CON-13-01/DRA-4-CO:R:C:E 224344 PH
Mr. Frederick B. Anderson
Controller
Esso Standard Oil Co. (Puerto Rico)
Post Office Box 364269
San Juan, Puerto Rico 00936-4269
RE: Jet Fuel for United States Aircraft Engaged in Trade between
Puerto Rico and Mainland United States; Substitution Same
Condition Drawback; 19 U.S.C. 1309; 19 U.S.C. 1313(j)
Dear Mr. Anderson:
In your letter of December 7, 1992, you asked that we rule on
a number of questions you raise on the applicability of drawback
and the provisions of 19 U.S.C. 1309 to jet fuel loaded in Puerto
Rico on aircraft of a United States airline when the majority of
the aircraft have mainland United States destinations. You
provided additional comments and material with your letter of
December 21, 1992. Our ruling follows.
FACTS:
You state that your company supplies jet fuel to commercial
airlines in Puerto Rico. From time to time, due to the non-
availability of jet fuel from local sources in Puerto Rico, your
company purchases jet fuel from Venezuela. Your company sells this
fuel to a United States airline for use on its flights leaving
Puerto Rico. The majority of these flights have mainland United
States destinations. Your company can demonstrate sales volumes
to the United States airline in excess of the volumes upon which
Customs duties have been paid. The United States airline has
agreed to assign all rights to drawback for fuel delivered in San
Juan, Puerto Rico, to your company.
In the materials you enclosed with your letter, the process
for handling the jet fuel is described. According to this
description, imported jet fuel is commingled in a tank with jet
fuel which your company has bought from local suppliers. The jet
fuel is transferred to the airport by pipeline (by tanker truck in
the case of aviation gasoline) and at the airport it is delivered
to aircraft via a hydrant system. According to the enclosed
materials, your company has documents to substantiate the purchase
of the jet fuel and its exportation, and these documents will be
available for examination by Customs upon request. Also according
to the enclosed materials, your company's accounting and inventory
systems can provide a basis for the direct identification and
substitution of the imported jet fuel.
You request rulings on the issues listed in the ISSUES portion
of this ruling.
ISSUES:
(1) Should your company file for drawback under 19 U.S.C.
1309(b) or under 19 U.S.C. 1313(j)(2) or, if neither of these
provisions is applicable, what drawback provision is applicable to
your company's operation?
(2) Does the decision on fungibility in Customs Service
Decision (C.S.D.) 91-21 apply to the described situation (i.e., if
your company can demonstrate loaded volumes of jet fuel to the
United States airline (Jet A for Jet A or Jet A-1 for Jet A-1) in
excess of the volumes for which duties have been paid, may drawback
on the jet fuel for which duties have been paid be obtained,
notwithstanding that the imported fuel does not remain in a
continuously bonded status while in Puerto Rico)?
(3) Does fuel loaded in Puerto Rico on the aircraft of a
United States airline when the aircraft are used in commercial
flights from Puerto Rico to United States mainland destinations
qualify for drawback under 19 U.S.C. 1309(b)?
(4) Is fuel loaded in Puerto Rico on the aircraft of a United
States airline when the aircraft are used in commercial flights
from Puerto Rico to United States mainland destinations considered
exported for purposes of 19 U.S.C. 1313(j)(2)?
(5) Is fuel imported from Venezuela which is loaded in Puerto
Rico on the aircraft of a United States airline when the aircraft
are used in commercial flights from Puerto Rico to United States
mainland destinations exempt from duties altogether under 19 U.S.C.
1309(a) (i.e., is there a procedure to avoid the "upfront" payment
of duties altogether in such a situation)?
LAW AND ANALYSIS:
Under 19 U.S.C. 1309(a), "[a]rticles of foreign or domestic
origin may be withdrawn, under such regulations as the Secretary
of the Treasury may prescribe, from any customs bonded warehouse,
from continuous customs custody elsewhere than in a bonded
warehouse, or from a foreign-trade zone [FTZ] free of duty and
internal-revenue tax ... for supplies ... of aircraft registered
in the United States and actually engaged in foreign trade or trade
between the United States and any of its possessions, or between
Hawaii and any other part of the United States or between Alaska
and any other part of the United States ... [except that the
provisions for free withdrawals in this section are not applicable
to petroleum products for aircraft in flights exclusively between
Hawaii or Alaska and any United States airport]."
Under 19 U.S.C. 1309(b), "[a]rticles withdrawn from bonded
warehouses, bonded manufacturing warehouses, continuous customs
custody elsewhere than in a bonded warehouse, or from a [FTZ],
imported articles, and articles of domestic manufacture or
production, laden as supplies upon any such vessel or aircraft of
the United States ... shall be considered exported within the
meaning of the drawback provisions of this chapter."
