DRA-4-CO:R:C:E 224869 PH

Regional Director
Commercial Operations
New Orleans, Louisiana 70130

RE: Protest 1901 93 100022; 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 two drawback entries (or claims) filed on April 24, 1991 (one for $19,720, and the other for $21,510). According to the file, the imported merchandise designated as the basis of drawback for the first claim was imported on March 28, 1988 (in two entries), and the exportation upon which the claim is based was on January 27, 1991. According to the file, the imported merchandise designated as the basis of drawback for the second claim was imported on January 20, 1990, and the exportation on which the claim is based was on February 17, 1991.

FIRST CLAIM

According to documents in the file, the protestant was the importer of the designated imported merchandise (231,625.47 barrels of No. 2 fuel oil) and paid the duty on that merchandise ($24,320.67). The protestant, by its Treasurer in an affidavit dated June 26, 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 of 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 189,707 barrels of "No. 2 gas oil" exported from Chevron Dock No. 5 at Pascagoula, Mississippi, on the ELIZABETH S.K., ultimately destined for Indonesia.

In the file there is a copy of a January 14, 1991 (time: 1531 hours, EDT), telex stated to confirm a January 10, 1991, agreement between the seller (Chevron U.S.A. Inc.) and the buyer (the protestant). Under the telex "[the seller] agrees to sell to [the protestant] petroleum products under the following terms and conditions [and the telex] shall serve as the formal contract between the parties in governing this transaction." The telex describes the product to be sold as 225,000 barrels (plus/minus 10%, buyer's option) of No. 2 oil meeting provided specifications to be delivered into buyer's nominated vessel during January 20- 30, 1991, F.O.B. Pascagoula, Mississippi. The telex provides that the protestant is to provide a "standby irrevocable letter of credit" in an amount and form acceptable to the buyer. The telex provides for quantity and quality determinations and/or inspections. The telex provides for payment by wire transfer of "immediately available Federal funds" within 2 working days after receipt of wired invoice and supporting documents. The telex requests confirmation by return wire of agreement or disagreement with the terms and conditions within 24 hours of receipt of the telex and states that failure to reply will be deemed to constitute acceptance of the terms of the agreement.

In the file there is also a copy of a December 5, 1990 (time not available), telex stated to confirm a November 29, 1990, agreement between the seller (the protestant) and the buyer (Sintra Oil Pte. Ltd. (Intraco)) (there is also a copy of a November 29, 1990, telex from a "broker" stated to confirm this agreement). The December 5, 1990, telex states that the product is 225,000 barrels (plus/minus 10% at the buyer's option) of No. 2 fuel oil meeting provided specifications to be delivered "F.O.B. into buyer's designated vessel ... during January 20-31, 1991, basis US Gulf Coast." The telex provides for an irrevocable letter of credit, if sufficient credit is not established. The telex provides for payment on the "due date" (five working days after completion of loading) (there is a January 30, 1991, telex from the protestant to the buyer referencing the invoice and stating that payment is due on February 1, 1991, 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 a "Loss Control Report", 189,707 barrels of cargo described as "gasoil" (in the file there is a statement, by an official of the protestant, that according to the New York Mercantile Exchange "Glossary of Terms", "Gasoil" is the European designation for "No. 2 Heating Oil") were loaded from Chevron tank 324 into the ELIZABETH S.K. According to a "Shore Quantity Summary", at the time of loading there were 189,707 barrels of gas oil in Chevron tank 324. A laboratory report, with specifications of samples, stated to have been taken from tank 324 on January 25, 1991, is provided. According to a "Time Log", loading of gas oil into the ELIZABETH S.K. commenced at 2130 hours on January 25, 1991, and was completed at 2254 hours on January 26, 1991. According to "Vessel Quantity Summary" and "Vessel's Experience Factor (at loading)" reports, the quantity of gas oil so loaded was 189,553.17 barrels ("Gross Standard Volume", corrected to 198,707 actual barrels, per other documents in the file). According to a "Tanker Bill of Lading", on January 26, 1991, 189,707 barrels of gas oil were shipped on board by the protestant on the ELIZABETH S.K. The party unto whom delivery of the shipment is to be made is stated to be Sintra Oil Private Limited, and the shipment is stated to be carried under and pursuant to the terms of the charter dated "as per Charter Party [charter agreement]." No copy of such a charter party is provided.

