PRO 2-05
OT:RR:CTF:ER
H236882 RGR
Port Director
U.S. Customs and Border Protection
Trade Operations
Rosemont, Illinois 60018
Attn: Linda Golf, Assistant Port Director, Trade
Re: Application for Further Review of Protest Number 3901-12-100394 regarding the possession requirement for 19 U.S.C. § 1313(j)(2) drawback claims.
Dear Port Director:
This letter is in response to the Application for Further Review (“AFR”) for Protest Number 3901-12-100394, filed on behalf of Commercial Services International Inc. (“CSI”), which we received on December 31, 2012, and your submissions dated July 5, 2012, February 25, 2013, August 11, 2014, and September 19, 2014. We apologize for the delay in our response.
FACTS:
CSI is a service company that provides warehousing and distribution services for a chain of jewelry stores. The imports underlying the drawback claims consist of duty-paid items, such as watches, as well as gold, silver, and gem set jewelry, which are stored in CSI’s warehouse in Fort Lauderdale, Florida until they are exported to retail customers overseas. CSI filed seven drawback claims under 19 U.S.C. § 1313(j)(1) with the Chicago Drawback Office for imports and exports of jewelry covering export periods between December 7, 2004 and February 28, 2008. The drawback claims at issue include: xxx-xxxx2095, filed on January 8, 2008; xxx-xxxx1956, filed on June 25, 2007; xxx-xxxx2186, filed on February 4, 2008; xxx-xxxx2236, filed on March 4, 2008; xxx-xxxx2251, filed on March 20, 2008; xxx-xxxx2285, filed on March 27, 2008; and xxx-xxxx2343, filed on April 16, 2008. The Chicago Drawback Office denied these claims on October 14, 2011 and October 21, 2011, for failure to directly identify the merchandise under the company’s chosen accounting method of First In, First Out (“FIFO”).
On March 27, 2012, CSI protested the denial of drawback for the seven claims. In its protest, it changed the basis for its claims from direct identification unused merchandise drawback under 19 U.S.C. § 1313(j)(1) to substitution unused merchandise drawback under 19 U.S.C. § 1313(j)(2). The Chicago Drawback Center approved further review and recommended denial of the protest because CSI did not have “possession” of the exported merchandise as required for substitution unused merchandise drawback claims.
In support of its protest, on July 5, 2012, CSI submitted an amended non-binding commercial interchangeability request and examples of trace documents (“CI request”) for drawback claim xxx-xxxx2236, filed on March 4, 2008, and an underlying consumption entry, entry number xxx-xxxx1047, entered on November 26, 2007. To conduct our further review, we are treating drawback claim xxx-xxxx2236 and the trace documents provided as representative of the drawback claims at issue in this protest. On February 25, 2013, in response to our office’s request for further information about how the imported and exported merchandise are commercially interchangeable, CSI submitted hard copy documentation for two import shipments supporting their drawback claims. In addition, CSI provided a supplemental submission on August 11, 2014 (“August 2014 submission”), along with extensive exhibits, in response to our request that it prove possession of the exported merchandise. On September 19, 2014, CSI provided an additional submission (“September 2014 submission”) in response to our inquiries about CSI’s lease and insurance policy covering its warehouse in Florida.
With respect to drawback claim xxx-xxxx2236, one of the designated imports that we are examining for this drawback claim is entry number xxx--xxxx104-7, entered on November 26, 2007. The CBP Form 7501 for this entry identifies CSI as the importer of record. The purchase order associated with this import entry, purchase order number 142950, which is dated October 9, 2007, identifies The Perfect Time Ltd. (“TPT”) as the purchaser of the merchandise, c/o CSI, and Legend Jewelry Co. Ltd. as the seller. The commercial invoice associated with this import entry, invoice number 66004, dated November 22, 2007, also identifies TPT as the purchaser, c/o CSI, and Legend Jewelry Co. Ltd. as the seller. In addition, the house air waybill (“HAWB”), HAWB number 34055138308, for this shipment, which was issued by Brink’s Hong Kong, identifies TPT as the consignee, c/o CSI. Further, the freight forwarder invoice associated with this entry, dated November 25, 2007, and issued by Barthco International, Inc. in reference to air waybill number 72461313475, identifies CEI Distributors (“CEID”) as the billing party, c/o CSI. Finally, the “Receiver Confirmation Report,” dated December 7, 2007, which is an inventory tracking document for merchandise received into CSI’s warehouse, identifies the merchandise that was imported on the corresponding commercial invoice and purchase order, associates the merchandise with TPT, and does not reference CSI.
