DRA-2-02-RR:IT:EC 222494 PH
Port Director of Customs
555 Battery Street
San Francisco, California 94111
RE: Protest 2809-88-002475; Manufacturing Drawback Claims;
Retention Period for Drawback Records; Semiconductor wafers;
Semiconductor dice; Semiconductor devices; T.D. 83-16-(T);
T.D. 83-259-(U); 19 CFR 191.5; 19 U.S.C. 1313(b); 19 U.S.C.
1514
Dear Sir:
The above-referenced protest was forwarded to this office for
further review. Our decision follows.
FACTS:
The protest is of the liquidation of twelve drawback entries (or
claims) dated December 19, 1984, March 15, 1985, March 18, 1985
(two claims), March 20, 1985 (two claims), April 22, 1985, July
30, 1985 (two claims), November 6, 1987, and November 13, 1987
(two claims). Accelerated payment of drawback was requested and
granted for the entries.
At the time under consideration, the protestant had approved
drawback contracts (see Treasury Decisions (T.D.'s) 83-16-(T)
(and its predecessor T.D. 80-280-(S)) and 83-259-(U) (and its
predecessor T.D. 79-84-(Q))) for substitution manufacturing
drawback under 19 U.S.C. 1313(b). T.D. 83-16-(T) was for the
manufacture of finished semiconductor devices with the use of
integrated circuits, transistors, and field effect transistors.
T.D. 83-259-(U) was for the manufacture of fully fabricated
semiconductor wafers and dice in wafer form with the use of raw
silicon wafers, partially fabricated wafers, and unsorted wafers.
The drawback contracts permitted the substitution of duty-paid,
duty-free, or domestic merchandise for imported merchandise or
drawback products of the same kind and quality which was
designated as the basis for drawback on the exported articles.
The merchandise in T.D. 83-16-(T) is listed by package code and
description. Detailed specifications (diameter, polarity, and
crystal orientation) are provided in T.D. 83-259-(U) for the raw
silicon wafers.
In both drawback contracts, the protestant agreed to maintain
records to establish "[t]he quantity of merchandise of the same
kind and quality as the designated merchandise [appearing in, in
T.D. 83-16-(T) and used in, in T.D. 83-259-(U)] the exported
article ...." In T.D. 83-16-(T), the protestant stated that
waste was incurred in the classification process (basically,
according the contract, the classification process was an
electrical test to determine if each device could meet certain
electrical parameters) but "we shall waive the claim for this
waste and thereby avoid the necessary waste record ...." In T.D.
83-259-(U), the protestant stated that waste ("run[ning] as high
as 60%"] was incurred in the manufacturing processes, records
would be kept to establish the quantity of waste incurred, and
the waste was valueless and would be discarded. The protestant
stated, in each contract, that "[w]e realize that to obtain
drawback, the claimant must establish that the completed articles
were exported within five (5) years after the importation of the
imported merchandise." The protestant also stated in each
contract that "[its] records establishing [its] compliance with
these requirements [would] be available for audit by Customs
during business hours [and that] [it understood that] drawback is
not payable without proof of compliance." The protestant agreed
to "[k]eep its drawback related records and supporting data for
at least three (3) years from the date of payment of any drawback
claim predicated in whole or in part upon [the contracts]."
The protestant was subject to a drawback audit before the
protested entries were filed (Audit Report 7-84-DRO-005, dated
January 19, 1984). In a June 11, 1984, letter to the protestant
regarding the audit, Customs advised that the records maintained
to substantiate the audited claim were in compliance with T.D.
83-16-(T). It was also noted in this letter that the audit
disclosed that ineligible exports to Puerto Rico had been
claimed. Therefore, Customs advised, it was mandatory that the
protestant identify ineligible exports to Puerto Rico on all
existing claims and that amended designation sheets be submitted
to correct the discrepancies.
The protestant was also subject to a multi-regional audit in
1987. Problems raised in this audit regarding manufacturing
drawback were the accounting procedures for finished inventory
and exportation of the finished articles. According to the audit
report (Audit Report 7-85-MRL-001, May 28, 1987) for this audit,
"[s]ome of the merchandise ... was never imported into the U.S.
and was never exported from the U.S. because the articles were
shipped directly from [the protestant's] Asian subsidiaries to
Canada." Also related to exportation, the report stated "[o]ther
merchandise ... was imported, but not exported from the U.S. by
[the protestant] because the articles were delivered to U.S.
addresses for the Canadian customers." According to this audit
report, it was agreed that the drawback claims audited would be
liquidated without payment of drawback, subject to protest or the
filing of amended claims.