SECOND CLAIM

According to documents in the file, the protestant was the importer of the designated imported merchandise (219,023.27 barrels of "other, fuel oils Nos. 2 & 3", according to the consumption entry) (other documents in the file, including a statement of the shore vessel discharge and shore receipt of the merchandise by an laboratory service and an invoice, describe the merchandise as "No. 2 fuel oil") and paid the duty on that merchandise ($22,997.44). The protestant, by its Treasurer in an affidavit dated June 26, 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 for the imported merchandise (describing the merchandise as "No. 2 fuel oil"; this is also the description in the Bill of Lading for the imported merchandise) with specifications provided, invoice for the imported merchandise, and reports of analysis of 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 206,927 barrels of "gas oil" exported from Chevron Dock No. 5 at Pascagoula, Mississippi, on the NINFEA ultimately destined for Indonesia.

In the file there is a copy of a January 31, 1991 (time: 1036 hours, EDT), telex stated to confirm a January 29, 1991, agreement between the seller (Chevron U.S.A. Inc.) and the buyer (the protestant). Under the telex "[the seller] agrees to sell to [the protestant] petroleum products under the following terms and conditions [and the telex] shall serve as the formal contract between the parties in governing this transaction." The telex describes the product to be sold as 225,000 barrels (plus/minus 10%, buyer's option) of No. 2 oil meeting provided specifications to be delivered into buyers-nominated vessel during February 10- 15, 1991, F.O.B. Pascagoula, Mississippi. The telex provides for an irrevocable letter of credit, if sufficient credit is not established. The telex provides for payment on the "due date" (five working days after completion of loading) (there is a January 30, 1991, telex from the protestant to the buyer referencing the invoice and stating that payment is due on February 1, 1991, 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 is another telex of the same date (time: 1437 hours EDT) referencing the foregoing telex containing modified provisions, none of which affect the substance of the foregoing telex, for purposes of this ruling.

In the file there is also a copy of a February 15, 1991 (time not available), telex stated to confirm a January 29, 1991, 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) of No. 2 fuel oil meeting provided specifications to be delivered "F.O.B. into buyers designated vessel ... during February 10-15, 1991, basis US Gulf Coast." The telex provides for an irrevocable letter of credit, if sufficient credit is not established. The telex provides for payment on the "due date" (five working days from the bill of lading date) (there is a February 19, 1991, telex from the protestant to the buyer referencing the invoice and stating that payment is due on February 22, 1991, 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 a "Loss Control Report", 206,927 barrels of cargo described as "gas oil" (in the file there is a statement, by an official of the protestant, that according to the New York Mercantile Exchange "Glossary of Terms", "Gasoil" is the European designation for "No. 2 Heating Oil") were loaded from Chevron tanks 324, 361, and 370 into the NINFEA. According to a "Shore Quantity Summary", at the time of loading there were 206,927 barrels of gas oil in Chevron tanks 324, 361, and 370. Laboratory reports, with specifications of samples, stated to have been taken from tank 324 on February 17, 1991, and from tanks 361 and 370 on February 14, 1991, are provided. (Note: Because the time of loading was February 16 and 17, 1991, the sample from tank 324 taken on February 17, 1991, may have been taken after loading, and thus not be pertinent for establishing commercial interchangeability. However, our ruling makes this issue moot.) According to a "Time Log", loading of gas oil into the NINFEA commenced at 1618 hours on February 16, 1991, and was completed at 1042 hours on February 17, 1991. According to a "Vessel Quantity Summary" report, the quantity of gas oil so loaded was 206,836.92 barrels ("Gross Standard Volume", corrected to 206,927 actual barrels, per other documents in the file). According to a "Tanker Bill of Lading", on February 17, 1991, 206,927 barrels of gas oil were shipped on board by the protestant on the NINFEA. The party unto whom delivery of the shipment is to be made is stated to be [a party issued or endorsed to the order of a Singapore bank], and the shipment is stated to be carried under and pursuant to the terms of the charter dated "30/1/91". No copy of such a charter party is provided.

