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HQ 223089


September 17, 1991

LIQ-9/DRA-2-02 CO:R:C:E 223089 CB

CATEGORY: ENTRY PROTEST

Regional Commissioner
U.S. Customs Service
North Central Region
Suite 1501
55 East Monroe Street
Chicago, ILL 60603-5790

RE: Application for further review of Protest No. 3901-90- 001248 under 19 U.S.C. 1514; voluntary tender of duties; drawback eligibility of voluntarily tendered duties; 19 U.S.C. 1313

Dear Sir:

The above-referenced protest was forwarded to this office for further review. We have considered the points raised and our decision follows.

FACTS:

According to protestant, the subject claim arises in connection with the liquidation of four drawback entries involving the exportation of certain textile fabrics which had been previously imported from Germany under various consumption entries. In 1986, protestant, as importer of record, filed the subject entries. The invoice unit values for several shipments were converted from deutschemarks to U.S. Dollars, at the time of importation. Protestant alleges that the broker failed to realize that the invoice values were already in U.S. Dollars. As a result, the duties were underpaid at the time of entry. A total of $15,570.74 in duties were deposited at the time of entry based upon the erroneous calculations. The correct amount of duties due was $34,449.13, a difference of $18,878.39.

In 1987, some of the merchandise imported under the subject four consumption entries was designated for drawback. The drawback claims were prepared utilizing the correct values, i.e. the U.S. Dollar amounts reflected on the commercial invoices; thus, there was an overstatement of the actual duty refunds due under drawback. Refunds were issued to protestant under the accelerated drawback program totaling $7,166.38. On December 19, 1989, protestant notified U.S. Customs in Chicago of the erroneous valuations. During a meeting with a Customs officer, -2-
protestant made prior disclosure and agreed to voluntarily tender the outstanding duties within thirty (30) days to resolve the underpayment on the underlying consumption entries. Protestant voluntarily tendered the duties owing on the subject entries in the amount of $18,878.38 on January 18, 1990. In 1990, Customs liquidated the drawback entries claiming additional duties of $18,475.98. According to protestant, the additional duty assessments represent the total amount of duties due on all merchandise entered under the four consumption entries including merchandise not designated for drawback.

Protestant contends that it corrected the discrepancy between the duty paid against the consumption entries and the amounts refunded under drawback prior to the liquidation of the drawback entries. Thus, at the time of liquidation, all lawful duties had been paid and there was no longer a discrepancy between the consumption entries and the drawback claims. Moreover, that failure to cancel the demand for additional duties will result in the duplicate payment of these duties: once against the consumption entries and a second time against the drawback entries. Alternatively, that if the claim for additional duties is not cancelled in full, the amount demanded should be substantially reduced.

It is the district office's position that withheld duties are voluntary tenders of monies after the liquidation of an import entry becomes final. Withheld duties are not regular duties and are therefore not subject to liquidation. In support of its position the district cites a Headquarters' ruling which states that withheld duties are not a subject of drawback allowance.

ISSUE:

1) Whether voluntarily tendered duties are subject to drawback allowance?

2) If not, whether the amount demanded in the subject protest should be substantially reduced?

LAW AND ANALYSIS:

Issue #1

Drawback is the reimbursement of duties paid on goods imported into the United States and then used in the manufacture or production of articles which are subsequently exported. Nicholas & Co. v. United States, 7 Ct. Cust. App. 97 (1916), aff'd, 249 U.S. 34 (1919). Customs Regulations define drawback as:

...a refund or remission, in whole or in part, of a customs duty, internal revenue tax, or fee lawfully assessed or collected because of a particular use made of the merchandise on which the duty, tax, or fee was assessed or collected.

19 C.F.R. 191.2(a) (1990). Procedures for completion, payment, and liquidation of drawback claims are set forth in the Customs Regulations. 19 C.F.R. 191.61 to .73 (1990). Duties which are subject to drawback are only marking and ordinary customs duties. 19 C.F.R. 191.3 (1990).

Under 19 U.S.C. 1592(c)(4), a prior disclosure is made if the person concerned discloses the circumstances of a violation, and makes a tender of any actual loss of duties. A prior disclosure is one that discloses the circumstances of a violation by the person concerned in the violation within the time frame specified by the statute. The statute provides that if a disclosure is made with respect to a 1592(a) violation, merchandise shall not be seized and any monetary penalty to be assessed shall not exceed

"(A) if the violation resulted from fraud--

(i) an amount equal to 100 percent of the lawful duties of which the United States is or may be deprived, so long as such person tenders the unpaid amount of the lawful duties at the time of disclosure or within thirty days..., or

(B) if such violation resulted from negligence or gross negligence, the interest (computed from the date of liquidation...) on the amount of lawful duties of which the United States is or may be deprived...."

Protestant's counsel asserts that voluntarily tendered duties are subject to drawback. Counsel points to the language of the statute in support of its assertion. Specifically, that the statute provides that penalties will be limited only if the importer "tenders the unpaid amount of lawful duties at the time of disclosure...." 19 U.S.C. 1592(c)(A)(i). The district based its denial of the subject protest on ORR Ruling 76-0028 dated June 18, 1975 which held that "withheld duties paid on imported merchandise are not a subject of drawback allowance...but that they come within the phrase "fees, charges, or exactions other than duties,...." We concur in the district's conclusion. Lawful duties for the purpose of drawback are duties for which Customs can sue. The Customs Service cannot institute a legal -4-
action pursuant to 19 U.S.C. 1592(c) to collect duties owed if an importer fails to deposit voluntarily tendered duties subsequent to a prior disclosure. The only remedy available to Customs is a 19 U.S.C. 1592(d) action.

However, a distinction must be made with respect to duties which are voluntarily tendered prior to liquidation of the underlying consumption entry. Liquidation of an entry of merchandise constitutes the final computation by Customs of all duties accruing on that entry. See generally, Ambassador Division of Florsheim Shoes v. United States, 748 F. 2d 1560, 1562 (Fed. Cir. 1984). Thus, when additional duties are tendered prior to liquidation of the consumption entry, they become part of that final computation by Customs of all duties accruing on that entry and are subject to drawback.

Issue #2

Protestant's alternate claim is that if drawback is denied, then recovery should be limited to the amount of drawback paid. According to protestant, the only amount paid to it in connection with the erroneous consumption entries under the four drawback entries was $7,166.38. However, because the underpayment of duties attributable to the merchandise designated for drawback on the four consumption entries was $2,981.56, Customs can only demand additional duties totalling $2,981.56 upon the liquidation of the drawback entries.

We agree with protestant's conclusions. Customs demand of an additional $18,475.98 is incorrect because it relates back to the undervaluation of the original consumption entries. The voluntary tender of the withheld duties corrected the undervaluation on the original consumption entries. Therefore, Customs is limited to seeking a repayment of the drawback paid on that portion of the merchandise designated for drawback which had been undervalued at the time of entry.

HOLDING:

1) Voluntarily tendered duties paid pursuant to 19 U.S.C 1592(c)(4) are not duties properly the subject of drawback if paid subsequent to liquidation of the consumption entry. Therefore, you should deny this portion of the protest.

2) Liquidation of a drawback entry cannot be used as the vehicle to reliquidate an underlying consumption entry. Therefore, you should approve this portion of the protest.

A copy of this decision should be attached to the CF 19 Notice of Action to satisfy the notice requirement of section 174.30(a), Customs Regulations.

Sincerely,


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