HQ 0224325 - Same Condition Drawback; Who May Claim Drawback; General Notice published in 26 Cust. Bull. & Dec. 43 (October 21, 1992); Central Soya v. United States; B.F. Goodrich Co. v. United States; 19 CFR 191.141; 19 U.S.C. 1313(j) - United States International Trade Commision Rulings

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HQ 224325

February 16, 1993

DRA-4-CO:R:C:E 224325 PH

CATEGORY: DRAWBACK

Mr. J. W. Brown
Gulf Coast Drawback Services, Inc.
10122 Long Point, Suite 107
Houston, Texas 77043

RE: Same Condition Drawback; Who May Claim Drawback; General Notice published in 26 Cust. Bull. & Dec. 43 (October 21, 1992); Central Soya v. United States; B.F. Goodrich Co. v. United States; 19 CFR 191.141; 19 U.S.C. 1313(j)

Dear Mr. Brown:

In your letter of November 24, 1992, you request a ruling on the applicability of certain instructions on the implementation of the recent Court decisions in the cases of Central Soya Co., Inc. v. United States, 761 F. Supp. 133 (CIT 1991), affirmed, 953 F.2d 630 (Fed. Cir. 1992), and B. F. Goodrich Co. v. United States, 794 F. Supp. 1148 (CIT 1992). Our ruling follows.

FACTS:

In a General Notice published in the Customs Bulletin & Decisions on October 21, 1992 (Vol. 26, No. 43, page 7), Customs issued instructions "for the implementation of court decisions [i.e., the Central Soya and B.F. Goodrich cases, supra] concerning substitution same condition drawback, 19 U.S.C. 1313(j)(2)." The inquirer requests a ruling as to whether these instructions may be extended to "direct identity same condition drawback" under 19 U.S.C. 1313(j)(1).

ISSUE:

May the instructions on the implementation of the Central Soya and B.F. Goodrich cases, supra, concerning drawback under 19 U.S.C. 1313(j)(2), published as a General Notice in the Customs Bulletin & Decisions (October 21, 1992) be extended to drawback under 19 U.S.C. 1313(j)(1)?

LAW AND ANALYSIS:

Under section 19 U.S.C. 1313(j)(1), "[i]f 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 such exportation or destruction; then upon such exportation or destruction 99 per centum of each such duty, tax, and fee so paid shall be refunded as drawback." This provision was enacted by the Act of December 28, 1980, Pub. L. 96-609, Title II, section 201, 94 Stat. 3560.

Under 19 U.S.C. 1313(j)(2), "[i]f there is, with respect to imported merchandise on which was paid any duty, tax, or fee imposed under Federal law because of its importation, any other merchandise (whether imported or domestic) that-- (A) is fungible with such imported merchandise; (B) is, before the close of the three-year period beginning on the date of importation of the imported merchandise, either exported or destroyed under Customs supervision; (C) before such exportation or destruction-- (i) is not used within the United States, and (ii) is in the possession of the party claiming drawback under this paragraph; and (D) is in the same condition at the time of exportation or destruction as was the imported merchandise at the time of its importation; then upon the exportation or destruction of such other merchandise the amount of each such duty, tax, and fee paid regarding the imported merchandise shall be refunded as drawback, but in no case may the total drawback on the imported merchandise ... exceed 99 percent of that duty, tax or fee." This provision was enacted by the Act of October 30, 1984, Pub. L. 98-573, Title II, section 202, 98 Stat. 2973.

The Customs Regulations pertaining to drawback are found in Part 191 of the Customs Regulations (19 CFR Part 191). Formerly these regulations were in Part 22 of the Customs Regulations, but in 1983, that Part was revised into a new Part 191. Before this revision was promulgated, notice was published in the Federal Register (47 F.R. 37563, August 26, 1982), and the public was invited to submit comments on the proposed revision. Customs received over 150 comments on the proposed revision and, after analyzing these comments and adopting many of the suggestions made in the comments, a Final Rule promulgating the revision was published in the Federal Register (48 F.R. 46740, October 14, 1983) as Treasury Decision (T.D.) 83-212.

Before promulgation of the revision of the drawback regulations, no regulations had been issued on same condition drawback (19 U.S.C. 1313(j)). The notice proposing the revision (i.e., the 1982 Federal Register notice, supra) proposed the incorporation of a new subpart N to contain the regulations on same condition drawback (provisions on drawback for merchandise not conforming to sample or specifications under 19 U.S.C. 1313(c) were also proposed in this new subpart N). As proposed, this new subpart made it clear that only an "exporter-claimant" could obtain drawback under the subpart (see proposed section 191.141 - 191.146 and the description of these proposed sections (47 F.R. 37583-37584 and 47 F.R. 37567). Customs thoroughly analyzed the comments received on the proposed revision, including those on the proposed new subpart N. Many of the suggestions in these comments were adopted (see pp. 496-501 of the 1983 bound edition of the Customs Bulletin). The Customs Regulations on same condition drawback were promulgated as a new section 191.141 (the proposed sections 191.141 - 191.147 were consolidated into section 191.141), which has remained unchanged since except for the addition of paragraph (h) (to be discussed below). None of the comments received on the proposed revision opposed the position that only an "exporter-claimant" could obtain drawback under the subpart, and newly promulgated section 191.141 made it clear that that was the case (see paragraphs of section 191.141).

