W., Washington, D.C. 20530-

0001.

RELEVANT PROVISIONS

The relevant provisions of the OTCA, 19 U.S.C.

§§ 1555 and 1557, are reproduced at App., infra, 66a,

75a. The relevant portion of the Internal Revenue

Code, 26 U.S.C. § 4081, is reproduced at App., infra,

79a.

2

STATEMENT

A. Introduction

This case raises important questions relating to

the power of a federal agency to contravene an Article

III court’s judicial construction of a statute and the

finality of such judicial decisions. The case arises from

a long running dispute concerning whether the OTCA

authorizes Petitioner to sell motor fuel, on a duty and

tax free basis, from its duty-free sales enterprise

located in Detroit, Michigan. Petitioner’s duty-free

facility is situated adjacent to the Ambassador Bridge

connecting the United States and Canada, which is one

of the busiest international commercial freight

crossings in the United States.

On December 23, 1993, Customs, which regulates

duty-free sales enterprises under the OTCA,

tentatively approved Ammex’s sterile tax and duty-

free facility, but excluded fuel. In 1994 and 1998

Customs issued Headquarters Rulings (App., infra,

44a, 53a) holding that duty-free motor fuel may not be

sold at a duty-free sales enterprise because motor fuel -

is an “unidentifiable fungible” not subject to

identification or marking as provided for in the OTCA

and regulations. Because the case involves res

judicata, it is necessary to summarize the earlier and

later rulings.

Ammex I. In Ammezx I, Petitioner successfully

challenged the Headquarters Rulings in the CIT. The

CIT held that "Customs acted unlawfully in prohibiting

Ammex from selling duty-free gasoline and diesel fuel"

and that OTCA §§ 1555 and 1557 permit “the duty-free

3

sale of gasoline and diesel fuel from a duty-free

enterprise." Ammex I, at 1275-76. (App., infra, 42a.)

Customs then authorized Petitioner’s duty-free motor

fuel sales on September 5, 2000.

Customs’ Revocation. On November 21, 2001,

Customs revoked its authorization for duty-free motor

fuel sales. (App., infra, 101a.) Customs’ rationale was

that application of federal motor fuel excise tax, I.R.C.

§ 4081, precluded Ammex’s motor fuel from qualifying

as conditionally duty-free merchandise and therefore

the OTCA prohibited entry of such fuel into

Petitioner's bonded warehouse.

Ammex II. In Ammex II, the case here

involved, Petitioner sought to enforce the CIT’s

judgment in Ammex I. However, the CIT declined to

accord res judicata effect to the Ammex I judgment.

(App., infra, 12a, 21a-23a.) Petitioner appealed to the

Federal Circuit.

The Federal Circuit Opinion. This is a petition

for review of the United States Court of Appeals for

the Federal Circuit Opinion, which held that:

[t]he factual premise of the lawsuit in

Ammex II, however, differs from the

prior one [Ammex I] because the

application of federal taxes to gasoline

and diesel fuel, preempting such fuel from

qualifying as “duty-free merchandise,” is a

new fact which was not a part of Ammex

I.... Because under the relevant statute,

the term ‘duty-free merchandise’ means

‘merchandise sold by a duty-free sales

4

enterprise on which neither Federal duty

‘“nor Federal tax has been assessed

pending exportation from the customs

territory, 19 U.S.C. § 1555(b)(8)(E), we

reject Ammex’s argument that the legal

claims in the two suits arise from the

same ‘operative nucleus of fact.’

Ammex, 334 F.3d at 1057. (App., infra, 9a.)

B. Statement of Facts

Under close Customs supervision, Ammex

operates a "sterile" U.S. Customs Class 9 bonded

warehouse, commonly known as a duty-free store or

duty-free sales enterprise, from which it seeks to

resume selling gasoline and diesel fuel on a duty and

tax-free basis. The designation "sterile" indicates that

the physical design and operation of the facility

guarantees the exportation of products sold therein.

Customers entering Ammex's facility have necessarily

proceeded beyond the "point of no return," having

exited from the United States. As a duty-free sales

enterprise, Ammex sells for export certain goods "duty-

free" to customers who transport those goods to Canada

immediately after leaving Ammex's facility.

1. Administrative Proceedings

In 1993 Ammex applied to Customs for approval

to operate as a sterile, tax and duty-free facility. On

December 23, 1993, Customs tentatively approved

Ammeyx’s sterile tax and duty-free facility, but excluded

fuel. On January 24, 1994, Ammex submitted to

Customs additional information to persuade Customs

5

not to exclude fuel. Customs denied authorization for

duty-free motor fuel sales because, inter alia, such

merchandise was an “unidentifiable fungible,” which

could not be marked or otherwise identified under 19

U.S.C. § 1555(b)(3)(D) and that therefore Customs

would have no practical way of ensuring that the duty-

free gasoline was "declared" when vehicles returned to

the United States. See Customs Headquarters Ruling

225287 of June 27, 1994 ("HQ 225287"), at 4-5. (App.,

infra, 49a-5la.) Customs recognized the impact of

I.R.C. § 4081 upon duty-free motor fuel sales by stating

that “the real savings would be the exemption from

federal... excise taxes.” HQ 225287 at 2. (App.,

infra, 46a.)

In Customs’ 1998 Headquarters Ruling 227385

(“HQ 227385”), Customs reconsidered its 1994 ruling at

Ammex’s request. (App., infra, 53a.) Analyzing the

legislative history of the OTCA, which established

legislative guidelines for Customs' administration of

duty-free shops, Customs concluded that "the fact that

Congress did not specifically reject Customs policy

regarding the sale of gasoline by duty-free stores

means that Congress did not object to such practice."

HQ 227385 at 5. (App., infra, 61a.) Thus, it reasoned,

"in holding that gasoline and diesel fuel may not be sold

by duty-free stores, it was proper to follow the

precedent established by ruling letter 200396." Jd. In

Ruling Letter 200396, the Assistant Commissioner of

Customs' Office of Regulations and Rulings, Leonard

Lehman, held that the activities of duty-free stores

could not be extended to unidentifiable fungibles, such

as gasoline sold on a retail basis, since Customs would

have no practical way of ensuring that the gasoline was

declared when it was returned to the United States.

6

Customs Ruling Letter 200396 of October 30, 1972.

(App., infra, 47a-48a.)

2. Ammex I and Customs’ Authorization

of Duty-Free Motor Fuel Sales

In Ammex I, Ammex successfully challenged the

Headquarters Rulings in the CIT. The CIT held that

"Customs acted unlawfully in prohibiting Ammex from

selling duty-free gasoline and diesel fuel" because to do

so violated 19 U.S.C. § 1557(a)(1), which allowed

'[a]ny merchandise subject to duty, with the

exception of perishable articles and explosive

substances" to be entered and withdrawn for

exportation from bonded warehouses such as Ammex's

duty-free store. Jd. at 1275-76. [Emphasis added.]

(App., infra, 34a-35a.) The CIT entered a judgment

setting aside HQ 227385 and holding that "19 U.S.C. §§

1555 and 1557 allow the duty-free sale of gasoline and

diesel fuel from a duty-free enterprise." Jd. (App.,

infra, 42a.)

Thus, on September 5, 2000, after six years of

proceedings, in accordance with Ammex I, Customs

granted Ammex’s request to expand its Class 9 duty

free warehouse operation to include the gasoline and

diesel fuel tanks located at [Ammex's] facility. (App.,

infra, 103a.) On October 23, 2000, Ammex wrote to

Customs seeking a letter to certify that the fuel sold at

Ammex's duty-free store was exempt from taxes.

Customs forwarded Ammex's request to the Internal

Revenue Service ("IRS"). On January 8, 2001, the IRS

issued an informational letter (“IRS letter”) stating

that I.R.C. § 4081 imposes a tax on the entry into the

United States of any taxable fuel, including gasoline

7

and diesel fuel for consumption, use, or warehousing.

(App., infra, 104a.)

3. Customs’ Subsequent Revocation Of

Duty-Free Motor Fuel Sales

Authorization

Within a year, Customs decided _ that,

notwithstanding the ruling in Ammez I, it would not

permit Ammex to sell motor fuel on a duty and tax-free

basis. (App., infra, 110a-1lla.) On June 1, 2001,

Customs issued a notice proposing to revoke the

September 5, 2000 authorization letter. Customs

Bulletin and Decisions, Vol. 35, No. 25, at 295

("Proposed Revocation of Letter Relating to Gasoline

and Diesel Fuel From a Class 9 Customs Bonded

Warehouse Also Known as a Duty-free Shop"). (App.,

infra, 95a.)

On November 21, 2001, after a notice and

comment period, Customs revoked its authorization of

the sale of gasoline and diesel fuel on a duty and tax-

free basis, effective on January 21, 2002. Customs

Bulletin and Decisions, Vol. 35, No. 47, 5 (Nov. 7, 2001)

("Revocation"). (App., infra, 101a.) Customs stated:

The Internal Revenue Service has

informed the Customs Service that 26

USC 4081 imposes a tax upon entry into

the United States of any taxable fuel for

consumption, use, or warehousing.

* * *

Consequently, any fuel subject to a tax

when entered for warehousing under 26

8

U.S.C. 4081 and the implementing

Internal Revenue Service regulations

cannot qualify as duty-free fuel and,

therefore, cannot be entered into a class 9

warehouse pursuant to 19 U.S.C.

1555(b)(1) and the applicable Customs

Regulations.

Because only fuel on which neither duty

nor tax has been assessed can qualify as

duty-free fuel in conformity with 19

U.S.C. 1555(b)(8)(E), the Customs Service —

intends to revoke the Port Director's

letter of September 5, 2000, to the extent

that it would allow the sale under 19

U.S.C. 1555(b)(1) of fuel for which a tax

was assessed under 26 U.S.C. 4081.

(App., infra, 104a-105a.)!

4. . Ammex II

Ammex again filed suit in the CIT. In Ammex

IT, Ammex requested an order (i) enjoining Customs'

Revocation under the doctrine of res judicata and (ii)

holding Customs in contempt for violating Ammezx I.

The CIT denied Ammex's motion. Ammewx II, 193 F.

Supp. 2d at 1330. (App., infra, 23a.) Specifically, the

CIT held that:

1 Although not in issue here, the OTCA expressly permits

the entry of merchandise “subject to duty” to be withdrawn for

exportation, 19 U.S.C. § 1557(a)(1), and, upon such exportation, for

the previous duties thereon to be refunded, 19 U.S.C. § 1557(a)(2).

9

The issue in Ammex I was not simply

whether Ammex is entitled ‘to sell

gasoline and diesel fuel from its duty-free

store in Detroit, Michigan.’ Rather, the

court was called upon to consider whether

the explanation Customs provided for

denying Ammex's request to sell gasoline

and diesel fuel duty-free was arbitrary,

capricious, or contrary to law.

* * *

This court [in Ammex I] accordingly

reviewed Customs' stated reason for

denying Ammex's request to sell duty-

free fuel, namely, its rationale that such

fuel falls under an_ “unidentifiable

fungibles" exception to merchandise that

can lawfully be entered and withdrawn

for exportation from duty-free stores.

(App., infra, 18a-19a.)

The CIT then proceeded to its rationale as to

why Ammez I differed from Ammez II.

Implicit in both parties' briefings in

Ammex I and the court's opinion was the

presumption that the gasoline and diesel

fuel at issue qualified as "duty- free

merchandise" within the meaning of 19

U.S.C. § 1555(b)(8)(E). Neither party

questioned this assumption, and because

neither party raised a challenge, the court

did not consider or rule on such an issue.

10

Because of subsequent events, however,

the issue has arisen as to whether

gasoline and diesel fuel can qualify as

"duty-free merchandise" under 19 U.S.C. §

1555(b)(8)(E), in light of information from

the IRS that such fuel may be subject to

tax and therefore unable to qualify as

"duty-free merchandise" under the

statutory definition.

Id. at 1329-30. (App., infra, 20a.) The CIT concluded

that:

Having determined that the issue of

federal taxes as applied to gasoline and

diesel fuel and the — concurrent

consideration of whether such application

preempts such fuel from qualifying as

"duty-free merchandise" was neither part

nor parcél of Ammex I, Ammex's Motion

cannot be considered by the court under

the present procedural __ posture.

Ammex's Motion asks the court "to

interpret § 1555(b)(8)(E) of Title 19-a

Customs statute." Ammex's Reply at 12-

15. This constitutes a new matter, one

which was not contemplated in Ammezx I.

It therefore cannot be said that the

revocation constitutes an attack on the

court's prior judgment or order in this

case.

Id. at 1330. (App., infra, 21a.)

11

The United States Court of Appeals for the

Federal Circuit affirmed for the reasons stated above.

REASONS FOR GRANTING THE WRIT

I. DUTY-FREE SALES ARE OF

NATIONAL IMPORTANCE BECAUSE

THEY EFFECT A_ SIGNIFICANT

NATIONAL POLICY TO ENCOURAGE

FOREIGN COMMERCE.

In Xerox Corp. v. Cty. of Harris, Texas, 459 U.S.

145, 150-51 (1982), this Court recognized the national

importance of duty-free sales enterprises as a stimulant

to foreign commerce:

Government regulated, bonded

warehouses have been a link in the chain

of foreign commerce since ‘a very early

period in our history.’ Fabbri v. Murphy,

95 U.S. 191, 197, 94 L.Ed. 468 (1877).

* * *

... Congress was willing to waive all duty

on goods that were reexported from the

warehouse, and to defer, for a prescribed

period, the duty on goods destined for

American consumption. This was no

small sacrifice at a time when customs

duties made up the greater part of federal

revenues, but its objective was to

stimulate business for American industry

and work for Americans.

12

In short, Congress created secure and

duty free-enclaves under federal control

in order to encourage merchants here and

abroad to make use of American ports.

Xerox Corp., 459 U.S. at 150-51; see also McGoldrick v.

Gulf Oil Co., 309 U.S. 414, 428-29 (1939). As construed

in Ammex I, Congress intended "[aJny merchandise

subject to duty, with the exception of perishable

articles and explosive substances" may be entered and

withdrawn for exportation from bonded warehouses

such as Ammex's duty-free store. Ammez I, at 1275-76.

(App., infra, 3la-32a.) Contrary to the holding in

Ammex I, Customs’ effort to prohibit duty-free sales

enterprises from selling another categery of

merchandise (i.e., motor fuel) disserves the scheme that

Congress legislated.

II. CUSTOMS’ REVOCATION OF DUTY-

FREE MOTOR FUEL SALES

AUTHORIZATION REQUIRED UNDER

THE CIT'S CONSTRUCTION OF

SECTIONS 555 AND 557 OF THE OTCA,

19 U.S.C. §§ 1555 AND 1557, IMPLICITLY

VIOLATES THE SEPARATION OF

POWERS.

The CIT in Ammez I had plainly decided that

"19 U.S.C. §§ 1555 and 1557 allow the duty-free sale of

gasoline and diesel fuel from a duty-free enterprise."

Ammex I, at 1276. (App., infra, 42a.) Customs’

Revocation simply decided otherwise on a different

rationale. (App., infra, 104a-105a.) Administrative

agencies may not contravene a judicial statutory

construction. Neal v. United States, 516 U.S. 284, 295

13

(1996) (“Once we have determined a statute’s meaning,

we adhere to our ruling under the doctrine of stare

decisis, and we assess an agency’s later interpretation

against that settled law”). The Federal Circuit’s

subsequent decision in Ammex II conflicts with Neal

and Federal Circuit precedent, Banker’s Trust New

York Corp. v. United States, 225 F.3d 1368, 1375 (Fed

Cir. 2000) (prior judicial construction is binding on

federal agencies because of the “relationship of the

Judiciary to Congress and the ability of Congress to

change its statutes to correct a misintrerpretation by

the Court”), by permitting Customs to re-construe

those statutes and to revoke authorization of Ammex’s

duty-free motor fuel sales. See also, Marbury v.

Madison, 5 U.S. (1 Cranch) 137, 176 (1803) ("It is,

emphatically, the province and duty of the judicial

department, to say what the law is"); Brand X Internet

Services v. F.C.C., 345 F.3d 1120, 11381 (9 Cir. 2003)

(Neal applies to Federal Circuit Courts of Appeal);

Rivers v. Roadway Express, Inc., 511 U.S. 298, 312-138

(1994) ("[Jjudicial construction of a statute is an

authoritative statement of what the statute meant

before as well as after the decision of the case giving

rise to that construction"); accord United States v.

Mead Corp., 533 U.S. 218, 248-49 (2001) (Sealia, J.,

dissenting) ("I know of no case, in the entire history of

the federal courts, in which we have allowed a judicial

interpretation of a statute to be set aside by an agency-

-or have allowed a lower court to render an

interpretation of a statute subject to correction by an

agency"); Chicago & Southern Air Lines, Inc. v.

Waterman S.S. Corp., 333 U.S. 103, 1138 (1948)

(“Judgments within the powers vested in courts by the

Judiciary Article of the Constitution may not lawfully

be revised, overturned or refused faith and credit by

14

another Department of Government."); Commodities

Export Co. v. United States Customs Service, 957 F.2d

223, 225-27 (6 Cir. 1992) (recognizing CIT as an Article

III court).

