DRA-4-RR:CR:DR 228946 EAB
Ms. Cindy Covell, Director
Regulatory Audit Division
U.S. Customs Service
1300 Pennsylvania Avenue, NW
Washington, DC 20229
Mail Stop 6.3A
Re: Ortho-McNeil Pharmaceutical, Inc., manufacturing and same condition drawback
Dear Ms. Covell:
This is our response to your memorandum AUD-1:RA MJZ dated August 22, 2000, under cover of which you forwarded a request for internal advice from the Regulatory Audit office in Boston, Massachusetts regarding certain substitution drawback claims filed by Ortho-McNeil Pharmaceutical, Inc. (hereinafter Ortho).
Ortho manufactures medicinal products from pharmaceuticals imported in bulk quantities.
Pursuant to Customs 1998 National Audit Plan, an audit of drawback claims filed by Ortho was conducted. In the beginning, it was noted that certain pharmaceutical products listed in the pharmaceutical appendix to the tariff schedule may qualify for entry free of duty. See General Note 13, Harmonized Tariff Schedule of the United States (HTSUS). Whereas, prior to the enactment of this provision, the pharmaceutical products at issue in this matter would have been entered bearing duty, the Field Director, Regulatory Audit Division, Boston, observed that "[Ortho] had no exports because it was the normal business practice to sell the imported merchandise to U.S. customers. Accordingly, with the enactment of the 'K' provision, Ortho could import product duty-free and return it to the supplier and create an exportation for the purposes of drawback. . . . Ortho ordered the pharmaceuticals from a vendor and almost immediately returned the same product unopened back to the vendor."
The audit process could trace products by reference to a lot number assigned to each import and export, such that merchandise underlying a given entry for consumption could be specifically accounted for as it wound its way back to the original vendor. For example, a known lot of ofloxacin entered for consumption on November 16, 1996, was exported on November 21, 1996, and claimed on a drawback entry in the amount of $323,900. In this manner, it was determined that, since January 1, 1995, "Ortho filed 13 unused merchandise drawback claims recouping $3,688,333.68 in drawback at a cost of approximately $500,000. In our opinion, the unusual business practice of importing a product for immediate export back to the same supplier is not fundamental business."
At issue now are seven pending claims for drawback, opposed on the conclusion that "importing a product for immediate export back to the supplier runs counter to the overall drawback purpose."
LAW AND ANALYSIS:
Inasmuch as drawback is a creature of statute, we begin with applicable provisions of the law concerning substituted unused merchandise eligible for drawback:
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 commercially interchangeable with such imported merchandise;
(B) is, before the close of the 3-year period beginning on the date of importation of the imported merchandise, . . . exported . . . and
(C) before such exportation . . .
(i) is not used within the United States, and
(ii) is in the possession of . . . the party claiming drawback under this paragraph, if that party-
(I) is the importer of the imported merchandise, . . .
then upon the exportation . . . of such other merchandise the amount of each such duty, tax, and fee paid regarding the imported merchandise shall be refunded as drawback . . . .
19 U.S.C. 1313(j)(2).
Imported merchandise that has not been regularly entered or withdrawn for consumption shall not satisfy any requirement for [drawback allowance].
19 U.S.C. 1313(u).
While Congressional intent and the legislative history behind the purpose of a given statute are often enlightening, neither is of any consequence in the presence of a law that is clear and unambiguous on its face. Thus, in such a complex and arcane area as bankruptcy, "it is not appropriate or realistic to expect Congress to have explained with particularity each step it took [in overhauling the bankruptcy code]. Rather, as long as the statutory scheme is coherent and consistent, there generally is no need for a court to inquire beyond the plain language of the statute. . . . where, as here, the statute's language is plain, 'the sole function of the courts is to enforce it according to its terms.' " [citations omitted] United States v. Ron Pair Enterprises, Inc. 489 U.S. 235, 240 - 241 (1989). "The language before us expresses Congress' intent -- that postpetition interest be available -- with sufficient precision so that reference to legislative history and to pre-Code practice is hardly necessary." Id., 241. Where statutory interpretation is necessary, then the rules of statutory interpretation, such as legislative history, agency interpretation, commercial meaning and the like addressed in appropriate hierarchy should be employed; however, "It is axiomatic that statutory interpretation begins with the language of the statute. [citation omitted] UNR Indus., Inc. v. United States, 911 F.2d 654, 659 (Fed. Cir. 1990). If, in a
given case, the words of the statute do not provide an answer, then a court has no choice but to fill in the interstices. See UNR. If, on the other hand, the language is clear and fits the case, the plain meaning of the statute will be regarded as conclusive. See [citations omitted]." VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574, 1579 (Fed. Cir. 1990). In other words, "if the text answers the questions, that is the end of the matter." Timex V.I. v. United States et al., 157 F.3d 879, 882 (Fed. Cir. 1998).
Turning first to the statute to ascertain Congress's intent, we observe that "duty . . . shall be refunded as drawback" in the event of exportation of unused merchandise substituted expressly for this purpose for imported merchandise upon which was paid any duty. We find this language unambiguous and we note, from our previous emphasis, that it is mandatory. A drawback applicant having satisfied the various conditions set forth in 19 U.S.C. 1313(j)(2), the only further step necessary to complete an audit of the claim would be for Customs to determine that imported merchandise underlying the claim was "regularly entered or withdrawn for consumption" in accordance with 19 U.S.C. 1313(u).
In conclusion, Congress has stated unambiguously that substitution permits a prior dutiable import to be designated against a subsequent duty-free import, so long as that foreign merchandise had been entered for consumption, and "that is the end of the matter." Timex, supra.
Pharmaceutical products entered in accordance with general Note 13, HTSUS, may be used to claim drawback under 19 U.S.C. 1313(j)(2), where commercially interchangeable merchandise, previously imported and on which was paid duty, has been designated for drawback.
William G. Rosoff, for
John A. Durant, Director
Commercial Rulings Division