DRA 4
H255109 SMS
OT:RR:CTF:ER
Port Director
U.S. Customs and Border Protection
Port of San Francisco
555 Battery Street, Rm. 108
San Francisco, CA 94111
Attn: Mary Morris, Import Specialist
RE: Application for Further Review of Protest No: 2809-14-100124 concerning a claim for unused merchandise drawback
Dear Port Director:
The above-referenced protest has been forwarded to our office for further review. We have considered the points raised by Durard T. Gruelle, (“D.T. Gruelle”) regarding the denial of the drawback claim related to Light-Emitting Diode (“LED”) Processors and Display Systems (“video display systems”).
FACTS:
On January 31, 2012, CT Creative Technology GmbH & Co. (“CT Creative Technology”) entered “Light-Emitting Diode (LED) Display Panel for Tradeshow” at the port of Chicago, Illinois from Germany. The video display systems were originally classified under subheading 8541.40.2000, Harmonized Tariff Schedule of the United States (“HTSUS”), duty free, which provides for “Light-Emitting Diode (LED’s).” On October 18, 2013, U.S. Customs and Border Protection (“CBP”) liquidated the entry under subheading 8528.59.3050, HTSUS, at a duty rate of 5 percent ad valorem, which provides for “Monitors and Projectors - Other” and issued a bill to D.T. Gruelle for duties. D.T. Gruelle protested the reclassification on July 31, 2012, which was denied on November 21, 2012. D.T. Gruelle paid the additional duties on December 7, 2012.
On June 7, 2013, D.T. Gruelle requested a waiver from the prior notice of intent to export unused drawback merchandise and sought drawback for unused merchandise, not subjected to any process of manufacture or other operation. See 19 C.F.R. 191.91. On August 21, 2013, CBP requested additional information and documentation to fully consider the claim for drawback. D.T. Gruelle explained that the video display systems were “imported for use by CT Creative at BMW’s booth at the 2012 Chicago Auto Show, which took place between February 10 and February 19, 2012 . . . and at the 2012 New York Auto Show, which took place between April 6, 2012 and April 15, 2012.” See D.T. Gruelle Response Letter, Sept. 17, 2013 (emphasis added). On April 18, 2012, the merchandise was exported back to Germany, and CBP was not notified of the intent to export. Id. On October 18, 2013, CBP denied the claim for drawback.
On February 20, 2014, D.T. Gruelle protested the refusal to pay drawback. D.T. Gruelle contends that, “merely displaying the merchandise in question as part of a trade exhibition is an acceptable ‘use.’” D.T. Gruelle further explained that: “the video display systems were unpacked and configured to become part of CT Creative Technology’s tradeshow exhibition. In that regard, the video display systems were not further manufactured, produced, repaired, refurbished or changed in any manner after being imported into the United States. They were simply incorporated as part of the tradeshow display.” D.T. Gruelle argues that under 19 U.S.C. § 1313(j)(3), the video display systems were unused upon exportation because there was no operation or combination of operations amounting to a manufacture or production performed on it. As such, D.T. Gruelle argues that the video display systems are eligible for unused merchandise drawback under 19 U.S.C. § 1313(j)(1). The Port takes the position that “setting up video display systems so that they function is a use . . . [v]ideo systems which are connected and set up to display video are functioning as they were intended and used.” Because they are used, the Port argues they are not eligible for unused merchandise drawback. On March 26, 2015, at the request of council for protestant, a conference call was held to confirm the facts of the case.
ISSUE:
Whether the video display systems are eligible for drawback under the unused merchandise provisions of 19 U.S.C. § 1313(j).
LAW AND ANALYSIS:
We note initially that the instant protest was timely filed, within 180 days from the date of liquidation. See 19 U.S.C. § 1514(c)(3)(A). CBP denied D.T. Gruelle’s drawback claim on October 18, 2013, and this protest was filed on February 20, 2014, within 180 days. D.T. Gruelle requests further review per 19 C.F.R § 174.24. Under 19 C.F.R. § 174.24, further review shall be accorded a party when the decision against which the protest was filed is alleged to involve questions of law or fact which have not been ruled upon by CBP. See 19 C.F.R. § 174.24(b). Upon review of the application for further review, we find that these facts have not been the subject of a CBP ruling. See 19 C.F.R § 174.24(b) and 19 C.F.R § 174.26(b)(1)(iv). Accordingly, further review is warranted.