The Federal Circuit Opinion, upholding

Customs’ re-interpretation of the OTCA to preclude

duty-free motor fuel sales, implicates the same

compelling and important Separation of Powers

considerations underlying Neal. See also Banker’s

Trust, 225 F.3d at 1376 (Executive agency regulation

could not effectively construe a statute in a manner

different from a prior definitive court ruling).

Ill. DENYING RES JUDICATA EFFECT TO

THE AMMEX I STATUTORY

CONSTRUCTION ON THE GROUND

THAT THE APPLICATION OF LR.C. §

4081 WAS A NEW FACT, CONFLICTS

WITH AND UNDERMINES IMPORTANT

RES JUDICATA DECISIONS.

The Opinion conflicts with res judicata

principles, which this Court has long recognized are

“essential to the maintenance of social order; for, the

aid of judicial tribunals would not be invoked for the

vindication of rights of person and property, if

conclusiveness did not attend the judgments of such

tribunals.” Nevada v. United States, 463 U.S. 110, 129

(1983); see also Federated Dept. Stores, Inc. v. Moitie,

452 U.S. 394, 401 (1981) (res judicata serves “vital

public interests” “that there be an end to litigation—a

maxim which comports with common sense as well as

public policy”).

i

|

j

j

{

}

}

15

Ammex I expressly and unqualifiedly decided

that Ammex was entitled to sell motor fuel as “duty-

free” merchandise under the OTCA. Ammex I, at 1276

("19 U.S.C. §§ 1555 and 1557 allow the duty-free sale of

gasoline and diesel fuel from a duty-free enterprise.").

(App., infra, 42a.) “Res judicata prevents litigation of

all grounds for, or defenses to, recovery that were

previously available to the parties, regardless of

whether they were asserted or determined in the prior

proceeding.” Brown v. Felsen, 442 U.S. 127, 131 (1979);

Nevada, 463 U.S. at 129-30; Chicot County Drainage

Dist. v. Baxter State Bank, 308 U.S. 37 1, 378 (1940).

Res judicata bars defenses not brought in the first suit,

regardless of the legal theory. Cromwell v. County of

Sac, 94 U.S. 351, 352-53 (1877) (“If such defences were

not presented in the action ... the subsequent

allegation of their existence is of no legal

consequence”)?

Thus, a party is “not at liberty to prosecute [its]

right by piecemeal, as by presenting a part only of the

available grounds and reserving others for another suit,

if failing in that.” Grubb v. Public Utilities Comm’n,

281 U.S. 470, 478 (1930); Werlein v. New Orleans, 177

U.S. 390, 397 (1900); United States v. California &

Oregon Land Co., 192 U.S. 355, 358 (1904). Res

judicata applies in a subsequent suit where the parties

and subject-matter are the same, not only as to matters

actually presented to sustain or defeat the right

2 Res judicata is binding on the United States and federal

agencies. Nevada, 463 U.S. at 135; United States v. Mendoza, 464

U.S. 154, 161 (1984); United States v. Stauffer Chemical Co., 464

U.S. 165, 174 (1984); Astoria Federal Savings & Loan Ass’n v.

Solimino, 501 U.S. 104, 107-108 (1991).

16

asserted, but also as to any other available matter

which might have been presented to that end.

Cromwell, 94 U.S. at 352 (1876); and see, Wright, Miller

& Cooper, Federal Practice and Procedure: Jurisdiction

2d § 4406 (under claim/defense preclusion, “[ilf the

plaintiff wins . . . the defendant cannot avoid the

judgment by offering new defenses”).

A. The Opinion Conflicts With Precedent by

Concluding That Ammex I And Ammex

II Did Not Arise From A Common

Nucleus Of Operative Facts.

A party asserting res judicata must prove that

(1) the parties are identical or in privity; (2) the first

suit proceeded to a final judgment on the merits; and (3)

the second claim is based on the same set of

transactional facts as the first. Jet, Inc. v. Sewage

Aeration Sys., 223 F.3d 1360, 1362 (Fed. Cir. 2000). So

it was here. '

The Federal Circuit Opinion correctly found that

the first two elements of res judicata [were] present

because the parties (Ammex and the government) are

identical in both actions, and the prior litigation

resulted in a valid final judgment on the merits. Thus,

the sole issue was whether Ammex I and Ammex IT

arose from a common nucleus of operative fact.

Opinion, 334 F.3d at 1056. (App., infra, 6a-7a.) In

deciding that they did not, the Opinion departed from

this Court’s res judicata precedent. Grubb, 281 U.S. at

478; Werlein, 177 U.S. at 397; California & Oregon

Land Co., 192 U. S. at 358; Brown, 442 U.S. at 131;

Nevada, 463 U.S. at 129-380; Ciicot County Drainage

Dist, 308 U.S. at 378; Cromwell, 94 U.S. at 352-53.

17

Specifically, the Federal Circuit held that the cases

lacked a common nucleus of operative fact on the

ground that a prior existing law and legal theory was a

“new fact”:

the application of federal taxes to gasoline

and diesel fuel, preempting such fuel from

qualifying as “duty-free merchandise,” is a

new fact which was not a part of Ammex

ee

Opinion, 334 F.3d at 1057. (App., infra, 9a.)

This Court’s res judicata jurisprudence does not

permit such a transparent creation of new nucleus of

facts based on nothing more than a different agency

_ rationale. Brown, 442 U.S. at 131; Nevada, 463 U.S. at

129-30; Chicot County Drainage Dist, 308 U.S. at 378;

Cromwell, 94 U.S. at 352-53. Ammex I and Ammex II

share a common origin. Before Ammezx I, Customs had

for years authorized Ammex’s duty-free sales, but

excluded motor fuel. In 1998, HQ 227385 affirmed the

1994 HQ 225287 finding that “duty-free gasoline and

diesel fuel for automobiles may not be sold... at a

duty-free store provided -for in 19 U.S.C. 1555(b).”

(App., infra, 5la, 65a.) Ammex I set aside Customs’

rulings and “DECREED that 19 U.S.C. §§ 1555 and

1557 allow the duty-free sale of gasoline and diesel fuel

from a duty-free enterprise." Jd. at 1276. (App., infra,

42a.) Ammex I thus construed the same OTCA

provisions upon which Customs based its Revocation.

Customs did not appeal Ammex I. Instead, on

September 5, 2000, Customs authorized Ammex’s duty-

free motor fuel sales. (App., infra, 108a.)

18

The entire point of Ammex I was to resolve the

question of whether Ammex could sell motor fuel from

its duty-free sales enterprise. Ammex I was both a

convenient and the expected litigation in which to

determine the effect, if any, of any federal law including

I.R.C. § 4081, on Ammex’s duty-free motor fuel sales

under 19 U.S.C. §§ 1555 and 1557. Indeed, Customs

acknowledged that “the real savings would be the

exemption from federal and state excise taxes.”

HQ225287 at 2. (App., infra, 46a.) The result was the

CIT judgment that “19 U.S.C. §§ 1555 and 1557 allow

the duty-free sale of gasoline and diesel fuel from a

duty-free enterprise.” Ammew I at 1276. (App., infra,

42a.)

Ammex II ensued because Customs attempted

to avoid Ammex I by Revocation of the letter ruling

issued in compliance with Ammex I. Customs’

Revocation cited no factual changes whatever in

Ammex’s duty-free motor fuel operation. (App., infra,

101a.) No new record, fact investigation or fact-finding

was involved. Rather, Customs simply asserted a new

legal theory—“that fuel which is assessed a tax under

26 U.S.C 4081 cannot qualify for entry under 19 U.S.C.

1555(b)(1).’”* (App., infra, 106a) Thus, Ammex I and IT

share a common factual origin and also involve the

“same claim.” See Nevada, 463 U.S. at 131 (holding that

res judicata barred second suit where the Government

intended to litigate all the rights at issue in first suit).

3 It should be noted that Ammex has, under the Export

Clause, consistently challenged whether § 4081 fuel excise tax was

constitutionally imposed on its purchases of motor fuel for export.

U.S. Const. art. I § 9, el. 5.

19

B. The Opinion Conflicted with Precedent by

Confusing Old Law With New Facts.

The Opinion’s holding that the application of

I.R.C. § 4081 to 19 U.S.C. § 1555 is a new fact conflicts

with res judicata precedent. First, § 4081 and 19

U.S.C. § 1555 are old law. I.R.C. § 4081, although

amended from time to time, is a decades-old excise tax

law in effect during the entire period in suit in Ammex

I. Pub. L. 86-342. 19 U.S.C. § 1555(b)(8)(E) had been in

effect since 1988. Pub. L. 100-418. As noted above,

Customs was aware that the Ammezx I proceeding was

not a mere intellectual exercise, and duty-free status

was being pursued to immunize the fuel from the I.R.C.

§ 4081 motor fuel excise tax. (App., infra, 46a.)

Customs’ new rationale that I.R.C. § 4081 applied did

not change the operative facts in any respect.

In Ammex I, Ammex had successfully litigated

its right to sell motor fuel from its duty-free sales

enterprise under 19 U.S.C. §§ 1555 and 1557. Customs’

Revocation simply proffered a newly minted argument

based on prior law to avoid the Ammesx I holding.

(App., infra, 101a.) Res judicata bars the Government

from asserting in a second proceeding a different legal

argument under § 4081 because § 4081 is law, which the

Government could have raised in Ammezx I. Cromwell,

94 U.S. at 352-353; Chicot, 308 U.S. at 378; Grubb, 281

U.S. at 478-79; see also Fed. R. Civ. P. 8(c). Moreover,

the I.R.C. § 4081 tax was the primary federal tax that

duty-free status would exempt the fuel from. There

was no other federal tax. Thus, the Opinion conflicts

with years of res judicata jurisprudence by holding that

a new legal theory based on a tax statute in effect

during the first suit may be considered a new fact in

20

order to avoid res judicata. The Opinion thus threatens

finality and improperly permits a federal agency to

litigate by piecemeal the meaning of the statute already

construed by an Article III court. Grubb, 281 U.S. at

478.

CONCLUSION

Therefore, Petitioner respectfully requests that

this Court grant this petition for writ of certiorari,

reverse the decisions of the United States Court of

Appeals for the Federal Circuit and the Court of

International Trade, and hold that the decision in

Ammex I binds Customs and precludes Customs from

re-litigating the issue of whether the OTCA authorizes

Ammex to sell tax and duty-free motor fuel from its

duty-free sales enterprise.

Respectfully Submitted,

Christopher S. Olson (P58780)

Counsel of Record

Craig L. John (27146)

DYKEMA GOSSETT PLLC

39577 Woodward Avenue, Suite 300

Bloomfield Hills, MI 48304-2820

(248) 203-0700

Attorneys for Plaintiff-Appellant

la

(Any footnotes trail the end of each document)

02-1498

UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

AMMEX, INC.,

Plaintiff-Appellant,

Vv.

UNITED STATES,

Defendant-Appellee.

July 1, 2003, Decided

COUNSEL: Craig L. John, Dykema Gossett PLLC, of

Bloomfield Hills, Michigan, argued for plaintiff-

appellant. On the brief were Herbert C. Shelley, J.

William Koegel, Jr., Alice A. Kipel, and Troy H. Cribb.

Amy M. Rubin, Attorney, Civil Division, Commercial

Litigation Branch, International Trade Field Office,

Department of Justice, of New York, New York,

argued for defendant-appellee. With her on the brief

were Robert D. McCallum, Jr., Assistant Attorney

General; David M. Cohen, Director, Civil Division,

Commercial Litigation Branch, Department of Justice,

of Washington, DC; and John J. Mahon, Acting

Attorney in Charge, International Trade Field Office.

Of counsel was Beth C. Brotman, Attorney, Office of

Assistant Chief Counsel, United States Customs

Service, New York, New York.

2a

JUDGES: Before MAYER, Chief Judge, NEWMAN,

and GAJARSA, Circuit Judges.

OPINIONBY: GAJARSA

OPINION: GAJARSA, Circuit Judge.

Ammex, Inc. ("Ammex") appeals the final decision of

the United States Court of International Trade denying

its Motion for an Order to Show Cause Why the United

States Customs Service Should Not be Held in

Contempt. Ammex v. United States, 193 F. Supp. 2d

1325 (Ct. Int'l Trade 2002) ("Ammex II"). Because res

judicata does not preclude the United States Customs

Service ("Customs") from revoking its approval of the

sale of gasoline and diesel fuel on a duty- and tax-free

basis, we affirm.

I. BACKGROUND

Ammex operates a "sterile" U.S. Customs Class 9

bonded warehouse, commonly known as a duty-free

store or duty-free sales enterprise, from which it seeks

to sell gasoline and diesel fuel on a duty- and tax-free

basis. The designation "sterile" indicates that the

physical design and operation of the facility guarantees

the exportation of products sold therein. The store is

located on West Lafayette Street in Detroit, Michigan,

adjacent to the Ambassador Bridge connecting the

United States and Canada. Customers entering

Ammex's facility have necessarily proceeded beyond

the "point of no return," having exited from the United

States. As a duty- and tax-free sales enterprise,

Ammex is permitted to sell for export certain goods

3a

"duty-free" to customers who transport those goods

directly to Canada after leaving Ammex's store.

In a letter dated January 24, 1994, Ammex requested

approval to sell gasoline and diesel fuel on a duty- and

tax-free basis. On February 12, 1998, Customs denied

Ammex's request because gasoline and diesel fuel are

"unidentifiable fungibles.". U.S. Customs Service

Headquarters Ruling ("HQ") 227385 (Feb. 12, 1998). HQ

227385 reaffirmed a 1994 HQ ruling which found that

activities of duty-free stores should not be extended to

cover "unidentifiable fungibles," such as gasoline and

diesel fuel, when sold on a retail basis. HQ 225287, 1994

WL 830665 (June 7, 1994). "In both HQ 227385 and

225287, Customs accepted the requestor's assertion

that the merchandise under consideration was duty-

free but . . . determined that such merchandise could

not be sold as duty-free merchandise from a class 9

bonded warehouse." Customs Bulletin and Decisions,

Vol. 35, No. 25, 295, 296 (June 1, 2001).

In Ammex, Inc. v. United States, 116 F. Supp. 2d 1269

(Ct. Int'l Trade 2000) ("Ammex I"), Ammex challenged

the above HQ rulings. The Court of International Trade

found that "Customs acted unlawfully in prohibiting

Ammex from selling duty-free gasoline and diesel fuel."

Id. at 1275-76. The Court of International Trade held

that Customs's decision to prohibit Ammex from selling

duty-free gasoline and diesel fuel violated 19 U.S.C. §

1557(a)(1), which allows "any merchandise subject to

duty, with the exception of perishable articles and

explosive substances" to be entered and withdrawn for

exportation from bonded warehouses such as Ammex's

duty-free store. Id. The Court of International Trade

accordingly entered a judgment setting aside HQ

4a

227385 and "ORDERED ADJUDGED AND

DECREED that 19 U.S.C. §§ 1555 and 1557 allow the

duty-free sale of gasoline and diesel fuel from a duty-

free enterprise." Id. at 1276.

On September 5, 2000, in accordance with the Court of

International Trade's decision, Customs issued a letter

("September 5 letter") to Ammex granting its request

to expand its "Class 9 duty[-]free warehouse operation

to include the gasoline and diesel fuel tanks located at

[Ammex's] facility."

\

On October 23, 2000, Ammex wrote to Customs seeking

a letter to certify that the fuel sold at Ammex's duty-

free store was exempt from taxes. Customs forwarded

Ammex's request to the Internal Revenue Service

("IRS"). On January 8, 2001, the IRS issued an

informational letter stating that 26 U.S.C. § 4081 of the

Internal Revenue Code imposes a tax on the entry into

the United States of any taxable fuel, including gasoline

and diesel fuel for consumption, use, or warehousing.

Based on the IRS letter, Customs determined that it

could not lawfully permit Ammex to sell gasoline and

diesel fuel on a duty- and tax-free basis. On June 1,

2001, Customs issued a notice proposing to revoke the

September 5 letter. Customs Bulletin and Decisions,

Vol. 35, No. 25, at 295 ("Proposed Revocation of Letter

Relating to Gasoline and Diesel Fuel From a Class 9

Customs Bonded Warehouse Also Known as a Duty-

free Shop"). On November 21, 2001, after a notice and

comment period, Customs revoked its approval of the

sale of gasoline and diesel fuel on a duty- and tax-free

basis, effective on January 21, 2002. Customs Bulletin

and Decisions, Vol. 35, No. 47, 5 (Nov. 7, 2001)

5a

("Revocation of Ruling Letter and Treatment Relating

to Gasoline and Diesel Fuel in a Class 9 Customs

Bonded Warehouse").

Subsequently, Ammex filed suit in the Court of

International Trade to bar Customs's revocation under

the doctrine of res judicata and to hold Customs in

contempt for violating Ammex I. The Court of

International Trade denied Ammex's motion to enjoin

Customs from revoking Ammex's permission to sell

gasoline and diesel fuel on a duty- and tax-free basis

and to hold Customs in contempt for violating the

court's judgment in Ammex I. Ammex timely appealed,

and we have jurisdiction pursuant to 28 U.S.C. §

1295(a)(5).

II. DISCUSSION

A. Standard of Review

Whether, based on the facts of the case, a claim is

barred by res judicata is a question of law that we

review de novo. Faust v. United States, 101 F.3d 675,

677 (Fed. Cir. 1996). We review the denial of a motion

to hold Customs in contempt for an abuse of discretion.

