DRA-2-02-CO:R:C:E 224815 PH
Assistant District Director
Commercial Operations
Houston, Texas 77052
RE: Protest 5301-3-100053; Manufacturing Drawback; Amendment of
Drawback Claims; C.S.D. 81-146; 19 U.S.C. 1313(b); 19 U.S.C.
1313(r); Public Law 103-182, Section 632
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 a drawback entry (or
claim) filed on November 24, 1986. Accelerated payment of
drawback was requested and granted, on December 15, 1986, in the
amount of $235,897.67. According to the November 24, 1986,
drawback claim (identified as "claim 13" in the file), the
imported merchandise designated as the basis of drawback for the
claim was imported on June 17, 21, and 22, 1985 (the actual date
of importation for the June 21, 1985, importation was June 9,
1985; June 21, 1985, is the date of withdrawal from warehouse
(C.S.D. 79-19)), and the exportations upon which the claim was
based were between May 7 and August 12, 1986.
According to the protest, after a reorganization of the
protestant, the drawback claim was reviewed and it was found that
two of the three duty-paid importations of methanol designated as
the basis for the drawback claim were incorrect. The protestant
states that it "immediately" contacted the appropriate regional
Customs official. "In accordance with the instructions" received
from that Customs official, an official of the protestant wrote
to Customs on August 25, 1989, requesting that Customs deny the
drawback claim as initially filed and accept an amended claim
which designated another importation for the two incorrectly
designated importations. We understand that the date of filing
for the amended claim (identified as "claim 14" in the file) was
August 30, 1989. The amended claim designated a May 6, 1985, im-
portation in the place of the June 17 and 22, 1985,
importations, and decreased the quantity of methanol designated
in the June 9, 1985, importation from 14,942,749 pounds to
13,748,603 pounds of methanol. The amended or corrected claim
was based on the same exportations upon which the November 24,
1986, claim was based (although based on the same exportations,
the quantity of methanol claimed for the exportations differs
because the factors used to calculate the quantity of methanol
differ; .373 for claims 13 and 14A (see below), and .3924 for
claim 14 (the different factors are provided for in the schedules
for different drawback contracts of the claimant; see T.D.'s 88-
76-(I) and 89-61-(R) and T.D. 85-1-(F)), cited below). The
amended or corrected claim reduced the drawback claimed to
$223,547.57.
There is a second amended claim in the file, identified as
claim 14A. We understand that this claim was filed on July 17,
1990. The importations designated in this claim were the May 6,
1985, importation (quantity designated increased to 28,832,379
pounds) included in the first amended claim (claim 14) and two
importations not designated in either the initial November 17,
1986, claim or the first amended claim. These latter two
importations were dated May 2, 1985, and June 9, 1985. The
second amended claim was based on the same exportations as the
November 24, 1986, claim and the first amended claim.
At the time under consideration in this matter and since,
the protestant has had a number of approved drawback contracts
(see Treasury Decision (T.D.) 85-1-(F), T.D. 86-125-(G), 88-76-
(I), and 89-61-(R)) for substitution manufacturing drawback under
19 U.S.C. 1313(b) and part 191 of the Customs Regulations. Each
of these drawback contracts provided for drawback in the
manufacture of, among other articles, vinyl acetate (the article
claimed to have been exported in the protested claim), with the
use of methanol. The contracts permitted the substitution of
duty-paid, duty-free, or domestic methanol for methanol of the
same kind and quality (i.e., meeting specifications stated in the
contracts) which was imported (or a drawback product) and
designated as the basis for drawback on the exported articles.
In the drawback contracts, the protestant agreed to maintain
records to establish "[t]he identity and specifications of the
merchandise we designate", "[t]he quantity of merchandise of the
same kind and quality as the designated merchandise we used to
produce the exported article", and "[t]hat within 3 years after
receiving it at our factory, we used the designated merchandise
to produce articles [and] [d]uring the same three-year period, we
produced the exported articles." The protestant agreed to keep
its drawback related records and supporting data for at least 3
years from the date of payment of any drawback claim predicated
in whole or in part on each of the contracts.