Pursuant to 19 U.S.C. § 1313(j)(1), drawback is authorized “if imported merchandise, on which was paid any duty, tax, or fee imposed under Federal law upon entry or importation” is, within three years of the date of importation, exported or destroyed under CBP supervision and was not used in the United States before such exportation or destruction. Therefore, merchandise that was used prior to exportation is ineligible for drawback under 19 U.S.C. § 1313(j)(1).
A definition of the term “unused merchandise” was not provided in the language of the act. However, in HQ 225552, dated November 1, 1994, we discussed Customs Service Decision (“C.S.D.”) 81-222, dated May 27, 1981 and C.S.D. 82-135, dated June 4, 1982, which found that an article is used when it is employed for the purpose for which it was manufactured or intended. An article is also “used” when it is used in the manufacture or production of another article. See C.S.D. 82-67, dated December 22, 1981. The performance of certain operations or combination of operations (such as testing, cleaning, and inspecting) on the imported item, not amounting to a manufacture or production, is not treated as a use of the merchandise. The law provides that “[t]he performing of any operation or combination of operations (including, but not limited to, testing, cleaning, repacking, inspecting, sorting, refurbishing, freezing, blending, repairing, reworking, cutting, slitting, adjusting, replacing components, relabeling, disassembling, and unpacking), not amounting to manufacture or production for drawback purposes. . . shall not be treated as a use of that merchandise for purposes of . . .” applying unused merchandise drawback. See 19 U.S.C. §1313(j)(3).
CBP has addressed a conveyance used for advertising and the impact on eligibility for drawback under 19 U.S.C. § 1313(j)(1). In HQ 223076, dated May 27, 1991, we held that a short duration demonstration cruise contained within the Honolulu Harbor for a prospective buyer and a subsequent short duration cruise in the Honolulu Harbor during which a short documentary was filmed in connection to the sale of a yacht was not a use, because the activities constituted advertising. Additionally, in HQ 223076, we discussed C.S.D. 83-17, dated November 30, 1982, in which we held that offering merchandise for sale, i.e., advertising, does not negate the provisions of 1313(j), nor does demonstration connected with such offers render the merchandise ineligible for drawback unless the merchandise becomes significantly deteriorated.
Conversely, in HQ 230037, dated November 4, 2003, CBP held that a yacht was ineligible for drawback under 19 U.S.C. § 1313(j)(1) because it was sailed under its own power within the United States. In that case, the yacht was imported to be sold and the protestant argued that it was unused because sailing the yacht under its own power was incidental to the intended reason for importation. We disagreed, stating that the “sailing of the Eclipse from Ft. Lauderdale, Florida to Nantucket, Massachusetts was a prohibited use within the meaning of 1313(j)(1). . . the Eclipse, manned by the crew, was put to the exact use for which a yacht is built.” Similarly, in HQ 240038, dated June 16, 2014, we held that a truck driven under its own power, which transported equipment from Canada to the customer’s facilities in Massachusetts, was a transportation, the purpose for which it was built, and therefore, a “use.” The fact that the equipment on the truck was not used at the intended job site had no impact on our analysis. As such, the truck and yacht were both used prior to exportation and were therefore, ineligible for drawback under 19 U.S.C. § 1313(j)(1). More recently in, HQ H251771, dated December 16, 2014, CBP addressed the potential use of haute couture pieces, furnished to celebrities to be worn at a high-profile event. In this case, Christian Dior argued that the display of the clothing did not constitute a use of merchandise because the pieces would be furnished for exhibition at the event, for advertisement purposes and to generate orders of the goods. CBP ruled that this was in fact a “use” because, unlike in HQ 223076, with the short duration demonstration cruise of the yacht, having high-profile celebrities wear the pieces at an event is not the same as having the pieces worn just for display to potential buyers. As with the truck and yacht, the garments were used in the manner in which they were designed. Accordingly, CBP has held that an article is used when it is employed for the purpose for which it was built.