As stated above, on April 24, 1991, the protestant filed the above claims for drawback, on 189,707 barrels of gas oil in the first claim and 206,927 barrels of gas oil in the second claim. By letter of August 16, 1991, Customs advised the protestant that it was suspending the claims, pending resolution of the B.F. Goodrich Co. v. United States (794 F. Supp. 1148 (CIT 1992)) case. By letters of December 18, 1992, the protestant requested reactivation of the drawback claim. With these letters, 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 the case of each claim. In letters 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 these letters, Customs referred to ruling 224103, dated October 19, 1992.

The protested drawback claims were liquidated, without drawback allowed, on March 19, 1993. The protestant filed the protest under consideration on May 19, 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))).

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 the first claim in this case, according to documents submitted by the protestant, the exported merchandise claimed in the drawback claim (the 189,707 barrels of gas oil loaded on the ELIZABETH S.K.) was purchased by the protestant pursuant to a January 10, 1991, agreement confirmed by a January 14, 1991, telex. The telex, by its terms, was to take effect within 24 hours of receipt by the protestant, in the absence of a return wire of confirmation or disagreeing with the terms and conditions of the telex. Under the telex, the oil was to be delivered during January 20-30, 1991, into the buyer's nominated vessel. The oil was, in fact, delivered into the ELIZABETH S.K. on January 25 and 26, 1991.

Also according to documents submitted by the protestant, the protestant sold 225,000 (plus/minus 10%) barrels of oil to another company, pursuant to a November 29, 1990, agreement confirmed by a December 5, 1990, telex. The oil was to be delivered into the buyer's designated vessel during January 20- 31, 1991. The December 5, 1990, telex was to become binding on the parties unless the buyer "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 January 25 and 26, 1991. The shipment of oil was carried pursuant to the terms of a charter "as per Charter Party [charter 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] customers ship". According to Lloyd's Register of Ships, 1991-92, the ELIZABETH S.K. was 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 December 5, 1990, telex.)

In the second claim, according to documents submitted by the protestant, the exported merchandise claimed in the drawback claim (the 206,927 barrels of gas oil loaded on the NINFEA) was purchased by the protestant pursuant to a January 29, 1991, agreement confirmed by a January 31, 1991, telex. The telex, by its terms, was to take effect within 24 hours of receipt by the protestant, in the absence of a return wire of confirmation or disagreeing with the terms and conditions of the telex. Under the telex, the oil was to be delivered during February 10-15, 1991, into the buyer's nominated vessel. The oil was, in fact, delivered into the NINFEA on February 16 and 17, 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 January 29, 1991, agreement confirmed by a February 15, 1991, telex. The oil was to be delivered into the buyer's designated vessel during January 20- 31, 1991. The February 15, 1991, telex was to become binding on the parties unless the buyer "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 February 16 and 17, 1991. The shipment of oil was carried pursuant to the terms of a charter dated January 30, 1991, but no copy of the charter party is provided. (We note that the protestant states, in its accompanying submission, that the vessel was "[its] customers ship". According to Lloyd's Register of Ships, 1993-94, the NINFEA was 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 January 29, 1991, telex.)

Thus, delivery of the oil was directly from the seller (to the protestant) to the purchaser (from the protestant) into a vessel chartered by the purchaser. In the second claim delivery was also directly from the seller (to the protestant) to the purchaser (from the protestant) into a vessel chartered by the purchaser. In these situations, 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 (i.e., because delivery was directly from the seller (to the protestant) 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 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, 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