United States v. Hanover Ins. Co., 82 F.3d 1052, 1056

(Fed. Cir. 1996).

B. Res Judicata

This case presents the question of whether res judicata

precludes Customs from revoking its approval of the

sale of gasoline and diesel fuel on a duty- and tax-free

basis.

6a

Under the doctrine of res judicata (or claim preclusion),

"(al final judgment on the merits of an action precludes

the parties or their privies from relitigating issues that

were or could have been raised in that action."

Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394,

398, 69 L. Ed. 2d 103, 101 S. Ct. 2424 (1981); see also

Young Eng'rs, Inc. v. United States Int'l Trade

Comm'n, 721 F.2d 1805, 1314 (Fed. Cir. 1983) (stating

that this court would adopt the transactional approach

advocated by the Restatement (Second) of Judgments);

Restatement (Second) of Judgments § 18 (1982). Over

the years, the doctrine has come to incorporate common

law concepts of merger and bar, and will thus also bar a

second suit raising claims based on the same set of

transactional facts. Migra v. Warren City School Dist.

Bd. of Educ., 465 U.S. 75, 77 n.1, 79 Ly Ed. 2d 56, 104 8S.

Ct. 892 (1984) ("Claim preclusion refers to the effect of a

judgment in foreclosing litigation of a matter that never

has been litigated, because of a determination that it

should have been advanced in an earlier suit. Claim

preclusion therefore encompasses the law of merger

and bar."). Accordingly, to prevail on a claim of res

judicata, the party asserting the bar must prove that

(1) the parties are identical or in privity; (2) the first

suit proceeded to a final judgment on the merits; and (3)

the second claim is based on the same set of

transactional facts as the first. Parklane Hosiery Co. v.

Shore, 439 U.S. 322, 326 n.5, 58 L. Ed. 2d 552, 99 S. Ct.

645 (1979); Jet, Inc. v. Sewage Aeration Sys., 223 F.3d

1360, 1362 (Fed. Cir. 2000).

It is undisputed that the first two elements are present:

The parties (Ammex and the government) are identical

in both actions, and the prior litigation resulted in a

valid final judgment on the merits. Thus, the case

4

5

Ta

reduces to an analysis of the transactional facts

involved in the two causes of action. See Young Eng'rs,

721 F.2d at 1814 (moting that this court is broadly

guided by the Restatement (Second) of Judgments);

‘Restatement (Second) of Judgments § 24 (defining

"claim" as encompassing rights and remedies arising out

of the same set of transactional facts).

The Restatement notes that a common set of

transactional facts is to be identified "pragmatically."

Restatement (Second) of Judgments § 24. Seeking to

bring additional clarity to this standard, courts have

defined "transaction" in terms of a "core of operative

facts," the "same operative facts," or the "same nucleus

of operative facts," and "based on the same, or nearly

the same factual allegations." Herrmann v. Cencom

Cable Assocs., Inc., 999 F.2d 223, 226 (7th Cir. 1993)

(citing Parsons Steel, Inc. v. First Ala. Bank, 474 U.S.

518, 521, 88 L. Ed. 2d 877, 106 S. Ct. 768 (1986)); see also

Nevada v. United States, 463 U.S. 110, 128-30, 77 L. Ed.

2d 509, 103 S. Ct. 2906 (1983) (requiring courts to first

determine whether the "same cause of action" is being

sued upon); Lawlor v. Nat'l Screen Serv. Corp., 349

U.S. 322, 326, 99 L. Ed. 1122, 75 S. Ct. 865 (1955) ("[A]

prior judgment is res judicata only as to suits involving

the same cause of action."); United States v. Haytian

Republic, 154 U.S. 118, 125, 38 L. Ed. 930, 14 8. Ct. 992

(1894) ("One of the tests laid down for the purpose of

determining whether or not the causes of action should

have been joined in one suit is whether the evidence

necessary to prove one cause of action would establish

the other."). In the instant case, we must determine

whether, for purposes of claim preclusion, HQ 227385,

which Customs provided for denying Ammex's request

to sell gasoline and diesel fuel duty-free and the Court

8a

of International Trade held was contrary to law,

Ammex I, 116 F. Supp. 2d at 1270, is based on the same

set of factual allegations as whether the application of

federal taxes to gasoline and diesel fuel preempts such

fuel from qualifying as "duty-free merchandise,"

Ammex II, 193 F. Supp. 2d at 1330.

We hold that it is not. The government correctly argues

that, although the ultimate effect of both claims was to

determine whether Ammex may sell gasoline and diesel

fuel duty-free, the claims are sufficiently different

because in the prior lawsuit, Ammex claimed, upon the

administrative record, that Customs's interpretation of

19 U.S.C. § 1557(a)(1) was not in accordance with law,

and the current claim is whether the IRS's

determination that Ammex's fuel must be taxed under

26 U.S.C. § 4081 precludes it from qualifying as "duty-

free merchandise" under 19 U.S.C. § 1555(b)(8)(D).

The Omnibus Trade and Competitiveness Act of 1988

defines "duty-free enterprise" as:A person that sells, for

use outside the customs territory, duty-free

merchandise that is delivered from a bonded warehouse

to an... exit point for exportation by, or on behalf of,

individuals departing from the customs territory.19

U.S.C. § 1555(b)(8)(D)(2000). "Duty-free merchandise"

is defined as goods on which no federal duty or tax has

been charged "pending exportation from the customs

territory." Id. § 1555(b)(8)(E). Logie dictates that the

term "duty-free" is somewhat of a misnomer and more

accurately should be termed "duty- and tax-free." Thus,

the unique nature of a duty- and tax-free store is that it

sells goods for immediate export from the United

States so that its customers need not pay federal duties

and taxes on the goods.

9a

Ammex concedes that Ammex I did not expressly

adjudicate the tax issue. Ammex nevertheless argues

that the tax question appeared in the administrative

record in Ammex I and could have been litigated in

Ammex I. We conclude that the Court of International

Trade properly rejected Ammex's argument. Ammex

points only to excerpts dealing with forwarding

warehouse entry documents to the IRS, and not the

question of whether federal tax was due on the gasoline

and diesel fuel. Moreover, Ammex raised the specific

tax issue with Customs after the conclusion of Ammex

I. In response to a request from Ammex, the IRS

issued an informational letter stating that 26 U.S.C. §

4081 imposes a tax on the entry into the United States

of any taxable fuel, including gasoline and diesel fuel for

consumption, use, or warehousing. Ammex argues that

a court's statutory interpretation cannot be challenged

in a subsequent agency decision. The factual premise of

the lawsuit in Ammex Ii, however, differs from the

prior one because the application of federal taxes to

gasoline and diesel fuel, preempting such fuel from

qualifying as "duty-free merchandise," is a new fact

which was not a part of Ammex I. Cf. United States v.

Stone & Downer Co., 274 U.S. 225, 235-36, 71 L. Ed.

10138, 47 S. Ct. 616, Treas. Dec. 42211 (1927) (holding

that in customs classification cases a determination of

fact or law with respect to one importation is not res

judicata as to another importation of the same

merchandise by the same parties). Because under the

relevant statute, the term "duty-free merchandise"

means "merchandise sold by a duty-free sales

enterprise on which neither Federal duty nor Federal

tax has been assessed pending exportation from the

customs territory," 19 U.S.C. § 1555(b)(8)(E), we reject

Ammex's argument that the legal claims in the two

10a

suits arise from the same "operative nucleus of fact."

See, e.g., Herrmann, 999 F.2d at 226; Restatement

(Second) of Judgments § 24 cmt. f ("Material operative

facts occurring after the decision of an action with

respect to the same subject matter may in themselves,

or taken in conjunction with the antecedent facts,

comprise a transaction which may be made the basis of

a second action not precluded by the first."); see also

Lawlor, 349 U.S. at 327-28 (stating prior dismissal of

antitrust complaint did not bar new antitrust complaint

based on conduct occurring after the first judgment).

Next, Ammex correctly argues that the Court of

International Trade erred in its initial decisioi. by

applying the elements of collateral estoppel (or issue

preclusion) instead of those of res judicata. In denying

Ammex's contempt motion, the Court of International

Trade applied the elements of collateral estoppel and

recognized the distinction between the issue raised in

Ammex I, 116 F. Supp. 2d at 1270 (stating that the

specific decisions and rationale contained in HQ 227385

were arbitrary, capricious, or contrary to law), and the

separate and distinct issue on which Ammex challenged

Customs's revocation of the September 5 letter in

Ammex II, 193 F. Supp. 2d at 1330 (stating that the

gasoline and diesel fuel sold at Ammex's duty-free store

is subject to federal tax and that such fuel does not

satisfy the statutory definition of "duty-free

merchandise"). Nevertheless, the government correctly

asserts that this was not prejudicial error, because the

Court of International Trade addressed Ammex's

argument in denying its motion for reconsideration,

Ammex, Inc. v. United States, 201 F. Supp. 2d 1874 (Ct.

Int'l Trade 2002), and, as discussed above, under this

court's de novo review, res judicata does not preclude

lla

Customs from revoking its approval of the sale of

gasoline and diesel fuel on a duty- and tax-free basis.

C. Motion for an Order to Show Cause Why the United

States Customs Service Should Not be Held in

Contempt

Finally, Ammex suggests that the Court of

International Trade abused its discretion in denying its

motion to hold Customs in contempt for revoking

Ammex's duty- and tax-free status for gasoline and

diesel fuel. We reject this argument because the Court

of International Trade may hold a party in contempt if

it determines that its actions constitute a _ willful

obstruction of justice, and we shall sustain a denial of

contempt based upon a reasoned legal position for

failure to abide by the court's judgment. Here, the

Court of International Trade did not abuse its

discretion in denying Ammex's motion to hold Customs

in contempt because the position of the IRS on the tax

issue provided a reasonable basis for Customs's action.

In short, an agency may change its policy position

based on a reasonable explanation, and the IRS ruling

provided such a basis.

IV. CONCLUSION

Because res judicata does not preclude Customs from

revoking its approval of the sale of gasoline and diesel

fuel on a duty- and tax-free basis, the judgment of the

Court of International Trade denying Ammex's Motion

for an Order to Show Cause Why the United States

Customs Service Should Not be Held in Contempt is

AFFIRMED.

12a

Court No.: 99-01-00013

UNITED STATES COURT OF

INTERNATIONAL TRADE

AMMEX, INC.,

Plaintiff,

° V.

UNITED STATES OF AMERICA,

Defendant.

February 22, 2002, Decided

COUNSEL: Steptoe & Johnson LLP (Herbert C.

Shelley, Alice A. Kipel), for Plaintiff.

Robert D. McCallum, Jr., Assistant Attorney General;

Joseph I. Liebman, Attorney in Charge, International

Trade Field Office, Commercial Litigation Branch, Civil

Division, United States Department of Justice (Amy M.

Rubin), for Defendant.

JUDGES: Evan J. Wallach, Judge.

OPINIONBY: Evan J. Wallach

OPINION:

I

PRELIMINARY STATEMENT

13a

Plaintiff, Ammex, Inc. ("Ammex"), moves this court for

an Order to Show Cause Why Defendant Should Not be

Held in Contempt, pursuant to Rules 7(e) and 63 of the

Rules of this Court. Specifically, Ammex seeks to

require defendant, the United States of America (the

"Government"), to explain why Customs' revocation of

Ammex's authorization to sell duty-free fuel is not in

contempt of this court's order and judgment of August

25, 2000. Ammex, Inc.'s Motion for Order to Show

Cause Why Defendant Should Not be Held in

Contempt ("Ammex's Motion") at 1. Familiarity with

the court's August 25, 2000 order and decision in

Ammex, Inc. v. United States, 116 F. Supp. 2d 1269

(CIT 2000) ("Ammex I"), is presumed._

II

BACKGROUND

Ammex operates a duty-free store at the Ambassador

Bridge between Detroit, Michigan and Windsor,

Canada. In a letter dated January 24, 1994, Ammex

requested approval to sell gasoline and diesel fuel on a

duty-free basis. Letter from Barbeau to Morandini of

1/24/94 (Ex. 6 to Ammex's Memorandum of Law in

Support of Ammex, Inc.'s Motion for Order to Show

Cause Why Defendant Should Not be Held in

Contempt ("Ammex's Memo")). On February 12, 1998,

the United States Customs Service ("Customs") ruled

that gasoline and diesel fuel could not be sold on a duty-

free basis from Ammex's facility. U.S. Customs Service

Headquarters Ruling ("HQ") 227385, February 12, 1998.

This ruling reaffirmed a 1994 headquarters ruling

which found that activities of duty-free stores should

not be extended to cover "unidentifiable fungibles,"

_

14a

such as gasoline and diesel fuel, when sold on a retail

basis. HQ 225287, June 7, 1994. "In both HQ 227385 and

225287, Customs accepted the requestor's assertion

that the merchandise under consideration was duty-

free but, . . . determined that such merchandise could

not be sold as duty-free merchandise from a class 9

bonded warehouse." Customs Bulletin and Decisions,

Vol. 35, No. 25, June 20, 2001, at 296.

In Ammex I, Ammex challenged the above Customs

rulings. This court found that "Customs acted

unlawfully in prohibiting Ammex from selling duty-free

gasoline and diesel fuel." Ammex I, 116 F. Supp. 2d at

1275-76. This court accordingly entered a judgment

setting aside HQ 227385 and "ORDERED ADJUDGED

AND DECREED that 19 U.S.C. § § 1555 and 1557

allow the duty-free sale of gasoline and diesel fuel from

a duty-free enterprise." Id. at 1276.

On September 5, 2000, in accordance with the court's

decision, Customs issued a letter to Ammex granting

its request to expand its "Class 9 duty free warehouse

operation to include the gasoline and diesel fuel tanks

located at [Ammex's] facility." Letter from Ryan to

Levesque of 9/5/00 (Ex. 2 to Ammex's Memo)

("September 5 letter").

On October 23, 2002, Ammex wrote to Customs seeking

a letter to certify that the fuel sold at Ammex's duty-

free store was exempt from taxes. Letter from

Levesque to Ryan of 10/23/00 (Ex. 1 to "Durant

Declaration" of Defendant's Opposition to Plaintiff's

Motion to Show Cause Why Defendant Should Not be

Held in Contempt) ("October 23 letter"). Customs

forwarded Ammex's request to the Internal Revenue

15a

Service ("IRS"). On January 8, 2001, the IRS issued an

informational letter stating that section 4081 of the

Internal Revenue Code (the "Tax Code") (26 U.S.C. §

4081) imposes a tax on the entry into the United States

of any taxable fuel, including gasoline and diesel fuel for

consumption, use, or warehousing. Durant Declaration

P8.

Based on the IRS letter, Customs determined that it

could not lawfully permit Ammex to sell gasoline and

diesel fuel duty-free. On June 20, 2001, Customs issued

a notice proposing to revoke the September 5 letter.

Customs Bulletin and Decisions, Vol. 35, No. 25, June

20, 2001. On November 21, 2001, after a notice and

comment period, Customs advised that it was "revoking

a ruling letter pertaining to gasoline and diesel fuel

from a [sic] class 9 bonded warehouses and revoking

any treatment previously accorded by the Customs

Service to substantially identical transactions." Id., Vol.

35, No. 47 (November 21, 2001) at 5 ("Revocation

Decision"). Customs announced that the revocation

would become effective on January Zi, 2002. Id. Ammex

thereafter filed its Motion to Show Cause Why

Defendant Should Not be Held in Contempt.

Il

STANDARD

To establish that a party is liable for civil contempt a

plaintiff must prove three elements: "(1) that a valid

order of the court existed; (2) that the defendants had

knowledge of the order; and (3) that the defendants

disobeyed the order." Roe v. Operation Rescue, 54 F.3d

133, 137 (8d Cir. 1995). Civil contempt must be proven

a

16a

by clear and convincing evidence, Glaxo, Inc. Vv.

Novopharm, Ltd., 110 F.3d 1562, 1572 (Fed. Cir. 1997),

and a court cannot hold a party in contempt if there is a

"fair ground of doubt as to the wrongfulness of the

[party's] actions," Preemption Devices, Inc. v. Minn.

Mining & Mfg. Co., 803 F.2d 1170, 1173 (Fed. Cir. 1986).

IV

ARGUMENTS

Ammex argues that Customs' revocation is "plainly

inconsistent with this Court's Order permitting the sale

of duty-free gasoline and diesel fuel from a duty-free

sales enterprise." Ammex's Memo at 3. Ammex

requests, among other things, that this court issue an

order to show cause why Customs' revocation is not in

contempt of this court's judgment of August 25, 2000

and determine that section 4081 of the Tax Code, as it

applies to entries into Class 9 bonded warehouses, is

unconstitutional.

"The agency decision challenged in Ammex I was based

exclusively on a perceived ‘unidentifiable fungibles'

exception to the statute relating to bonded warehouses,

particularly Class 9 bonded warehouses, and the

holding in Ammex I was simply that that decision, as

memorialized in HQ 225287 and affirmed in HQ 227385,

was contrary to law." Defendant's Opposition to

Plaintiffs Motion for an Order to Show Cause Why

Defendant Should not be Held in Contempt

("Defendant's Opposition") at 8. The Government

argues, "Neither the challenged ruling letters nor this

Court's holding addressed or involved any other

potential basis for prohibiting the duty-free sale of

17a

gasoline and diesel fuel, including whether the fuel

which Ammex intended to sell is encompassed by the

statutory definition of ‘duty-free merchandise." Id.

