DRA-2-02, LIQ-9-01
OT:RR:CTF:ER W230810
Port Director, Customs and Border Protection
2350 N. Sam Houston Parkway East, Suite 1000
Houston, TX 77032-3126
RE: Protest 5301-04-100007
Dear Sir/ Madam:
The protest involves the denial of two claims for drawback, claims 108-4 and 529-2, under 19 USC 1313(b) and (p). Both claims are based on the production and exportation of propylene that was made from petroleum.
FACTS:
Claim 108-4 originally was filed on July 27, 1995. The claimed duty was about $38,000 and listed six exports of propylene totaling 80,686,415 pounds for the period from January 13, 1994 to July 18, 1994. The claim cited the claimant’s Certificate of Manufacture and Delivery (CMD) 700049 as the record of production of the exported propylene. According to the CMD, the claimant produced the exported propylene by splitting a mixture of propane and propylene. The file contains documents labeled “initial 700049” that list the production of 80,686,415 pounds of propylene by D-S Splitter, Inc., that were delivered to the claimant. That initial CMD 700049 was filed July 20,1995. The documents cite the period covered by the abstract as January 1, 1994, to December 31, 1994. The documents do not list the actual period of production for the exported propylene covered by claim 108-4. Exhibit D to both versions of CMD 700049 listed entry AA6-xxxx323-0, CMD 900017 and CMD 700048 as the attribution source of the propane-propylene mixture for the production of the propylene exported by the claimant.
Claim AA6- xxxx323-0 was both a claim for drawback and a certificate of manufacture and delivery (CMD 200000) of Fina Oil Co.,that covered a manufacturing period from January 1, 1992 to December 31, 1992. The certificate lists the delivery of 686,933 barrels of a mixture of propane and propylene to Fina Splitter. The certificate lists 25 import entries of petroleum from January 1, 1991, to July 14, 1991, which were refined during the period from January, 1991 to December, 1991. The certificate states that the export articles were produced during calendar year 1992.
The file contains two versions of CMD 700017. Both purport to have been signed by the same individual, but that individual is identified on one version as the agent of the claimant and on the other as the agent of Fina Oil Co. The version filed September 15, 1993, contains the typed number 35222. The version filed September 29, 199,3 contains the typed number 35226. The version filed on September 29, 1993, described the designated merchandise in block 17 as a drawback product propylene mix. That version states that the export articles were produced in 1990 (presumably calendar year 1990). The version filed on September 15, 1993, described the designated merchandise as crude oil. That version claims that the export articles were produced in calendar year 1992.
CMD 700048 was filed July 13, 1995, and identified crude oil as the designated imported merchandise and listed calendar year 1993 as the period in which the export articles were produced.
The claimant filed a second version of claim 108-4 on July 12, 1997. In that version the claimant asserted a claim of about $43,000. The second version listed the same amount of propylene (80,686,415 pounds) produced during calendar year 1994 and based on CMD 700049. The file does not contain any different export shipments. However, an amended CMD 700049 was filed on May 29, 1997, and asserts the production is shown by CMDs 200000, 700220, 900017 and 700048. The file contains a second version of Claim AA6-xxxx323-0 and CMD 200000. This second version was signed on April 30, 1996, but there is no evidence whether it was filed or if filed with CBP, the filing date. The date of production of the export articles and the amount of the propane-propylene mixture asserted to be delivered to Fina Oil Co., did not change.
CMD 700220 was initially filed January 5, 1995, and a second version was filed November 30. 1995. Both versions assert that the export articles were produced in calendar year 1993 by Fina Oil Co. The initial version listed the designated merchandise to be imported under 11 import entries and asserted that 484,401 barrels of propane-propylene mixture was delivered to Fina Splitter during 1993. The second version does not appear to change data relative to the propane-propylene mixture. Two versions of CMD 700048 were also filed: the initial version was filed July 13, 1995, and the second version filed November 13, 1997. Both versions asserted that the export articles were made in calendar year 1993 with the use of crude oil. The initial version listed 10 import entries, of which 9 were also listed on the second version. Import entry 933-5 was listed only on the initial version. The second version listed 12 entries, of which 3 import entries that were not listed on the initial version. Both versions listed the same amount of articles delivered to D-S Splitter.
