DRA-4-CO:R:C:E 224867 PH

Regional Director
Commercial Operations
New Orleans, Louisiana 70130

RE: Protest 1901 93 100018; Substitution Unused Merchandise Drawback; Possession of Exported Merchandise; 19 U.S.C. 1313(j)(2); 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 9, 1990. According to the file, the imported merchandise designated as the basis of drawback for the claim was imported on February 2, 1990, and the exportation upon which the claim is based was on October 20, 1990.

According to documents in the file, the protestant was the importer of the designated imported merchandise (265,255 barrels of No. 2 fuel oil) and paid the duty on that merchandise ($27,851.81). The protestant, by its Treasurer in an affidavit dated May 24, 1991, stated, among other things, that "[w]e do not issue a certificate of delivery covering the designated merchandise nor a certificate of manufacture and delivery covering articles manufactured or produced therefrom." In a certificate, dated December 16, 1992, the Treasurer of the protestant stated that "[the protestant] was the exporter of the product and the only claimant for duty drawback on the imported product." In each statement, the Treasurer stated that the protestant maintained records in support of the affidavits. The file contains copies of the contract of purchase with specifications provided, invoice, and reports of analysis for the imported merchandise.

According to the Customs Form 7511 (Notice of Exportation of Articles with Benefit of Drawback) for this claim, the exported merchandise upon which drawback was claimed was 249,971.18 barrels of No. 2 fuel oil exported from LL&E Dock (Q169) at Mobile, Alabama, on the BT NAUTILUS, ultimately destined for Pakistan.

In the file there is a copy of a September 25, 1990 (time: 1104 hours, EDT), telex stated to confirm a September 20, 1990, "exchange agreement" between party No. 1 (LL&E Petroleum Marketing, Inc.) and party No. 2 (the protestant). Under the telex the protestant agrees to deliver to party No. 1 approximately 250,000 barrels of No. 2 fuel oil, with delivery "into Colonial pipeline or book transfer during September 1990 basis Pasadena, Tx." Party No. 1 agrees to deliver to the protestant either of two stated quantities and qualities (the alternative actually used, Alternative B, is described) of No. 2 fuel oil. Under Alternative B in the telex, 225,000 plus or minus 10% (buyers option) of No. 2 fuel oil, meeting stated specifications, is to be delivered "into vessel during ... October 11-22, 1990." An exchange differential is provided for, "said differential [to] be paid by check promptly after delivery against presentation of invoice." The telex provides that the agreement is exclusive of any and all state or federal taxes (other than income taxes) or U.S. Customs duties and fees applicable to importation of cargoes. Each party is to satisfy the credit requirements of the other party prior to movement of the merchandise. The protestant requests that party No. 1 promptly advise if it is not in agreement with any of the provisions, otherwise "the terms and conditions indicated herein shall be considered binding on both parties."

In the file there is also a copy of a September 20, 1990 (time: 1624 EDT), telex stated to confirm a September 14, 1990, agreement between the seller (the protestant) and the buyer (Sintra Oil Pte. Ltd. (Intraco)). This telex states that the product is 225,000 barrels (plus/minus 10% at the buyer's option) No. 2 fuel oil meeting provided specifications to be delivered "F.O.B. into buyer's designated vessel ... during October 15-25, 1990, basis US Gulf Coast." The telex provides for an irrevocable letter of credit, if sufficient credit is not established. The telex provides for payment two calendar days after the receipt of invoice and other documents relating to loading of the oil (there is an October 22, 1990, telex from the protestant to the buyer referencing the invoice and stating that payment is due on October 23, 1990, via wire transfer of Federal funds). The protestant requests that the buyer promptly advise if it is not in agreement with any of the provisions, otherwise "the terms and conditions indicated herein shall be considered binding on both parties."

