DRA-1-06/5 RR:CR:DR 227859 CB

Port Director
U.S. Customs Service
300 S. Ferry Street, Rm. 1098
Terminal Island, CA 90731
ATTN.: Drawback Branch

RE: Protest and Application for Further Review No. 2704-97-101997; Destruction of Merchandise

Dear Sir/Madam:

The above-referenced protest was forwarded to this office for a determination. We have considered the points raised and a decision follows.


Protestant filed one unused merchandise drawback claim covering 1929.6 liters of rice wine. The claim was filed on December 4, 1996 and indicates that the merchandise was destroyed on November 7, 1996. Attached to the claim is letter requesting a waiver of the requirement of destruction under Customs supervision. The letter states that the merchandise had already been destroyed because it was unmerchantable on the basis of unapproved bottle size and improper label designation of Rice Wine on a product containing more than 24 percent alcohol by volume. The claim was liquidated with no drawback on March 28, 1997 due to the fact that the merchandise was not destroyed under Customs supervision. The subject protest and application for further review was filed on June 9, 1997.

Protestant contends the importer "was following the directions of a person considered knowledgable (sic) of these situations, namely an Area Supervisor for the Bureau of Alcohol, Tobacco and Firearms (ATF) of the Department of the Treasury." Protestant submitted a copy of a letter dated February 20, 1997, from an ATF Area Supervisor to the importer confirming that ATF "advised you in error about the procedures to follow in having the product destroyed." Protestant also submitted a copy of a "Wine Destruction Affidavit". The affidavit states "[t]his is to certify that on 10-18, 1996 at 12:00 AM/PM. The following quantities of wine were delivered . . . and subsequently destroyed by fermentation and distillation at . . . ." The affidavit is neither signed nor dated by an employee of the importer. The affidavit is signed by an employee of the company where the distillation took place. It is also signed by an employee of the California Board of Equalization (presumably that is what the letters BOFE stand for) and dated November 7, 1996. Protestant requests that this information be taken into account by Customs in re-evaluating its denial of the drawback claim.

Subsequent to the filing of the subject protest, your office requested additional information. Specifically, by a letter dated October 14, 1997, you requested the following information:

1. Was the complete destruction (for instance, by breaking the bottles and letting the wine drain into the sewer or by dumping the bottled in a land fill, etc.) of this merchandise an option? 2. Did the importer pay Parallel Products to destroy the rice wine and, if so, how much? If any payment was made, was the payment reduced by a discount or rebate linked to the value of the alcohol recovered by Parallel Products? 3. Was any separate payment made to the importer by Parallel Products for the value of the recovered alcohol? 4. What happened to the alcohol recovered from the rice wine? Please describe the fermentation and distillation process of Parallel Products.

Protestant forwarded the importer's response dated October 27, 1997. The importer responded to the questions in the same sequence and stated as follows:

1. Complete destruction: Attached (Affidavit destruction of Bachwha 24 Rice Wine) (referring to the Wine Destruction Affidavit discussed above). 2. Paid to Parallel Products to destroy the merchandise $174.20. 3. There are no reductions by a discount or rebate linked to the value of the alcohol recovered by Parallel Products. 4. There were no payments made to the importer by Parallel Products for the value of the recovered alcohol. 5. The importer attached a copy of Parallel Products Processing Diagram to describe the fermentation and distillation process.

We note that protestant and/or the importer failed to respond to the question regarding what happened to the recovered alcohol.


Was denial of the subject drawback claim proper?


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(j)(1). Basically, under this statutory provision, drawback is authorized if imported merchandise on which was paid any duty, tax, or fee imposed under Federal law because of its importation is, within 3 years of the date of importation, exported or destroyed under Customs supervision and was not used in the United States before such exportation or destruction.

The requirements for claiming drawback on destroyed merchandise are set forth in 19 CFR 191.71 (formerly 191.141(f)). The claimant is required to notify Customs of the intended destruction at least 7 working days before the intended date of destruction. Customs has 4 working days, after receipt of the notice, to decide whether it wants to witness the destruction. Destruction of merchandise after such notification is deemed to have been destroyed under Customs supervision.

It is well established that drawback laws confer a privilege, not a right. Swan & Finch Company v. United States, 190 U.S. 143, 23 Sup. Ct. 702 (1903). When merchandise is imported and a drawback statute may potentially be applicable, an accruing or inchoate right may be said to arise. However, the right to recover drawback ripens only when all provisions of the statute and applicable regulations prescribe under its authority have been met. Romar Trading Co., Inc. v. United States, 27 Cust. Ct. 34 (1951); General Motors Corporation v. United States, 32 Cust. Ct. 94 (1954). Drawback claimants must strictly adhere to the requirements set forth in the statutes and applicable regulations. United States v. Lockheed Petroleum Services, Ltd., 1 Fed. Cir. (T) 63, 709 F.2d 1472 (1983).

