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HQ 222810


January 7, 1992

DRA-2-01-CO:R:C:E 222810 PH

CATEGORY: DRAWBACK

Regional Director of Customs
Commercial Operations Division
Pacific Region
One World Trade Center, Suite 705
Long Beach, California 90831-0700

RE: Manufacturing Drawback Claims; Protests 2704-90-000647; 2704-90-000649; 2704-90-000648; 2704-90-000013; 2704-90- 000062; 2704-90-000063; 2704-90-000011

Dear Sir:

The above-referenced protests were forwarded to this office for further review. We have considered the points raised by your office, the protestant, and the materials in the file. Our decision follows.

FACTS:

Protest 2704-90-000647 (hereafter, in referring to protests, only the last six digits will be used) is of the liquidation of six drawback entries (or claims), five dated April 11, 1986, and one dated December 15, 1986. The entries covered by the protest were the subject of a Customs audit and, after the audit (Report 7-88-DRO-016, dated September 30, 1988), the claimant was given the opportunity to recompute the drawback on the basis of the audit and submit amended claims which were to be addressed in a follow-up to the September 30, 1988, Audit Report (as is true of the entries covered by all of the protests addressed in this ruling). In four of the entries covered by this protest, for which it was recommended in the Audit Report that drawback be denied on the basis of failure by the claimant to receive or use the designated merchandise (crude oil) or failure to meet the regulatory requirements for "trade-off" (see 19 CFR 191.27), the non-qualifying designated oil was not deleted from the initial entries, and therefore all of the amended drawback computations were determined to be in error (hereafter this discrepancy is described as "Discrepancy 2", see the Notes to Exhibits in the follow-up to the Audit Report). In the remaining two entries, new designations of crude oil were made but they were stated to be untimely because they were submitted in excess of three years after the date of export and therefore all of the amended drawback computations were determined to be in error ("Discrepancy 3"). The entries, totalling $315,275.16 in drawback claims for which accelerated drawback had been given, were liquidated, with the denial of all drawback, on November 13, 1989. All entries covered by this protest were liquidated consistently with the follow-up to the Audit Report.

Protest 000649 is of the liquidation of seven drawback entries, each dated August 26, 1986. In two of the entries covered by this protest both Discrepancy 2 and 3 were noted. In the remaining five entries Discrepancy 3 was noted. The entries, totalling $257,391.02 in drawback claims for which accelerated drawback had been given, were liquidated, with the denial of all drawback, on November 13, 1989. All entries covered by this protest were liquidated consistently with the follow-up to the Audit Report.

Protest 000648 is of the liquidation of thirteen drawback entries, twelve dated August 8, 1986, and one dated November 13, 1986. Deficiencies were noted in the Audit Report with regard to all of these entries in the accounting method ("Discrepancy 1") and in claims for downstream drawback (drawback deliveries) (with regard to these latter deficiencies, it was also noted that these errors could not be timely corrected by the submission of proper documents) ("Discrepancy 8"). Partial relief was recommended in the follow-up to the Audit Report on the basis of the use of the acceptable accounting method and the correction of minor arithmetic errors (where such errors had occurred). The entries, totalling $384,230.19 in drawback claims for which accelerated drawback had been given, were liquidated, with the granting of $148,419.63 in drawback, on November 13, 1989. All entries covered by this protest were liquidated consistently with the follow-up to the Audit Report. There is one discrepancy in the entries covered by this protest, in that the 12th entry in the package, in which $41,359.11 was originally claimed as drawback and the liquidation was with $9,716.11 in drawback, is missing the digit "1" at the end of the entry number.

Protest 000013 is of the liquidation of five drawback entries, each dated December 18, 1986. Because there are some mis-transcriptions in the entries covered by this protest in the follow-up to the Audit Report, we are analyzing the entries separately.

In the first of these entries, $27,486.04 in drawback was initially claimed and deficiencies were noted. New designations of crude oil were made in the amended entry (for $22,886.15 in drawback) but, on the basis of Discrepancy 3, denial of all drawback was recommended and the entry was so liquidated.