Because the issues presently raised by Ammex's

motion "are not relevant to a determination of whether

Customs' revocation decision violates the Ammex I

decision," id. at 17, the Government argues that this

court should decline to consider them.

V

ANALYSIS

A

Jurisdiction to Entertain Present Challenge

The United States Court of International Trade, like all

Federal courts established under Article III of the

Constitution, is a court of limited jurisdiction. United

States v. Gold Mountain Coffee, Ltd., 8 C.I.T. 247, 248,

597 F. Supp. 510, 513 (1984). The party asserting

jurisdiction "has the burden of proving that jurisdiction

in this court is proper." Id. at 249. Jurisdiction for this

court to entertain the challenge in Ammex I fell under

28 U.S.C. § 15814), which provides the court with

jurisdiction over "any civil action commenced against

the United States ... that arises out of any law of the

United States providing for revenue from imports or

tonnage, tariffs, duties, fees, or other taxes on the

importation of merchandise for reasons other than the

raising of revenue or administration and enforcement

with respect to these matters." 28 U.S.C. § 1581(i).

Ammex now argues that this court "possesses

jurisdiction to hear this motion by virtue of the Court's

18a

jurisdiction over the underlying proceeding in this

ease." Plaintiffs Memo at 3 (citing United States v.

Hanover Ins. Co., 82 F.3d 1052, 1054 (Fed. Cir. 1996)

("The Court of International Trade has the inherent

power to determine the effect of its judgments and

issue injunctions to protect against attempts to attack

or evade those judgments.")).

Were Customs' revocation an attempt to attack or

evade Ammex I and the court's August 25, 2000

judgment, then no doubt this court could readily

exercise jurisdiction over such behavior under its

inherent enforcement powers and as an extension of its

jurisdiction to hear Ammex's original complaint in

Ammex I. However, the issue underlying Ammex's

Complaint in the present motion is distinct from the

issue raised in Ammex I. While both issues call upon

the court to determine the validity of Customs' refusal

to allow Ammex to sell fuel from its duty-free store, the

stated bases for Customs' refusal to allow Ammex's

sales differ in each case.

Ammex's contention that "there can be no dispute that

the transaction and matter at issue in this second action

are the same as the first--the matter now, as before, is

Ammex's right to sell gasoline and diesel fuel duty-free

from its duty-free store in Detroit, Michigan," Plaintiff's

Memo at 16, is specious. Ammex states the issue too

broadly. The issue in Ammex I was not simply whether

Ammex is entitled "to sell gasoline and diesel fuel from

its duty-free store in Detroit, Michigan." Id. Rather, the

court was called upon to consider whether the

explanation Customs provided for denying Ammex's

request to sell gasoline and diesel fuel duty-free was

arbitrary, capricious, or contrary to law.

19a

The Government more accurately states the case thus:

The only issue that the Court had to decide in [Ammex

I] was whether the denial of Ammex's proposal to sell

gasoline and diesel fuel free of duty at its duty-free

store in Detroit, Michigan, for the reasons provided in

HQ 225287 and then affirmed in HQ 227385, was

arbitrary, capricious, an abuse of discretion, or

otherwise not in accordance with law. Based on the

nature of the complaint, the Court was constrained to

consider only that stated basis for the challenged

decision and review only the agency's record

underlying its decision."

Defendant's Opposition at 4 (emphasis added).

This court accordingly reviewed Customs' stated

reason for denying Ammex's request to sell duty-free

fuel, namely, its rationale that such fuel falls under an

"unidentifiable fungibles" exception to merchandise that

can lawfully be entered and withdrawn for exportation

from duty-free stores. Customs reasoned that, because

duty-free merchandise purchased in the United States,

if reimported, had to be declared and the duties and

taxes paid, the lack of any practical means of enforcing

this requirement with respect to unidentifiable fuel in

gas tanks rendered the sale of duty-free fuel contrary

to law.

In resolving the issue raised in Ammex I, the court

stated, "§ 1557(a)(1) is dispositive of Plaintiff's claim."

Ammex I, 116 F. Supp. 2d at 1275. "On its face, the plain

language of § 1557(a)(1) shows Congresgs' intent that

there be only two restrictions on the type of dutiable

merchandise that may be stored or withdrawn from a

20a

bonded warehouse: (1) perishable articles and (2)

explosive substances other than firecrackers." Id. at

1273. This court determined that diesel fuel and

gasoline did not fall within either of these exceptions,

and thus it was error for the government to read into

the governing statute "an exception beyond those

specifically stated in § 1557(a)(1)." Id. at 1275. "In view

of 1557(a)(1)'s instruction that 'any merchandise subject

to duty' may be entered and withdrawn from a bonded

warehouse, the court finds that Customs violated this

provision in promulgating HQ 227385." Id.

Implicit in both parties' briefings in Ammex I and the

court's opinion was the presumption that the gasoline

and diesel fuel at issue qualified as "duty-free

merchandise" within the meaning of 19 U.S.C. §

1555(b)(8)(E). Neither party questioned _ this

assumption, and because neither party raised a

challenge, the court did not consider or rule on such an

issue. Because of subsequent events, however, the issue

has arisen as to whether gasoline and diesel fuel can

qualify as "duty-free merchandise" under 19 U.S.C. §

1555(b)(8)(E), in light of information from the IRS that

such fuel may be subject to tax and therefore unable to

qualify as "duty-free merchandise" under the statutory

definition.

"For the Court to consider Ammex's Motion, it must

also consider whether the federal excise tax issue now

framed by Customs was directly or indirectly part and

parcel of Ammex I." Reply of Ammex, Inc. In Support

of its Motion for Order to Show Cause ("Ammex's

Reply") at 12. Revelations by Ammex at oral argument

confirm that the issue now raised was neither part and

parcel, nor conclusively determined in Ammex I.

2la

Ammex previously maintained that this court's decision

in Ammex I foreclosed all issues relevant to Customs'

denial of Ammex's right to sell gasoline and diesel fuel

duty-free, yet Ammex's October 23, 2000 letter to

Customs states the following:

Subsequent to the decision by the U.S. Court of

International Trade, Ammex has commenced the sale of

tax and duty free gasoline and diesel fuel, following

U.S. Customs requirements and procedures. In

conjunction with this operation, Ammex requires a

letter from U.S. Customs stating that there are no

taxes due at the time of bonded entry into the U.S. of

gasoline and diesel fuel.

October 23 letter. Ammex explained at oral argument

that the October 23 letter was an attempt by Ammex to

obtain, and use in unrelated litigation, a certification

from Customs that excise taxes were not applicable to

certain fuel sold by Ammex. However, in addition,

because it shows that Ammex itself would not rely on

Ammex I on the excise tax question, the letter now

serves to foreclose Ammex's res judicata and contempt

arguments.

Having determined that the issue of federal taxes as

applied to gasoline and diesel fuel and the concurrent

consideration of. whether such application preempts

such fuel from qualifying as "duty-free merchandise"

was neither part nor parcel of Ammex I, Ammex's

Motion cannot be considered by the court under the

present procedural posture. Ammex's Motion asks the

court "to interpret § 1555(b)(8)(E) of Title 19--a

Customs statute." Ammex's Reply at 12-13. This

constitutes a new matter, one which was not

22a

contemplated in Ammex I. It therefore cannot be said

that the revocation constitutes an attack on the court's

prior judgment or order in this case. While the court

does possess inherent power to determine the effect of

its judgments and protect against attempts to attack or

evade those judgments, in this case, the issue before

the court is not encompassed by the prior order.

Customs did not violate this court's order in Ammex I

by either determining, based on newly acquired

information, that the fuel Ammex desires to sell can not

qualify as "duty-free merchandise," and its subsequent

revocation of Ammex's entitlement to sell gasoline and

diesel fuel from its duty-free store, does not violate the

decision in Ammex I. Ammex is entitled to challenge

the basis for Customs' decision to revoke its September

5 letter. If, however, Ammex wishes to challenge this

new, distinct basis for Customs' disallowance of

Ammex's sale of gasoline and diesel fuel from its duty-

free store, Ammex must raise this issue anew in the

proper procedural manner. It cannot, as the

Government contends, "thwart proper procedure and

bootstrap a new grievance onto a dispute that has

already been resolved." Defendant's Opposition at 20.

B

Res Judicata Argument

Ammex also argues that Customs' "attempt to |

relitigate the matter of Ammex's duty-free fuel sales

with a previously-available argument is precluded

under the long-standing doctrine of res judicata," a

term "used broadly to refer to concepts of merger, bar,

and direct and collateral estoppel lie., issue

23a

preclusion]." Plaintiff's Memo at 15. Two "major

limitations" to such preclusion, however, are (1) "a

requirement that at the time of the first litigation the

parties be able to foresee the later litigation that came

to present the same issue" and "a requirement that the

issue have played an important role in the abstract

hierarchy of legal rules controlling the first or the

second litigation." 18 Wright, Miller & Cooper, Federal

Practice and Procedure § 4424 at 226-227 (1981); see

also Hyman v. Regenstein, 258 F.2d 502, 510-11, cert.

denied, 359 U.S. 913, 79 S. Ct. 589, 3 L. Ed. 2d 575 (6th

Cir. 1958) ("Collateral estoppel by judgment is

applicable only when it is evident from the pleadings

and record that determination of the fact in question

was necessary to the final judgment and it was

foreseeable that the fact would be of importance in

possible future litigation."). The court finds that the

narrow tax issue now raised was too far outside the

ambit of the Ammex I proceedings either to be

foreseeable or to play a crucial role in the final

judgment of that case. Issue preclusion should thus not

operate to bar either party from raising this issue in the

correct procedural posture.

VI

CONCLUSION

For the foregoing reasons, Ammex's Motion for Order

to Show Cause Why Defendant Should Not be Held in

Contempt is denied.

Evan J. Wallach, Judge

Dated: February 22, 2002, New York, New York

24a

02-1498

UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

AMMEX, INC.,

Plaintiff-Appellant,

V.

UNITED STATES,

Defendant-Appellee.

October 7, 2003

A petition for rehearing en banc having been file by the

APPELLANT, and a response thereto having been

invited by the court and filed by the APPELLEE, and

the matter having first been referred as a petition for

rehearing to the panel that heard the appeal, and

thereafter the petition for rehearing en bane and

response having been referred to the circuit judges who

are in regular active service,

UPON CONSIDERATION THEREOF, it is

ORDERED that the petition for rehearing be, and the

same hereby is, DENIED and it is further

ORDERED that the petition for rehearing en banc be,

and the same hereby is, DENIED.

The mandate of the court will issue on October 14, 2003.

25a

FOR THE COURT,

Jan Horbaly

Clerk

Dated: October 7, 2003

ec: Craig L. John

Amy M. Rubin

26a

Court No.: 99-01-00013

UNITED STATES COURT OF

INTERNATIONAL TRADE

AMMEX, INC.,

Plaintiff,

V.

UNITED STATES,

Defendant.

August 25, 2000, Decided

COUNSEL: Steptoe & Johnson LLP (Herbert C.

Shelley, Alice A. Kipel, Gregory S. McCue and David

N. Tanenbaum), for Plaintiff.

David W. Ogden, Assistant Attorney General; Joseph I.

Liebman, Attorney in Charge, International Trade

Field Office, Commercial Litigation Branch, Civil

Division, United States Department of Justice (Amy M.

Rubin); Beth C. Brotman, Office of Assistant Chief

Counsel, United States Customs Service, of counsel, for

Defendant.

JUDGES: Evan J. Wallach, Judge.

OPINIONBY: Evan J. Wallach

OPINION:

27a

I

INTRODUCTION

This case is before the court upon the Motion Of

Plaintiff Ammex, Inc. For Judgment Upon The Agency

Record. Plaintiff challenges the decision of the U.S.

Customs Service ("Customs") not to allow it to sell

duty-free gasoline and diesel fuel from its duty-free

store in Detroit, Michigan. For the reasons stated

below, the court finds Custom's decision not to be in

accordance with law.

II

BACKGROUND

At issue in this case is Plaintiff's challenge of Customs

Headquarters Ruling 227385 of February 12, 1998 ("HQ

227385"). In HQ 227385, Customs reaffirmed a 1994

headquarters ruling which found that the activities of

duty-free stores should not be extended to cover

"unidentifiable fungible" goods, such as gasoline and

diesel fuel, when sold on a retail basis. In the 1994

ruling, Customs found, inter alia, that because such

merchandise could not be subject to marking or other

identification under 19 U.S.C. § 1555(b)(3)(D), nl

Customs would have no practical way of ensuring that

the duty-free gasoline was "declared" when vehicles

returned to the United States. See Customs

Headquarters Ruling 225287 of June 27, 1994 ("HQ

225287"), at 4-5.

In HQ 227385, Customs revisited the issue of duty-free

gasoline and diesel sales in light of Plaintiff's request

28a

that Customs reconsider its 1994 ruling. Analyzing the

legislative history of the Omnibus Trade and

Competitiveness Act of 1988, which established

legislative guidelines for Customs’ administration of

duty-free shops, Customs concluded that "the fact that

Congress did not specifically reject Customs policy

regarding the sale of gasoline by duty-free stores

means that Congress did not object to such practice."

HQ 227385 at 5. Thus, it reasoned, "in holding that

gasoin. and diesel fuel may not be sold by duty-free

stores, it was proper to follow the precedent

established by ruling letter 200396." Id. In Ruling

Letter 200396, the Assistant Commissioner of Customs'

Office of Regulations and Rulings, Leonard Lehman,

held that the activities of duty-free stores could not be

extended to unidentifiable fungibles, such as gasoline

sold on a retail basis, since Customs would have no

practical way of ensuring that the gasoline was

declared when it was returned to the United States.

Customs Ruling Letter 200396 of October 30, 1972. n2

In its 1998 ruling, Customs also rejected Plaintiff's

argument that, in allowing U.S. residents to apply

merchandise purchased from a US. duty-free store

against their $ 400 personal duty exemption allowance,

the Miscellaneous Trade and Technical Corrections Act

of 1996 rendered Ruling Letter 200396 and HQ 225287

obsolete. Besides pointing to the lack of any explicit

Congressional intent to overturn these determinations,

Customs observed

that the eligibility for a duty exemption does not

exempt the imported merchandise from being subject

to other customs laws. The exemption from duty

depends on the status of the individual and the

ee

29a

circumstances regarding the exportation of the goods,

the time spent out of the United States, and the

frequency of the claims for eligibility. In order to

administer those requirements, the need for simple

effective controls has not been lessened by the 1996

statutory change.

HQ 227385 at 7.

By letter dated May 12, 1998, Ammex, Inc. ("Ammex")

attempted to protest HQ 227385 under 19 U.S.C. §

1514(a) (1994). On July 9, 1998, Customs ruled that HQ

227385 was not protestable under this provision, since

HQ 227385 did not require Ammex to make any

payment or cause an assessment on any kind. See

Customs Headquarters Ruling 228021 of July 9, 1998.

Thereafter, Plaintiff filed its Complaint in this matter

on January 12, 1999, timely putting its challenge to HQ

227385 before this court. After considering various

motions by Plaintiff to either supplement the

administrative record in this case and/or conduct

limited discovery, n3 the court heard oral argument on

August 16, 2000.

The court has jurisdiction under 28 U.S.C. § 1581()

(1994). See Duty Free Int'l. Inc. v. United States, 17

C.1.T. 1425, 1425 (1993), aff'd 88 F.3d 1046 (Fed. Cir.

1996). n4

iil

THE COURT SHALL HOLD UNLAWFUL AGENCY

ACTION THAT IS ARBITRARY, CAPRICIOUS, AN

ABUSE OF DISCRETION, OR NOT IN ACCORDANCE

WITH LAW.

3f4

28 U.S.C. § 2640(e) (1994) provides that "in any civil

action not specified in this section, the [court] shall

review the matter as provided in [ 5 U.S.C. § 706]." In

turn, 5 U.S.C. § 706(2)(A) (1994) provides, in relevant

part, that "the reviewing court shall... hold unlawful

and set aside agency action, findings, and conclusions of

law found to be .. . arbitrary, capricious, an abuse of

discretion, or otherwise not in accordance with law."

The scope of the court's review is limited to the "whole

record or those parts of it cited by a party." 5 U.S.C. §

706 (1994) (emphasis added); see also Citizens to

Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 420,

28 L. Ed. 2d 136, 91 S. Ct. 814 (1971) (stating that a

review of the "whole record" under § 706 "is to be based

on the full administrative record that was before the

Secretary at the time he made his decision").

IV

CUSTOMS' DECISION TO PROHIBIT AMMEX FROM

SELLING DUTY-FREE GASOLINE AND DIESEL FUEL

IS NOT IN ACCORDANCE WITH LAW.

Plaintiff first argues that Customs' decision to prohibit

Ammex from selling duty-free gasoline and diesel fuel

violates 19 U.S.C. § 1557(a)(1) (1994), which allows

"any merchandise subject to duty, with the exception of

perishable articles and explosive substances" to be

entered and withdrawn (for exportation) from bonded

warehouses, such as duty-free stores. According to

Plaintiff, Customs' prohibition on the _ sale of

"unidentifiable fungibles," such as gasoline and diesel

fuel, creates an additional exception to the general

authorization set forth in § 1557(a)(1) that enjoys no

support in either the statute or its implementing

3la

regulations. See Brief In Support Of Ammex's Rule

56.1 Motion For Judgment Upon The Agency Record

("Plaintiff's Brief") at 9-13.