There are copies of reports of inspection in the file. According to an "Inspector's report on the Export 'BT Nautilus'", a "shore quantit[y]" of 249,971.18 barrels of No. 2 fuel oil was delivered from LL&E, Mobile, Alabama, and a "vessel quantit[y] received" of 249,367.94 barrels of No. 2 fuel oil was received into the BT NAUTILUS. According to a "Time Log", loading of the oil from shore tanks 205, 207, 906 and 907 into the BT NAUTILUS commenced at 0200 hours on October 19, 1990, and was completed at 0925 hours on October 20, 1990. There are laboratory reports ("Certificates of Quality"), with specifications of samples, stated to have been taken from shore tanks 205, 207, 906 and 907 prior to loading on the vessel. According to a "Tanker Bill of Lading", on October 20, 1990, 249,971.18 barrels of No. 2 fuel oil were shipped on board by the protestant into the BT NAUTILUS. The consignee is stated to be Sintra Oil Pte., Ltd., and shipment is stated to be carried under and pursuant to the terms of a charter "as per C/P [charter party or agreement]." No copy of such a charter party is provided.

As stated above, on November 9, 1990, the protestant filed a claim for drawback on the 249,971.18 barrels of gas oil. By letter of August 16, 1991, Customs advised the protestant that it was suspending the claim, pending resolution of the B.F. Goodrich Co. v. United States (794 F. Supp. 1148 (CIT 1992)) case. By letter of December 18, 1992, the protestant requested reactivation of the drawback claim. With this letter, the protestant provided certifications relating to the claim, in accordance with Customs General Notice published in the Customs Bulletin & Decisions on October 21, 1992 (Vol. 26, No. 43, page 7). Customs Regional Laboratory was requested to review the merchandise in the claim for fungibility and found that the imported merchandise and the exported merchandise were fungible. In letter dated February 19, 1993, Customs advised the protestant that although the imported and exported merchandise were found to be fungible, drawback was being denied because Customs was unable to establish compliance with the requirement for possession of the exported product. In this letter, Customs referred to ruling 224103, dated October 19, 1992. The protested drawback claim was liquidated, without drawback allowed, on February 19, 1993.

The protested drawback claim was liquidated, without drawback allowed, on March 19, 1993. The protestant filed the protest under consideration on May 5, 1993, and by letter of May 18, 1993, filed with Customs an amended protest form with the box for further review checked (we assume that Customs received this amended protest within the 90 days for filing or amending a protest; otherwise the application for further review should have been denied and the protest processed at the district level (19 CFR 174.14, 174.23; Customs Directive 099 3550-065 dated August 4, 1993, page 23, section (1)(a))).

In a submission accompanying the protest, the protestant stated that in this case it had purchased eight shipments of six different purchase contracts with delivery to the protestant between September 28, 1990 and October 7, 1990. Rather than accumulating the product in storage over two to three weeks and then moving it to Mobile, the protestant states that it entered the Exchange Agreement (described above) with LL&E. Under this arrangement, according to the submission, the protestant delivered the eight small purchases into the Colonial Pipeline where it had been under contract to take delivery and LL&E agreed to give the protestant an identical product and quantity in Mobile where the protestant's customer required delivery to its vessel. The protestant contends that, effectively, it delivered to its customer's vessel product of which it had possession in Texas. 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)).

The law described in the LAW AND ANALYSIS portion of our ruling 224868, on protest 1901 93 100021 by the same party, is the same as that which is applicable in this case. We are incorporating into this case by reference the description of the applicable law in that case, rather than repeating it in this case. As in ruling 224868, the issue to be resolved in this case is whether the possession requirement has been met, assuming, as appears to be the case, that the other requirements for drawback under 19 U.S.C. 1313(j)(2) have been met.