We note that in CSI’s submission, it stated that it is the importer of record on most but not all of the import entries underlying its seven drawback claims. CSI also explained that where FedEx Trade Networks is listed as the importer of record on CBP Form 7501, CSI had certificates of delivery from FedEx Trade Networks. CSI provided a copy of a representative certificate of delivery, which identifies the transferee as “CEI Distributors, Inc. C/O Commercial Services Intl., Inc.” CSI did not provide any additional certificates of delivery related to the imports at issue.
With respect to the export documentation, the trace documents include an export commercial invoice, invoice number 228195, dated December 28, 2007, that identifies CEID as the shipper, c/o CSI. The export commercial invoice identifies the recipient of the merchandise as CEI Royal Towers-Atlantis. We note that in addition to the export commercial invoice associated with the trace merchandise, all of the export commercial invoices provided by CSI consistently identify CEID as the shipper, c/o CSI. Further, the trace documents include an export FedEx tracking document associated with tracking number 903872167659 and reference number RE39274778105112233, which identifies CEI Distributors Inc. as the originator of the shipment; a FedEx delivery receipt associated with tracking number 903872167659 and reference number RE39274778105112233, which confirms delivery on January 2, 2008; and a “Packing SL” associated with tracking number 903872167659 and dated December 31, 2007, which identifies CEID as the sender of the merchandise. We note that CSI submitted an export waiver letter dated September 28, 1998 (“1998 export waiver letter”). The 1998 export waiver certification is issued by Colombian Emeralds International Inc. (“CEI”) and assigns drawback rights to CSI. On May 26, 2015, our office requested via e-mail that CSI provide any certifications waiving CEID’s drawback rights. On June 4, 2015, CSI clarified via e-mail that an export waiver certification was not issued by CEID, but was instead issued by CEI. No additional export waiver certifications were submitted to CBP.
We note that as evidenced by the various Certificates of Incorporation and Certificates of Name Change, CSI, CEID, CEI and TPT are all separate legal entities. CEI is a Delaware stockholding corporation incorporated on November 4, 1993. CSI is a separate legal entity incorporated in the State of Florida. CEID is a separate legal entity registered in the British Virgin Islands. On February 10, 2010, CEID filed a Certificate of Name Change in the British Virgin Islands to change its name to Amoro Distributors, Inc. Finally, TPT is a separate legal entity registered and incorporated in Barbados.
In regards to the export transactions, CSI was not involved in the decision-making process for allocation of inventory because the export transactions were based on an inventory replenishment system. In particular, there were no purchase orders available because CSI was not directly involved in the sales and merely received instructions to replenish and ship inventory to the CEI group of stores directly from a computerized inventory withdrawal system. CEI’s former Chief Operating Officer (“CEO”) explained in a letter dated June 13, 2012, that CSI was contracted to receive, warehouse, and distribute watches and jewelry for CEID and TPT, which were inventory holding companies for the CEI group of stores. Further, CSI did not own or mark up the subject merchandise, but rather, distributed it to CEI stores as directed by CEI. In his subsequent October 31, 2012 email, the former CEO stated that CSI’s role was that of a distribution center for the CEI group of stores and that CEI determined which goods were to be held at the warehouse and which were to be distributed. He further explained that the CEI group of stores operated on a stock replenishment system where the CEI group determined which merchandise was to be stocked by store, by type and by quantity. CEI determined which manufacturers were to supply specified products and what the initial stock inventory should be. CEI also controlled inventory vis-à-vis CSI’s electronic inventory system, whereby each CEI store’s point of sale computer communicated with CSI’s replenishment computer to share what inventory was on hand from its CEI-recommended inventory. Based on this information, CSI dispatched goods needed by the store to return to its CEI-recommended stock level.