In C.S.D. 82-128 we held that the language "destroyed under Customs supervision" does not require on site observation of the destruction by Customs but does require the opportunity to observe the destruction. Although C.S.D. 82-128 pertained to temporary importations under bond, the language "destroyed under Customs supervision" is the same. In the Lockheed Petroleum case, supra, the Court of Appeals reversed the lower court and held that the drawback claimant was not entitled to drawback of customs duties because the claimant had failed to file an abstract of manufacture with Customs prior to the subject vessel's departure and, thereby, Customs had no opportunity to verify the contents of the abstract through an examination of the vessel. The court held that the subject regulation was mandatory and "compliance is a condition precedent to the right of recovery of drawback." Id., at 1474.

Based on the language of the statute, 19 U.S.C. 1313(j), the applicable regulations and the precedent cited above, it is clear that Customs must have the opportunity to supervise the destruction of merchandise for which drawback will be claimed under section 1313(j). In the instant case, not only was Customs denied the opportunity to witness the destruction but the evidence submitted in support of the subsequent request for a waiver is faulty. As discussed in the FACTS portion of this ruling, protestant has submitted a "Wine Destruction Affidavit" as proof that the imported wine was destroyed. However, such affidavit contains certain internal inconsistencies. We note that it is not clear from the record whether this affidavit was prepared by the importer or Parallel Products. Specifically, we note that the affidavit states that on October 18, 1996 at 12:00 am/pm the merchandise was delivered and subsequently destroyed by Parallel Products. However, the certification from the BOFE representative is dated November 7, 1996. There is no explanation as to this twenty-day gap. Additionally, the affidavit is not signed by the importer. Finally, the affidavit provides a space to indicate the bill of lading number. This information has been left blank. Due to the protestant's failure to comply with the statutory requirement that the merchandise be destroyed under Customs supervision, and by denying Customs the opportunity to observe the destruction, the protestant is not entitled to drawback.

More importantly, even if the noted date and identity deficiencies of the affidavit were corrected, we conclude that the imported wine was not destroyed for purposes of the drawback law. According to protestant and the importer, the subject wine was distilled and fermented. It has long been Customs position that distillation of alcoholic beverages does not constitute a destruction for purposes of the Customs laws. The Customs Service has uniformly applied the definition of destruction enunciated by the Customs Court in American Gas Accumulator Co. v. United States, T.D. 43642, 56 Treas. Dec. 368 (Cust. Ct., 3d Div. 1929). The court held that destruction (for purposes of a temporary importation under bond) means destruction as an article of commerce. Any subsequent commercial use of the article precludes a finding that there was a destruction. See HQ 221050, dated September 20, 1989, wherein we held that complete destruction had not occured when the remnant of the destruction process, i.e., crushed cardboard containers, crushed beer bottles, and recoverd beer alcohol content, had a scrap value of 38 cents per crushed case of beer.

Protestant contends that it followed ATF's instructions regarding destruction of the wine. However, it appears that ATF does not believe the use of the term "exportation" in the phrase "destruction in lieu of exportation" is to be accorded any significance. When Congress provides destruction as an alternative to exportation for purposes of avoiding tariff and tax liability otherwise attaching, it is only logical for destruction to have a meaning commensurate with exportation, i.e., an act that removes an article entirely from the commerce of the United States so that the imported good is not used in any commercial activity within the United States. Transforming the imported good into another article of commerce within the United States is, itself, a commercial activity and, not, a destruction of the imported good.

In the instant case, protestant has not provided an explanation as to what happened to the alcohol recovered from the rice wine. The Parallel Products processing diagram submitted by the importer simply shows alcohol product coming out of the fermentation and distillation process. There is no explanation as to what is done with the recovered alcohol. In fact, it appears to be used in a manufacturing process to make another article. Thus, protestant has failed to establish that there has been a complete destruction of the rice wine as an article of commerce.

Finally, it must also be noted that we are not persuaded by protestant's contention that both the ATF and BOFE determined that the imported rice wine had been destroyed. Nor, are we persuaded by the fact that the importer followed the directions of the local ATF Area Supervisor. There is no evidence in the record as to what the ATF and BOFE standard is for destruction of merchandise. Consequently, we cannot make a determination as to whether those Agency's standards would satisfy the meaning of the term "destruction" under Customs laws as interpreted by the courts.


The subject protest should be DENIED in full. Protestant failed to accord Customs the opportunity to witness the destruction of the subject merchandise. Further, protestant has failed to establish that there was a complete destruction of the rice wine.

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 by your office, with the Customs Form 19, 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.


John A. Durant, Director
Commercial Rulings Division