In the second of these entries, $54,229.58 in drawback was initially claimed and deficiencies were noted. New designations of crude oil were made in the amended entry (for $55,622.10 in drawback) but, on the basis of Discrepancy 3, denial of all drawback was recommended and the entry was so liquidated. Also, other errors were noted with regard to the calciner part of the claims ("Discrepancy 4").

In the third of these entries, $46,248.81 in drawback was initially claimed and deficiencies were noted. New designations of crude oil were made in the amended entry (for $52,881.04 in drawback) but, on the basis of Discrepancy 3, denial of all drawback was recommended and the entry was so liquidated. Discrepancy 4 was also noted with regard to this entry.

In the fourth of these entries, $27,259.64 in drawback was initially claimed and deficiencies were noted. New designations of crude oil were made in the amended entry (for $23,182.72 in drawback) but, on the basis of Discrepancy 3, denial of all drawback was recommended and the entry was so liquidated.

In the fifth of these entries, $30,119.93 in drawback was initially claimed and only Discrepancy 1 was noted. An amended entry (for $28,555.38) was made, with an acceptable accounting method. The entry was liquidated as amended (i.e., with drawback in the amount of $28,555.38).

Accordingly, the entries covered by this protest, totalling $185,344.00 in drawback claims for which accelerated drawback had been given, were liquidated, with the granting of $28,555.38 in drawback, on October 6, 1989. Although, as noted above, there are mis-transcriptions of these entries in the follow-up of the Audit Report, a thorough review of the recommendations therein confirms that all entries covered by this protest were liquidated consistently with the follow-up to the Audit Report.

Protest 000062 is of the liquidation of four drawback entries, each dated December 18, 1986. Discrepancies 2, 3, and 4 were noted for these entries (not all of these deficiencies were applicable to each entry; only some are applicable to each). The entries, totalling $158,392.57 in drawback claims for which accelerated drawback had been given, were liquidated, with the denial of all drawback, on October 13, 1989. All entries covered by this protest were liquidated consistently with the follow-up to the Audit Report.

Protest 000063 is of the liquidation of nine drawback entries, four dated November 13, 1986, three dated November 6, 1986, and two dated November 5, 1986. Discrepancy 8 was noted in the Audit Report with regard to each of these entries. In addition, in five of these entries Discrepancy 2 was noted and in the other four entries Discrepancy 1 was noted. The entries, totalling $278,266.28 in drawback claims for which accelerated drawback had been given, were liquidated, with the granting of $28,551.12 in drawback, on October 13, 1989. All entries covered by this protest were liquidated consistently with the follow-up to the Audit Report.

Protest 000011 is of the liquidation of one drawback entry, dated November 13, 1986. In this entry Discrepancies 1 and 8 were noted. The entry was for $18,587.92 in drawback, for which accelerated drawback had given. It was liquidated, with the granting of $1,196.67 in drawback, on October 6, 1989. The entry covered by this protest was liquidated consistently with the follow-up to the Audit Report.

Protests 000647 and 000649 were filed on February 9, 1990. In each protest, the protestant claims that the liquidation was "erroneous and illegal", that the claim for drawback is authorized by 19 U.S.C. 1313(a), and that the merchandise in question is subject to a valid drawback contract approved by Customs in Treasury Decisions (T.D.'s) 66-247-(1) and 73-124- (3). The protestant also claims that the liquidation of the entries is inconsistent with the findings of the Regulatory Audit Division.

Protest 000648 was filed on February 9, 1990, protests 000013 and 000011 on January 2, 1990, and protests 000062 and 000063 on January 5, 1990. In each protest, the protestant claims that the liquidation was "erroneous and illegal", that the claim for drawback is authorized by 19 U.S.C. 1313(a), and that the merchandise in question is subject to a valid drawback contract approved by Customs in T.D.'s 66-247-(1) and 73-124- (3). The protestant also claims that on November 10, 1988 (with regard to protests 000648, 000063, and 000011), and November 7, 1988 (with regard to protests 000013 and 000062), it filed amendments of its drawback "claims" pursuant to 19 CFR 191.64 and 191.141(g)(2) and, therefore, the protest should be given further review under 19 CFR 174.24.

ISSUE:

Is there authority to grant the Protests/Applications for Further Review of denial of drawback described in the FACTS portion of this ruling?