As explained by the CEO of CEI, CEID and TPT are inventory holding companies for the CEI group of stores. In a letter, dated June 28, 2012, the former CEO explained that CEID and TPT established a number of different credit arrangements with key suppliers where the vendors issued monthly statements, which were settled by wire transfers. CSI was not involved in these arrangements. In terms of CSI’s business relationship with CEID and TPT, we turn to two agreements submitted by CSI. The first business agreement is between CEID and CSI, dated May 11, 1998 (“1998 CEID-CSI agreement”), and the second business agreement is between TPT and CSI, dated September 24, 2004 (“2004 TPT-CSI agreement”). The 1998 CEID-CSI agreement stipulates that CSI will act as a merchandising, distribution and processing service center for CEID. Aside from receiving, unpacking, storing and inventorying merchandise for CEID, the agreement also states that CSI will “initiate all orders” for goods to be purchased on behalf of CEID, which will have the prior approval of CEID. In addition, the 2004 TPT-CSI agreement specifies terms and conditions for inventory services provided by CSI to TPT. Aside from receiving and storing goods for TPT, the agreement states that CSI will “initiate all orders” for goods to be purchased on behalf of TPT with the prior approval of TPT. Although the agreements do not clarify what “initiate all orders” entails, the agreements do require CSI to receive prior approval from CEID and TPT before any orders are initiated. Moreover, CSI is to dispatch orders for goods from affiliates of TPT after authorization from TPT and provide TPT with detailed shipping activities daily. Both of these agreements were in effect for part of the period covering the drawback claims at issue. Further, the 1998 CEID-CSI agreement states that CEID would maintain insurance on all goods stored by CSI on behalf of CEID, while the 2004 TPT-CSI agreement also states that TPT would maintain insurance on all goods stored by CSI on behalf of TPT.
Aside from import and export documents, CSI provided a lease agreement for its warehouse, naming CSI as the lessee, which was effective from September 6, 1996 through November 30, 2003. In a supplemental submission, dated September 19, 2014, CSI provided a copy of the lease addendum, effective from December 1, 2003 through December 1, 2006. For the periods of the lease covering January 2007 through February 2008, CSI provided copies of checks for the monthly rent paid to the lessor, which were issued from CSI’s operating account. Furthermore, CSI provided a copy of the insurance policy for its warehouse, issued directly to CSI and dated October 4, 2007 through October 4, 2008, and a copy of the certification for the warehouse burglar alarm system, issued on November 1, 1996, and expired on November 1, 2001. It also provided an extension of the burglar alarm certification that was effective through August 2007. For the alarm certification, CSI could only provide documentation through August 2007. In lieu of this documentation for the remainder of the period covering the drawback claims, CSI provided copies of the checks for the quarterly fee paid to the alarm service company, which were issued from CSI’s operating account.
Based on its submissions, CSI argues that it established possession of the exported merchandise because it had exclusive physical control of the merchandise while it was stored in its warehouse prior to exportation. Throughout most of its 19 U.S.C. 1313(j)(2) submissions, CSI assumed it had “possession” within the meaning of 19 C.F.R. § 191.32(b) and did not adequately address our repeated requests for evidence of how it controlled the merchandise. Finally, in its August 2014 submission, CSI provided the legal rationale for its assertion. According to CSI, no other entity involved in the exportation possessed the merchandise because the other entities involved, including CEID and TPT, were not physically present in the United States, and CSI was solely responsible for maintaining the merchandise that was exported. However, the Chicago Drawback Office asserts that CSI has not met the possession requirement because CSI’s role was simply that of a distribution center on behalf of the CEI group of stores. Because CEI determined which goods were to be held and which were to be distributed from CSI’s warehouse and because CSI was required to have the prior approval of CEID before initiating orders for goods purchased on behalf of CEID, the Chicago Drawback Office asserts that CSI never possessed the commercially interchangeable merchandise as legally required.
ISSUE :
Whether CSI has possession of the exported merchandise for drawback under 19 U.S.C. § 1313(j)(2).