The protested claim (identified as "claim 13"), along with a
number of other claims, was the subject of a Customs audit (Audit
Report 611-90-FRO-001, September 1991) and an Internal Advice
request and ruling (Ruling 222857, September 24, 1991). The
opening conference for the audit was held on January 25, 1990,
and there is no evidence available documenting the initiation of
the audit at any earlier date. The Internal Advice ruling held
that an accounting system (described as "an internally generated
priority system, based on [protestant's] assignment of origin to
the drawback merchandise") did not establish timely use in
manufacture or production for drawback purposes and that there
was insufficient evidence to establish "same-kind-and-quality" of
the designated imported merchandise and the substituted duty-
paid, duty-free, or domestic merchandise. In the Internal Advice
ruling, the Regional Commissioner was authorized to give the
protestant 30 days from the date that the ruling was provided to
the protestant to provide evidence as to the validity of the
claims considered in the ruling, provided that the drawback en-
tries and documents necessary to complete the claims (as opposed
to documents necessary to verify the claims) were timely filed.
By letter of November 4, 1991, the protestant wrote to
Customs about the evidence it intended to provide within the 30-
day period described above. In this letter, the protestant
stated that records relating to the two earliest claims covered
by the Internal Advice ruling (including the protested claim)
"were inadvertently destroyed during a general purge of old
records caused by a shifting of personnel and offices." Because
it had agreed in its drawback contract to keep its drawback
related records and supporting data for at least 3 years, because
the Customs Regulations provide such a record retention
requirement (see 19 CFR 191.5), and on the basis of C.S.D. 81-
146, the protestant contended "it would be pointless for Customs
to do anything other than liquidate the 2 entries in question and
[allow] the drawback payments ...." The protestant reiterates
this contention in the protest.
On January 8, 1993, the protested claim was liquidated with
denial of all drawback, on the basis that the same exportations
were claimed in another drawback claim (the amended claim filed
on August 30, 1989, which has not yet been liquidated) and that
the "[c]laimant requested liquidation with 0 allowance." On
March 3, 1993, the protestant filed the protest under
consideration.
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 19 U.S.C. 1313(b).
Basically, section 1313(b), often called the substitution
manufacturing drawback law, provides that if imported duty-paid
merchandise and any other merchandise (whether imported or
domestic) of the same kind and quality are used within three
years of the receipt of the imported merchandise in the
manufacture or production of articles by the manufacturer or
producer of the articles and articles manufactured or produced
from either the imported duty-paid merchandise or other
merchandise, or any combination thereof, are exported or
destroyed under Customs supervision, 99 percent of the duties on
the imported duty-paid merchandise shall be refunded as drawback,
provided that none of the articles were used prior to the
exportation or destruction, even if none of the imported
merchandise was actually used in the manufacture or production of
the exported or destroyed articles. Under section 1313(i), no
drawback may be allowed under section 1313 unless the completed
article is exported within five years after the importation of
the imported merchandise.
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 the 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)).
Compliance with the Customs Regulations on drawback is
mandatory and a condition of payment of drawback (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; see also,
Guess? Inc. v. United States, 944 F.2d 855, 858 (1991) "We are
dealing [in discussing drawback] with an exemption from duty, a
statutory privilege due only when the enumerated conditions are
met" (emphasis added)).
Under 19 U.S.C. 1313(r), as added by section 232 of Public
Law 103-182 (and effective as to this protest, see above):
A drawback entry and all documents necessary to complete a
drawback claim, including those issued by the Customs
Service, shall be filed or applied for, as applicable,
within 3 years after the date of exportation or destruction
of the articles on which drawback is claimed .... Claims
not completed within the 3-year period shall be considered
abandoned. No extension will be granted unless it is
established that the Customs Service was responsible for the
untimely filing.