LAW AND ANALYSIS:

Initially, we note that each of the protests, with applications for further review, were timely filed under the statutory and regulatory provisions for protests (see 19 U.S.C. 1514 and 19 CFR Part 174). We note that the refusal to pay a claim for drawback is a protestable issue (see 19 U.S.C.

We also note that the drawback entries which are protested are for drawback under 19 U.S.C. 1313(b), not section 1313(a) as the protestant states. Basically, section 1313(b), often called the manufacturing substitution drawback law, provides that if imported duty-paid merchandise and duty-free or domestic merchandise of the same kind and quality are used within three years of the receipt of the imported merchandise in the manufacture or production of articles by the manufacturer or producer of the articles and the articles manufactured or produced from the duty-free or domestic merchandise are exported, 99 percent of the duties on the imported duty-paid merchandise shall be refunded as drawback, even if none of the imported merchandise was actually used in the manufacture or production of the exported articles. The Customs Regulations pertaining to drawback are found in 19 CFR Part 191.

In the case of five of the protests (000648, 000013, 000011, 000062, and 000063), the protestant claims that it filed amendments to its drawback claims under 19 CFR 191.64 and 191.141(g)(2) (this latter provision is not applicable in this case, since it deals with same condition drawback, under 19 U.S.C. 1313(j)), and it gives the dates on which it claims to have filed these amendments. Section 191.64 does permit the amendment or correction of a drawback claim or the filing of a supplemental entry, with the permission of the regional commissioner. We note that in this case Customs did give the protestant the opportunity to file amended claims and the protestant did so. Even though the amended claims were filed after the time period Customs gave for filing them, Customs accepted and processed them.

We believe, with regard to the immediately preceding paragraph, that instead of contending that it filed amendments to its drawback claims, the protestant means that it filed amendments to its drawback contracts (see 19 CFR 191.25, for the Customs Regulations pertaining to the modification or amendment of drawback contracts). The protestant did send letters, with the dates cited in these protests, purporting to request the amendment of its drawback contract. Because these proposals did not meet the statutory and regulatory requirements as submitted, we requested further information from the protestant. The protestant did provide further information but there were still numerous legal deficiencies in the proposals. By letters of February 20, 1990 (in each case), we advised the protestant of the deficiencies in the proposals, adding that upon receipt of new proposals we would give consideration to the operations the protestant sought for drawback. No such new proposals have been received by Customs and no such new drawback contracts exist, although we note that on June 18, 1991, a drawback contract (T.D. 91-72-4) was approved for a corporation which operates two of the factories formerly operated by the protestant. However, in view of the time requirements in section 1313(b) and Customs position on successorship (see C.S.D. 89-1), we fail to see any way in which approval of this latter drawback contract can have any effect on the protests under consideration. The protests are DENIED with regard to this issue.

In the case of protests 000647 and 000649, the protestant claims that the liquidation of the entries covered by the protests was inconsistent with the findings of the Regulatory Audit Division. Although we have noted (in the FACTS portion of this ruling) that there were mis-transcriptions in the recommen- dations in the follow-up to the Audit Report with regard to protest 000013, a thorough review of all of the protests revealed no inconsistencies with the findings and recommendations of the Regulatory Audit Division. The protestant does not explain its contention in this regard, nor does it provide any specifics on this issue. As the Courts have stated, "[d]etermination of issues in customs litigation may not be based on supposition" (United States v. Lineiro, 37 CCPA 5, 10, C.A.D. 410 (1949); see also, with regard to the burden of evidence in protests, United States v. Holt, 17 CCPA 385, T.D. 43822 (1930), and United States v. Morris European & American Express Co., 3 Ct. Cust. App. 146, T.D. 32386 (1912), the former involving the protest of the disallowance of a drawback claim). The protests are DENIED with regard to this issue.

Another issue which is raised by these protests, although not addressed by the protestant, is that of the time within which a drawback entry must be completed. Under 19 CFR 191.61, a drawback entry and all documents necessary to complete a drawback claim must be filed within three years after the date of exportation of the articles on which drawback is claimed, with an exception not applicable in this case. Also under section 191.61, no extension of this time may be granted unless it is established that a Customs officer was responsible for the untimely filing. There is no evidence in the file in this case justifying an extension under this latter provision.