LAW AND ANALYSIS:
As an initial matter, we note that the denial of a drawback claim is a protestable matter under 19 U.S.C. § 1514(a)(6). We note that the instant protest was timely filed, within 180 days from the date of liquidation. See 19 U.S.C. § 1514(c)(3). The drawback claims were liquidated on October 14 and 21, 2011, and this protest was filed on March 26, 2012, which is within the 180-day time limit. Additionally, further review is warranted because “the protest involves questions of law or fact which have not been ruled upon by the Commissioner of Customs or his designee, or by the Customs courts." 19 C.F.R. § 174.24(b). Specifically, we will address whether CSI has satisfied the possession requirement for drawback under 19 U.S.C. § 1313(j)(2) by exercising complete physical control and dominion over the exported merchandise. Accordingly, the criteria for further review by this office are satisfied as per 19 C.F.R. §§ 174.24(b) and 174.26(b)(1)(iv).
As noted above, when CSI filed this protest, it changed the basis for its claim from direct identification unused merchandise drawback under 19 U.S.C. § 1313(j)(1) to substitution unused merchandise drawback under 19 U.S.C. § 1313(j)(2). We note that under 19 U.S.C. § 1313(r), it is permissible for CSI to change the drawback provision via protest. Under 19 U.S.C. § 1313(r)(2), a claim filed pursuant to any subsection of section 1313 shall be deemed filed pursuant to any other subsection of section 1313, should it be determined that drawback is not allowable under the subsection as originally filed but is allowable under another subsection of section 1313. Therefore, we will evaluate whether CSI has satisfied the criteria for a claim under 19 U.S.C. § 1313(j)(2).
Under 19 U.S.C. § 1313(j)(2), as amended, drawback may be granted if there is, with respect to imported duty-paid merchandise, substituted merchandise that is commercially interchangeable with the imported merchandise and if certain requirements are met. See also 19 C.F.R. § 191.32. Specifically, the substituted merchandise must be exported or destroyed within three years from the date of importation of the imported merchandise. Id. Before the exportation or destruction, the substituted merchandise may not have been used in the United States and must have been in the possession of the drawback claimant. Id. For purposes of the possession requirement, possession is set forth in 19 U.S.C. § 1313(j)(2)(C)(ii) as "including ownership while in bailment, in leased facilities, in transit to, or in any other manner under the operational control of, the party claiming drawback." The applicable legislative history is helpful in interpreting this provision and in understanding the purpose of the possession requirement. According to the House Report on the bill that became law, “the Committee does not intend to create a 'market' for drawback rights.” H.R. Rep. No. 103-361(I), at 130 (1993), reprinted in 1993 U.S.C.C.A.N. 2553, 2680. Thus, based on the legislative history, Congress intended to limit the parties that may claim drawback. Further, the party claiming drawback must be either the importer of the imported merchandise or must have received from the party that imported and paid duties on the imported merchandise, a certificate of delivery transferring to that party, the imported merchandise, commercially interchangeable merchandise, or any combination thereof. See 19 U.S.C. § 1313(j)(2)(C)(ii)(I)-(II).
Under 19 C.F.R. § 191.33(b)(1), parties may claim substitution unused merchandise drawback in the following situations: (1) where the exporter or destroyer is also the importer of the imported merchandise, or (2) where the exporter or destroyer receives from the importer of the imported merchandise a certificate of delivery documenting the transfer of imported merchandise, commercially interchangeable merchandise, or any combination of imported and commercially interchangeable merchandise, and exports such transferred merchandise. Finally, under 19 C.F.R. § 191.33(b)(2), the exporter or destroyer may waive the right to claim drawback and assign such right to the importer or to any intermediate party via an export waiver certification, provided that the claimant had possession of the substituted merchandise prior to its exportation or destruction.
At issue in the case before us is whether CSI satisfied the possession requirement for the seven drawback claims pursuant to 19 U.S.C. § 1313(j)(2). CBP’s regulations define possession as follows:
[f]or purposes of substitution unused merchandise drawback (19 U.S.C. 1313(j)(2)), [possession] means physical or operational control of the merchandise, including ownership while in bailment, in leased facilities, under the operational control of, the party claiming drawback.