Thus, the provision now in the Customs Regulations (19 CFR
191.61) was enacted into law by Public Law 103-182 (with the
addition of the conforming provision for destruction). House
Report 103-361 (supra, at p. 130) explains this provision as
"set[ting] a period of 3 years from the date of exportation or
destruction in which to file a complete claim."
In our interpretation of 19 CFR 191.61, we have taken the
position that for a drawback claim to be "complete," the
designated imports and the exports upon which the drawback claim
is based must be included in the drawback claim. We have ruled
that the provision in 19 CFR 191.64, under which a claimant may
amend or correct a drawback claim or file a timely supplemental
claim with the permission of the regional commissioner, is
governed by the 3-year time limit for completion of a claim. We
have ruled that corrections which only perfect a drawback claim
may be permitted after the 3-year period, but a claim may not be
amended by expanding the scope of the claim after the expiration
of the 3-year period. Adding different consumption entries
designating different imported merchandise would be such an
expansion of the scope of a drawback claim, as would the
designation of additional merchandise from a consumption entry
already designated in the claim. (See, in regard to the
foregoing, ruling 224107, dated February 23, 1993, and letter of
June 26, 1992 (File: DRA-1-CO:R:C:E PH), setting forth Customs
position on this issue in regard to H.R. 5100, 102d Cong., 2d
Sess., a predecessor to title VI of Public Law 103-182.)
In the protested claim (identified as "claim 13"), the
exportations were between May 7 and August 12, 1986. The date of
filing of the first proposed amendment (claim 14) to the
protested claim was August 30, 1989, and the date of filing of
the second proposed amendment (claim 14A) was July 17, 1990.
Under both the Customs Regulations in effect at the time (19 CFR
191.5) and the law now effective as to this protest (see above),
Customs has no authority to permit the amendment of a drawback
claim (by the addition of different imports than those originally
claimed or additional merchandise from one of the consumption
entries in the original claim) after the expiration of the 3-
year period after exportation, unless it is established that
Customs was responsible for the untimely filing.
We fail to see how Customs could have been responsible for
the untimely filing of the amended or corrected claims. The time
for amendment or correction of the protested claim was up to 3
years after the exportations upon which the claim was based
(i.e., 3 years after May 7 to August 12, 1986). According to the
protestant's own submission, the protestant discovered that it
had incorrectly designated two of the three imports designated in
the protested claim and "immediately" contacted a Customs
official about this. Based on the advice the protestant states
it received from Customs, it wrote to Customs on August 29, 1989
(i.e., more than 3 years after the last of the exports upon which
the claim was based) to ask Customs to liquidate the protested
claim without drawback and substitute for it a claim sent with
the letter. There is no allegation by the protestant, nor is
there any evidence in the file, that Customs caused any delay in
the action of the protestant between the time of discovery
(unspecified by the protestant) of the incorrectly designated
imports and the date of the August 29, 1989, letter. There is no
such evidence or allegation that Customs was responsible for the
protestant's incorrect designation of the two imports or for the
delay by the protestant in discovering this problem. Nor can the
audit (initiated more than 3 years after the exportations) or the
internal advice request (requested and issued more than 3 years
after the exportations) have been responsible for the protes-
tant's failure to amend the claim within the 3-year period after
the exportations. In regard to the internal advice request, we
note that the 30-day period which the ruling authorized to give
the protestant the opportunity to provide evidence as to the
validity of the claims considered in the ruling was specifically
limited to timely-filed and completed claims.
Accordingly, Customs has no authority to permit the
amendment or correction of the protested claim as proposed (i.e.,
by the addition of different imports than originally claimed and
additional merchandise from one of the consumption entries in the
original claim). The protest is DENIED in this regard. We
understand that the amended or corrected claims (identified as
claims 14 and 14A in the file) have not yet been liquidated. The
amended claims should be liquidated with denial of all drawback,
on the basis of the foregoing.