The first question to consider in reviewing an agency's

construction of a statute it administers is "whether

Congress has directly spoken to the precise question at

issue." Chevron, U.S.A., Inc. v. United States, 467 U.S.

837, 42, 81 L. Ed. 2d 694, 104 S. Ct. 2778 (1984). "If the

inter®, of Congress is clear, that is the end of the matter;

for the court, as well as the agency, must give effect to

the unambiguously expressed intent of Congress." Id.

at 842-43; see also Timex V.I., Inc. v. United States, 157

F.3d 879, 882 (Fed. Cir. 1998) ("To ascertain whether

Congress had an intention on the precise question at

issue, we employ the traditional tools of statutory

construction. The first and foremost tool to be used is

the statute's text, giving it its plain meaning.") (internal

quotes and citation omitted).

In this case, 19 U.S.C. § 1557(a)(1) (1994), as well as the

other provisions covering duty-free stores and bonded

warehouses, make clear the scope of merchandise that

may be entered and withdrawn from duty-free

enterprises. In relevant part, § 1557(a)(1) provides that

Any merchandise subject to duty, with the exception of

perishable articles and explosive substances other than

firecrackers, may be entered for warehousing and be

deposited in a bonded warehouse at the expense and

risk of the owner [,] purchaser, importer, or consignee.

Such merchandise may be withdrawn, at any time

within 5 years from the date of importation, for

consumption upon payment of the duties and charges

accruing thereon at the rate of duty imposed by law

ee

32a

upon such merchandise at the date of withdrawal; or

may be withdrawn for exportation or for transportation

and exportation to a foreign country ... . (emphasis

added).

On its face, the plain language of § 1557(a)(1) shows

Congress' intent that there be only two restrictions on

the type of dutiable merchandise that may be stored or

withdrawn from a bonded warehouse: (1) perishable

articles and (2) explosive substances other than

firecrackers. Customs did not find that diesel fuel and

gasoline fall within either of these exceptions. nd

Accordingly, since duty-free stores are a type of bonded

warehouse, n6 the plain language of § 1557(a)(1) makes

both items eligible for sale from duty-free stores. n7

In its brief, the government asserts that § 1557(a)(1) is

not dispositive of Plaintiffs claim, arguing the more

specific provisions for duty-free stores set out in 19

U.S.C. § 1555(b)(8)(D) and (E) provide additional

limitations on the type of merchandise that may be sold

duty-free. See Defendant's Response To Plaintiff's

Motion For Judgment Upon The Agency Record

("Defendant's Response") at 13-15: see also HQ 225287

at 4 ("Clearly, inclusion of this caveat [§ 1555(b)(3)]

indicates an intent that the merchandise which could be

sold in a duty-free store would be ‘individual items of

merchandise! which could be market or otherwise

identified."). In relevant part, 19 U.S.C. § 1555(b)(3)

(1994) provides that "each duty-free sales enterprise":

(D) shall not be required to mark or otherwise place a

distinguishing identifier on individual items of

merchandise to indicate that the items were sold by a

duty-free sales enterprise, unless the Secretary finds a

\

33a

pattern in which such items are being brought back into

the customs territory without declaration;

(E) may unpack merchandise into saleable units after it

has been entered from warehouse and placed in a duty-

free sales enterprise, without requirement of further

permits.

According to Defendant, by providing that duty-free

stores will not be required to mark "individual items of

merchandise" unless a pattern of reimportation exists,

and that merchandise may be unpacked into saleable

units, "Congress was plainly indicating the existence of

four factors with respect to the type of merchandise

that may be sold in a duty-free store: (1) the goods sold

in duty-free stores constitute ‘individual items of

merchandise,’ (2) the goods actually sold in duty-free

stores consist of pre-designated 'saleable units,' (3) the

goods sold in duty-free stores must be capable of being

marked, and (4) if a pattern of reimportation exists with

respect to particular goods, the Secretary must have

some means of detecting such a pattern." Defendant's

Response at 15-16. Because gasoline and diesel fuel

possess none of these features, Defendant asserts,

Customs correctly prohibited their sale from duty-free

stores. See id. at 15-16.

Essentially, the government reads § 1555(b)(8)(D) as

authorizing Customs to require duty-free enterprises to

sell only individual items of merchandise that are

capable of being individually marked. On its face, §

1555(b)(3)(D) supports no such interpretation. Section

1555(b)(3)(D) simply gives Customs the power to

identify merchandise that is being reimported without

declaration; nothing in the language or history of this

34a

provision authorizes Customs to prohibit the sale of

certain merchandise outright, or encumber the sale of

merchandise before a pattern of illegal reimportation is

discovered. In fact, Defendant's interpretation is

directly contrary to Congress' intent, as evidenced in

the relevant conference report, that Customs impose

the least restrictions possible on the sale of duty-free

merchandise. n8 .

Defendant's characterization of 19 USC. 8

1555(b)(3)(E) (1994) is similarly strained. This provision

provides simply that a duty-free enterprise "may

unpack merchandise into saleable units." Defendant's

interpretation, however, essentially substitutes the

phrase "shall sell" for the language "may unpack," and

imposes the limiting adjective "pre-designated" before

"saleable units." See Defendant's Response at 15

(arguing that "Congress was plainly indicating . . . [that]

... the goods actually sold in duty-free stores consist of

pre-designated ‘saleable units.) (emphasis added). In

doing so, Defendant significantly distorts the meaning

of this statute, converting a general congressional

authorization concerning the unpacking of merchandise

into a specific congressional delineation of what

merchandise may be sold duty-free. No reasonable

interpretation of § 1555(b)(8)(E) supports such a

fundamental change.

Accordingly, because there is no conflict between 19

U.S.C. § 1557(a)(1) (1994) and the specific provisions

under 19 U.S.C. § 1555(b) (1994) for duty-free

enterprises, n9 § 1557(a)(1) is dispositive of Plaintiff's

claim. In view of § 1557(a)(1)'s instruction that "any

merchandise subject to duty" may be entered and

withdrawn from a bonded warehouse, the court finds

35a

that Customs violated this provision in promulgating

HQ 227385. Section 1557(a)(1) provides that all types of

dutiable merchandise may be sold from bonded

warehouses, including duty-free stores, and it was error

for the government to read into 19 USC. §

1555(b)(3)(D) and (E) an exception beyond those

specifically stated in § 1557(a)(1). See A. H. Phillips,

Inc. v. Walling, 324 U.S. 490, 493, 89 L. Ed. 1095, 65 S.

Ct. 807 ("To extend an exemption to other than those

plainly and unmistakably within [a statute's] terms and

spirit is to abuse the interpretative process and to

frustrate the announced will of the people."). nl0 Had

Congress intended Customs to restrict the sale of

gasoline, diesel fuel, or other such fungible merchandise

through duty-free stores, as the government claims, it

could have included language to this effect in the

statute. That Congress failed to identify such an

intention in either the language or legislative history of

§ 1555(b), however, persuades this court that the

statute contains no such restriction. nll See Ciba-Geigy

Corp. v. United States, 223 F.3d 1367, 2000 U.S. App.

LEXIS 19843, 2000 WL 1141256 at *6 (Fed. Cir. 2000)

("When confronted with unambiguous _ statutory

language, we will not discount the statute's plain

language by assuming ignorance on the part of

Congress. ... If... the [statute] no longer reflects the

intent of Congress, it is Congress's task to change the

words of the statute."); Ishida v. United States, 59 F.3d

1224, 1231 (Fed. Cir. 1995) (noting that, had Congress

intended to limit the coverage of the Civil Liberties Act

of 1988 in the manner asserted by the government,

Congress could have expressed its intent in the

statutory language). n12

36a

V

CONCLUSION

For the foregoing reasons, the court finds that Customs

acted unlawfully in prohibiting Ammex from selling

duty-free gasoline and diesel fuel, and therefore grants

the Motion Of Plaintiff Ammex, Inc. For Judgment

Upon The Agency Record. Judgment to this effect shall

be entered accordingly.

Evan J. Wallach, Judge

Date: August 25, 2000, New York, New York

FOOTNOTES

nl In relevant part, 19 U.S.C. § 1555(b) (1994), which

governs "duty-free sales enterprises," provides as

follows:

(3) Each duty-free sales enterprise . . . (D) shall not be

required to mark or otherwise place a distinguishing

identifier on individual items of merchandise to indicate

that the items were sold by a duty-free sales enterprise,

unless the Secretary finds a pattern in which such items

are being brought back into the customs territory

without declaration.

n2 Ruling Letter 200396 was also cited approvingly and

quoted in HR 225287. See HQ 225287 at 3 and 5.

n3 See Ammex, Inc. v. United States, 62 F. Supp. 2d

1148 (CIT 1999) (granting in part and denying in part

Plaintiff's motion for discovery); the court's Order

37a

dated December 6, 1999 (granting Plaintiff's unopposed

motion for additional discovery); and Ammex, Inc. v.

United States, 86 F. Supp. 2d 1278 (CIT 1999) (denying

Plaintiff's motion to supplement the administrative

record and seek additional discovery). -

n4 Both parties agree that jurisdiction rests under §

1581(i), which provides this court with jurisdiction over

"any civil action .. . that arises out of any law...

providing for- (1) revenue from imports or tonnage; (2)

tariffs . . . on the importation of merchandise for

reasons other than the raising of revenue; (3)

embargoes or other quantitative restrictions . . . for

reasons other than the protection of the public health or

safety; or (4) administration and enforcement with

respect to [such] matters ... ." In its brief, however,

Plaintiff also alleges jurisdiction under § 1581(h), which

allows for certain pre-importation rulings where, inter

alia, an importer "demonstrates . . . that he would be

irreparably harmed unless given an opportunity to

obtain judicial review prior to . . . importation."

Although Defendant argued, and Plaintiff conceded at

oral argument, that § 1581(h) did not lie in this case,

the court is constrained to independently determine

whether any other basis for jurisdiction supersedes §

1581(i). See NEC Corp. v. United States, 151 F.3d 1361,

1368 (Fed. Cir. 1998) (finding jurisdiction under 8

1581(i) "available only when jurisdiction under another

subsection of 1581 is either unavailable or, if available,

‘manifestly inadequate").

To show irreparable harm for purposes of § 1581(h),

Plaintiff submitted the affidavit of Mr. Francois

Levesque, President of Ammex, Inc., which states that

Ammex has "sustained significant financial losses... .

38a

through the loss of duty-free gasoline and diesel fuel

sales." Mr. Levesque's affidavit, however, lacks any

foundational basis for this conclusion, as there is no

indication that he conducted a review of admissible

evidence and was qualified to reach conclusions about

it. See USCIT R. 56(e) ("Supporting and opposing

affidavits shall be made on personal knowledge, shall

set forth such facts as would be admissible in evidence,

and shall show affirmatively that the affiant is

competent to testify to the matters stated therein."). As

Plaintiff has not provided any other relevant evidence,

it has not demonstrated irreparable harm for purposes

of § 1581(h). Compare Holford USA Ltd. Inc. v. United

States, 19 C.L.T. 1486, 1492, 912 F. Supp. 555, 560 (1995)

(holding that affidavits, plus other supporting

materials, adequately demonstrated irreparable harm).

Accordingly, because the other provisions of § 1581 &

1581(a)-(c)) are inapposite to Plaintiff's claim, the court

finds jurisdiction proper under § 1581().

n5 Nor does it appear that Customs could have made

such a finding. See 18 U.S.C. § § 841(c) ("Explosive

materials! means explosives, blasting agents, and

detonators."), 841(d) (""Explosives' means any chemical

compound mixture, or device, the primary or common

purpose of which is to function by explosion; [including]

dynamite and other high explosives, black powder,

pellet powder, initiating explosives, detonators, safety

fuses, squibs, detonating cord, igniter eord, and

igniters.") and 841(e) (1994) ("Blasting agent’ means

any material or mixture, consisting of fuel or oxidizer,

intended for blasting . . . ."); "List of Explosive

Materials," ATF Pub. P 5400.8 (listing explosives,

blasting agents and detonators subject to regulation

under 18 U.S.C. Chapter 40); see also 18 U.S.C. § 844())

39a

(1994) (defining "explosive" for various criminal

provisions). Customs, in its regulations, distinguishes

between "explosive substances" and other "dangerous

and highly flammable merchandise." See 19 C.F.R. §

144.1 (2000) ("Dangerous and highly flammable

merchandise, though not classified as explosive, shall

not be entered for warehouse without the written

consent of the insurance company insuring the

warehouse ....").

n6 The relevant statutory provisions make clear that

duty-free stores are a type, or subsection, of bonded

warehouses. Not only is the specific provision for duty-

free sales enterprises (19 U.S.C. § 1555(b) (1994)) a

subsection of the general statute (§ 1555) for bonded

warehouses, but 19 U.S.C. § 1555(b)(7) (1994) provides

that "the Secretary shail by regulation establish a

separate class of bonded warehouses for duty-free sales

enterprises." See also 19 C.F.R. $ 19.35(a) (1997)

(designating duty-free stores as "Class 9 warehouses"

and providing that "except insofar as the provisions of

this section and § § 19.36-19.39 are more specific, the

procedures for bonded warehouses apply to duty-free

stores (Class 9 warehouses)."); S. Rep. 100-71, at 230

(1988) ("Duty-free sales enterprises are a special

category of ‘bonded warehouses' and it is under the

bonded warehouse provisions of section 559 (and

related sections) of the Tariff Act that they have been

regulated.").

n7 In response to the court's Order of July 27, 2000,

that the parties be prepared to discuss the history of

this statute, at oral argument both counsel presented

sophisticated and useful analyses. As the court noted at

the time, Plaintiff's counsel did a particularly extensive

40a

and thorough job in tracing the origin of this statute,

and is commended for that effort.

n& See House Conf. Rep. No. 100-576, at 769-70 (1988),

reprinted in 1988 U.S.C.C.A.N. at 1802-03 ("This

amendment creates a limited exception to the general

prohibition on any requirement that duty-free stores

mark their merchandise to indicate that it was sold in a

duty-free store. It authorizes the Secretary, in

particular circumstances, to require a duty-free store to

apply an inconspicuous mark or distinguishing

identifier on certain of its merchandise. Before

imposing such a requirement, the Secretary must find

that a pattern or practice exists involving the

reimportation of duty-free merchandise without

declaration, occurring over a significant period of time.

It is not intended that episodic or occasional instances

would constitute a pattern or practice.").

n9 Nor is there any conflict between § 1557(a)(1) and

any regulation promulgated by Customs. 19 C.F.R. §

19.36(e) (1997), governing "merchandise eligible for

warehousing,” states simply that "only conditionally

duty-free merchandise may be placed in a bonded

storage area of a Class 9 warehouse." "Conditionally

duty free merchandise," in turn, is defined as

"merchandise sold by a duty-free store on which duties

and/or internal revenue taxes (where applicable) have

not been paid." 19 C.F.R. § 19.35(a) (1997).

nl0 See also Sutherland Statutes And Statutory

Construction (6th ed. 2000), § 47:11 ("Where a general

provision in a statute has certain limited exceptions, all

doubts should be resolved in favor of the general

provision rather than the exceptions.")

4la

nll This is particularly true since, in promulgating

specific provisions to govern duty-free enterprises,

Congress sought to establish a comprehensive

statutory framework that would provide for greater

uniformity and consistency in the regulation of duty

free sales enterprises. See Duty Free Int'l v. United

States, 16 C.I.T. 163, 164-65 (1992) (quoting and

discussing § 1908(a) of The Omnibus Trade and

Competitiveness Act of 1988, Pub.L. No. 100-418, and

S.Rep. No. 100-71 (1987) at 229-30).

n12 In addition to arguing that HQ 227385 violates 19

U.S.C. § 1557(a)(1) (1994), Plaintiff argues, inter alia,

that Customs’ determination was unreasonable because

it ignored Customs' modern ability to monitor duty-free

fuel sales through dyes and license plate monitoring.

See Plaintiff's Brief at 17-19. Plaintiff also claims that

Customs’ ban on "unidentifiable fungibles" is at odds

with its own regulation governing the accounting for

fungible merchandise. See id. at 11-12 (discussing 19

CFR. § 19.12(f)(2), which provides that "FIFO

inventory procedures may be used only for fungible

merchandise. For purposes of this section, 'fungible

merchandise’ means merchandise which is identical and

interchangeable for all commercial purposes.").

While these arguments have substantial merit, further

discussion is unnecessary, given the court's holding that

Customs' ruling violated § 1557(a)(1).

42a

Court No.: 99-01-00013

UNITED STATES COURT OF

INTERNATIONAL TRADE

AMMEX, INC.,

Plaintiff,

V.

UNITED STATES,

Defendant.

JUDGMENT ORDER

This case having come before the court upon the Motion

Of Plaintiff Ammex, Inc. For Judgment Upon The

Agency Record ("Plaintiff's Motion"); the court having

reviewed the papers and pleadings on file herein,

having heard oral argument by each party, and after

due deliberation, having reached a decision herein; now,

in conformity with said decision, it is hereby

ORDERED ADJUDGED AND DECREED that

Plaintiffs' Motion is GRANTED; and it is further

ORDERED ADJUDGED AND DECREED that US.