19 C.F.R. § 191.2(s) (emphasis added). In B.F. Goodrich v. United States, 794 F. Supp. 1148, 1150 (Ct. Int’l Trade 1992), the court held that the drawback claimant does not have to possess the imported duty-paid merchandise, as the possession requirement attaches only to the exported merchandise. Accordingly, we must determine whether CSI possessed the substituted merchandise prior to its exportation.
Generally, CBP’s rulings have addressed situations where the drawback claimant argued that it had possession through operational control of exported merchandise, but lacked actual physical custody of the goods. See, e.g., C.S.D. 85-52 (Aug. 16, 1985); and HQ 225166 (Apr. 10, 1996), discussed infra. While our rulings have discussed the possession requirement in the context of operational control, none of our rulings have interpreted what constitutes physical control for purposes of possession as referenced in 19 C.F.R. § 191.2(s). In the instant matter, because the exported merchandise was in CSI’s physical custody rather than in the custody of another party, we must determine what constitutes possession through physical control under 19 C.F.R. § 191.2(s). In order to determine what constitutes sufficient physical control over exported merchandise, it is nevertheless useful to refer to prior rulings for guidance. In C.S.D. 85-52, August 16, 1985, legacy Customs held the following:
Possession means . . . complete control over the articles or merchandise on premises or locations where the possessor can put the articles or merchandise to any use chosen. It does not mean that by trading commercial paper, e.g., purchase orders or bills of lading, between brokers or others in a commodity while that commodity winds its way across America by train or truck, possession is somehow created. Transactions made in order to create a climate for drawback will not support drawback.
(emphasis added). Moreover, in HQ 225166, dated April 10, 1996, we examined the difference between possession and custody for purposes of substitution unused merchandise drawback. There, we explained that
“[p]ossession” is also defined as “occupancy and exercise of dominion over property.” BALLENTINE’S LAW DICTIONARY, 964 (3rd ed. 1969). . . Custody, on the other hand, is defined as “[t]he care and control of a thing or person. The keeping, guarding, care, watch, inspection, preservation, or security of a thing, carrying with it the idea of the thing being within the immediate personal care and control of the person to whose custody it is subjected.” BLACK’S LAW DICTIONARY 384 (6th ed. 1990). Stated more simply, possession connotes a dominion over an object while custody suggests at the most a guardianship over such object.
(emphasis added). HQ 225166. Thus, the key element in establishing possession for purposes of drawback under 19 U.S.C. 1313(j)(2) is that the possessor has “complete control” and dominion over the exported merchandise and not simply custody over said merchandise.
The concept of complete control and dominion is ingrained in how CBP interprets instances where possession is established by the drawback claimant having operational control over exported merchandise. For example, in HQ 225166, CBP addressed a situation where the drawback claimant purchased domestic petroleum products from domestic producers and refiners for resale to foreign buyers. Under the contractual terms presented, however, title and custody of the exported merchandise, and the risk of loss, were instantaneously passed on from the drawback claimant to the foreign buyer from the moment the merchandise left the domestic seller’s custody. Id. Consequently, the drawback claimant and foreign purchaser had an operations agreement, which granted the claimant the authority to perform “all functions, render all services and otherwise control all operations necessary and appropriate in respect of the acquisition and transportation of the export cargoes. . .” Id. With respect to the claimant’s level of control over the exported merchandise, we held that the documents submitted do not provide any evidence that the claimant had complete dominion and control over the merchandise. Id. Specifically, there was no evidence that the claimant had the right to transmit the merchandise to others or to use the merchandise as it sees fit. Id. Under the operations agreement, the claimant did not exercise any control over the exported merchandise apart from the authority delegated by the buyer, particularly where such control was limited to those actions deemed “necessary and/or appropriate under the terms of the transaction and/or the circumstances of the shipment.” Id. Thus, we held that the claimant’s relationship to the merchandise was custodial because the claimant did not have complete control and dominion over the merchandise. Id. Accordingly, the claimant did not satisfy the possession requirement.