The Customs Regulations issued under the authority of 19
U.S.C. 1309 are found in 19 CFR 10.59 through 10.65.
The foregoing statutory provisions apply, and complement the
drawback law (19 U.S.C. 1313), in the situation you describe as
follows. Under 19 U.S.C. 1309(a), imported jet fuel may be
withdrawn from continuous Customs custody, a Customs bonded
warehouse, or a FTZ for United States registered aircraft actually
engaged in trade between the United States and any of its
possessions. To be "actually engaged" in such trade, the aircraft
must meet the criteria in 19 CFR 10.59(a) (see 19 CFR 10.59(d)
making these criteria and other provisions in 19 CFR 10.59 - 10.64
applicable to aircraft). Briefly, these criteria are that the
aircraft must be operated on a regular schedule and they must be
transporting passengers and/or merchandise between a port in the
possession and a port in the United States or departing in ballast
from one port for another for the purpose of loading passengers
and/or merchandise for carriage in such trade). Puerto Rico is a
possession of the United States for purposes of this provision (see
Treasury Decision (T.D.) 45047 (1931), and letters CON-13-CO:R:E:E
719052, April 7, 1982 and CON-13 R:E:E 300922 SO, October 3, 1973).
Thus, in the situation you describe, imported jet fuel could
be withdrawn for the aircraft under consideration (i.e., United
States-registered aircraft actually engaged in trade between Puerto
Rico and the United States or foreign trade, assuming that they are
operated on a regular schedule). Use of this provision would
enable your company to avoid payment of duties on the imported jet
fuel altogether (i.e., drawback would not actually be involved,
since no duties would have been paid). However, we emphasize that
this provision could be used only if the jet fuel was withdrawn for
the qualifying aircraft from continuous Customs custody, a Customs
bonded warehouse, or a FTZ. That does not appear to be the case,
and certainly would not be the case if the imported jet fuel was
commingled with domestic fuel as described (see letter CON-13-01
R:E:E 301075 D, December 11, 1973).
Drawback is not authorized by 19 U.S.C. 1309(b) standing
alone. What this provision does is provide that articles are
considered to be exported, for purposes of the drawback law, when
they are loaded as supplies on qualifying aircraft or vessels
(qualification of aircraft or vessels is determined by the same
criteria as are used for purposes of 19 U.S.C. 1309(a); see above).
The articles still must qualify for drawback under a provision of
the drawback law (19 U.S.C. 1313).
Basically, under 19 U.S.C. 1313(j)(2), drawback is authorized
if:
(1) there is imported merchandise [i.e., the designated
merchandise] upon which any duty was paid; and
(2) there is any other merchandise (imported or domestic)
[i.e., the substitute merchandise] which--
(a) is fungible with the imported merchandise;
(b) is exported or destroyed within 3 years of the
importation of the imported merchandise;
(c) before exportation or destruction--
(i) is not used in the United States; and
(ii) is in the possession of the drawback claimant; and
(d) is in the same condition at the time of exportation
or destruction as was the imported merchandise at the time
of importation.
In the situation you describe, there is imported merchandise
upon which duty was paid (i.e., the jet fuel imported from
Venezuela upon which you state duty was paid). There is other
merchandise (i.e., the jet fuel which you state is obtained from
local sources in Puerto Rico). If this other merchandise: (1) is
fungible with the imported merchandise; (2) is exported or
destroyed within 3 years of the importation of the imported
merchandise; (3) before exportation or destruction is not used in
the United States and is in the possession of the drawback
claimant; and (4) is in the same condition at the time of
exportation or destruction as was the imported merchandise at the
time of importation, drawback may be claimed and granted under 19
U.S.C. 1313(j)(2), assuming compliance with all other applicable
statutory and regulatory requirements and the Customs General
Notice discussed below. The fact that the substituted exported
jet fuel may have been, prior to exportation, commingled with other
fungible jet fuel, including the designated imported jet fuel, does
not preclude the granting of drawback under 19 U.S.C. 1313(j)(2).
For purposes of the foregoing requirements, fungibility may
be established as indicated in C.S.D. 91-21. Merchandise meeting
the definitions and descriptions in 19 U.S.C. 1309 may be
considered exported for drawback purposes, under subsection (b) of
that statute. If your company's records can establish compliance
with these and the other applicable requirements (see above),
drawback may be claimed and granted under 19 U.S.C. 1313(j)(2), as
stated above.
Until recently, it had been Customs position that only an
exporter could claim drawback under this provision and that the
designated imported merchandise, as well as the substituted
exported merchandise, had to be possessed by the claimant. However,
in the recent Court cases of Central Soya Co., Inc. v. United
States, 761 F. Supp. 133 (CIT 1991), affirmed, 953 F.2d 630 (Fed.