The protested drawback claims were liquidated, with all drawback
denied, on July 1, 1988. On September 29, 1988, the protestant
filed the protest under consideration. In the protest, the
protestant noted the deficiencies found in the 1984 audit (see
above) and stated that these deficiencies had been entirely
corrected. The protestant noted the 1987 multi-regional audit
and stated that, to the best of its knowledge, no manufacturing
drawback claims were audited during this audit, although records
relating to a 1983 same condition drawback claim were stated to
have been requested. The protestant contended that the protest
should be granted on the basis of the correction of the
deficiencies found in the 1984 audit, that unavailable records
were outside the mandatory record retention period for
manufacturing drawback claims, or that alternative records and
evidence were available which support the claims. Further review
was requested and granted.
On August 8, 1990, the protestant requested that Customs delay
processing the protest until it could submit a supplement to the
protest. This request was granted by letter of August 9, 1990.
On October 8, 1990, the protestant filed a declaration, dated
October 5, 1990, by the Director, Corporate Customs, for the
protestant. The declarant stated that he prepared and submitted
a manufacturing drawback statement (T.D. 83-16-(T)) which was
accepted by Customs. The declarant stated that all manufacturing
drawback claims filed by the protestant subsequent to August 23,
1982, were filed pursuant to and in accordance with the terms of
T.D. 83-16-(T) and that all records enumerated in the "Records"
section of T.D. 83-16-(T) were available at the time of filing of
all drawback claims filed by the protestant subsequent to August
23, 1982. The declarant stated that certain of the records used
to prepare the claims may have been inadvertently destroyed prior
to the expiration of the record retention period under 19 CFR
191.5, but that he was prepared to offer testimonial evidence
based on his active participation in the protestant's drawback
program since 1982 as to the original existence of such possible
missing records, their nature, and the facts which they would
establish.
The protestant met with Customs officials regarding this and
another drawback protest (protest 2809-88-002476, relating to
same condition drawback claims; our file 222987) on April 2,
1992. After that meeting, Customs conducted further review of
the protestant's drawback claims. That review is described in a
September 2, 1992, memorandum from the Regulatory Audit Division,
Pacific Region.
According to the September 2, 1992, memorandum, to review how
export requirements were met in the protestant's claims,
documents for 10 of 25,000 export line items in a potential
replacement same condition drawback claim were requested.
According to the September 2, 1992, memorandum, the protestant
provided export documents for six of the 10 items for which
export documents were requested. The protestant did not permit
Customs to review the files for the other four items, nor did it
take Customs offer to expand the sample (because, it was alleged,
"three employees had spent about 6 weeks finding support for the
6 items, and considering the age of the records, the 60 percent
proof of export rate was probably representative [according to
the protestant]"). According to the September 2, 1992,
memorandum, procedures for documenting applicable substitution
manufacturing drawback exports were the same as for same
condition drawback exports, since claimed exports were drawn from
the same pool of exports for both same condition and
manufacturing claims.
According to the September 2, 1992, memorandum, the protestant's
inventory procedures, stated to be consistently applied to the
same condition and substitution manufacturing entries, did not
meet Customs requirements for an alternative method of
identification as to commingled lots, fungible merchandise,
accounting for receipts and withdrawals, and assuring that
drawback was not excessive.
In the case of the two March 18, 1985, claims and the March 15,
1985, claim, the exportations upon which the claims were based
involved "substandard devices" sent to a foreign trade zone (FTZ)
and there destroyed in lieu of exportation. In this regard,
according to the September 2, 1992, memorandum, "[the protestant]
did not match designated and substituted manufactured articles on
a subtype basis, and may have exported a low value subtype of one
kind and quality and designated a high value product of another
kind and quality."