In contrast to the above ruling, where the drawback claimant had custody over merchandise but lacked complete control and dominion, we turn to C.S.D. 87-18, dated June 15, 1987, which illustrates a situation where the drawback claimant established possession because the claimant demonstrated complete control and dominion over merchandise in its custody. Customs Service Decision 87-18 involved a wholesale distributor and exporter that maintained inventories of the merchandise on its own premises or premises that it leased or rented. There, legacy Customs found that regardless of whether the merchandise was located on the claimant’s own premises or stored in rented facilities, the substituted merchandise was under the complete control of the claimant because it could destroy, resell, or export the products at will. Id. Accordingly, legacy Customs held that the claimant satisfied the possession requirement for drawback. Id. In summary, possession through operational control means that the possessor has complete control and dominion over the merchandise while the merchandise is on the premises or in the custody of another party. Complete control and dominion is demonstrated where the possessor can put the merchandise to any use chosen. Applying the same concept of complete control and dominion to physical control as referenced in 19 C.F.R. § 191.2(s), we now hold that the requirements for physical control are satisfied where exported merchandise is physically on the possessor’s own premises or in the possessor’s physical custody and the possessor has complete control and dominion over the merchandise, i.e., the possessor can put the merchandise to any use chosen.
Turning to CSI’s drawback claims, we will determine whether CSI had physical control over the exported merchandise to satisfy the possession requirement under 19 U.S.C. § 1313(j)(2). Based on the facts presented, although CSI had physical custody of the goods in its warehouse, it had no ownership rights or legal title to the merchandise. The information submitted demonstrates that CSI could not put the merchandise to any use it chose. For example, the 1998 agreement between CSI and CEID provided that CSI will initiate all orders for goods purchased on behalf of CEID with CEID’s prior approval. In addition, the 2004 agreement between CSI and TPT provided that CSI will initiate all orders for goods to be purchased on behalf of TPT with TPT’s prior approval. The former CEO of CEI explained that CEI, not CSI, determined which goods were to be held at the warehouse, which were to be exported, which merchandise were to be stocked, and which manufacturers were to supply specific products. Accordingly, CSI’s relationship to the subject merchandise was controlled by CEI, CEID, and TPT. Even though the merchandise was in its custody, CSI could not put the merchandise to any use it chose, as it required direction from CEI and prior approval from CEID and TPT regarding orders initiated on behalf of CEID and TPT. Unlike the drawback claimant in C.S.D. 87-18, which satisfied the possession requirement because it could destroy, resell, or export the merchandise at will while in its physical custody, CSI did not have such control over the exported merchandise. It could only export goods upon instructions from CEI, CEID, or TPT. Therefore, it did not exercise the level of complete control and dominion necessary to demonstrate possession for purposes of substitution unused merchandise drawback.
In addition to CSI’s lack of complete control and dominion over the exported merchandise, we also note that for purposes of the possession requirement for substitution unused merchandise drawback, “[t]wo parties cannot possess the same object at the same time. Such a finding would be contrary to the concept of possession.” HQ 225166. Based on the facts presented, CEI, CEID and TPT are the three entities that exercised operational control at different times over the merchandise stored in CSI’s warehouse. On the other hand, CSI only had physical custody of the goods in its warehouse, and it had no ownership rights or legal title to the merchandise. As two parties cannot possess the same object at the same time, and where either CEI, CEID, or TPT retained operational control over the merchandise at different times, we find that CSI did not have complete physical control over the exported merchandise in its custody for purposes of the possession requirement under 19 U.S.C. § 1313(j)(2).