Claim 529-2 was filed November 10, 1994, listing the export of 137,799,033 pounds of propylene on 10 export shipments in the period from October 9, 1993, to December 31, 1993. The claim was based on CMD 700207. CMD 700207 was filed by the claimant on November 10, 1994, and the period of production for both the use of the designated merchandise and the manufacture of the export articles was calendar year 1993. Exhibit D to CMD 700207 appears to list two import entries and two CMDs as the source of the 137,799,033 pounds of propylene that was exported. The entries are not available in ACS records and were not provided in the file so that verification was not possible. Exhibit D to CMD 700207 lists the source of the propylene delivered to the claimant from import entries AA6-xxxx044-5 and AA6-xxxx141-9 and CMDs 000025 and 900017. According to that Exhibit D, 4,161 pounds of propylene were attributed to CMD 900017.
With respect to the notice requirement of former section 1520(c) (1), the Drawback Office reported in its transmittal for further review that the copy of CMD 900017 submitted with the claim did not match the copy of the CMD 900017 that was filed with the Drawback Office before the claim was filed. That is, the Drawback Office was aware that at least two versions of the CMD existed and that the claim was based on a version that differed from the official CMD.
ISSUE:
Whether drawback claims asserted to have been filed with incorrect information on the imported merchandise that formed the basis for drawback can be corrected under former section 1520( c)(1)?
LAW AND ANALYSIS
The relevant statutes are 19 USC 1313(b),(i) and (r) and former section 1520(c)(1). Section 1313(b) permits a person to substitute other merchandise for duty-paid imported merchandise in the manufacture of an article to be exported with the benefit of drawback. The section limits the ability to substitute to a three-year period from the manufacturer’s receipt of the duty-paid merchandise to the manufacture of the export article and requires that the duty-paid and substitute merchandise be of the same kind and quality. By regulation (19 CFR 191.2(x)(1)), same kind and quality merchandise means that the duty-paid merchandise and the substitute merchandise are capable of making the export article without a substantial change in the manufacturing process. Section 1313(i) prohibits payment of drawback unless the exported article is exported within five years after the imported merchandise on which the claim is based. Section 1313(r) requires that a complete drawback claim be filed within three years from exportation of the export article and that an untimely claim will be considered to be abandoned. Former section 1520(c)(1) provided for re-liquidation of an entry if there was an error in the liquidation that was adverse to the importer and was shown to be due to a clerical error, mistake of fact or inadvertence not amounting to an error in the construction of a law so long as the error was brought to the attention of CBP within one year after liquidation. Although repealed, section 1520(c) (1) is available for entries made before December 18, 2004.
The issue involves timeliness and accuracy of the claims and CMDs. Since the claims were filed in 1994 and 1995, the relevant regulation governing a CMD is 19 CFR 191.66 (1983-1997 ed.). First promulgated under TD 83-212, the regulation was amended by TD 86-118.
The purpose of a CMD was, and remains, to provide a record of the manufacturing process documenting the use of the imported merchandise and the production of the export article. In this case, imported crude oil was used to make various finished and intermediate petroleum products. Intermediate products are drawback products which can be designated as though they were duty-paid imported merchandise in subsequent manufacturing operations. Here. one of those intermediate products, a propane-propylene mixture, was such a drawback product that was further manufactured by separation into propane and propylene. The propylene was exported. The two claims were based on the duty paid on the imported crude oil that was attributed to the production of the exported propylene. The CMD provided a record by which the drawback claimant showed compliance with the statute and provides a record which enabled CBP to trace the exported propylene back to the imported crude oil through the production of the propane-propylene mixture to insure that the duty on the designated crude oil was attributed properly to the exported propylene. Petroleum refiners are permitted to attribute production of finished and intermediate products by a formula set forth in TDs 66-16 and 84-49. The latter TD is set forth in appendix A to 19 CFR Part 191. Section 191.68 (1986-1997 ed.) required a CMD to be filed on CF 331.