In the case of the two November 13, 1987, claims and the April
22, 1985, claim, according to the September 2, 1992, memorandum,
the exportations were fully fabricated semiconductor wafers
and/or dice in wafer form which were not commingled in the same
finished goods inventories as the finished semiconductors. In
the September 2, 1992, memorandum it is stated that "... they may
have been commingled in finished goods inventory with like
imported wafers or dice, in which case such a determination would
be necessary to establish the proper dutiable value and preclude
claiming an imported finished good instead of a domestically
produced one, since only domestic products qualify for
manufacturing drawback." In regard to the April 22, 1985, claim,
it was stated that:
The contract indicates waste of as much as 60 percent. The
claim shows an identical number of units, 48,979,372 dice in
wafer form, designated and substituted. The claim also
show[s] the unit values of the designated dice, but the
designated entries were filed on the basis of wafer
quantities and values. Apparently, no wafers, per se, of
any type were designated.
Customs officials again met with the protestant on February 4,
1993. The protestant submitted a letter of February 1, 1993,
commenting on the September 2, 1992, memorandum. In this letter,
the protestant generally attempted to rebut the deficiencies
cited in the September 2, 1992, memorandum regarding the
protestant's inventory procedures for drawback purposes, arguing
that "the partial lack of availability of records is less an
issue with respect to the manufacturing claims [than in the same
condition claims] insofar as Customs conducted and concluded with
almost universally favorable results, an audit of manufacturing
drawback claims in 1983 [see 1984 audit report, referred to
above]." The protestant also contended, regarding the two March
18, 1985, claims and the March 15, 1985, claim that, on the basis
of ruling 213757, dated February 19, 1982 (published as Customs
Service Decision (C.S.D.) 82-96), the protestant was entitled to
drawback on the "substandard devices" sent to a foreign trade
zone (FTZ) and there destroyed in lieu of exportation. In regard
to the two November 13, 1987, claims and the April 22, 1985,
claim (exportation of wafers and/or dice), the protestant stated
that, to the best of its knowledge, no on-site audit of the
records or procedures relating to the die wafer drawback was ever
conducted. The protestant added:
Since [the protestant] imported wafers and die on wafer in
various stages of production and exported fully fabricated
die in wafer form on such exports, imported or domestically
substituted wafers or die in wafer form at any stage or
production could have validly been designated for drawback
on such exports [and] [f]urther, since obviously there could
be waste as high as 60%, far greater quantities of imports
obviously had to occur in order to produce the 48,979,372
dice in wafer form which were designated for drawback, and
obviously exported.
Subsequently, in a letter dated April 27, 1993, the protestant
proposed a settlement methodology for its protest of the denial
of same condition drawback (protest 2809-88-002476, see above).
In this April 27, 1993, letter, the protestant submitted that the
protested manufacturing drawback claims should be allowed in
their entirety, on the basis of the arguments made in the
February 1, 1993, letter (see above).
In a memorandum dated June 1, 1994, the Regulatory Audit
Division, Pacific Region, commented on the above submissions by
the protestant. Regarding the exportation issue, it was stated
that "... our tests indicate that a high percentage of claimed
transactions did not include adequate proof of export, and in
some cases the records showed that products listed in the
drawback entry summary of exports positively were not exported."
Based on its analysis of 10 line items in the potential
replacement same condition drawback claim (see above), Customs
continued to "believe that the 60 percent proof of export rate
would apply to the exports claimed under ... the 6 manufacturing
drawback entries for good finished integrated circuits, since
each type was drawn from common pools of exports covered by the
same documentation procedures." Customs stated that it had
analyzed the protestant's shipments to foreign customers for a
10-day period in 1984 (December 18, 1984, through December 27,
1984, according to the file) and found that 45.10 percent of the
shipments were not exported but were direct-shipped in bond.
This finding was stated to apply to the exports claimed under the
12 same condition, one substitution same condition, and 6
manufacturing drawback entries for good finished integrated
circuits, since each type was drawn from common pools of exports
covered by the same documentation procedures. Four specific
examples, each relating to a same condition drawback claim, were
described.
In the June 1, 1994, memorandum, Customs reiterated the problems
with the substandard devices sent to the FTZ for destruction,
noting that the protestant's practice was to treat the
substandard devices as scrap, that they were accounted for on a
weighted average basis, and that the claims on these devices
indicated that the same-kind-and-quality requirements may not
have been met.