Customs Service Headquarters Ruling 227385 of

February 12, 1998, is contrary to law, and hereby set

aside; and it is further

ORDERED ADJUDGED AND DECREED that 19

U.S.C. § § 1555 and -1557 allow the duty-free sale of

gasoline and diesel fuel from a duty-free enterprise.

43a

Evan J. Wallach, Judge

Dated: August 25, 2000, New York, New York

HQ 225287

June 7, 1994

WAR-5-CO:R:C:E 225287 PH

d

CATEGORY: Warehouse

District Director U.S. Customs Service Detroit,

Michigan 48226

RE: Internal Advice; Duty-Free Stores; Sale of

Gasoline and Diesel Fuel; 19 U.S.C. 1555(b); 19 CFR

19.35 through 19.39 Dear Sir:

In your memorandum of March 23, 1994 (File: WAR-1-

IC:WJR AMMEX5/TXTMONIC), you requested

internal advice concerning a proposal to sell "duty-free"

gasoline and diesel fuel at a duty- free store in your

District. Our ruling follows:

FACTS:

You state that a duty-free store operator (the

"operator") in your District has proposed to sell duty-

free gasoline and diesel fuel at its duty-free store. You

state that the operator has modified the store under

consideration by "adding fencing, electronic gates, and

constructing a private road leading directly from their

sterile compound to the toll booths on the bridge plaza."

The operator formally requested permission to operate

this facility as a sterile shop with "live" products.

During your physical inspection of the facility, you

noted a gasoline/diesel station within the sterile area.

45a

You state that in your December 23, 1994, letter

tentatively approving the request, you excluded any

bonded fuel operations. On the same date, the operator

requested that you reconsider your position on the

bonded petroleum operation. In a follow-up letter dated

January 24, 1994, the operator formally requested that

you approve a bonded petroleum product operation at

its duty-free store. In this letter, a copy of which you

enclosed, it is stated (in part):

The petroleum would be sold for export, and would

indeed be exported as all other bonded merchandise

from this facility.

The product would be imported ... by bona fide

importation procedures including the use of licensed

customs brokers, bonded bulk carriers/cartman, and

would be subject to inventory control and monitoring

verification, just like other bonded merchandise from

this facility.

The dispensing of petroleum preducts from the duty

free plaza would be similar to the exi[s]ting programs

for air carriers at various international airports.

In your memorandum you request advice on the issues

in the ISSUES portion of this ruling.

ISSUES:

(1) Does gasoline and diesel fuel of foreign origin qualify

for "duty free" control by Customs under the

Warehouse Entry/Withdrawal for Export procedures?

(2) If a facility is considered an "exit" point for bonded

46a

merchandise, would it also qualify as an "exit" point for

bonded fuel?

3. Since the duty on foreign sourced fuel is only .0125

cents per gallon, the real savings would be the

exemption from federal and state excise taxes. Can

copies of fuel warehouse entries be given to the U.S.

Internal Revenue Service for enforcement purposes?

What would be the restrictions if a similar request is

made by the State of Michigan?

(4) Are their any legal determinations or directives

covering the dispensing of bonded fuel at a border

location? Does fuel qualify as "personal use quantities

for consumption outside the United States?" Should

sales be subject to other restrictions?

LAW AND ANALYSIS:

Duty-free sales enterprises are provided for in 19

US.C.

1555(b). This provision was enacted by section 1908,

title I, Omnibus Trade and Competitiveness Act of 1988

(Public Law 100- 418; 102 Stat. 1315). Under this

provision:

(1) Duty-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.

47a

(3) Each duty-free sales enterprise—

(A) shall establish procedures to provide reasonable

assurance that duty-free merchandise sold by the

enterprise will be exported from the customs territory;

(D) shall not be required to mark or otherwise place a

distinguishing identifier on individual items of

merchandise to indicate that the items were sold by a

duty-free sales enterprise, unless the Secretary finds a

pattern in which such items are being brought back into

the customs. tterritory without declaration;

(7) The Secretary shall by regulation establish a

separate class of bonded warehouses for duty-free sales

enterprises. Regulations issued to carry out this

paragraph shall take into account the unique

characteristics of the different types of duty-free sales

enterprises.

Before enactment of this provision in 1988, duty-free

stores were administered by Customs directives, rather

than through any specific legislation or regulations (see

Treasury Decision 92-81, published in the Federal

Register on August 20, 1992 (57 F.R. 37692), and Duty

Free International, Inc., Ammex Warehouse Co., Inc.,

and Ammex Tax & Duty Free Shops, Inc., v. United

States, CIT Slip Op. 93-246, printed at 28 Cust. Bull. &

Dec. 3, January 19, 1994, p. 36).

In its administration of duty-free stores before

enactment of the 1988 legislation, Customs addressed

the issue under consideration. In a ruling letter dated

48a

October 30, 1972 (File: DB 711.2 LO 200396), the then

Assistant Commissioner of Customs, Office of

Regulations, held in regard to the proposed handling of

gasoline and diesel products in duty-free stores that:

We do not believe that the activities of "duty-free

stores" can be extended to unidentifiable fungibles sold

on a retail basis without seriously impairing our control

over the operations of these stores and the merchandise

sold by them. In this respect it should be noted that

merchandise purchased from a duty-free store when

returned to the United States, must be declared for the

purpose of collecting the duty and internal-revenue

taxes. Customs would have no practical means of

enforcing this requirement against any of the

automobiles returning to the United States from

Canada with "unidentifiable" gasoline in their tanks.

The 1988 legislation does not directly address the issue

under consideration. We have researched the

legislative history to the legislation. The only such

history we have found which may indicate an intent in

this regard is found in the Congressional Record (July

15, 1987, p. S 9952, remarks of Senator Bentsen), where

it was stated:

Section 921 [of a predecessor to the enacted legislation]

is not intended to change the way duty-free stores

currently operate, but rather to codify current practice

by providing a regulatory framework for continued

operation of duty-free stores in the future.

As noted above, at the time this statement was made

and at the time of passage of the 1988 legislation, the

current practice was not to allow unidentifiable

49a

fungibles, such as gasoline and diesel products for use

in automobiles, to be sold on a retail basis by duty-free

stores. Thus, the only legislative history we have been

able to find which may be applicable to this issue in-

dicates that there was no intent, at least by the Senator

making these remarks, to change the then current

practice. Current practice, as shown by the quoted

ruling, was not to allow uniden- tifiable fungibles, such

as gasoline and diesel products for use in automobiles,

to be sold on a retail basis by duty-free stores.

Although the 1988 legislation does not directly address

the issue under consideration, the statute does contain

a provision indicating that "unidentifiable fungibles'

were not intended to be allowed to be-sold in duty-free

stores. Under 19 U.S.C.

1555(b)(3)(D), a duty-free enterprise shall not be

required to "mark or otherwise place a distinguishing

identifier on individual items of merchandise" to

indicate that the items were sold by a duty-free sales

enterprise, unless the Secretary finds a pattern in

which such items are being brought back into the

Customs territory without declaration. This caveat (i.e.,

permitting the placement of a mark or other

distinguishing identifier on individual items of

merchandise in the stated circumstance) was added in

Conference (see H. Conf. Rep. No. 100- 576, p. 769

(100th Cong., 2d Sess., 1988), printed at 1988

U.S.C.C.A.N. 1547, 1801-1803). Clearly, inclusion of this

caveat indicates an intent that the merchandise which

could be sold in a duty-free store would be "individual

items of merchandise" which could be marked or

otherwise identified. "Unidentifiable fungibles", such as

50a

gasoline and diesel products for use in automobiles, are

not such "individual items".

We have also reviewed the Customs Regulations (see

19 CFR 19.35 et seq.) issued under 19 U.S.C. 1555(b)

and the regulatory history for those regulations (see

Federal Register of May 17, 1991 (56 F.R. 22833),

August 20, 1992 (57 F.R. 37692), October 16, 1992 (57

F.R. 47409), and May 20, 1993 (58 F.R. 29349). Nowhere

in these materials is there any indication of an intent to

permit the sale by duty-free stores of the merchandise

under consideration. We note that the caveat discussed

above (i.e., relating to marking or otherwise identifying

individual items of merchandise in the described

circumstance) is specifically provided for in the

Customs Regulations (19 CFR 19.36(d)).

In its January 24, 1994, letter, the operator contends

that the gasoline and diesel fuel could be controlled

"just like other bonded merchandise from this facility"

and that "dispensing of petroleum products from the

duty free plaza would be similar to the exi[s]ting

programs for air carriers at various international

airports." As demonstrated above, the gasoline and

diesel fuel could not be controlled like other bonded

merchandise sold at duty-free stores (i.e., because

gasoline and diesel fuel are "unidentifiable fungibles"

not subject to marking or other identification as

provided for in the statute and regulations). Further,

the proposal is not similar to existing programs for air

carriers. We assume that the program to which the

operator refers is that authorized in 19 U.S.C. 1309 and

the Customs Regulations issued thereunder (19 CFR

10.59 - 10.65). Note that these regulations specifically

provide for fuel to be used as supplies for vessels (and

5la

aircraft (19 CFR 10.59(d))) (ie., see 19 CFR 10.62).

Note also that the trade in which these vessels and

aircraft may be engaged is carefully circumscribed and

that there is a statutory and regulatory structure under

which Customs controls the movements of vessels and

aircraft departing from, arriving at, and moving

between points in the United States (see 19 CFR Parts

4 and 122).

Based on the foregoing, we conclude that duty-free

gasoline and diesel fuel for automobiles may not be sold

at a duty-free store, as described in your memorandum

and the materials forwarded with your memorandum.

In light of this conclusion, the other issues which you

raised are made moot and need not be addressed.

HOLDING:

Duty-free gasoline and diesel fuel for automobiles may

not be sold, as described in the FACTS portion of this

ruling, at a duty-free store provided for in 19 U.S.C.

1555(b).

EFFECT ON OTHER RULINGS:

Ruling letter dated October 30, 1972 (File: DB 711.2 L

200396), FOLLOWED.

The Office of Regulations and Rulings will take steps to

make this decision available to Customs personnel via

the Customs Rulings Module in ACS and the public via

the Diskette Subscription Service, Lexis, Freedom of

Information Act and other public access channels 60

days from the date of this decision.

52a

Sincerely,

John Durant, Director Commercial Rulings Division

53a

HQ 227385

February 12, 1998

WAR-5 RR:CR:DR 227385 CB/WGR

CATEGORY: Warehouse

David Serko, Esq.

Serko & Simon One World Trade Center Suite 3371

New York, NY 10048

RE: Request for Reconsideration of HQ 225287; Duty-

Free Stores; Sale of Gasoline and Diesel Fuel; 19 U.S.C.

1555(b); 19 CFR 19.35 - 19.39; Pub. L. 104-295; 29

Miscellaneous Trade and Technical Corrections Act of

1996

Dear Mr. Serko:

This is in response to your letters of September 8, 1995,

April 19, 1996, and July 22, 1997, wherein you requested

our reconsideration of HQ 225287, issued June 27, 1994.

This internal advice concerned a proposal to sell "duty-

free" gasoline and diesel fuel at a duty-free store in

Detroit, Michigan. We concluded that such an operation

did not fall within the scope of 19 U.S.C. 1555(b). We

have considered the additional arguments you have

raised and our decision follows.

FACTS:

You state that your client in this matter has been

54a

granted approval by Customs to operate a "sterile"

duty-free store at the Ambassador Bridge in Detroit,

Michigan. In HQ 225287, the duty-free store was

described as having been modified by "adding fencing,

electronic gates, and constructing a private road

leading directly from their sterile compound to the toll

booths on the bridge plaza." According to the FACTS in

HQ 225287, when the District Director of Customs

physically inspected the facility, he noted a

gasoline/diesel station within the sterile area. The

District Director, in a letter of December 23, 1994,

tentatively approved the request for permission to

operate the facility as a sterile shop with "live'

products, but excluded any bonded fuel operations. In

response to a request by your client that the District

Director reconsider his position on the bonded

petroleum operation and a follow-up letter dated

January 24, 1994, formally requesting approval of a

bonded petroleum product operation at its duty-free

store, the District Director requested internal advice

from this office.

This office issued a ruling on the matter on June 27,

1994 (HQ 225287). In that ruling we reviewed the

applicable law and regulations, noting that neither

directly addressed the issue under consideration. We

noted that before passage of the legislation involved

(section 1908, title I, Omnibus Trade and

Competitiveness Act of 1988 (Pub. L. No. 100-418; 102

Stat. 1315; codified as 19 U.S.C. 1555(b)), Customs had

issued a ruling in regard to the proposed handling of

gasoline and diesel products in duty-free stores. We

quoted from that ruling (ruling letter 200396, October

30, 1972) as follows:

5ba

We do not believe that the activities of "duty-free

stores" can be extended to unidentifiable fungibles sold

on a retail basis without seriously impairing our control

over the operations of these stores and the merchandise

sold by them. In this respect it should be noted that

merchandise purchased from a duty-free store when

returned to the United States, must be declared for the

purpose of collecting the duty and internal-revenue

taxes. Customs would have no practical means of

enforcing this requirement against any of the

automobiles returning to the United States from

Canada with "unidentifiable" gasoline in their tanks.

On the basis of ruling 200396 and the provision in 19

US.C.

1555(b)(3)(D) (under which a duty-free enterprise is

not required to “mark or otherwise place a

distinguishing identifier on individual items of

merchandise" to indicate that the items were sold by a

duty-free sales enterprise unless the Secretary finds a

pattern in which such items are being brought back into

the Customs territory without declaration), we

| concluded that "the gasoline and diesel fuel could not be

controlled like other bonded merchandise sold at duty-

free stores (i.e., because gasoline and diesel fuel are

unidentifiable fungibles' not subject to marking or other

identification as provided for in the statute and

regulations).". We ruled, in HQ 225287, that:

Duty-free gasoline and diesel fuel for automobiles may

not be sold, as described in the FACTS portion of [the]

ruling, at a duty-free store provided for in 19 U.S.C.

1555(b).

Ee

56a

In your letter of September 8, 1995, you requested that

Customs reconsider HQ 225287, arguing that Customs

was not "fully versed in the facts and briefed on the law

and its legislative history" when the ruling was issued.

At your request, you and other representatives of your

client met with representatives of this office about this

matter. In addition, you and other representatives have

submitted additional materials in this regard.

In your April 19, 1996, letter, you noted that the

District Director's December 23, 1993, letter, in which

he found that the facility "has fulfilled the requirements

necessary to qualify as an exit point as defined in 19

CFR 19.35(d)." You provide a map of the bridge, duty-

free store, and connecting roadways and state that "[iJn

fact, patrons of the store have no practical alternative

except to cross the bridge into Canada." You refer to

security measures (..€., the addition of manned toll

booths at the entrances leading to the duty-free store)

of which this office was not aware at the time of, and

could not consider, in HQ 225287.

In that letter, you also described measures which would

help ensure that gasoline or diesel fuel sold by the duty-

free store for automobiles would be exported and

practical means by which Customs could enforce the

provisions for the dutiability of such gasoline or diesel

fuel which is brought back into the Customs territory.

You state that, among other things, cash register

receipts signed by customers acknowledge that the

sales are "For Export Only." Additionally, you client ". .

~~ has a computer system which can be used in

cooperation with Customs for the tracking of fuel sales."

You state that "...a single Customs license plate query

can automatically determine if the vehicle received

57a

gasoline at the . . . facility prior to entering Canada, in

addition to Customs' other purposes for the query."

ISSUES:

1. May duty-free gasoline and diesel fuel for

automobiles be sold, as described in the FACTS portion

of this ruling, at a duty-free store provided for in 19

U.S.C. 1555(b)?

2 Does the amendment of the personal exemption

provision of the tariff laws demonstrate a

Congressional intent to overturn ruling letter HR

925287 with respect to duty-free shops?

LAW AND ANALYSIS:

Issue 1:

Duty-free sales enterprises are provided for in 19

US.C.

1555(p). This provision was enacted by section 1908,

title I, Omnibus Trade and Competitiveness Act of 1988

(Pub. L. No. 100-418; 102 Stat. 1315). Under this

provision:

(1) Duty-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.

(3) Each duty-free sales enterprise—

———=

58a

(A) shall establish procedures to provide reasonable

assurance that duty-free merchandise sold by the

enterprise will be exported from the customs territory;

(D) shall not be required to mark or otherwise place a

distinguishing identifier on individual items of

merchandise to indicate that the items were sold by a

duty-free sales enterprise, unless the Secretary finds a

pattern in which such items are being brought back into

the customs territory without declaration;

(7) The Secretary shall be regulation establish a

separate class of bonded warehouses for duty-free sales

enterprises. Regulations issued to carry out this

paragraph shall take into account the unique

characteristics of the different types of duty-free sales

enterprises.

Before enactment of this provision in 1988, duty-free

stores were administered by Customs directives, rather

than through any specific legislation or regulations (see

Treasury Decision 92-81, published in the Federal

Register on August 20, 1992 (97 FR.

37692), and Duty Free International, Inc., Ammex

Warehouse Co., Inc. , and Ammex Tax & Duty Free

Shops, Inc. v. United States, 17 CIT 1425 (1993)).