Taking a further look at the trace documents, we note that CSI is consistently listed as the “care of” party on the commercial documents. However, even though CSI is listed as the “care of” party, this does not demonstrate the complete physical control and dominion necessary for purposes of possession. Generally, "c/o" or "care of" on commercial documents simply means that one party accepts or receives something for another party. While the c/o designation has not been addressed in our rulings, a federal district court has explained that c/o “[is] not ambiguous . . . [and] means 'in care of' and means that another only has 'custody' or 'temporary charge' over an item belonging to another." Keystone Mfg., LLC v. Accuro Med. Prods., LLC, 2013 U.S. Dist. LEXIS 74409, at *7-8 (W.D. Mich. 2013) (citing Geraldo v. First Dominion Mut. Life Ins. Co., 2002 Ohio 4654, 2002 WL 31002770, at *6 (Ohio Ct. App. 2002). Here, the export invoices identify CEID as the shipper, c/o CSI at the address of CSI’s warehouse. In addition, the purchase orders and import commercial invoices identify TPT as the purchaser of the merchandise, c/o CSI. As the “care of” party on these documents, CSI only had temporary charge or custody over the merchandise in its warehouse, which according to the trace documents, belonged to TPT and CEID. Even though CSI was identified as the “care of” party, it did not have the ability to put the merchandise to any use chosen by CSI. In the context of TPT and/or CEID’s ownership of the subject merchandise, CSI’s temporary charge or custody over merchandise as the “care of” party does not demonstrate the level of complete control and dominion necessary for possession.
We now turn to CSI’s specific arguments as to how it established possession over the exported merchandise. First, CSI asserts that it is the only entity in the underlying transactions with a physical presence in the United States; therefore, it had physical control over the merchandise stored in its warehouse and exclusive access to the electronic inventory management system controlling the inventory. As support, CSI points to a copy of the rental agreement for its warehouse, its insurance policy covering the premises of the warehouse, and certification for its burglar alarm system. CSI also submitted an affidavit from Melanie Heaton, its current Director of Logistics who served as Operations Manager at its warehouse during the period of the drawback claims. In her affidavit, Ms. Heaton stated that CSI always had exclusive physical control of the TPT merchandise that was delivered to and exported from CSI’s warehouse. She also stated that she used CSI’s electronic inventory management system at its warehouse on a daily basis. In responding to CSI’s argument, we first note that it is not relevant for purposes of possession that CSI was the only entity that had a physical presence in the United States. Under 19 U.S.C. § 1313(j)(2)(C)(ii), an entity can establish possession through operational control where it has complete control and dominion over the merchandise to put it to any use chosen while in the custody of another party. See also 19 C.F.R. § 191.2(s). Therefore, entities without a physical presence in the United States can have possession over exported merchandise for purposes of drawback if they exercised operational control. To determine whether CSI meets the possession requirement, we must determine whether the information provided by CSI demonstrates that the company had complete control and dominion over the exported merchandise.
As we concluded above, possession for purposes of 19 U.S.C. §1313(j)(2) drawback requires a party to have complete control and dominion over the merchandise, i.e., the possessor must be able to put the merchandise to any use chosen. Here, the rental agreement, insurance policy, and burglar alarm certification highlight CSI’s control over the warehouse facilities only. These documents do not speak to CSI’s complete control and dominion over the merchandise stored in its warehouse facilities and its ability to put the merchandise to any use chosen by the company. Moreover, we note that CSI submitted the 1998 CEID-CSI agreement and the 2004 TPT-CSI agreement, which stipulate that CEID and TPT will maintain insurance on the actual goods stored in CSI’s warehouse. Based on these agreements, CEID and TPT are the entities responsible for merchandise stored inside CSI’s warehouse. Similarly, CSI’s use of the electronic inventory management system does not support a conclusion that CSI could exercise complete control and dominion over the exported merchandise. As we explained above, it was actually CEI that controlled inventory vis-à-vis CSI’s electronic inventory system, whereby each CEI store’s point of sale computer communicated with CSI’s replenishment computer to share what inventory was on hand from its CEI-recommended inventory. Based on this information, CSI dispatched goods needed by the store to return to its CEI-recommended stock level. Thus, CSI simply controlled the physical movement of the merchandise stored in its warehouse at the direction of CEI, TPT, and CEID. Finally, we note that Ms. Heaton’s affidavit states that CSI always had exclusive physical control of the merchandise and that she used CSI’s electronic inventory management system at its warehouse on a daily basis. These statements merely confirm CSI’s control over the warehouse facilities and control over the physical movement of merchandise, without explaining how CSI had complete control and dominion over the exported merchandise by being able to put the goods to any use chosen. Based on all of the above, CSI does not meet the possession requirement for drawback under 19 U.S.C. § 1313(j)(2).
