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HQ 222808


February 4, 1991

PRO-4/DRA-1-02-CO:R:C:E 222808 PH

CATEGORY: DRAWBACK

Area Director
New York Seaport Area
ATTN: Mr. Joseph DiSalvo

RE: Internal Advice Request on Protest of Drawback Denial; 19 U.S.C. 1313(a); 19 U.S.C. 81c(a), Fourth Proviso; Detrimental Reliance; Protest 1001-88-006740

Dear Sir:

With its October 31, 1990, (File: PRO-2-05-O:C:R JAD), memorandum, the Protest and Control Section in your Area forward- ed the subject protest file. As is pointed out in the materials in the file, the protest does not appear to meet the requirements for further review (see 19 CFR 174.24 and 174.25). In view of the special circumstances in this case, and because no action has thus far been taken on the protest (i.e., Block 13 of the protest form has not been completed), we are treating the memorandum from your Protest and Control Section as a request for internal advice (see 19 CFR 177.11). We are returning the protest files for action as indicated in this letter. Our advice follows.

FACTS:

This protest concerns the denial of drawback under 19 U.S.C. 1313(a). According to the file (this statement of facts is based on uncontradicted information in the file), imported pharmaceuti- cal merchandise was used in the manufacture of pharmaceutical tablets under a drawback contract submitted by the protestant on March 24, 1987, and approved by Customs on April 10, 1987. The dates of the entries for the imported merchandise are April 4 and September 10, 1985, and July 11, 1986.

The tablets were manufactured pending approval by the Food and Drug Administration (FDA). The protestant states that because of a delay in FDA approval, the protestant decided to destroy the tablets. The protestant was unable to find a foreign trade zone (FTZ) with an environmentally acceptable facility in which to destroy the tablets and learned that the only such facility in the area was Rollins Environmental Service in Bridgeport, New Jersey (Rollins). On September 30, 1987, the protestant wrote to Customs in Philadelphia, Pennsylvania, seeking permission to file a FTZ entry and for a FTZ operator to file a Notice of Destruction with Customs for direct in-bond transportation to Rollins. In this letter the protestant stated that the reason for its request was that "it is not possible to properly incinerate the [tablets] in a FTZ."

The Customs official to whom the protestant wrote its September 30, 1987, letter advised the protestant that the tablets did not need to be transferred to a FTZ for destruction in order to claim drawback under 19 U.S.C. 1313(a). The Customs official approved the destruction of the tablets at Rollins and they were there destroyed on or about November 16, 1987. In a letter dated August 3, 1988, the Customs official confirmed the above actions.

A drawback entry was filed by the protestant on January 20, 1988. The drawback entry was liquidated on May 27, 1988, with drawback denied. The subject protest/application for further review was filed on August 16, 1988.

ISSUE:

May a protest of the denial of drawback under 19 U.S.C. 1313(a) be granted when the articles manufactured from the imported merchandise were destroyed outside a FTZ without having been actually taken into the FTZ, but the destruction outside the FTZ was approved by a Customs official who advised the protestant that the articles did not need to be transferred to a FTZ for destruction in order to claim drawback under 19 U.S.C. 1313(a)?

LAW AND ANALYSIS:

Drawback under section 313(a), Tariff Act of 1930, as amended (19 U.S.C. 1313(a)) is authorized "[u]pon the exportation of articles manufactured or produced in the United States with the use of imported merchandise", upon compliance with the provisions in 19 U.S.C. 1313 and the Customs Regulations issued thereunder (19 CFR Part 191). Pursuant to the fourth proviso of section 3 of the Foreign Trade Zone Act of 1934, as amended (19 U.S.C. 81c), under rules and regulations of the appropriate Federal agencies, articles which have been taken into a FTZ for "the sole purpose of exportation, destruction ..., or storage" shall be considered to be exported for the purpose of drawback and certain other provisions. The Customs Regulations with regard to FTZ's are found in 19 CFR Part 146 (see, in particular, 19 CFR 146.44; see also 19 CFR 191.161 et seq.).

The only authority for permitting the destruction of merchandise outside a FTZ to qualify for exportation of the merchandise for purposes of drawback under the fourth proviso of 19 U.S.C. 81c is found in 19 CFR 146.52(e) and 146.70(a). These regulations provide that Customs may permit the destruction of merchandise covered by this provision to be transferred from a FTZ to Customs territory and there destroyed under certain circumstances. However, the merchandise must actually have been taken into the FTZ.

In this case, the merchandise was not actually taken into the FTZ and, therefore, in the normal course of events, drawback should not be granted. However, the protestant has provided clear evidence that it acted with the approval of an appropriate Customs official. That Customs official has verified that he advised the protestant that the merchandise did not need to be transferred to a FTZ for destruction in order to claim drawback under 19 U.S.C. 1313(a). In a recent ruling (File: DRA-4 CO:R:C:E 221245 GG, dated October 19, 1990, copy enclosed) we concluded that in such an instance an otherwise eligible drawback claimant should not be penalized for its failure to follow the correct procedure (see first paragraph on page 8 of the refer- enced ruling). Accordingly, we conclude that the protest should be granted in this case, assuming that the protestant otherwise qualifies for drawback.

HOLDING:

Normally, drawback under 19 U.S.C. 1313(a) may not be granted when the articles manufactured from the imported merchan- dise were destroyed outside a FTZ without having been actually taken into the FTZ. When, as in this case, the destruction outside the FTZ was approved by an appropriate Customs official who advised the protestant that the articles did not need to be transferred to a FTZ for destruction in order to claim drawback under 19 U.S.C. 1313(a), an otherwise eligible drawback claimant should not be penalized for its failure to follow the correct procedure (Ruling 221245).

You are directed to grant the protest under consideration, provided that the protestant otherwise qualifies for drawback.

Sincerely,

John Durant, Director

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