In regard to the two November 13, 1987, claims and the April 22,
1985, claim (exportation of wafers and/or dice), Customs (in the
June 1, 1994, memorandum) stated that the protest should be
granted on the basis of an April 20, 1982, letter from the
protestant to Customs describing its manufacturing and drawback
entry preparation procedures for partially fabricated wafers and
a May 10, 1982, letter from Customs stating that "drawback claims
submitted in accordance with the parameters outlined in your
letter could constitute valid claims, assuming that ... all
documents are in order."
ISSUE:
Is there authority to grant the protest of denial of drawback in
this case?
LAW AND ANALYSIS:
Initially, we note that the protest was timely filed under the
statutory and regulatory provisions for protests (see 19 U.S.C.
1514 and 19 CFR Part 174). We note that the refusal to pay a
claim for drawback is a protestable issue (see 19 U.S.C.
1514(a)(6)).
This protest involves drawback under subsection (b) of the
drawback law (19 U.S.C. 1313(b)). The drawback law was
substantively amended by section 632, title VI - Customs
Modernization, Public law 103-182, the North American Free Trade
Agreement Implementation Act (107 Stat. 2057), enacted December
8, 1993. Title VI of Public Law 103-182 took effect on the date
of enactment of the Act (section 692 of the Act). According to
the applicable legislative history, the amendments to the
drawback law (19 U.S.C. 1313) are applicable to any drawback
entry made on or after the date of enactment as well as to any
drawback entry made before the date of enactment if the
liquidation of the entry is not final on the date of enactment
(H. Report 103-361, 103d Cong., 1st Sess., 132 (1993); see also
provisions in the predecessors to title VI of the Act; H.R. 700,
103d Cong., 1st Sess., section 202(b); S. 106, 103d Cong., 1st
Sess., section 202(b); and H.R. 5100, 102d Cong., 2d Sess.,
section 232(b)). The application and analysis of the drawback
law in this ruling are as that law was amended by Public Law 103-182.
The Customs Regulations pertaining to drawback, promulgated under
the authority of section 1313(l), are found in 19 CFR Part 191.
These regulations require the manufacturer or producer of
articles for which drawback is claimed under section 1313(b) to
maintain records establishing compliance with the requirements
for drawback (see 19 CFR 191.32). The regulations provide for
examination of these records and verification of drawback claims
by Customs (19 CFR 191.2(o) and 191.10) and that all records
required to be kept by the manufacturer or producer with respect
to drawback claims must be retained for at least three years
after payment of such claims (19 CFR 191.5). The claimant, in
its drawback contracts specifically agreed to comply with all of
these requirements.
Compliance with the Customs Regulations on drawback is mandatory
and a condition of payment of drawback (Chrysler Motors Corp. v.
United States, 14 CIT 807, 816, 755 F. Supp. 388, aff'd, 945 F.2d
1187 (Fed. Cir. 1991), in which the Court stated: "The Supreme
Court held in Swan & Finch Co. v. United States, 190 U.S. 143,
146 (1903) that the right to drawback is a privilege granted by
the government and any doubt as to the construction of the
statute must be resolved in favor of the government. ... Over
the years, the courts have held that the allowance of drawback is
a privilege and compliance with the regulations is a prerequisite
to securing it where the regulations are authorized and
reasonable"; see also, United States v. Hardesty Co., Inc., 36
CCPA 47, C.A.D. 396 (1949); Lansing Co., Inc. v. United States,
77 Cust. Ct. 92, C.D. 4675 (1976); Guess? Inc. v. United States,
9 Fed. Cir. (T) 111, 115, 944 F.2d 855, 858 (1991) "We are
dealing [in discussing drawback] instead with an exemption from
duty, a statutory privilege due only when the enumerated
conditions are met" (emphasis added)).
Basically, to obtain drawback under 19 U.S.C. 1313(b), it must be
established that:
1. the exported articles claimed as the basis for drawback
were actually exported within five years of the date of the
importation of the designated imported merchandise;
2. the exported articles were manufactured or produced from
the designated imported merchandise, merchandise which was
substituted for the designated imported merchandise, or any
combination thereof;
3. the substituted merchandise was of the same kind and
quality as the designated imported merchandise; and
4. the designated imported merchandise and the substituted
merchandise were both used in manufacture or production
within 3 years of receipt of the designated imported
merchandise.
