HQ 0222997 - Protest #2304-0-000146 involving same condition drawback claim on destruction of merchandise; 19 U.S.C. 1313(j)(1); 19 CFR 191.156; 19 CFR 191.141(f); 19 CFR 191.22(c). - United States International Trade Commision Rulings

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HQ 222997

September 3, 1992

DRA-4 CO:R:C:E 222997 TLS

CATEGORY: ENTRY

District Director
U.S. Customs Service
Lincoln Juarez Bridge Building 2
P.O. Box 3130
Laredo, Texas 78044-3130

RE: Protest #2304-0-000146 involving same condition drawback claim on destruction of merchandise; 19 U.S.C. 1313(j)(1); 19 CFR 191.156; 19 CFR 191.141(f); 19 CFR 191.22(c).

Dear Sir:

The above-referenced protest has been forwarded to this office for further review. We have considered the points raised by the protestant and your office. Our decision follows.

FACTS:

The protestant filed a drawback entry on 187,516 cases of beer from Mexico with the Laredo Customs port on January 22, 1990. The entry was liquidated on May 18, 1990. The beer was destroyed under Customs supervision in February 1990. With its submission of Customs Form (CF) 7539 to file the claim, the claimant also submitted a letter dated January 22, 1990, explaining, inter alia, that the imported beer would be designated on a first-in-first-out (FIFO) accounting method, as provided for under 19 CFR 191.22(c). Part 191.22(c) of the Customs regulations provides for identification of two or more commingled lots of fungible merchandise for drawback purposes. On the CF 7539 itself, however, the claim was designated under Part 191.141(f) of the Customs regulations, which covers claims for same condition drawback on destroyed merchandise.

Your office sent the claimant a Notice of Action (CF 29) dated March 23, 1990, which informed it of the fact that the merchandise was destroyed under substitution same condition drawback provisions that require fungibility. Customs also requested documentation showing fungibility of the merchandise in this case. The claimant responded in a letter dated March 27, 1990, that Customs was mistaken in its impression that the claim was made under any substitution same condition drawback provisions and that fungibility was not an issue. In the same letter, the claimant acknowledged that the imports were designated under 19 CFR 191.22.

Three Customs inspectors who witnessed the destruction made written statements on June 11, 1990. A few bottles were randomly chosen as samples from the 187,000+ cases of 24 bottles each. All three statements noted that the individual bottles of beer inspected appeared to have some sediment or particles floating in the beer. None of the inspectors made written note of this during the inspection or before the entry was liquidated, nor was the claimant informed of this until the June 1990 statements were made.

Customs denied drawback in this case because it found the merchandise to not be fungible as is required under 19 U.S.C. 1313(j)(2) and 19 CFR 191.22(c). In subsequent written contact with Customs, the claimant has stressed that it is claiming drawback under section 313(j)(1), not 313(j)(2) as Customs believes.

ISSUE:

Whether Customs properly denied drawback in this case on the basis of substitution same condition drawback criteria.

LAW AND ANALYSIS:

Under 19 U.S.C. 1313(j)(1), the following is provided for:

If imported merchandise, on which was paid any duty, tax, or fee imposed under Federal law because of its importation--
(A) is, before the close of the three-year period beginning on the date of importation- - (i) exported in the same condition as when imported, or
(ii) destroyed under Customs supervision; and
(B) is not used within the United States before exportation or destruction; then upon such exportation or destruction 99 per centum of the amount of each such duty, tax, and fee so paid shall be refunded as drawback. (Emphasis added.)

Customs regulations Part 191.22(c) provides for the following:

Identification of two or more lots. Manufacturers, producers, or claimants may identify for drawback purposes commingled lots of fungible merchandise and commingled lots of fungible products by applying first- in-first-out (FIFO) accounting principles or any other accounting procedure approved by Customs. (Emphasis added.)

In the present case, the claimant designated on its CF 7539 that it was claiming drawback under Part 191.141(f) of the Customs regulations, which provides for same condition drawback as provided for under section 313(j)(1). The protestant contends that section 313(j)(1) does not require same condition when the merchandise is destroyed. Specifically, it states "this [same condition] requirement is not included in and therefore does not apply to [section] 313(j)(1)(A)(ii),..." The statement refers to the section of the provision emphasized above. This question has arisen before in a similar context. C.S.D. 83-23 (July 15, 1982) holds that the law covering same condition drawback requires that merchandise be destroyed in the same condition as when imported. Thus, the beer in this case must have been destroyed in the same condition as when imported.

Customs has found that the beer was not "fungible" and drawback was denied on that basis. Fungibility is required when a substitution same condition drawback claim is made under section 313(j)(2) of the Tariff Act of 1930, but not under section 313(j)(1). The claimant sent along with its CF 7539 claim a letter that stated, "[t]he imports are designated on a [FIFO] basis,... as authorized by 191.22(c) of the Customs Regulations." As noted above, Part 191.22(c) authorizes the use of the FIFO method when commingled lots are to be identified for the purpose of determining fungibility.

In this case, fungibility is not an issue because the claim is being made under 313(j)(1), not 313(j)(2) as Customs maintains. There are no lots to be commingled here because all of the merchandise is presumably the same. All 187,516 cases of the beer were imported from the same factory in Mexico over the course of a month and 10 days. A dictionary definition of the term "commingle" says it means "[t]o blend or cause to blend together." Webster's II New Riverside University Dictionary 286 (1984). Nothing is being blended together here. From the evidence submitted in this case, one case of beer is like the next case of beer. Even if that was not true, same condition drawback only requires that each individual bottle of beer be in the same condition it was in as imported, not necessarily fungible to all the other bottles of beer.

The protestant has presented pictures of the merchandise at the destruction site right before destruction took place. The beer was packed in cases stacked on pallets wrapped in cellophane plastic. There is no evidence suggesting that the beer was tampered with or used before destruction took place. We have confirmed with the Customs Office of Laboratory and Scientific Services that even when beer deteriorates it does not accumulate visible residue or sediment. Consequently, we cannot infer that the sediment found had anything to do with possible deterioration. Based on these facts and findings, we can only presume that the sediment found in the inspected beer was there even before the beer was imported.

Particles found in the beer does not violate the same condition requirement in and of itself. There must also be a finding that the condition at the time of destruction is different from the imported condition. Here, there is no such finding. Therefore, we are compelled to find that the requirement of same condition as provided for under section 313(j)(1) of the Tariff Act of 1930 has been met in this case.

HOLDING:

The protestant has met the requirements of 19 U.S.C. 1313(j)(1) and 19 CFR 191.141(f). The evidence shows that the merchandise was in the same condition when destroyed as imported. This protest should be allowed. A Form 19, Notice of Action should accompany this decision when made available to the protesting party.

Sincerely,

John Durant, Director

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