DRA-CO:R:C:E 222064 K
Regional Commissioner of Customs
Southwest Region
5850 San Felipe Street
Houston, Texas 77057-3012
RE: The Request For Advice of the Assistant Regional Commissioner
(Operations) Dated January 17, 1990, Concerning The
Principal-Agency Relationship For Drawback
Dear Sir:
The ruling which follows is in response to the above-
referenced request.
FACTS:
Corporation A imported raw sugar and refined it in October
1986. In September 1989, Corporation B succeeded Corporation A.
It is assumed that Corporation A ceased to exist. Thereafter,
Corporation B contracted with Corporation C to refine domestic
(substituted) raw sugar for Corporation B presumedly in
compliance with a principal-agency agreement under Treasury
Decision 55207(1). The sugar refined by C was exported. B
claimed drawback and designated as the basis for drawback the
imported duty-paid raw sugar that was imported and used in
production by the former Corporation A.
ISSUE:
Under the facts above, the issue is whether Corporation B,
as the same legal entity, used both imported duty-paid and
substituted merchandise of the same kind and quality in the
manufacture or production of articles exported for drawback as
required by 19 U.S.C. 1313(b). The answer is no, it did not.
LAW AND ANALYSIS:
As acknowledged in Customs Service Decision (C.S.D.) 86-11,
there is a long administrative precedent which holds that the
same legal entity (person) that uses substituted merchandise to
manufacture or produce the exported articles claimed for drawback
under 19 U.S.C. 1313(b) must also use in manufacture or
production the duty-paid merchandise which is designated as the
basis for the claim. In C.S.D 89-12, we noted that it is settled
law that the corporation absorbed in a merger, or consolidation
ceases to exist and its existence is not, in any way or form,
continued in the surviving or resultant corporation which
constitutes a different legal being altogether. Corporation A
used the imported designated merchandise in a manufacture or
production and then ceased to exist as a legal entity.
Corporation B, as the successor of Corporation A, became a new
legal entity and as such, Corporation B did not use imported
designated merchandise as the basis for drawback.
The use requirement under 19 U.S.C. 1313(b) does not require
the ownership of the duty-paid designated and substituted
merchandise by the manufacturer or producer. It does require
that the same legal entity must use both the designated and the
substituted in the manufacture or production of articles.
However, the principal-agency relationship under T.D.s 55027(2)
and 55207(1) requires that the principal must own both the
imported designated and substituted merchandise which it
furnishes to its agents under contract for use in the
manufacture of new articles for the account of the principal.
Under such circumstances, the principal is treated as the same
legal entity that satisfied the use requirement of 19 U.S.C.
1313(b). Corporation B did not exist when Corporation A imported
and used the raw sugar in a manufacture or production. In the
facts in this case, Corporation B did not own and could not have
owned the duty-paid raw sugar imported and used by the former
Corporation A in a manufacture or production. Since Corporation
B did not own the imported duty-paid raw sugar as required by
T.D. 55027(2), it could not contract with Corporation A to use
that raw sugar in a manufacture or production for the account of
Corporation B. The principal-agency relationship is not
applicable under these circumstances. See C.S.D. 83-72 for a
full discussion of the principal-agency relationship.
HOLDINGS:
A successor corporation cannot designate as the basis for
drawback under 19 U.S.C. 1313(b) imported duty-paid merchandise
which was used by the former corporation in the manufacture or
production of articles.
A principal, under the principal-agency relationship
(T.D.s 55027(2) and 55207(1)), must own both the imported duty-
paid and the substituted merchandise used by his agents in the
manufacture or production of articles in order for the principal
to be considered as the same legal entity that satisfied the use
requirement of substitution manufacturing drawback (19 U.S.C.
1313(b)).
These holdings follow C.S.D.s 89-12 and 83-72
Sincerely,
Jerry Laderberg
Acting Director
Commercial Rulings Division