It is your position that when Congress enacted the

Omnibus Trade and Competitiveness Act, supra, it

intended to substantially change the manner in which

duty-free shops could be operated. Consequently,

ruling letter 200396, relied upon in HQ 225287, was

overridden by Congress in 1988. You argue that the

1972 ruling and the positions taken therein were never

59a

mentioned in any of the legislative history which led up

to the passage of the 1988 law which is the basis for the

current statutory framework. Moreover, there is no

evidence that Congress was aware of this ruling. Thus,

you conclude that Congress intended to abandon any

practice it did not specificaily adopt. It is also your

position that the legislative history relied upon in HQ

225287 was taken out of context.

As stated in HQ 225287, the 1988 legislation does not

directly address the issue under consideration.

Although we agree with you that Congressional intent,

in enacting 19 U.S.C. 1555(b), was to legislatively

direct Customs in its administration of duty-free shops,

it is also true that Congress left it up to the Secretary

of the Treasury (which in turn has delegated this

authority to Customs) to issue regulations

implementing the statutory provision. More

importantly, it is provided that the regulations shall

take into account the unique characteristics of the

different types of duty-free stores. Thus, although

Congress provided the broad statutory framework, it

was left up to the administering agency to fill-in the

details to carry out Congressional intent.

Regarding the legislative history relied upon in HQ

225287, we disagree with your interpretation. It is your

position that Senator Bentsen's comments is not

supportive of Customs position. In your letter you

quote certain remarks made by Senator Bentsen

(however a cite was not provided) and conclude that the

Senator did not see the then proposed legislation as the

means of restraining the activity of duty-free shops.

However, the quote you have used is not the one

referred to in HQ 225287. The statement made by

Pa

J

+

2

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Senator Bentsen and relied upon by Customs reads as

follows:

_ Mr. President, section 921 of the bill would

introduce for the first time a comprehensive framework

for the regulation and operation of duty-free sales

stores....

Section 921 is not intended to change the way duty-free

stores currently operate, but rather to codify current

practice by providing a regulatory framework for

continued operation of duty-free stores in the future.

Congressional Record, (July 15, 1987, p. S 9952,

remarks of Senator Bentsen). Thus, it is clear that,

contrary to your assertion that Senator Bentsen was

only referring to border stores in the State of Texas,

the quoted text provides clear Congressional intent to

codify procedures which had been implemented

through Customs directives and circulars. Senator

Bentsen's remark is the only indication contained in the

legislative history which addresses the point raised;

that is, whether the purpose of the legislation was to

codify or change the existing Customs practice. The

statement is consistent with the purpose of providing a

statutory basis for a procedure that was created by

Customs administrative practice.

It is your position that with respect to the applicability

of ruling letter 200396 after passage of the 1988 act,

that Congress intended to abandon this practice

because it was not specifically adopted. We reach the

opposite conclusion, i.e., the fact that Congress did not

6la

specifically reject Customs policy regarding the sale of

gasoline by duty-free stores means that Congress did

not object to such practice. Thus, in holding that

gasoline and diesel fuel may not be sold by duty-free

stores, it was proper to follow the precedent

established by ruling letter 200396.

Issue 2:

It is also your position that the 1996 amendment

rendered ruling letter 200396, and HQ 225287, obsolete

by removing the underlying reasoning because, under

1555(b)(6)(B), any gasoline purchased in a duty-free

sales enterprise remaining in a vehicle upon its return

to the United States can be covered by the personal

allowance or under the de minimis provisions of the

Tariff Act. We disagree. Congress amended the

personal allowance for duty exemptions by Section 29

of the Act of October 17, 1996 (Pub. L. 104-295, 110

Stat. 3535) (Miscellaneous Trade and ‘Technical

Corrections Act of 1996). That law amended 19 U.S.C.

1555(b)(c) to provide:

(6)(A) Except as provided in subparagraph(B),

merchandise that is purchased in a duty-free sales

enterprise is not eligible for exemption from duty under

subchapter IV of chapter 98 of the Harmonized Tariff

Schedule of the United States if such merchandise is

brought bact to the customs territory.

(B)Except in the case of travel involving transit to,

from, or through an insular possession of the United

States, merchandise described in subparagraph (A) that

is purchased by a United States resident shall be

eligible for exemption from duty under subheadings

‘s

a

1

62a

9804.00.65, 9804.00.70, and 9804.00.72 of the

Harmonized Tariff Schedule of the United States upon

the United States resident's return to the customs

territory of the United States, if the resident meets the

eligibility requirements for the exemption claimed.

Notwithstanding any other provision of law, such

merchandise shall be considered to be an article

acquired abroad as an incident of the journey from

which the resident is returning for purposes of

determining eligibility for any such exemption.

The stated purpose of the change in Senate Report 104-

393, 17(October 1, 1996) is as follows:

Personal Allowance Duty Exemption for Merchandise

Purchased in a Duty-Free Sales Enterprise (Section 29)

Current law Subchapter IV of HTS Chapter 98

provides that U.S. residents who travel outside the

country for more than 48 hours may bring back up to

$400 of merchandise purchased on their trip without

paying duties or taxes when they return to the U.S.

(Higher limits apply to residents returning from the

U.S. insular possessions or from beneficiary countries

under either the Caribbean Basin Economic Recovery

Act or the Andean Trade Preference Act.) However,

section 555(b)(6) of the Tariff Act of 1930 (19 U.S.C.

1555(b)(6)) provides that merchandise purchased in a

duty-free sales enterprise in the United States is not

eligible for exemption from duty upon the traveler's

return to the United States.

Explanation of provision This section amends section

555(b)(6) of the Tariff Act of 1930 to permit US.

residents who have been outside the United States for

at least 48 hours to apply merchandise purchased from

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a U.S. duty-free store against their personal duty-free

allowance. The provision does not apply to residents

returning from travel that involves transit to, from, or

through a U.S. insular possession (American Samoa,

Guam, or the Virgin Islands of the United States).

Reason for change The Committee believes that

current law disadvantages U.S. duty-free stores and is

inconsistent with the practices of other countries, which

allow purchases made in their duty-free shops to be

reimported under returning-resident allowances. As

under current law, purchases made in U.S. duty-free

shops must be made at the beginning of a resident's

outbound journey.

The report is silent with respect to HQ 225287 or any

other Customs ruling. When Congress intends to

overturn or modify a Customs or judicial interpretation,

it announces that intention in clear language. For

example, section 484A of the Customs and Trade act of

1990 (Act of August 20, 1990, Pub. L. 101-382, 104 Stat.

699) amended 19 U.S.C. 1313 to modify the effect of the

ruling issued as C.S.D. 88-1. To make that intention

clear, Congress expressly noted that ruling in the

Conference Report (H. Rpt. 101-650, 242 (July 30,

1990)). See also S. Rpt. 101-252, 39 (March 22, 1990).

Likewise, with respect to the amendment of 19 U.S.C.

1504 in the North American Free Trade Agreement

Implementation Act (Act of December 8, 1993, Pub. L.

- 103-182, 107 Stat. 2057), Congress expressly made clear

its intention to overturn the case of Nunn Bush Shoe v.

U.S., 784 F. Supp. 892 (CIT 1992) by so stating in H.

Rpt. 103-361, Part 1, 189 (November 15, 1993).

In HR 225287, Customs ruled that duty-free gasoline

64a

and diesel fuel may not be sold from a duty-free store

under 19 U.S.C. 1555(b). The ruling cited Customs

determination (as set forth in HQ 200396) and the

remarks of Senator Bentsen that the purpose of

enacting the legislation was to codify current

administrative practice in reaching that decision. A

primary administrative concern is the lack of feasible

control over bulk materials such as gasoline and diesel

fuel for automobiles. As noted in HQ 225287 paragraphs

(2)(D) and (8)(G) of 19 US.C.

1555(b) contemplate that merchandise sold in a duty-

free store be capable of relatively simple, effective

controls.

The change with respect to making certain merchandise

~ gold in duty-free store eligible to be included in a

returning resident's personal exemption under

subheadings 9804.00.65, 9804.00.70 and 9804.00.72,

HTSUS (19 U.S.C. 1202) does not eliminate the need

for simple, effective administrative controls over such

merchandise. The authority to waive the collection of

duty under 19 U.S.C. 1321(a) also does not eliminate

the need for administrative oversight over such

merchandise. Customs remains responsible for

determining the eligibility for exemption from duty and

for the correct recordation of the entry in import

statistics pursuant to 19 U.S.C. 1484. Moreover, the

eligibility for a duty exemption does not exempt the

imported merchandise from being subject to other

customs laws. The exemption from duty depends on the

status of the individual and the circumstances

regarding the exportation of the goods, the time spent

out of the United States, and the frequency of the

claims for eligibility. In order to administer those

65a

requirements, the need for simple effective controls has

not been lessened by the 1996 statutory change. In any

event, neither the statutory change itself nor the

relevant legislative history shows an intent to modify

the existing Customs position.

Finally, the other points raised in your letters were

covered by HQ 225287. Your letters do not add any

additional points or information so as to require us to

reconsider those aspects. We believe that the Customs

position on those points is clear.

HOLDING:

Having reviewed our previous decision in light of your

written submissions, we do not find the arguments

presented as compelling a reversal of HQ 225287. Thus,

HQ 225287 is hereby affirmed.

Sincerely,

John A. Durant Director Commercial Rulings Division

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66a

Section 1555. Bonded warehouses

(a) Designation; preconditions; bonding requirements,

supervision Subject to subsection (b) of this section,

buildings or parts of buildings and other enclosures

may be designated by the Secretary of the Treasury as

bonded warehouses for the storage of imported

merchandise entered for warehousing, or taken

possession of by the appropriate customs officer, or

under seizure, or for the manufacture of merchandise in

bond, or for the repacking, sorting, or cleaning of

imported merchandise. Such warehouses may be

bonded for the storing of such merchandise only as shall

belong or be consigned to the owners or proprietors

thereof and be known as private bonded warehouses, or

for the storage of imported merchandise generally and

be known as public bonded warehouses. Before any

imported merchandise not finally released from

customs custody shall be stored in any such premises,

the owner or lessee thereof shall give a bond in such

sum and with such sureties as may be approved by the

Secretary of the Treasury to secure the Government

against any loss or expense connected with or arising

from the deposit, storage, or manipulation of

merchandise in such warehouse. Except as otherwise

provided in this chapter, bonded warehouses shall be

used solely for the storage of imported merchandise and

shall be placed in charge of a proper officer of the

customs, who, together with the proprietor thereof,

shall have joint custody of all merchandise stored in the

warehouse; and all labor on the merchandise so stored

shall be performed by the owner or proprietor of the

warehouse, under supervision of the officer of the

customs in charge of the same, at the expense of the

owner or proprietor. The compensation of such officer

67a

of the customs and other customs employees appointed

to supervise the receipt of merchandise into any such

warehouse and deliveries therefrom shall be

reimbursed to the Government by the proprietor of

such warehouse.

(b) Duty-free sales enterprises

(1) Duty-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.

(2) A duty-free sales enterprise may be located

anywhere within —

(A) the same port of entry, as established under section

1 of the Act of August 24, 1912 (37 Stat. 484), from

which a purchaser of duty-free merchandise departs the

customs territory; or

(B) 25 statute miles from the exit point through which

the purchaser of duty-free merchandise will depart the

customs territory; or

(C) a port of entry, as established under section 1 of the

Act of August 24, 1912 (87 Stat. 434), or within 25

statute miles of a staffed port of entry if reasonable

assurance can be provided that duty-free merchandise

sold by the enterprise will be exported by individuals

departing from the customs territory through an

international airport located within the customs

territory.

En a GS RE a ESAS IO SE I

68a

(3) Each duty-free sales enterprise -

(A) shall establish procedures to provide reasonable

assurance that duty-free merchandise sold by the

enterprise will be exported from the customs territory;

(B) if the duty-free sales enterprise is an airport store,

shall establish and enforce, in accordance with such

regulations as the Secretary may prescribe, restrictions

on the sale of duty-free merchandise to any one

individual to personal use quantities;

(C) shall display in prominent places within its place of

business notices which state clearly that any duty-free

merchandise purchased from the enterprise —

(i) has not been subject to any Federal duty or tax, ~

(ii) if brought back into the customs territory, must be

declared and is subject to Federal duty and tax, and

(iii) is subject to the customs laws and regulation of any

foreign country to which it is taken;

( D) shall not be required to mark or otherwise place a

distinguishing identifier on individual items of

merchandise to indicate that the items were sold by a

duty-free sales enterprise, unless the Secretary finds a

pattern in which such items are being brought back into

the customs territory without declaration;

(E) may unpack merchandise into saleable units after it

has been entered for warehouse and placed in a duty-

free sales enterprise, without requirement of further

permits; and

Bibi icasicaisen se

69a

(F) shall deliver duty-free merchandise -

(i) in the case of a duty-free sales enterprise that is an

airport store —

(I) to the purchaser (or a family member or companion

traveling with the purchaser) in an area that is within

the airport and to which access to passengers is

restricted to those departing from the customs

territory;

(II) to the purchaser (or a family member or companion

traveling with the purchaser) at the exit point of a

specific departing flight;

(III) by placing the merchandise within the aircraft on

which the purchaser will depart for carriage as

passenger baggage; or

(IV) if the duty-free sales enterprise has made a good

faith effort to effect delivery for exportation through

one of the methods described in subclause (1), (II), or

(III) but is unable to do so, by any other reasonable

method to effect delivery; or

(ii) in the case of a duty-free sales enterprise that is a

border store —

(I) at a merchandise storage location at or beyond the

exit point; or

(II) at any location approved by the Secretary before

the date of enactment of the Omnibus Trade Act of

1987.

|

70a

(4) If a State or local or other governmental authority,

incident to its jurisdiction over any airport, seaport, or

other exit point facility, requires that a concession or

other form of approval be obtained from that authority

with respect to the operation of a duty-free sales

enterprise under which merchandise is delivered to or

through such facility for exportation, merchandise

incident to such operation may not be withdrawn from a

bonded warehouse and transferred to or through such

facility unless the operator of the duty-free sales

enterprise demonstrates to the Secretary that the

concession or approval required for the enterprise has

been obtained.

(5) This subsection does not prohibit a duty-free sales

enterprise from offering for sale and delivering to, or on

behalf of, individuals departing from the customs

territory merchandise other than duty-free

merchandise, except that such other merchandise may

not be stored in a bonded warehouse facility other than

a bonded facility used for retail sales.

(6)(A) Except as provided in subparagraph (B),

merchandise that is purchased in a duty-free sales

enterprise is not eligible for exemption from duty under

subchapter IV of chapter 98 of the Harmonized Tariff

Schedule of the United States if such merchandise is

brought back to the customs territory.

(B) Except in the case of travel involving transit to,

from, or through an insular possession of the United

States, merchandise described in subparagraph (A) that

is purchased by a United States resident shall be

eligible for exemption from duty under subheadings

9804.00.65, 9804.00.70, and 9804.00.72 of the

Tla

Harmonized Tariff Schedule of the United States upon

the United States resident's return to the customs

territory of the United States, if the resident meets the

eligibility requirements for the exemption claimed.

Notwithstanding any other provision of law, such

merchandise shall be considered to be an article

acquired abroad as an incident of the journey from

which the resident is returning, for purposes of

determining eligibility for any such exemption.

(7) The Secretary shall by regulation establish a

separate class of bonded warehouses for duty-free sales

enterprises. Regulations issued to carry out this

paragraph shall take into account the unique

characteristics of the different types of duty-free sales

enterprises.

(8) For purposes of this subsection —

(A) The term “airport store" means a duty-free sales

enterprise which delivers merchandise to, or on behalf

of, individuals departing from the customs territory

from an international airport located within the

customs territory.

(B) The term "border store'' means a duty-free sales

enterprise which delivers merchandise to, or on behalf

of, individuals departing from the customs territory

through a land or water border by a means of

conveyance other than an aircraft.

(C) The term "customs territory’ means the customs

territory of the United States and foreign trade zones.

a i,

72a

(D) The term "duty-free sa.es enterprise’ means a

person that sells, for use outside the customs territory,

duty-free merchandise that is delivered from a bonded

warehouse to an airport or other exit point for

exportation by, or on behalf of, individuals departing

from the customs territory.

(E) The term "duty-free merchandise" means

merchandise sold by a duty-free sales enterprise on

which neither Federal duty nor Federal tax has been

assessed pending exportation from the customs

territory.

(F) The term "exit point” means the area in close

»roximity to an actual exit for departing from the

customs territory including the gate holding area in the

ease of an airport, but only if there is reasonable

assurance that duty-free merchandise delivered in the

gate holding area will be exported from the customs

territory.

(G) The term "personal use quantities'' means

quantities that are only suitable for uses other than

resale, and includes reasonable quantities for household

or family consumption as well as for gifts to others.

(c) International travel merchandise

(1) Definitions For purposes of this section —

(A) the term "international travel merchandise" means

duty-free or domestic merchandise which is placed on

board aircraft on international flights for sale to

passengers, but which is not merchandise incidental to

the operation of a duty-free sales enterprise;

73a

(B) the term ''staging area" is an area controlled by the

proprietor of a bonded warehouse outside of the

physical parameters of the bonded warehouse in which

manipulation of international travel merchandise in

carts occurs;

(C) the term "duty-free merchandise’ means

merchandise on which the liability for payment of duty

or tax imposed by reason of importation has been

deferred pending exportation from the customs

territory;

(D) the term "manipulation" means the repackaging,

cleaning, sorting, or removal from or placement on carts

of international travel merchandise; and

(E) the term "cart" means a portable container holding

international travel merchandise on an aircraft for

exportation.