Under the Customs Regulations governing drawback "[a]ll records
required to be kept by the manufacturer or producer ... with
respect to drawback claims ... shall be retained for at least 3
years after payment of such claim" (19 CFR 191.5; the protestant
specifically agreed to this record retention period in its
drawback contracts). Customs has interpreted section 191.5 in an
Internal Advice ruling (222038, April 22, 1991). Our position,
as stated in that ruling, is that when there is no evidence of
entitlement to drawback, section 191.5 does not automatically
entitle a claimant to drawback just because the 3-year time
period has passed. When, through examination of records made
available to Customs, Customs detects system-wide deficiencies in
a claimant's drawback program, it is Customs position that the
burden of proof shifts to the claimant. In such an instance, if
a claimant still has its drawback records and the claimant
chooses not to make them available to Customs, it is our position
that Customs has no choice but to deny drawback, pursuant to
authorities such as the Court cases cited above for the
proposition that compliance with the Customs Regulations on
drawback is mandatory and a condition of payment of drawback.
The protested claims were filed, and accelerated payment of
drawback was granted, in 1984 and 1985 and 1987. The protestant
was required, by the Customs Regulations and its drawback
contract, to retain all required records with respect to drawback
for at least 3 years from this accelerated payment. The
protestant was the subject of a multi-regional audit in 1987 (we
note that this audit covered other subjects as well as drawback).
According to the uncontradicted statements of the protestant, no
manufacturing drawback claims were audited in this audit, nor is
there any contrary evidence in the file. There is no evidence in
the file that any records pertaining to the protested claims were
sought as a part of this audit. In the supplemental review of
the protestant's drawback claim (see September 2, 1992,
memorandum, described above), documents for 10 of 25,000 export
lines in a potential replacement same condition drawback claim
were requested and, in response to this request, documents for 6
of the 10 export lines were provided. There is no evidence in
the file that evidence was requested regarding the exportations
upon which the protested (substitution manufacturing drawback)
claims are based, although in the September 2, 1992, memorandum
it is stated that the claimed exports were drawn from the same
pool of exports. According to the June 1, 1994, memorandum,
analysis of the protestant's shipments to foreign customers
during a 10-day period in 1984 showed that 45.10 percent of the
shipments were not exported but were "direct-shipped" in bond.
Specific examples are provided of such direct shipments in bond
(the specific examples relate to same condition drawback claims).
In the case of the two November 13, 1987, claims and the April
22, 1985, claim, according to the evidence available to us, the
exportations were of fully fabricated semiconductor wafers and/or
dice in wafer form. The drawback contract covering these claims
was T.D. 83-259-(U), which provides for the manufacturer of such
articles with the use of raw silicon wafers, partially fabricated
wafers, and unsorted wafers. Under the contract, the designated
merchandise may be imported merchandise or drawback products.
The contract states that valueless waste, which could run as high
as 60%, is incurred and that drawback will be claimed on the
"used-in" basis. According to the review of the protestant's
drawback claims by Regional audit personnel, the deficiencies
which were believed to exist in regard to the other manufacturing
claims under consideration (i.e., missing documentation for 4 out
of the 10 export items reviewed in regard to the potential
replacement same condition drawback claim) were not applicable in
regard to these claims, because the exports were not from the
same export pool. The only possible deficiencies noted were the
possibility that the finished goods could have been commingled
with imported wafers or dice (no evidence is provided in this
regard and the protestant denied that this was so) and possible
questions regarding waste. It is unclear what the possible
questions regarding waste are. In the absence of records or an
audit of these entries, and in the absence of evidence of any
system-wide deficiencies in the protestant's drawback program
applicable to these entries, we have no choice but to grant the
protest in regard to these entries, as recommended in the June 1,
1994, Pacific Region, Regulatory Audit Division memorandum.
In the case of the two March 18, 1985, claims and the March 15,
1985, claim, the supplemental reviews of this matter (as
reflected in the September 2, 1992, and June 1, 1994,
memorandums) found that the exportations upon which the claims
were based involved "substandard devices" sent to a FTZ and there
destroyed in lieu of exportation. The protestant did not deny
that this was so, but argued that it was entitled to drawback on
the basis of ruling 213757 (published as C.S.D. 82-96).