Directive 3740-003 of January 14, 1986, provided instructions for completion of CF 331 and was made available to the public. Paragraph A.1. stated that Customs would assign the identification number when a CF 331 was used as a CMD.
According to the claimant, it mistakenly had two versions of CMD 900017 and it used the incorrect version in connection with the two drawback claims. The claimant asserts that the version of CMD 900017 which it signed on September 27, 1993, was the correct version and that CMD covered the manufacture of propylene by Fina Oil Co. from drawback product (presumably the propane-propylene mixture) during calendar year 1990.
The claimant asserts that in preparing the two claims it used a version of CMD 900017 that actually was CMD 900015. The claimant signed and filed that CMD on September 9, 1993, about three weeks before it filed the correct version of CMD 900017. The incorrect version of CMD 700017 covered the use of imported class III crude oil by the claimant for calendar year 1992. The correct version of CMD 900017 consists of the CF 331 and screen prints from CBP’s ACS records. The claimant asserts that its error was caused by CBP’s adding the identification number to the CMD instead of using the identification number that the claimant put on the CMD and by the claimant’s personnel misreading CMD 900015 (the CBP assigned number) as CMD 900017. The assignment of the identification number by CBP was consistent with the instructions on CF 331; the claimant had no authority to assign an identification number to any CMD. In any event, the drawback office returned copies of both CMDs 900015 and 900017 to the claimant. The claimant asserts that it miss-numbered its copy of CMD 900015 as CMD 900017 and used that incorrect version to prepare the two claims.
CBP denied drawback on the two claims and so informed the claimant on August 26, 2003.
CMD 900017 covers production in calendar year 1990 and the claimant does not dispute that the imported merchandise used as shown by that CMD was import entry 907-xxxx276-5 covering crude oil that was entered on December 13, 1987. Consequently, exports of propylene during the period from January 13, 1994, to July 18, 1994, based on CMD 900017 and claimed under claim 108-4 would be beyond the five-year period set by 19 USC 1313(i). Likewise, exports of propylene during the period from October 9, 1993, to December 31, 1994, based on CMD 90017 and claimed under claim 529-2 also would be beyond the five-year period set by 19 USC 1313(i). Exhibit F to CMD 900015 lists eight import entries of crude oil imported during the period from July 20, 1991 to November 29, 1991. Since a CMD lists the import entries on which the drawback claim is based, the substitution of CMD 900015 for CMD 900017 would create a new claim. Under 19 USC 1313(r) a claim must be filed within three years after exportation. Changing claims 108-4 or 529-2 by switching the import entries on which the claim for refund of duty would be based is governed by 19 USC 1313(r) and the statutory time period has long since expired.
The next issue is to consider whether the claims can be re-liquidated under former section 1520(c)(1). Based on the claimant’s assertion that it miss-labeled CMD 900015 as CMD 900017, it is clear that the claimant possessed two copies of CMD 900017 in September 1993. The correct copy of CMD 900017 contains the claimant’s type written number 35226; the incorrect copy of CMD 900017 (which is CMD 900015) contains the typed number 35222. The presence of the ACS data screen prints show that other documents had to have been filed in order for CBP to create the ACS record. However, apparently those documents are no longer available. The claimant asserts that it used its typed numbers to identify the different CMDs. However, if that assertion is true, the claimant does not explain the reason for using a CMD with the claimant’s own number 23222 instead of using the correct CMD with the claimant’s number 35226. The claimant also does not explain the reason for using a CMD covering its own use of class III crude oil on a drawback claim that involved the use of a drawback product, a mixture of propane and propylene that was separated into the two constituents. The claimant failed to recognize several critical points when it filed both protested claims: its possession of two CMDs with the apparent same number in the same time period (September, 1993), that the two CMDs, identified as CMD 900017, had different numbers which were typed by the claimant, that one CMD covered manufacturing by Fina Oil Co. and the other covered manufacturing by the claimant and that the CMDs identified different merchandise ( crude oil v. propylene mix) and the one CMD covered manufacturing in calendar year 1990, while the other CMD covered manufacturing in calendar year 1992.
