DRA-4-CO:R:C:E 222975 GG
Regional Commissioner of Customs
c/o Protest and Control Section
6 World Trade Center
Room 762
New York, New York 10048-0945
RE: Application for Further Review of Protest No. 1001-0-005618;
19 U.S.C. 1313(j); destruction; valuable waste
Dear Sir:
This is in response to the protest referenced above, which
was forwarded to Headquarters on January 23, 1991, for further
review. Our decision follows.
FACTS:
The protestant imported a TSK Web Fed Offset Press on May
29, 1989. The press was packed in 56 cases. It was entered
under subheading 8443.90.50008, Harmonized Tariff Schedule of the
United States (HTSUSA) as machine parts, other, for printing
machinery, dutiable at a rate of 3.3%. Duty totaling $52,059.17
was assessed on the merchandise. Subsequent to the press's
entry, but prior to its use, the protestant determined that it
was necessary to replace the parts that had been shipped in case
# P37, which were a metal rail frame and metal connecting frames.
These replacement parts were supplied by the manufacturer under
warranty.
On October 30, 1989, the protestant filed same condition
drawback entry # xxx-xxxxxxx-x on the parts in question. It
listed the value of the parts as $143,164.00, and the duty paid
on those parts as $4,724.41. The protestant indicated on the
Customs Form (CF) 7539 (drawback entry) that the merchandise
would be destroyed under Customs' supervision, and, as required
by section 191.141(f) of the Customs regulations, notifed Customs
of the intended destruction by filing a CF 3499.
In its description of the proposed destruction appearing on
the CF 3499, the protestant wrote that the parts were "to be
destroyed with a wrecking ball to a point unsuitable for reuse or
resale." Customs indicated its approval of this method when a
Customs officer signed off on the CF 3499 on November 11, 1989.
The protestant was notified by letter dated January 16,
1990, that in order to complete its drawback claim it would have
to have a Customs officer describe, on the reverse side of the CF
3499, how the parts had been destroyed. In response, the
protestant's broker wrote that Customs had waived supervision of
the destruction. The broker enclosed a statement, prepared by
the company that had been hired by the protestant to destroy the
machine parts, which conveyed the information that the
"destruction" would consist of the parts being dismantled for
scrap iron. The statement noted that the parts would not be
resold as usable equipment. In its protest, the protestant also
states that, prior to their dismantling, the frames were struck
with a heavy, solid metal ball.
Customs denied the claim for drawback on the ground that
there was an incomplete destruction. The drawback entry was
liquidated "no drawback" on March 30, 1989. The protestant
timely protested Customs' refusal to pay its drawback claim.
ISSUE:
Whether the operation of striking machine parts with a
heavy, solid metal ball and then dismantling the parts for scrap
iron, constitutes a destruction for same condition drawback
purposes? Does a surrender of ownership and control of the scrap
iron, or a waiver of supervision of the destruction by Customs,
affect the outcome?
LAW AND ANALYSIS:
The statutory provision governing same condition drawback
(Section 313(j) of the Tariff Act of 1930, as amended (19 U.S.C.
1313(j) (1991)) expressly authorizes destruction of merchandise
under Customs' supervision in lieu of its exportation. The
decision as to whether to elect to export or destroy the
merchandise is left up to the exporter/claimant. Here, the
protestant chose to destroy the spare parts, and provided Customs
with the requisite notice (the CF 3499) of the intended
destruction. At issue is whether the processes to which those
parts were subjected resulted in a satisfactory destruction for
same condition drawback purposes.
The protestant argues that there is a proper destruction
when processes render imported merchandise unsuitable for its
intended purpose. However, destruction has been defined to mean
destruction as an article of commerce. See American Gas
Accumulator Co. v. United States, T.D. 43642, 56 Treasury
Decision 368 (1929); see also T.D. 54899(1). This definition has
been adopted for the purposes of describing destruction under the
same condition drawback law. See HRL DRA-4-CO:R:C:E 221571
February 4, 1991; HRL DRA-4-CO:R:C:E 221050 September 20, 1989;
HRL DRA-1-09-CO:R:C:E 220205 June 22, 1988. Metal scrap
remaining from the dismantling of spare machine parts has value,
and its ability to be bought or sold renders it an article of
commerce. Consequently, the machine parts were not destroyed for
drawback purposes when they were hit with a wrecking ball and
were then dismantled for scrap, despite the fact that they could
no longer be used for their intended purpose.