Since CSI lacked possession over the exported merchandise, we will not conduct a detailed review of other elements of CSI’s commercial interchangeability request. We do note, however, that there are deficiencies in the export waiver letter provided by CSI, as well as the representative certificate of delivery. First, under 19 C.F.R. § 191.33(b)(2), a party other than the exporter or destroyer may claim drawback if the party secures and retains a certification signed by the exporter or destroyer that waives the exporter or destroyer’s right to claim drawback and certifies that no other parties will be authorized to claim the exportation or destruction for drawback. Based on the export documents, CSI is not the exporter of the substituted merchandise. Specifically, the export documents, including the export bills of lading and export invoices, identify CEID, rather than CSI, as the sender of the merchandise. The business agreements also direct that CSI has no final authority to approve a sale, and thus, effect an export. Therefore, CEID is the exporter of the exported merchandise. We note that CSI argues that even though CEID is identified on the export documents, CSI’s address is listed as the physical location of the merchandise. The identity of the exporter, however, is not determined solely by the address from where merchandise is sent. As set forth in 19 C.F.R. § 191.2(m)(2), an exporter for drawback purposes is the “principal party in interest in the export transaction” that “has the power and responsibility for determining and controlling the sending of merchandise out of the United States.” In HQ 229879, dated June 4, 2003, we explained that a party that purchased jet fuel and had the power and responsibility for lading that jet fuel onto aircraft for export was the exporter of the merchandise with the right to claim drawback. Unlike the jet fuel purchaser in HQ 229879, CSI neither owned the subject merchandise nor did it have the power and responsibility for determining and controlling the sending of the subject merchandise. Accordingly, simply identifying the address of CSI’s warehouse on export documents does not qualify CSI as the exporter.
Since CSI is not the exporter, a valid waiver letter, as described in 19 C.F.R. § 191.33(b)(2), is required before CSI can claim drawback on the exportations. With its protest documents, CSI submitted an export waiver letter, dated September 28, 1998, in which CEI, not CEID, assigned drawback rights to CSI. However, CEI and CEID are separate legal entities, and only CEID exported merchandise subject to the drawback claims at issue. Thus, CEI’s export waiver letter is irrelevant for purposes of establishing CSI’s right to claim drawback. Without a valid export waiver letter, CSI is not a party eligible to claim drawback on the exportations at issue, even if it could establish possession.
Finally, we note that for certain underlying consumption entries, CSI lacks proper certificates of delivery. As previously noted, 19 U.S.C. § 1313(j)(2)(C)(ii) states that a proper drawback claimant must be either the importer of the imported merchandise or must have received from the importer a certificate of delivery transferring to the claimant the imported merchandise, commercially interchangeable merchandise, or any combination of imported and commercially interchangeable merchandise. See also 19 C.F.R. § 191.34(b). Here, while CSI was listed as the importer of record on most of the underlying consumption entries designated on the drawback claims, FedEx was listed as the importer of record on some of the entries. CSI stated that it has certificates of delivery from FedEx for the entries where it is not listed as the importer or record, but the representative certificate of delivery provided by CSI identifies the transferee as “CEI Distributors, Inc. C/O Commercial Services Intl., Inc.” As we explained above, "c/o" or "care of" simply means that one party accepts or receives something for another party. Therefore, the representative certificate of delivery transferred the imported merchandise from FedEx to CEID. CSI only accepted the merchandise on behalf of CEID. Thus, for at least some of the entries underlying the drawback claims, where FedEx was listed as the importer of record, CSI never received the imported merchandise through a valid certificate of delivery.
HOLDING:
On the basis of the foregoing, because CSI did not have complete control and dominion over the exported merchandise while in its physical custody, it did not satisfy the possession requirement for substitution unused merchandise drawback under 19 U.S.C. § 1313(j)(2). Accordingly, it is not eligible to receive drawback under 19 U.S.C. § 1313(j)(2) for the seven protested drawback claims. Therefore, under the facts described, and in response to the request for further review, you are instructed to DENY the protest.
In accordance with Sections IV and VI of the CBP Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the CBP Form 19, to the protestant no later than 60 days from the date of this letter. Sixty days from the date of the decision, the Office of International Trade, Regulations and Rulings, will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division