While, the articles in question are not that of a conveyance or couture clothing, but that of a video display system, the same principle applies. An article used in the capacity for which it was designed constitutes a “use.” In this instance, the video display systems were in fact, used to display videos, as protestant has repeatedly conceded. “The merchandise was imported . . . for use by CT Creative Technology at the 2012 Chicago Auto Show.” See D.T. Gruelle’s Waiver Request, June 7, 2013 (emphasis added). “All merchandise imported . . . was transferred to CT Creative and used by it at the BMW booth of the 2012 Chicago Auto Show.” See D.T. Gruelle Response Letter, Sept. 17, 2013 (emphasis added). While, the purpose of the display was for advertisement purposes, it was for the advertisement of automobiles and not for the advertisement of the actual video display system. The video display systems were not for sale at the auto show, but were used to sell cars and advertise BMW’s merchandise. Therefore, the systems were used at the event for their intended purpose. It is most akin to couture clothing being worn at a high-profile event by celebrities, in HQ H251771. Accordingly, we find under these facts, the video display systems used at the auto tradeshows were a “use” and are subject to duties.
D.T. Gruelle argues that because the video display systems’ use did not involve significant capital of investment, labor, repairs, or a process to produce a particular article or commodity, there was no operation or combination of operations amounting to a manufacture or production performed on it, and therefore, it was not “used” for drawback purposes under 19 U.S.C. §§ 1313(j)(1) and (j)(3). D.T. Gruelle cites to HQ H157616, dated January 23, 2012, United States v. International Paint Co., Inc., 35 C.C.P.A. 87, 94 (1948), and HQ H004403, dated September 21, 2009, in support of its position. However, these rulings discuss the definition of a manufacture and operations that may constitute a “use.” In HQ H157616, CBP is determining whether the operation performed on the powder is a manufacture and cites 19 C.F.R. § 191.2(q), which defines “manufacture or production.” Similarly, the former Court of Customs and Patent Appeals in International Paint Co., Inc., considered whether the processes performed to remove impurities in paint constitutes a “manufacture.” However, no party is arguing a manufacture occurred in this case. Instead, the inquiry is whether the video display systems were used, in the manner for which they were intended. Therefore, these cases are inapposite. D.T. Gruelle also cites HQ H004403, dated September 21, 2009, where CBP found that defective gear grinding machinery, imported to be displayed at a technology tradeshow, which underwent a failed attempt of repair after its importation to the United States, was eligible for a refund of duties. However, CBP did not determine if the defective merchandise was “unused” because entitlement to drawback was established pursuant to 19 U.S.C. § 1313(c) (merchandise not conforming to sample or specifications). Id. Additionally, the merchandise in HQ H004403 was to be on display at a manufacturing tradeshow, as advertising for it, and therefore, is distinguishable from using a video system at an auto show. Thus, D.T. Gruelle does not cite any cases on point with the issues in its protest.
D.T. Gruelle focuses its claim on the argument that the video display systems had no operation or combination of operations amounting to a manufacture or production performed on it, and therefore, it should be eligible for drawback under 19 U.S.C. § 1313(j)(1). However, a manufacture or production would be only one type of “use.” As explained above, CBP has held that an article is “used” when it is employed for the purpose for which it was built, which, in this case, includes using a video display system for video display purposes at an auto exhibit. Nineteen U.S.C. § 1313(j)(3) is a subset of “use”, but a “use” can also be established under the actual definition of the word; the action of using something for its purpose. In, HQ H251771, CBP determined that the haute couture pieces would be “used” in the manner in which they were intended, without reaching the question of whether or not they had not been manufactured. The pieces would be furnished to celebrities, fitted to each individual, and then worn to a high-profile event. CBP ruled that the wearing of the garments was sufficient to constitute a use, and did not determine if the fitting of the merchandise to the individual model would constitute a manufacture. Focusing on the word “use” solely in terms of a possible manufacture or production is erroneous.
HOLDING:
Based on the information submitted, we find that the LED Processors and Display Systems are ineligible for drawback under 19 U.S.C. § 1313(j)(1). Accordingly, Protest Number 2809-14-100124 should be DENIED for the reasons set forth in this decision.
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 to counsel for the protestant, together with the Customs Form 19, no later than sixty 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 International Trade 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