Contrary to the claim of the protestant, it is immaterial
that the protestant surrendered ownership and control of the
parts to the demolition firm. The crucial factor which leads to
the denial of drawback is that articles of commerce, in the form
of valuable scrap, remained in Customs' territory after the
purported destruction.
The protestant cites Customs Service Decision (C.S.D.) 80-
67 in support of its position that a "destruction" operation from
which valuable waste remains is a destruction for drawback
purposes. This position misinterprets C.S.D. 80-67, which stands
for the proposition that a partial destruction of merchandise is
permitted when that merchandise has been admitted into a foreign
trade zone (FTZ) in zone restricted status for the purpose of
effectuating an exportation. The fourth proviso of Section 81c
of the Foreign Trade Zones Act of 1934 (19 U.S.C. 81c) provides
that articles which have been taken into a FTZ from Customs'
territory for the sole purpose of exportation, destruction, or
storage, shall be considered to be exported for drawback
purposes. Under such circumstances, a partial destruction which
leaves valuable scrap will not serve to negate the constructive
exportation, because, by being in zone restricted status, the
scrap cannot enter U.S. commerce, but can only be further
destroyed, stored, or exported, unless the Foreign Trade Zones
Board deems such a return to be in the public interest. The
protestant's situation is distinguishable, because the protestant
elected to destroy the frames in Customs' territory instead of
choosing to have them deemed exported by way of admission into a
FTZ. By being outside of a FTZ, the frames had to be completely
destroyed so that valuable scrap could not be introduced into
commerce.
The protestant also argues that by waiving supervision of
the destruction of the machine parts, Customs gave up its right
to question the sufficiency of the destruction. Had Customs
attended the "destruction", the protestant reasons, then it could
have raised objections at that time. However, a waiver of
supervision does not mean that Customs is guaranteeing the
sufficiency of the destruction. A complete destruction must
still occur. The subsequent discovery that destruction was
incomplete provides Customs with sufficient justification to deny
drawback.
Finally, the protestant asserts that Customs' destruction
requirements - which in this case, according to the protestant,
would require the burial of the scrap - may conflict with other
federal, state and local environmental laws governing the
disposal of waste. In support of this view, it cites both a
federal statute which encourages a reduction in the amount of
waste and unsalvagable materials generated and the development of
alternative waste disposal methods, and New Jersey (where the
operation occurred) laws which state that it is in the public
interest to mandate source separation of marketable waste to
recover reusable material. By inference, Customs' insistence on
complete destruction violates the spirit of these laws, and in
this particular instance would prevent the protestant, who has to
abide by state law, from taking advantage of a privilege
conferred by federal law. While we recognize the protestant's
dilemma, Customs nevertheless must follow the established legal
precedent, set down in American Gas Accumulator, on the
definition of destruction of articles within Customs' territory.
Congress also apparently envisioned complete destruction with
respect to drawback in line with the holding of that case,
because Public Law 96-609, in which the same condition drawback
law first appeared, made provision for the cancellation of
temporary importation bonds upon a tender of duty on valuable
wastes left over from the alteration or processing of imported
merchandise, but made no provision for the allowance of drawback
upon the payment of duty on valuable wastes left over from a
destruction under 19 U.S.C. 1313(j).
HOLDING:
An operation which consists of striking machine parts with a
heavy, solid metal ball and then dismantling the parts for scrap
iron, does not amount to a destruction for same condition
drawback purposes, for the reason that destruction means
destruction as an article of commerce, and valuable scrap iron is
an article of commerce. Neither a transfer of ownership and
control of the scrap iron from the exporter/claimant to another
party, nor a waiver by Customs of supervision of the destruction,
will affect this outcome.
You are directed to DENY this protest in full. A copy of
this decision should be attached to the CF 19, Notice of Action,
and sent to the protestant to satisfy the notice requirement of
section 174.30(a) of the Customs Regulations.
Sincerely,
John Durant
Director, Commercial