HQ 0223779 - Internal Advice request successorship for purposes of drawback substitution; 19 U.S.C. 1313(b) - United States International Trade Commision Rulings

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HQ 223779
March 30, 1992

DRA-2-01-CO:R:C:E 223779 SR

CATEGORY: ENTRY DRAWBACK

Chief
Region Drawback Branch
Chicago, Illinois 60607

RE: Internal Advice request successorship for purposes of drawback substitution; 19 U.S.C. 1313(b)

Dear Sir:

This request for internal advice was initiated by a letter dated March 2, 1992, from the Chief, Region Drawback Branch, of the North Central Region of Customs.

FACTS:

On May 26, 1986, Peavey Company, a Minnesota Corporation, merged with ConAgra, Inc., a Delaware Corporation. Under the Articles of Merger, ConAgra, Inc., became the surviving corporation and Peavey Company became a corporate division. Currently, Peavey operates under its own name as a separate division even though it is part of the corporation ConAgra, Inc..

ISSUE:

Whether a division of a corporation that operates under a different name is required to have a drawback contract approved under its own name in order to receive drawback.

LAW AND ANALYSIS:

Under 19 U.S.C. 1313(b), duties are refunded as drawback, for merchandise that is used to manufacture or produce articles which are exported. 19 U.S.C. 1313(b) provides as follows:

If imported duty-paid merchandise and duty-free or domestic merchandise of the same kind and quality are used in the manufacture or production of articles within a period not to exceed three years from the receipt of such imported merchandise by the manufacturer or producer of such articles, there shall be allowed upon the exportation of any such articles, there shall be allowed upon the exportation of any such articles, notwithstanding the fact that none of the imported merchandise may actually have been used in the
manufacture or production of the exported articles, an amount of drawback equal to that which would have been allowable had the merchandise used therein been imported; but the total amount of drawback allowed upon the exportation of such articles, together with the total amount of drawback allowed in respect of such imported merchandise under any other provision of law, shall not exceed 99 per centum of the duty paid on such imported merchandise.

Accordingly, to qualify for drawback under 19 U.S.C. 1313(b), the same legal entity which used substituted merchandise to manufacture or produce the exported articles must also use in manufacture or production the duty-paid merchandise which is designated as the basis for the claim. (See C.S.D. 89-12).

As stated in Safeco Insurance Company of America v. Franklin, 185 F. Supp. 499, (N.D. Ca. 1960), a corporation is "a single legal entity in contemplation of law and, although it may have many departments or subdivisions, being a corporation, it is an indivisible unit." After the merger, ConAgra and Peavey became one corporation. Peavey continues to operate as a division of the corporation; it does not operate as a separate legal entity.

C.S.D. 89-12, discusses drawback rights after a corporation merger. However, the facts at issue here are different than the facts in C.S.D. 89-12. C.S.D. 89-12, found that merchandise that was imported and manufactured by a division of a corporation before the division was merged into another corporation could not be claimed for drawback by the surviving corporation. This was found because the corporation that was merged into the surviving corporation ceased to exist, therefore, it could not be a part of the legal entity that exists after the merger. The facts in the case at issue are different because the corporations have already merged. If Peavey is currently importing and manufacturing merchandise it is doing so as a division of the corporation. Even though Peavey and ConAgra, Inc. are still doing business under their original names, together they comprise only one legal entity.

Peavey and ConAgra, Inc. do not need to have separate drawback contracts. However, in the drawback contract for the corporation, it is important that the factories of the corporate division are all included in the contract under the heading LOCATION OF FACTORIES, and the name of the division should be mentioned under the GENERAL STATEMENT. The drawback contract for ConAgra, Inc., appears to be complete.

HOLDING:

ConAgra and Peavey have merged to form one legal entity; therefore, Peavey is also governed by the drawback contract that was approved for ConAgra, Inc.. For purposes of the drawback contract Peavey and ConAgra are to be considered as one entity. Therefore, a separate drawback contract is not necessary for the corporation division.

Sincerely,

William G. Rosoff

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