HQ 0223847 - Internal Advice request concerning the destruction of defective goods to receive drawback, and waiver of the notice requirement before destruction; 19 U.S.C. 1313(c); 19 U.S.C. 1313(j); 19 CFR 146.52 - United States International Trade Commision Rulings

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HQ 223847
June 26, 1992

DRA-2-02-CO:R:C:E 223847 SR

CATEGORY: ENTRY DRAWBACK

Regional Director
Commercial Operations
Suite 801
10 Causeway Street
Boston, MA 02222-1056

RE: Internal Advice request concerning the destruction of defective goods to receive drawback, and waiver of the notice requirement before destruction; 19 U.S.C. 1313(c); 19 U.S.C. 1313(j); 19 CFR 146.52

Dear Sir:

This request for internal advice was initiated by a letter dated March 27, 1992, from the Regional Director, Commercial Operations, of the Northeast Region of Customs.

FACTS:

Robert Bosch Corporation manufactures and exports various automotive components. Bosch receives manufacturing drawback under TD 81-300. Bosch performs quality control tests throughout the manufacturing process. Articles that do not pass these tests are moved to a segregated area of inventory for destruction. Bosch wishes to destroy the articles that do not work to receive drawback. 19 U.S.C. 1313(c) provides drawback for merchandise not conforming to sample or specifications. This includes merchandise with latent defects that are not discovered until they are used. Because little factual information was provided, for the sake of this ruling we will assume that the reason that the merchandise does not pass quality control is because of latent defects that were not discovered at the time of importation.

Bosch also has duty-paid components and/or raw materials which have become obsolete within three years of the date of import, which have never been used, and are in the same condition as when imported. These articles are taken to a Bosch factory where they are destroyed by crushing. They wish to destroy these articles in order to receive same condition drawback without giving prior notice to Customs.

ISSUES:

(1) Whether imported articles that do not conform to the importer's specifications can be destroyed in order to receive drawback.

(2) Whether articles in storage may be destroyed on the company's premises without notification to Customs.

LAW AND ANALYSIS:

ISSUE 1

Title 19 United States Code, section 1313(c), provides as follows:

Upon the exportation of merchandise not conforming to sample or specifications or shipped without the consent of the consignee upon which the duties have been paid and which have been entered or withdrawn for consumption and, within ninety days after release from Customs custody, unless the Secretary authorizes in writing a longer time, returned to Customs custody for exportation, the full amount of the duties paid upon such merchandise shall be refunded as drawback, less 1 per centum of such duties.

The statute requires that in order for non-conforming goods to receive drawback they must be returned to Customs custody for exportation. However, merchandise may be considered exported without an actual exportation if it is entered into a Foreign Trade Zone (FTZ) in zone restricted status to be destroyed.

The importer requests that the requirement of entrance of the goods into a zone to be destroyed be waived. Destruction outside of the zone is allowed, as provided in 19 CFR 146.52(e), however, this is only for cases in which destruction cannot be accomplished within the zone. Bosch has not provided any evidence that their merchandise cannot be safely destroyed within the zone.

ISSUE 2

Bosch also wishes to receive drawback on outdated merchandise that is in the same condition as when imported. Bosch wishes to destroy this outdated merchandise at any time without having to give notice to Customs. 19 U.S.C. 1313(j)
provides for same condition drawback as follows:

(1) 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 . . .

C.S.D. 82-128 states that "destroyed under Customs supervision" does not require on site observation of the destruction by Customs but does require the opportunity to observe the destruction. However, if the Customs District Director in Boston is willing, the company should be able to set up a regular schedule, such as every Wednesday at 3:00, to destroy the articles. If Customs agreed to a specific schedule then the Customs office would have notice and would have the opportunity to observe the destruction when they feel it necessary.

In order to receive drawback, of any type, it is important that all legal requirements are followed. The court in Carl Matuzel Shipping Co., Inc. et al. v. United States, C.D. 2406, 51 Cust. Ct. 8 (1963), states that " . . . compliance with the provisions of the statute and of the Customs Regulations is essential before refunds can be allowed as drawback."

HOLDING:

ISSUE 1

Merchandise may be considered to be exported by entrance into a Foreign Trade Zone in zone restricted status, however, the requirement of entrance into a Foreign Trade Zone cannot be waived.

ISSUE 2

Customs must be given notice of destruction of merchandise
in order to have the opportunity to observe the destruction.

Sincerely,

John Durant, Director

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