The drawback contract covering these claims was T.D. 83-16-(T),
under which drawback was to be claimed on the "appearing in"
basis. In the contract, it is stated that waste is incurred in
the classification process but "we shall waive the claim for this
waste and thereby avoid the necessary waste record." Since waste
was to be incurred in the classification process, which is,
basically, the testing process, the contract indicates that the
waste would consist of devices which do not meet the test
requirements. There is no reference in the contract to sending
substandard devices to a FTZ for destruction.
It has long been the position of the Customs Service, based on
long-standing Court decisions, that drawback is not allowable on
the exportation of waste incurred in manufacture. See, United
States v. Dean Linseed-Oil Co., 87 Fed. 453, 456 (2nd Cir. 1898),
cert. den., 172 U.S. 647 (1898), in which the Government argued
"... that the petitioner is not entitled to any drawback, because
oil cake is not a manufactured article, but is waste." The Court
did not accept this argument of the Government, holding that the
merchandise involved (linseed oil cake) was not waste, but a
manufactured article, so that drawback would be available.
However, the Court implicitly accepted the Government's position
that drawback was unavailable on the exportation of waste by
distinguishing the linseed oil cake from tobacco scraps or
tobacco clippings, which were held not to be manufactured
articles by the Supreme Court in Seeberger v. Castro, 153 U.S. 32
(1894) (cited in Dean Linseed-Oil Co). Customs took this
position in regard to valuable waste in C.S.D. 80-137.
The February 19, 1992, ruling (published as C.S.D. 82-96) cited
by the protestant, rather than supporting the protestant's
position, is consistent with the foregoing authorities. C.S.D.
82-96 addressed the question of "[w]hether substandard
semiconductor devices which result from the production of
standard devices are eligible for drawback." The FACTS portion
of C.S.D. 82-36 makes it clear that the substandard semiconductor
devices involved are not waste, rather "[t]hey perform the same
functions as the standard devices, although with much less
reliability and speed [and] are saleable only in a broad
secondary semiconductor market, primarily for use in hobby kits
and toys." It is specifically stated that "[t]heir market value
in this regard exceeds their scrap value." C.S.D. 82-96 dealt
with "standard, substandard and totally defective semiconductor
devices" (emphasis added). The "totally defective semiconductor
devices" are analogous to the devices sent to the FTZ for
destruction as scrap in the protested entries. C.S.D. 82-96 does
not authorize drawback on such devices, the C.S.D. authorizes
drawback on the substandard devices.
On the basis of the foregoing, the protest must be denied in
regard to these claims (i.e., the two March 18, 1985 claims and
the March 15, 1985, claim which were based on the sending of
devices to a FTZ for destruction).
The other claims under consideration in this protest are the
December 19, 1984, March 20, 1985 (two claims), July 30, 1985
(two claims), and November 6, 1987, claims. These claims were
liquidated without drawback on the basis of the deficiencies
found in the 1987 audit in regard to the establishment of
exportation. Basically, those deficiencies were in the
documentation of exportation (i.e., in the 1987 audit, it was
stated that some of the merchandise was never imported or
exported, but was shipped directly from the protestant's Asian
subsidiaries to Canada and in other cases the merchandise claimed
to be exported was delivered to U.S. addresses for Canadian
customers; in the supplemental review described in the September
2, 1992, memorandum, it was stated the export documentation was
provided by the protestant for only 6 of the 10 claimed
exportations; and in the review described in the June 1, 1994,
memorandum, Customs analysis of the protestant's shipments to
foreign customers for a 10-day period showed that 45.10 percent
of the shipments were not exported but direct-shipped in bond).
According to the file, the deficiencies found in the 1987 audit
pertained to a same condition drawback claim. The deficiencies
described in the September 2, 1992, memorandum pertained to a
potential replacement same condition claim. These latter
deficiencies consisted of the unavailability of the requested
records, not the existence of records establishing that the
claimed exportations failed to comply with the drawback export
requirements. The 10-day period analyzed and described in the
June 1, 1994, memorandum was the period between December 18, 1984
and December 27, 1984, according to Attachment B of the June 1,
1994, memorandum. According to Appendix I of the September 2,
1992, memorandum, this period was not included in the range of
potential export dates for any of the protested manufacturing
drawback claims (see page 3 of Appendix I of the September 2,
1992, memorandum).
