DRA-4-CO:R:C:E 222742 TLS
District Director
U.S. Customs Service
555 Battery Street
P.O. Box 2450
San Francisco, California 94126
RE: Request for further review of protest #2809-0-000215; same
condition substitution drawback on destroyed merchandise; 19
U.S.C. 1313(j)(2); 19 CFR 191.141(h)(2)
Dear Sir:
The above-referenced protest has been forwarded to this
office for further review. We have considered the points raised
by the protestant and your office. Our decision follows.
FACTS:
The protestant operates an alcoholic beverage brewery which
imports Carlsberg beer and Elephant malt liquor. As a self-
imposed quality control measure, the importer has established
expiration dates for all of its products to ensure their
consumption before deterioration begins. If a product reaches
the expiration date before it is marketed, it is withheld from
the market and destroyed.
Customs has verified through laboratory analysis that the
product marked for destruction is indeed fungible with the
product manufactured domestically. Your office's written results
of the tests indicate that the malt liquor to be destroyed was
not spoiled or otherwise unmerchantable. The destroyed malt
liquor left a residue of crushed cardboard containers, crushed
bottles, and salvaged alcohol content from the malt liquor
itself. This residue has a salvage value of approximately 39
cents for each case of destroyed beer. The salvaged alcohol is
sold as scrap rather than dumped as waste.
The importer contends that California state regulations
prevent it from disposal of the residue alcohol, thereby forcing
it to sell or keep it in inventory. Otherwise, it is argued, it
would more practical to dispose of the remainder.
You state that legal precedent might preclude Customs from
allowing drawback in this case because of the interpretation of
the term "destruction" as it relates to drawback. A Treasury
decision has ruled that an article is not totally destroyed
unless it is left with no commercial value. The protestant
responds by arguing that legal necessity, not economic gain, is
the motivating force behind the salvaging and selling of the
residue. The importer contends that whatever benefit is derived
from selling the scrap is offset by the costs of destroying and
salvaging the alcohol to prevent waste.
ISSUE:
Whether the term "destruction" as applied under 19 CFR
191.141(h)(2) provides for the allowance of drawback when any
valuable residue remains from destroyed merchandise that cannot
be disposed of legally.
LAW AND ANALYSIS:
The protestant is applying for same condition drawback under
19 U.S.C. 1313(j)(2), which reads as follows:
(2) If there is, with respect to imported merchandise
on which was paid any duty, tax, or fee imposed under
Federal law because of its importation, any other
merchandise (whether imported or domestic) that--
(A) is fungible with such imported
merchandise;
(B) is, before the close of the three-year
period beginning on the date of importation
of the imported merchandise, either exported
or destroyed under Customs supervision;
(C) before such exportation or destruction--
(i) is not used within the United
States, and
(ii) is in the possession of the
party claiming drawback under this
paragraph; and
(D) is in the same condition at the time of
exportation or destruction as was the
imported merchandise at the time of its
importation;
then upon the exportation or destruction of such other
merchandise the amount of each duty, tax, and fee paid
regarding the imported merchandise shall be refunded as
drawback, but in no case may the total drawback on the
imported merchandise, whether available under this
paragraph or any other provision of law or any
combination thereof, exceed 99 percent of that duty,
tax, or fee.
The importer is particularly concerned with the interpretation of
'destruction' under section 1313(j)(2), which is further provided
for under Customs Regulations part 191.141. 'Destruction' has
been defined previously in a Treasury decision concerning
drawback. In American Gas Accumulator Co. v. United States, 56
Treas. Dec. 368, T.D. 43642 (October 29, 1929), the following was
ruled:
Destruction [in the context of same condition drawback]
means destruction as an article of commerce. In other
words, if articles were destroyed to such an extent
that they were only valuable in commerce as old scrap
they still would be articles of commerce to which duty
attaches upon importation, and therefore could not be
said to have been destroyed.
American Gas has recently been followed by Customs ruling HQ
221050 (September 20, 1989), where it was ruled that complete
destruction is required in these cases to satisfy the alternative
to exportation provided under section 313(j)(2). As a result, HQ
221050 effectively overturned Customs ruling HQ 215929, which had
ruled that same condition drawback is allowed with an offset for
the value of scrap remaining after destruction in lieu of
complete destruction. Customs erroneously ruled as such in
215929 for equity reasons; the Service had assured the importer
that drawback would be allowed. However, just as in 221050, we
do not find 215929 to be valid precedent here in light of its
direct contradiction to American Gas and therefore will not rely
upon it in this case.
The protestant also cites to C.S.D. 79-419, which holds that
an article is destroyed if its recovery would be 'economically
infeasible.' In that case, the importer buried scrap metal in a
landfill for the purposes of obtaining drawback. It was ruled
that since the costs of extracting the scrap from the landfill
after its burial would exceed its value, the scrap could be
considered destroyed for drawback purposes.
The protestant has also submitted copies of the relevant
California Code sections that purportedly prohibit the Potrero
Hills landfill from disposing of the subject residue. In
particular, the importer cites to sections 13385 and 13387 of the
California Water Quality Act. These statutes make it a crime to
dispose of liquid wastes without a permit from the state.
Apparently the Potrero Hills landfill does not possess such a
permit. The protestant has also stated that it is unaware of any
landfill in the state of California that is allowed to accept
such waste.
According to figures submitted to us by the importer, the
total value of the residue adds up to 39 cents a case. The costs
of salvaging this residue is said to be 53 cents a case. Thus,
according to the numbers submitted, the importer assumes a loss
of 14 cents a case. Even allowing for a margin of error, it is
evident from the figures submitted that the importer does not
make a profit from the residue. In this case, while the residue
from the destruction of the beer and malt liquor remains
available to be sold, it appears the sole purpose for doing so is
to comply with the law.
Other legal authority has been cited to as well to support
the proposition that Customs has dispensed with exportation
requirements before in drawback cases. Rulings C.S.D. 81-225 and
T.D. 84-97 are not relevant to the issue at hand and therefore do
not offer support to the protestant's claim. Ruling 214068 is
concerned with a used-in-less-valuable waste claim under 19
U.S.C. 1313(b), rendering it inapplicable to the present case.
HQ 211737 allowed a temporary importation bond (TIB) to be
substituted for a consumption entry where no exportation or
destruction had taken place. Again, the case cited has no
precedential value in the present case because the issues do not
correlate. Specifically, destruction has taken place in this
case. Ruling 200059 waived the exportation requirement under 19
U.S.C. 1313(c) when the aircraft involved crashed and was totally
destroyed. The key to the ruling was the fact that the
merchandise became completely valueless because of the crash.
That case is distinguished from the present one in that the
merchandise in this case retains some value even if it cannot be
sold for profit. Therefore, we find that drawback should be
allowed in this case solely on the basis of the accounting
figures submitted to us by the importer which support an economic
infeasibility claim as delineated in C.S.D. 79-419.
HOLDING:
A drawback claim under 19 U.S.C. 1313(j)(2) should be
sustained in this case because the merchandise has been destroyed
as required under statute and existing law. This protest should
be allowed in full. A Form 19, Notice of Action, should be
attached to a copy of this ruling when sent to the protestant.
Sincerely,
John Durant, Director