(2) Bonded warehouse for international travel

merchandise The Secretary shall by regulation

establish a separate class of bonded warehouse for the

storage and manipulation of international travel

merchandise pending its placement on board aircraft

departing for foreign destinations.

(3) Rules for treatment of international travel

merchandise and bonded warehouses and staging areas

(A) The proprietor of a bonded warehouse established

for the storage and manipulation of international travel

merchandise shall give a bond in such sum and with

such sureties as may be approved by the Secretary of

the Treasury to secure the Government against any

:

*

1

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2

ae ee

74a

loss or expense connected with or arising from the

deposit, storage, or manipulation of merchandise in

such warehouse. The warehouse proprietor's bond

shall also secure the manipulation of international

travel merchandise in a staging area.

(B) A transfer of liability from the international carrier

to the warehouse proprietor occurs when the carrier

assigns custody of international travel merchandise to

the «varehouse proprietor for purposes of entry into

warehouse or for manipulation in the staging area.

(C) A transfer of liability from the warehouse

proprietor to the international carrier occurs when the

bonded warehouse proprietor assigns custody of

international travel merchandise to the carrier.

(D) The Secretary is authorized to promulgate

regulations to require the proprietor and _ the

international carrier to keep records of the disposition

of any cart brought into the United States and all

merchandise on such cart.

75a

Section 1557. Entry for warehouse

(a) Withdrawal of merchandise; time; payment of

charges

(1) Any merchandise subject to duty (including

international travel merchandise), with the exception of

perishable articles and explosive substances other than

firecrackers, may be entered for warehousing and be

deposited in a bonded warehouse at the expense and

risk of the owner (FOOTNOTE 1) purchaser, importer,

or consignee. Such merchandise may be withdrawn, at

any time within 5 years from the date of importation,

for consumption upon payment of the duties and

charges accruing thereon at the rate of duty imposed

by law upon such merchandise at the date of

withdrawal; or may be withdrawn for exportation or for

transportation and exportation to a foreign country, or

for shipment or for transportation and shipment to the

Virgin Islands, American Samoa, Wake Island, Midway

Islands, Kingman Reef, Johnston Island, or the island of

Guam, without the payment of duties thereon, or for

transportation and rewarehousing at another port or

elsewhere, or for transfer to another bonded warehouse

at the same port; except that - (FOOTNOTE 1) So in

original. Probably should be followed by a comma.

(A) the total period of time for which such merchandise

may remain in bonded warehouse shall not exceed 5

years from the date of importation; and

(B) turbine fuel may be withdrawn for use under

section 1309 of this title without the payment of duty if

an amount equal to the quantity of fuel withdrawn is

shown to be used within 30 days after the day of

76a

withdrawal, but duties (together with interest

payable from the date of the withdrawal at the rate of

interest established under section 6621 of title 26) shall

be deposited by the 40th day after the day of

withdrawal on fuel that was withdrawn in excess of the

quantity shown to have been so used during such 30-

day period.

(2) Merchandise upon which the duties have been paid

and which shall have remained continuously in bonded

warehouse or otherwise in the custody and under the

control of customs officers, may be entered or

withdrawn at any time within 5 years after the date of

importation for exportation or for transportation and

exportation to a foreign country, or for shipment or for

transportation and shipment to the Virgin Islands,

American Samoa, Wake Island, Midway Islands,

Kingman Reef, Johnston Island, or the island of Guam,

under such regulations as the Secretary of the Treasury

shall prescribe, and upon such entry or withdrawal, and

exportation or shipment, the duties thereon shali be

refunded.

(b) Transferal of right of withdrawal

The right to withdraw any merchandise entered in

accordance with subsection (a) of this section for the

purposes specified in such subsection may be

transferred upon compliance’ with regulations

prescribed by the Secretary of the Treasury and upon

the filing by the transferee of a bond in such amount

and containing such conditions as the Secretary of the

Treasury shall prescribe. The bond shall include an

obligation to pay, with respect to the merchandise the

subject of the transfer, all unpaid regular, increased,

—————————

T7a

and additional duties, all unpaid taxes imposed upon or

by reason of importation, and all unpaid charges and

exactions. Such transfers shall be irrevocable, shall

relieve the transferor from all customs liability with

respect to obligations assumed by the transferee under

the bond herein provided for, and shall confer upon the

transferee all rights to the privileges provided for in

this section and in sections 1562 and 1563 of this title

which were vested in the transferor prior to the

transfer. The transferee shall also have the right to

receive all lawful refunds of money paid by him to the

United States with respect to the merchandise the

subject of the transfer, and shall have the right to file a

protest under section 1514 of this title to the same

extent that such right would have been available to the

transferor. Notice of liquidation shall be given to the

transferee in the form and manner prescribed by the

Secretary of the Treasury. A transferee may further

transfer the right to withdraw merchandise, subject to

the provisions of this subsection relating to original

transfers.

(c) Destruction of merchandise at request of consignee

Merchandise entered under bond, under any provision

of law, may, upon payment of all charges other than

duty on the merchandise, be destroyed, at the request

and at the expense of the consignee, within the bonded

period under customs supervision, in lieu of

exportation, and upon such destruction the entry of

such merchandise shall be liquidated without payment

of duty and any duties collected shall be refunded.

(d) Withdrawal before payment

:

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Merchandise may be withdrawn for consumption

without the payment of the duty thereon if the

importer of record or transferee is permitted to pay

duty at a later time pursuant to regulations

prescribed by the Secretary under section 1505 of this

title.

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Section 4081. Imposition of tax

(a) Tax imposed

(1) Tax on removal, entry, or sale

(A) In general

There is hereby imposed a tax at the rate specified in

paragraph (2) on -

(i) the removal of a taxable fuel from any refinery,

(ii) the removal of a taxable fuel from any terminal,

(iii) the entry into the United States of any taxable fuel

for consumption, use, or warehousing, and

(iv) the sale of a taxable fuel to any person who is not

registered under section 4101 unless there was a prior

taxable removal or entry of such fuel under clause (i),

(ii), or (iii).

(B) Exemption for bulk transfers to registered

terminals or refineries

The tax imposed by this paragraph shall not apply to

any removal or entry of a taxable fuel transferred in

bulk to a terminal or refinery if the person removing or

entering the taxable fuel and the operator of such

terminal or refinery are registered under section 4101.

(2) Rates of tax

(A) In general

a ik ica ni tare ss i ulmana

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The rate of the tax imposed by this section is —

(i) in the case of gasoline other than aviation gasoline,

18.3 cents per gallon,

(ii) in the case of aviation gasoline, 19.3 cents per

gallon, and

(iii) in the case of diesel fuel or kerosene, 24.8 cents

per gallon.

(B) Leaking Underground Storage Tank Trust Fund

tax

The rates of tax specified in subparagraph (A) shall

each be increased by 0.1 cent per gallon. The increase

in tax under this subparagraph shall in this title be

referred to as the Leaking Underground Storage Tank

Trust Fund financing rate.

(b) Treatment of remova! or subsequent sale by blender

(1) In general

There is hereby imposed a tax at the rate determined

under subsection (a) on taxable fuel removed or sold by

the blender thereof.

(2) Credit for tax previously paid If -

(A) tax is imposed on the removal or sale of a taxable

fuel by reason of paragraph (1), and (B) the blender

establishes the amount of the tax paid with respect to

such fuel by reason of subsection (a), the amount of the

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tax so paid shall be allowed as a credit against the tax

imposed by reason of paragraph (1).

(c) Taxable fuels mixed with alcohol Under regulations

prescribed by the Secretary —

(1) In general

The rate of tax under subsection (a) shall be the alcohol

mixture rate in the case of the removal or entry of any

qualified alcohol mixture:

(2) Tax prior to mixing

(A) In general

In the case of the removal or entry of any taxable fuel

for use in producing at the time of such removal or

entry a qualified alcohol mixture, the rate of tax under

subsection (a) shall be the applicable fraction of the

alcohol mixture rate. Subject to such terms and

conditions as the Secretary may prescribe (including

the application of section 4101), the treatment under

the preceding sentence also shall apply to use in

producing a qualified alcohol mixture after the time of

such removal or entry.

(B) Applicable fraction

For purposes of subparagraph (A), the applicable

fraction is -

(i) in the case of a qualified alcohol mixture which

contains gasoline, the fraction the numerator of which is

10 and the denominator of which is -

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(I) 9 in the case of 10 percent gasohol,

(II) 9.23 in the case of 7.7 percent gasohol, and

(III) 9.43 in the case of 5.7 percent gasohol, and

(ii) in the case of a qualified alcohol mixture which does

not contain gasoline, 10/9.

(3) Alcohol; qualified alcohol mixture For purposes of

this subsection —

(A) Alcohol

The term "alcohol" includes methanol and ethanol but

does not include alcohol produced from petroleum,

natural gas, or coal (including peat). Such term does

not include alcohol with a proof of less than 190

(determined without regard to any added denaturants).

(B) Qualified alcohol mixture

The term "qualified alcohol mixture’ means —

(i) any mixture of gasoline with alcohol if at least 5.7

percent of such mixture is alcohol, and

(ii) any mixture of diesel fuel with alcohol if at least 10

percent of such mixture is alcohol.

(4) Alcohol mixture rates for gasoline mixtures For

purposes of this subsection —

(A) General rules

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i) Mixtures containing ethanol Except as provided in

clause (ii), in the case of a qualified alcohol mixture

which contains gasoline, the alcohol mixture rate is the

excess of the rate which would (but for this paragraph)

be determined under subsection (a) over -

(I) in the case of 10 percent gasohol, the applicable

blender rate (as defined in section 4041(b)(2)(C)) per

gallon,

(II) in the case of 7.7 percent gasohol, the number of

cents per gallon equal to 77 percent of such applicable

blender rate, and

(III) in the case of 5.7 percent gasohol, the number of

cents per gallon equal to 57 percent of such applicable

blender rate.

(ii) Mixtures not containing ethanol

In the case of a qualified aleohol mixture which contains

gasoline and none of the alcohol in which consists of

ethanol, the alcohol mixture rate is the excess of the

rate which would (but for this paragraph) be

determined under subsection (a) over —

(I) in the case of 10 percent gasohol, 6 cents per

gallon,

(II) in the case of 7.7 percent gasohol, 4.62 cents per

gallon, and

(III) in the case of 5.7 percent gasohol, 3.42 cents per

gallon.

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(B) 10 percent gasohol

The term "10 percent gasohol" means any mixture of

gasoline with alcohol if at least 10 percent of such

mixture is alcohol.

(C) 7.7 percent gasohol

The term "7.7 percent gasohol'’ means any mixture of

gasoline with alcohol if at least 7.7 percent, but not 10

percent or more, of such mixture is alcohol.

(D) 5.7 percent gasohol

The term "5.7 percent gasohol" means any mixture of

gasoline with alcohol if at least 5.7 percent, but not 7.7

percent or more, of such mixture is alcohol.

(5) Alcohol mixture rate for diesel fuel mixtures

The alcohol mixture rate for a qualified alcohol mixture

which does not contain gasoline is the excess of the rate

which would (but for this paragraph) be determined

under subsection (a) over the applicable blender rate

(as defined in section 4041(b)(2)(C)) per gallon (6 cents

per gallon in the case of a qualified aleohol mixture none

of the alcohol in which consists of ethanol).

(6) Limitation

In no event shall any alcohol mixture rate determined

under this subsection be less than 4.3 cents per gallon.

(7) Later separation of fuel from qualified alcohol

mixture

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If any person separates the taxable fuel from a qualified

alcohol mixture on which tax was imposed under

subsection (a) at a rate determined under paragraph (1)

or (2) (or with respect to which a credit or payment was

allowed or made by reason of section 6427(f)(1)), such

person shall be treated as the refiner of such taxable

fuel. The amount of tax imposed on any removal of

such fuel by such person shall be reduced by the

amount of tax imposed (and not credited or refunded)

on any prior removal or entry of such fuel.

(8) Termination

Paragraphs (1) and (2) shall not apply to any removal,

entry, or sale after September 30, 2007.

(d) Termination

(1) In general

The rates of tax specified in clauses (i) and (iii) of

subsection (a)(2)(A) shall be 4.3 cents per gallon after

September 30, 2005.

(2) Aviation gasoline

The rate of tax specified in subsection (a)(2)(A)(ii) shall

be 4.3 cents per gallon —

(A) after December 31, 1996, and before the date which

is 7 days after the date of the enactment of the Airport

and Airway Trust Fund Tax Reinstatement Act of

1997, and

(B) after September 30, 2007.

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(3) Leaking Underground Storage Tank Trust Fund

financing rate

The Leaking Underground Storage Tank Trust Fund

financing rate under subsection (a)(2) shall apply after

September 30, 1997, and before April 1, 2005.

(e) Refunds in certain cases

Under regulations prescribed by the Secretary, if any

person who paid the tax imposed by this section with

respect to any taxable fuel establishes to the

satisfaction of the Secretary that a prior tax was paid

(and not credited or refunded) with respect to such

taxable fuel, then an amount equal to the tax paid by

such person shall be allowed as a refund (without

interest) to such person in the same manner as if it

were an overpayment of tax imposed by this section.

87a

Code of Federal Regulations

From the U.S. Government Printing Office via GPO

Access

TITLE 19--CUSTOMS DUTIES

CHAPTER I--UNITED STATES CUSTOMS

SERVICE, DEPARTMENT OF THE TREASURY

PART 19-CUSTOMS | WAREHOUSES,

CONTAINER STATIONS AND CONTROL OF

MERCHANDISE THEREIN--Table of Contents

Sec. 19.35 Establishment of duty-free stores (Class 9

warehouses).

(a) General. A class 9 warehouse (duty-free store) may

be established for exportation of conditionally duty-free

merchandise by individuals departing the Customs

territory, inclusive of foreign trade zones, by aircraft,

vecsel, or departing directly by vehicle or on foot to a

contiguous country. Such articles must accompany the

individual on his person or in the same aircraft, vessel,

or vehicle in which the individual departs.

“Conditionally duty-free merchandise" means

merchandise sold by a duty-free store on which duties

and/or internal revenue taxes (where applicable) have

not been paid. Except insofar as the provisions of this

section and Secs. 19.36-19.39 are more specific, the

procedures for bonded warehouses apply to duty-free

stores (Class 9 warehouses).

(b) Location. A duty-free store (class 9 warehouse) may

be established or located only:

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(1) Within the same port of entry from which a

purchaser of duty- free store merchandise departs the

Customs territory;

(2) Within 25 statute miles from the exit point through

which a purchaser of duty-free store merchandise

departs the Customs territory; or

(3) In the case of an airport store, within any staffed

port of entry, or within 25 statute miles from any

staffed port of entry.

(c) Integrated locations. A Class 9 warehouse with

multiple noncontiguous sales and crib locations (see

Sec, 19.37(a) of this part) containing conditionally duty-

free merchandise and requested by the proprietor may

be treated by Customs as one location if:

(1) The proprietor can provide Customs upon demand

with the proper on-hand balance of each inventory item

in each storage location, sales room, erib, mobile crib,

delivery cart, or other conveyance or noncontiguous

location; and

(2) The recordkeeping system is centralized up to the

point where a sale is made so as to automatically reduce

the sale quantity by location from centralized inventory

or inventory records must be updated no less

frequently than at the end of each business day to

reflect that day's activity.

(d) Exit point. The exit point referred to in paragraph

(b) of this section means an area in close proximity to an

actual exit for departing from the Customs territory,

including the gate holding area in the case of an airport,

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but only if there is reasonable assurance that

conditionally duty-free merchandise delivered in the

gate holding area will be exported from the Customs

territory. The exit point in the case of a land border or

seaport duty-free store is the point at which a

departing individual has no practical alternative to

continuing on to a foreign country or to returning to

Customs territory by passing through a U.S. Customs

inspection facility. The port director's decision as to

what constitutes the exit point or reasonable assurance

of exportation in a given situation is final.

(e) Notice to customers. Class 9 warehouse proprietors

shall display in prominent places where they will be

noticed and read by customers signs which state clearly

that any conditionally duty-free merchandise purchased

from the store:

(1) Has not been subjected to any U.S. Federal duty or

tax;

(2) If brought back to the United States must be

declared and is subject to U.S. Federal duty and tax

with personal exemption; and,

(3) Is subject to the customs laws and regulations,

including possible duties and taxes, of any foreign

country to which it is taken.

(f) Security of sales rooms and cribs. The physical and

procedural security requirements of Sec. 19.4(b)(6) of

this part shall be applied to the security of the sales

rooms and cribs by the port director. The proprietor

shall establish procedures to safeguard the merchandise

so as to accommodate the movement of purchasers and

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prospective purchasers of conditionally duty-free

merchandise contained in duty-free sales rooms and

cribs.

(g) Approval of governmental authority. If a state or

local or other governmental authority, incident to its

jurisdiction over any airport, seaport, or other exit

point facility, requires that a concession or other form

of approval be obtained from that authority with

respect to the operation of a duty-free store

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