In this case, according to documents submitted by the protestant, the exported merchandise claimed in the drawback claim (the 249,971.18 barrels of No. 2 fuel oil loaded on the BT NAUTILUS) was the subject of an exchange agreement between the protestant and party No. 1 made on September 20, 1990, confirmed by a September 25, 1990, telex. In this agreement, the protestant was to deliver to party No. 1 approximately 250,000 barrels of No. 2 fuel oil, with delivery into the Colonial pipeline or "book transfer" during September of 1990. In exchange, party No. 1 was to deliver to the protestant an agreed upon quantity and quality of No. 2 fuel oil, with delivery "into vessel" during October 11-22, 1990. The September 25, 1990, telex, by its terms, was to become binding on the parties unless party No. 1 "promptly" advised the protestant that it was not in agreement with any of the provisions. 249,971.18 barrels of No. 2 fuel oil were, in fact, delivered into the BT NAUTILUS on October 19 and 20, 1991.

Also according to documents submitted by the protestant, the protestant sold 225,000 (plus/minus 10%) barrels of No. 2 fuel oil to another company, pursuant to a September 14, 1990, agreement confirmed by a September 20, 1990, telex. The oil was to be delivered into the buyer's designated vessel during October 15-25, 1990. The September 25, 1990, telex, by its terms, was to become binding on the parties unless party No. 1 "promptly" advised the protestant that it was not in agreement with any of the provisions. As stated above, the oil was, in fact, delivered into the vessel on October 19 and 20, 1990. The shipment of oil was carried pursuant to the terms of a charter "as per [charter party (agreement)]" but no copy of the charter party is provided. (We note that the protestant states, in its accompanying submission, that the vessel was "[its] customer's ship". According to Lloyd's Register of Ships, 1993-94, the BT NAUTILUS is not owned by any of the parties referred to in this ruling, so we assume that the protestant must mean that the vessel was chartered by the company which purchased the oil, as confirmed in the September 20, 1990, telex.)

Thus, according to the above, delivery of the 249,971.18 barrels of oil was directly from party No. 1 (the company which exchanged the oil with the protestant) to the purchaser (from the protestant) into a vessel chartered by the purchaser of the oil. In such a situation, we conclude that the protestant did not have possession of the exported merchandise. At no time, according to the documents in the file, did the protestant have physical possession, or possession by bailment, in leased facilities, in transit, or by operational control, of the oil which was loaded into the exporting vessel (i.e., because delivery was directly from party No. 1 to the buyer (from the protestant) into the buyer's chartered vessel). (See, in this regard, the definition of "delivery" in Black's Law Dictionary, 5th Ed.: "The act by which the res or substance thereof is placed within the actual or constructive possession or control of another.")

As to the protestant's contention that it possessed the oil which was given in exchange to party No. 1, we note that that oil is not the oil which was exported. Even if we were to accept the protestant's argument that, effectively, it delivered to its customer's vessel the oil which it exchanged in Texas, the protestant's own submission states that it did not have possession of this oil before it was exchanged with party No. 1. I.e., the protestant states that "we delivered our eight small purchases into the Colonial Pipeline in Texas where we were under contract to take delivery ...." In other words, the oil was never delivered to the protestant, it was exchanged to party No. 1 at the time protestant had been scheduled to take delivery. Further, by the September 20, 1990, exchange agreement, confirmed by the September 25, 1990, telex, the protestant agreed to the delivery of the eight small shipments of oil before it (i.e., the protestant) was to take delivery of these shipments (September 28 through October 7, 1990, according to the protestant's submission with the protest).

As stated above, the description of the applicable law in ruling 224868 is incorporated by reference in this case. The analysis of the applicability of C.S.D.'s 85-52, 87-18, and 89- 108, and the legislative history to Public Law 108-182 (H. Rep. 103-361) in which it is stated that the creation of a "market" for drawback rights is not intended is also pertinent for this case.

The protestant cites ruling 224103 and contends that it meets the possession requirement, as interpreted in that ruling. For the same reasons given in ruling 224868, and for the reasons given above as to why the protestant has not established possession of the oil which it gave in exchange for the oil which was loaded into the BT NAUTILUS, we conclude that our decision in this protest is not inconsistent with ruling 224103.

HOLDING:

There is no authority to grant the protest of the denial of drawback in the protested drawback claims.

The protest is DENIED. 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