It is not clear which attachments were filed with the CMD. Apparently, the attachments to CMD 900015 (exhibits A-F) were the attachments to the miss-numbered CMD 900017.
It is clear that the claimant, despite numerous amendments of both the claims and underlying CMDs, cited CMD 900017 when CMD 900015 should have been cited. As such, the claims were filed under a mistaken belief that the manufacturing record was shown by CMD 900017 when in fact the manufacturing record was shown by CMD 900015. The court, in the case of R.L. Jones Calexico v. U.S., 2006 Ct Int’l Trade LEXIS, 28 Isn’t Trade Rep (BNA) 2104 (CIT Slip. Op. 06-111), held that former section 1520(c) (1) was available to correct errors in drawback claims. In that case, the court found the error to be CBP being unaware that the drawback claimant had received approval to file claims without giving prior notice of liquidation to CBP. Since the entries were filed before the effective date of the repeal, the application of former section 1520(c)(1) must be considered.
Here the error consists of the claimant citing a CMD that was miss-numbered by the claimant. In its protest, the claimant provided a copy of the document that it mistakenly believed was CMD 900017. Although CBP did not recognize that the claimant had miss-numbered CMD 900017, the drawback specialist who received the protest recognized that the miss-numbered CMD 900017 filed with the protest, which was the basis for the claims, did not match the correct CMD 900017 on file with the drawback office. In the case of ITT Corp v.U.S., 24 F 3d. 1384 (Fed. Cir. 1994), the court held that there was sufficient notice under the statute if the importer merely notified CBP that there was an error in the liquidation due to a mistake of fact. The Court of International Trade found that the importer failed to provide the exact nature of the mistake and that based on the information before CBP, the correct liquidation was not demonstrated and denied the protest. However, the Federal Circuit reversed the lower court and found the importer provided sufficient notice to trigger the statute. In a similar situation, the case of NEC Solutions v. U.S., (CIT 2003) aff’d. 441 F.3d. 1340 (Fed. Cir. (2005)) that a notice which stated “there should be no un-liquidated entries of television receivers” was sufficient notice of the lifting of suspension even though it did not provide information necessary to liquidate the entries. Accordingly, the fact that the claimant provided a CMD which did not match the CMD that was on file also would appear to meet the requirement that CBP be notified of the error within one year from liquidation.
Because the correct CMD 900015 may also have been used by the claimant either on other claims filed by the claimant or the claimant might have issued the CMD to allow other claimants to file claims, there is the possibility that double claims based on the same merchandise may be paid. It appears that the claimant’s customs broker filed the CMDs for the claimant and prepared the claims. Based on the factual situation already described, the broker appears to have failed to exercise responsible supervision in its preparation of the claims and that the claimant appears to have failed to exercise reasonable care in its recordkeeping and preparation of the claims. The matter should be further investigated and appropriate action taken against the broker and claimant. Note, however, because of the effective date of 19 USC 1593a, as implemented by TD 00-5 (65 FR 3803, Jan. 19, 2000), action against the claimant under that statute appears to be precluded.
HOLDING:
The protest is to be granted and the claims re-liquidated for the reasons set forth.
In accordance with the Protest/Petitioning Processing Handbook (CIS HB January 2002, pp 18 and 21,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. Any re-liquidation of the entries in accordance with this decision must be accomplished prior to mailing of the decision. Sixty days from the date of this decision this office 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 means of public distribution.
Sincerely
Myles B. Harmon, Director
Commercial and Trade Facilitation Division