As to the protested claim (claim 13) itself, it was
liquidated with no drawback on the basis of the protestant's
request to so liquidate the claim and on the basis that the
exportations upon which the claim was based were also used in the
amended or corrected claim. As stated above, the amended or
corrected claims were untimely and should be denied. The
protestant's request to liquidate the protested claim without
drawback was made with its request to substitute the amended or
corrected claim (which designated one of the same imports and all
of the same exportations as the protested claim) for the
protested claim. Since the reasons given for liquidating the
protested claim without drawback no longer exist, we are
considering the protested claim as of the time it was required to
be complete (3 years after the exportations, see above).
As stated above, $235,897.67 in drawback was claimed in the
protested claim (without amendments or corrections). Accelerated
payment of drawback in that amount was granted on December 15,
1986. The earliest date which can be established by documentary
evidence as the date of initiation of the audit performed on this
and certain other claims is January 25, 1990. The protestant
stated in its November 4, 1991, letter that it did keep adequate
records to support all its claims but that the records relating
to the claim under consideration were "inadvertently destroyed
during a general purge of old records caused by a shifting of
personnel and offices."
C.S.D. 81-146, cited by the protestant, dealt with a similar
situation. In that case, a claimant-protestant claimed that it
kept adequate records to support its claims but that during the
period of delay after payment of accelerated "the records were
inadvertently destroyed when a building where the records were
stored was razed." An audit, which recommended denial of
drawback because of the lack of necessary records, was performed
more than 3 years after accelerated payment of the drawback
claims. The protest of the denial of drawback on the claims
meeting the above description was granted "because the drawback
claimant was not required to retain verifying records beyond
three years after payment."
Therefore, on the basis of C.S.D. 81-146, drawback may be
granted in regard only to the June 9, 1985, importation (in
regard to the claim by the protestant that it did keep adequate
records to support its claims, we note that Customs records on
the other claims by this protestant audited in the September 1991
audit (see above) show that some of the audited claims were
finally liquidated with a considerable amount of drawback (i.e.,
the protestant must have kept adequate records to support at
least some of its claims subject to this audit)). The protest is
GRANTED in regard to the June 9, 1985, importation designated in
the claim, to the extent the merchandise entered, as finally
liquidated, in that importation is sufficient in quantity to
"cover" the quantity designated, and provided that the importa-
tion is not designated for drawback in another drawback claim.
This does not mean that the protested claim should be
"deemed" liquidated as entered (compare to 19 U.S.C. 1504; there
is no "deemed" liquidation for drawback claims (19 CFR
159.11(b))). Instead, drawback should be granted to the extent
allowed under law, without regard to the results of the audit.
The law applicable in this case (19 U.S.C. 1313(b), see above)
contains a specific prohibition against granting more than 99% of
the duty paid on "such imported merchandise" (i.e., designated
imported merchandise which is timely used in the manufacture or
production of articles and otherwise meets the requirements of
the statute). In this case, the protestant informed Customs that
two of the importations (the June 17 and 22, 1985, importations)
were incorrectly designated. Although the protestant provides no
evidence as to why it determined that the importations were
incorrectly designated, we understand that the merchandise may
not have been received at the protestant's factory. In any case,
according to the evidence available to Customs when the claim was
liquidated, these importations (i.e., the June 17 and 22, 1985,
importations) did not qualify for drawback. The protestant has
provided no evidence since, in the protest or otherwise, that
these importations did qualify for drawback (this protest would
have been the proper forum to seek relief in this regard).
Accordingly, the protest is DENIED in regard to the June 17 and
22, 1985, importations designated in the claim.
HOLDING:
The protest is denied as to drawback claimed in the amended
drawback claim filed on August 30, 1989, and the second amended
drawback claim filed on July 17, 1990. These claims should be
liquidated without drawback. The protested claim is denied in
part (as to the June 17 and 22, 1985, importations) and granted
in part (as to the June 9, 1985, importation), to the extent the
merchandise entered, as finally liquidated, in that importation
is sufficient in quantity to "cover" the quantity designated, and
provided that the importation is not designated for drawback in
another drawback claim.
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, Lexis,
Freedom of Information Act, and other public access channels.
Sincerely,
John Durant, Director
Commercial Rulings Division