Thus, the evidence in the file does not establish deficiencies in
the export documentation for these claims. No records supporting
the manufacturing drawback claims were requested within 3 years
of payment of drawback on the claims (we can find no evidence in
the file for a request of such records throughout the course of
this matter). The documents requested in 1992 pertained to a
replacement same condition claim. The evidence in the file
indicates that the protestant made a good faith effort to obtain
these records (i.e., according to the September 2, 1992,
memorandum, the protestant stated that three employees had spent
about 6 weeks finding support for the 6 items for which
supporting documentation was found). According to the file, the
documents provided (for 6 of the ten line items requested) did
comply with drawback export requirements. The 10-day period in
which exports were analyzed (reported on in the June 1, 1994,
memorandum) was a period in which, according to the file, the
exports claimed in these claims would not have occurred.
We are not satisfied that the above evidence establishes a
system-wide deficiency (extending to the protestant's manufactur-
ing drawback claims) so as to shift the burden of proof to the
claimant even though the 3-year record retention period has
passed (see discussion of ruling 222038, above). This is partic-
ularly true when, as in this case, the protestant was subject to
an audit of one of its manufacturing drawback claims (1984 audit,
see above) and no reference was made in that audit to the
deficiency described in the analysis of the exports in the
December 1984 10-day period (see above) and other deficiencies,
according to the file, were corrected. In regard to the
preceding sentence, we note that according to the September 2,
1992, memorandum, "[the protestant's] procedures ... were
basically unchanged from October 12, 1979 to July 17, 1987" (page
4 of September 2, 1992, memorandum).
As stated above, in a substitution manufacturing drawback claim
such as those under consideration, there must be a dutiable
importation (the duties paid on the importation are the duties
subject to drawback), both the imported merchandise and the
substituted merchandise must be timely used in manufacture by the
manufacturer, and there must be a timely exportation of
manufactured articles manufactured from the substituted
merchandise, imported merchandise, or any combination thereof.
Evidence that some of the protestant's "exportations" (those
recorded during a period in which no exports could have taken
place for the protested manufacturing drawback claims) were
"direct" shipments, without more, does not address these
requirements. Obviously, if the designated imported merchandise
was imported on a "direct" in-bond shipment, more serious
problems than problems related to exports are raised (e.g., such
shipments would not be dutiable, so there would be no dutiable
imported merchandise to designate). If the "exportations" on
which the protested claims were based were actually "direct" in-bond shipments, this should be easily discernable (i.e., by
examining the Chronological Summary of Exports submitted with the
claims). Furthermore, tracing the claimed exports back to the
merchandise used to manufacture them (which should be part of any
review of a manufacturing drawback claim) would make clear that
"direct" in-bond shipments were being claimed as exports, if that
were so.
Therefore, we conclude, on the basis of 19 CFR 191.5 and the
Customs interpretation of that provision (see above), that
drawback may not be denied in these entries.
HOLDING:
The protest of the denial of drawback in the protested entries is
GRANTED in part and DENIED in part. The protest is GRANTED in
regard to the December 19, 1984 ($35,003), March 20, 1985 (two
claims, $80,556 and $6,141), April 22, 1985 ($138,236), July 30,
1985 (two claims, $5,071 and $39,990), November 6, 1987
($40,607), and November 13, 1987 (two claims, $8,155 and $2,253)
claims. The protest is DENIED in regard to the March 15, 1985
($110,127) and the March 18, 1985 (two claims, $77,912 and
$78,849) claims. (The monetary figures are derived from Appendix
I of the September 2, 1992, memorandum.)
The protest is GRANTED in part and DENIED in part. In
accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive,
this decision should be mailed, with the Customs Form 19, by your
office to the protestant no later than 60 days from the date of
this letter. Any reliquidation of the entry in accordance with
the decision must be accomplished prior to mailing of the
decision. Sixty days from the date of the decision the Office of
Regulations and Rulings will take steps to make the decision
available to Customs personnel via the Customs Rulings Module in
ACS and the public via the Diskette Subscription Service, Freedom
of Information Act, and other public access channels.
Sincerely,
Director
International Trade Compliance Division