According to the follow-up to the Audit Report, in a number of entries all of the amended drawback computations were determined to be in error because new designations of crude oil were not timely filed under 19 CFR 191.61 (Discrepancy 3). This is true of entries in protests 000647, 000649, 000013, and 000062. Pursuant to 19 CFR 191.61, all designations of crude oil which were not timely filed under that section will result in denial of the drawback for the quantity of exported articles produced from those designations. However, if there are designations of crude oil within the entry which were timely filed, drawback may (and should) be granted against those designations (although not against the untimely filed designations), assuming the qualifying and non-qualifying designations can be segregated and, provided that all applicable statutory and regulatory requirements are complied with. For example, in the fourth entry covered by protest 000013 (described in the FACTS portion of this ruling), initially drawback in the amount of $27,259.64 was claimed and the initial Audit Report found discrepancies in the accounting method in the amount of $4,077.02. The follow-up to the Audit Report recommended denial of all drawback, and the entry was so liquidated, because new designations not on the original drawback claim were untimely submitted and "the inclusion of erroneous designations causes all amended drawback computations to be in error." (See also, the sixth entry covered by protest 000647, in which $60,657.22 in drawback was initially claimed, $153.01 in accounting method discrepancies were noted, the amended claim was for $61,486.96 in drawback, and the follow-up to the Audit Report recommended denial of all drawback, and the entry was so liquidated, for the same reason.)

In regard to this issue, see United States v. Boyle Mfg. Co., Inc., 31 CCPA 1, C.A.D. 240 (1943), in which part of a drawback claim was allowed even though the time requirements applicable in the case were not met with the remainder of the claim, for which drawback was denied (note also, that in the Boyle case the Court approved a system which allowed what it called a "fair inference" for use in determining the quantity of exports meeting the time requirement). To the extent that there are designations of crude oil within an entry which were timely filed, provided that the timely and untimely filed designations can be segregated and that all applicable statutory and regulatory requirements are complied with, the protests are GRANTED, with regard to the timely designations (but not the untimely designations).

Similarly, we note that according to the follow-up to the Audit Report, in a number of the entries all of the amended drawback computations were determined to be in error because the claimant did not delete from the initial entries non-qualifying designated oil (not meeting the "trade-off" requirements) (Discrepancy 2). This is true of entries in protests 000647, 000649, 000062, and 000063. On the same basis as that stated in the immediately preceding paragraph, if qualifying and non- qualifying designations of crude oil in the entries in which this deficiency exists can be segregated, drawback may (and should) be granted, provided that all applicable statutory and regulatory requirements are complied with. To the extent that the entries covered by these protests include qualifying (insofar as this issue is concerned) designations of crude oil, provided that the qualifying and non-qualifying designations of crude oil can be segregated and that all applicable statutory and regulatory requirements are complied with, the protests are GRANTED, with regard to the qualifying designations (but not the non-qualifying designations).

HOLDING:

The disposition of the Protests/Applications for Further Review of denial of drawback described in the FACTS portion of this ruling is as follows:

1. The protests are DENIED with regard to the contention of the protestant that the drawback entries covered by the protests may be subject to new drawback contracts.

2. The protests are DENIED with regard to the contention of the protestant that liquidation of the entries covered by the protests was inconsistent with the findings of the Regulatory Audit Division.

3. To the extent that there are designations of crude oil within the entries covered by these protests which were timely filed (with regard to Discrepancy 3), provided that the timely and untimely filed designations can be segregated and that all applicable statutory and regulatory require- ments are complied with, the protests are GRANTED, with regard to the timely designations (but not the untimely designations).

4. To the extent that the entries covered by these protests include qualifying (with regard to Discrepancy 2) designa- tions of crude oil, provided that the qualifying and non- qualifying designations of crude oil can be segregated and that all applicable statutory and regulatory requirements are complied with, the protests are GRANTED, with regard to the qualifying designations (but not the non-qualifying designations).

The protest is DENIED, in part, and GRANTED, in part. A copy of this decision should be attached to the Form 19, Notice of Action, to be sent to the Protestant.

Sincerely,

John Durant, Director

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