The Customs Regulations issued on substitution same condition drawback (under 19 U.S.C. 1313(j)(2)) are found in paragraph (h) of section 191.141 of the Customs Regulations (19 CFR 191.141(h)). This provision was promulgated, without prior Federal Register notice and without the public being given an opportunity to comment, in T.D. 85-123 (published in the Federal Register on July 23, 1985 (50 F.R. 29949)). According to the Final Rule published in the Federal Register which promulgated this provision, this provision was one of a number of changes which "merely conform[ed] the regulations to existing law or practice [and] are nonsubstantive and essentially ... procedural." The description of the provision in the Final Rule is limited to a brief description of the statutory provision providing for substitution same condition drawback in which it is stated that "[the legislation] establish[ed] a new type of drawback called 'same condition substitution drawback.'"

Under 19 CFR 191.141(h), as promulgated by T.D. 85-123, drawback was to be granted if "legal person X" possessed imported merchandise (the designated merchandise) and other merchandise (the substituted merchandise) fungible with the designated merchandise during the period beginning when "X" received the merchandise and ending 3 years after importation of the merchandise, if certain requirements, set forth in the provision, were met.

In the Central Soya case, an importer of certain crude degummed soybean oil delivered domestic crude degummed soybean oil to another corporation and the latter corporation exported the domestic soybean oil. The importer sought substitution same condition drawback, under 19 U.S.C. 1313(j)(2), for the exported domestic soybean oil. Customs denied the drawback on the ground that the importer was not the exporter of the substituted domestic soybean oil. As part of its claim for drawback, the importer submitted a statement by the exporter of the domestic soybean oil in favor of the importer, disclaiming any right to drawback for the exported soybean oil. The Court of International Trade concluded that "in enacting section 1313(j)(2), Congress did not intend to require that a claimant of substitution same condition drawback must be the exporter of the substituted merchandise." (761 F. Supp. at 141) In its decision, the Court quoted and considered the applicability of 19 CFR 191.141(h) to the case before it (see 761 CIT at 140), but the Court did not comment on the legality of that provision.

In the B.F. Goodrich case, the plaintiff exported (from Canada) PVC resins made in Canada to customers in the United States and exported (from the United States) PVC resins the plaintiff manufactured. The plaintiff sought substitution same condition drawback, under 19 U.S.C. 1313(j)(2), for the PVC resins it had manufactured and exported. Customs denied the drawback on the ground that the plaintiff did not have possession of the imported PVC resins (i.e., the PVC resins made in Canada and exported from that country to the plaintiff's customers in the United States) while those goods were in the United States. The Court of International Trade concluded that "Customs improperly required that Goodrich demonstrate that it possessed the imported merchandise from which Goodrich's drawback claim arose: 19 U.S.C. 1313(j)(2) contains no such requirement [nor did Congress] intend otherwise. 19 CFR 191.141(h) was an improperly promulgated substantive rule, with no justification in either the statute or the legislative history [and] must have no force or effect." (794 F. Supp. 1154-1155)

In reaching its conclusion with regard to the possession requirement, the Court stated, "... it is clear that the possession requirement attaches only to the exported goods, not to the imported goods. The operative portion of section 1313(j)(2) with regard to imported goods mentions only that a duty, tax or fee was paid because of their importation. Therefore, section 1313(j)(2) requires only that a drawback claimant have paid the duty, tax, or fee for the privilege of importing the goods." (794 F. Supp. at 1150; emphasis in original)

In reaching its conclusion with regard to the propriety of the promulgation of 19 CFR 191.141(h), the Court noted that in promulgating T.D. 85-123, the changes effected therein, including the addition of section 191.141(h), were "nonsubstantive and essentially ... procedural." The Court stated that in section 191.141(h), "Customs established a substantive new requirement that does not exist in the statute ... for which a notice and comment period, among other things, is required." (794 F. Supp. at 1154)

To implement the Central Soya and B.F. Goodrich cases, the Customs Service issued the General Notice published in the Customs Bulletin and Decisions on October 21, 1992. By its terms, this General Notice is made applicable to substitution same condition drawback (19 U.S.C. 1313(j)(2)).

We conclude that the General Notice is not applicable to drawback under 19 U.S.C. 1313(j)(1). The Court decisions implemented by the General Notice considered and are applicable to only 19 U.S.C. 1313(j)(2), not section 1313(j)(1). The respective statutory provisions (sections 1313(j)(1) and 1313(j)(2)) are separate statutes separately enacted at different times with different requirements. For example, section 1313(j)(1) does not even have a possession requirement, the interpretation of which was the issue in the B.F. Goodrich case. The regulatory history of the provisions issued under the respective provisions are substantially different. A notice was published in the Federal Register for the regulations issued under section 1313(j)(1) and the public was given the opportunity to comment, and did comment, on the proposal, whereas that was not true with regard to the regulations issued under section 1313(j)(2) (see reference to Court's discussion of this failing in the B.F. Goodrich case, cited above, at 794 F. Supp. 1154). We conclude that the provisions in 19 CFR 191.141(a) through (g) continue to be applicable to drawback under 19 U.S.C. 1313(j)(1).

HOLDING:

The instructions on the implementation of the Central Soya and B.F. Goodrich cases, supra, concerning drawback under 19 U.S.C. 1313(j)(2), published as a General Notice in the Customs Bulletin & Decisions (October 21, 1992), are not extended to drawback under 19 U.S.C. 1313(j)(1). The provisions in 19 CFR 191.141(a) through (g) continue to be applicable to drawback under 19 U.S.C. 1313(j)(1).

Sincerely,

John Durant, Director

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