Cir. 1992), and B. F. Goodrich Co. v. United States, 794 F. Supp.
1148 (CIT 1992), these positions were reversed. In the Central
Soya case, the Court concluded that "in enacting section
1313(j)(2), Congress did not intend to require that a claimant of
substitution same condition drawback must be the exporter of the
substituted merchandise." (761 F. Supp. at 141) In the B.F.
Goodrich case, the Court concluded that "19 U.S.C. 1313(j)(2)
contains no such requirement [i.e., that the drawback claimant must
demonstrate that it possessed the imported merchandise] [nor did
Congress] intend otherwise." (794 F. Supp. 1154-1155) (See also,
the statement by the Court in this case that "... section
1313(j)(2) requires only that a drawback claimant have paid the
duty, tax, or fee for the privilege of importing the goods." (794
F. Supp. at 1150))
To implement the Central Soya and B.F. Goodrich cases, the
Customs Service issued the General Notice published in the Customs
Bulletin and Decisions on October 21, 1992 (copy of General Notice
enclosed). As you can see, among the requirements in the General
Notice is a requirement that every drawback claimant (under 19
U.S.C. 1313(j)(2)) must provide evidence that "the exporter or
destroyer of the merchandise did not an[d] will not authorize any
entity (including itself) other than [the] claimant to claim the
exportation or destruction for drawback ...." A certification
stating compliance with this and certain other requirements, signed
by the exporter or destroyer of the merchandise, together with the
agreement by the exporter or destroyer to provide evidence in
support of the certification, is stated to be satisfactory evidence
for this purpose.
HOLDINGS:
(1) The decision of which provision, 19 U.S.C. 1309(a) or 19
U.S.C. 1313(j)(2), your company should seek to use in the described
operation is a business decision for your company. Your decision
may be based, at least in part, on the different requirements for
each provision, as discussed in the LAW AND ANALYSIS portion of
this ruling and other HOLDINGS in this portion of the ruling.
Under 19 U.S.C. 1309(a), your company may withdraw imported jet
fuel for qualifying aircraft (see HOLDING 3) without the payment
of duty (i.e., without "upfront" duties being paid), provided that
the jet fuel is withdrawn from continuous Customs custody, a
Customs bonded warehouse, or a FTZ and is not commingled with
domestic fuel. Your company may file for drawback under 19 U.S.C.
1313(j)(2), provided that the jet fuel substituted for the
designated imported jet fuel is fungible with the latter (see
C.S.D. 91-21), that it meets the requirements for being considered
exported under 19 U.S.C. 1309(b) (see HOLDING 3), and that it meets
the other applicable requirements in the statutes, regulations, and
General Notice published in the October 21, 1992, Customs Bulletin
and Decisions, as described in the LAW AND ANALYSIS portion of this
ruling.
(2) The decision on fungibility in C.S.D. 91-21 applies to
the described situation for purposes of establishing fungibility
of the designated imported merchandise and the merchandise to be
substituted for it under 19 U.S.C. 1313(j)(2). If your company
can establish the exportation (see HOLDING 3) of jet fuel which is
fungible, under C.S.D. 91-21, with imported jet fuel upon which
your company paid the duties, drawback may be paid on those duties,
based on the quantity of jet fuel exported up to the quantity of
imported jet fuel designated, notwithstanding that the imported
fuel does not remain in a continuously bonded status while in
Puerto Rico, provided that there is compliance with all applicable
statutory and regulatory requirements and the requirements in the
General Notice published in the October 21, 1992, Customs Bulletin
and Decisions, as described in the LAW AND ANALYSIS portion of this
ruling.
(3) Fuel loaded in Puerto Rico on United States-registered
aircraft, when the aircraft are operated on a regular schedule and
are transporting passengers and/or merchandise between a port in
Puerto Rico and a port in the United States or departing in ballast
from one port for another for the purpose of loading passengers
and/or merchandise for carriage in such trade, may be considered
to be exported for drawback purposes under 19 U.S.C. 1309(b).
However, 19 U.S.C. 1309(b) does not, standing alone, authorize
drawback. It provides a means by which merchandise may be
considered to be exported for purposes of the statutes which do
authorize drawback.
(4) Fuel loaded in Puerto Rico on qualifying aircraft (see
HOLDING 3) is considered exported for purposes of 19 U.S.C.
1313(j)(2).
(5) Fuel imported from Venezuela which is loaded in Puerto
Rico on qualifying aircraft (see HOLDING 3) may be exempt from
duties altogether under 19 U.S.C. 1309(a), provided that the jet
fuel was withdrawn from continuous Customs custody, a Customs
bonded warehouse, or a FTZ and that it was not commingled with
domestic fuel.
Sincerely,
John Durant, Director
Commercial Rulings Division