HQ 0224344 - Jet Fuel for United States Aircraft Engaged in Trade between Puerto Rico and Mainland United States; Substitution Same Condition Drawback; 19 U.S.C. 1309; 19 U.S.C. 1313(j) - United States International Trade Commision Rulings

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HQ 224344

February 16, 1993

CON-13-01/DRA-4-CO:R:C:E 224344 PH

CATEGORY: DRAWBACK

Mr. Frederick B. Anderson
Controller
Esso Standard Oil Co. (Puerto Rico)
Post Office Box 364269
San Juan, Puerto Rico 00936-4269

RE: Jet Fuel for United States Aircraft Engaged in Trade between Puerto Rico and Mainland United States; Substitution Same Condition Drawback; 19 U.S.C. 1309; 19 U.S.C. 1313(j)

Dear Mr. Anderson:

In your letter of December 7, 1992, you asked that we rule on a number of questions you raise on the applicability of drawback and the provisions of 19 U.S.C. 1309 to jet fuel loaded in Puerto Rico on aircraft of a United States airline when the majority of the aircraft have mainland United States destinations. You provided additional comments and material with your letter of December 21, 1992. Our ruling follows.

FACTS:

You state that your company supplies jet fuel to commercial airlines in Puerto Rico. From time to time, due to the non- availability of jet fuel from local sources in Puerto Rico, your company purchases jet fuel from Venezuela. Your company sells this fuel to a United States airline for use on its flights leaving Puerto Rico. The majority of these flights have mainland United States destinations. Your company can demonstrate sales volumes to the United States airline in excess of the volumes upon which Customs duties have been paid. The United States airline has agreed to assign all rights to drawback for fuel delivered in San Juan, Puerto Rico, to your company.

In the materials you enclosed with your letter, the process for handling the jet fuel is described. According to this description, imported jet fuel is commingled in a tank with jet fuel which your company has bought from local suppliers. The jet fuel is transferred to the airport by pipeline (by tanker truck in the case of aviation gasoline) and at the airport it is delivered to aircraft via a hydrant system. According to the enclosed materials, your company has documents to substantiate the purchase of the jet fuel and its exportation, and these documents will be available for examination by Customs upon request. Also according to the enclosed materials, your company's accounting and inventory systems can provide a basis for the direct identification and substitution of the imported jet fuel.

You request rulings on the issues listed in the ISSUES portion of this ruling.

ISSUES:

(1) Should your company file for drawback under 19 U.S.C. 1309(b) or under 19 U.S.C. 1313(j)(2) or, if neither of these provisions is applicable, what drawback provision is applicable to your company's operation?

(2) Does the decision on fungibility in Customs Service Decision (C.S.D.) 91-21 apply to the described situation (i.e., if your company can demonstrate loaded volumes of jet fuel to the United States airline (Jet A for Jet A or Jet A-1 for Jet A-1) in excess of the volumes for which duties have been paid, may drawback on the jet fuel for which duties have been paid be obtained, notwithstanding that the imported fuel does not remain in a continuously bonded status while in Puerto Rico)?

(3) Does fuel loaded in Puerto Rico on the aircraft of a United States airline when the aircraft are used in commercial flights from Puerto Rico to United States mainland destinations qualify for drawback under 19 U.S.C. 1309(b)?

(4) Is fuel loaded in Puerto Rico on the aircraft of a United States airline when the aircraft are used in commercial flights from Puerto Rico to United States mainland destinations considered exported for purposes of 19 U.S.C. 1313(j)(2)?

(5) Is fuel imported from Venezuela which is loaded in Puerto Rico on the aircraft of a United States airline when the aircraft are used in commercial flights from Puerto Rico to United States mainland destinations exempt from duties altogether under 19 U.S.C. 1309(a) (i.e., is there a procedure to avoid the "upfront" payment of duties altogether in such a situation)?

LAW AND ANALYSIS:

Under 19 U.S.C. 1309(a), "[a]rticles of foreign or domestic origin may be withdrawn, under such regulations as the Secretary of the Treasury may prescribe, from any customs bonded warehouse, from continuous customs custody elsewhere than in a bonded warehouse, or from a foreign-trade zone [FTZ] free of duty and internal-revenue tax ... for supplies ... of aircraft registered in the United States and actually engaged in foreign trade or trade between the United States and any of its possessions, or between Hawaii and any other part of the United States or between Alaska and any other part of the United States ... [except that the provisions for free withdrawals in this section are not applicable to petroleum products for aircraft in flights exclusively between Hawaii or Alaska and any United States airport]."

Under 19 U.S.C. 1309(b), "[a]rticles withdrawn from bonded warehouses, bonded manufacturing warehouses, continuous customs custody elsewhere than in a bonded warehouse, or from a [FTZ], imported articles, and articles of domestic manufacture or production, laden as supplies upon any such vessel or aircraft of the United States ... shall be considered exported within the meaning of the drawback provisions of this chapter."

The Customs Regulations issued under the authority of 19 U.S.C. 1309 are found in 19 CFR 10.59 through 10.65.

The foregoing statutory provisions apply, and complement the drawback law (19 U.S.C. 1313), in the situation you describe as follows. Under 19 U.S.C. 1309(a), imported jet fuel may be withdrawn from continuous Customs custody, a Customs bonded warehouse, or a FTZ for United States registered aircraft actually engaged in trade between the United States and any of its possessions. To be "actually engaged" in such trade, the aircraft must meet the criteria in 19 CFR 10.59(a) (see 19 CFR 10.59(d) making these criteria and other provisions in 19 CFR 10.59 - 10.64 applicable to aircraft). Briefly, these criteria are that the aircraft must be operated on a regular schedule and they must be transporting passengers and/or merchandise between a port in the possession and a port in the United States or departing in ballast from one port for another for the purpose of loading passengers and/or merchandise for carriage in such trade). Puerto Rico is a possession of the United States for purposes of this provision (see Treasury Decision (T.D.) 45047 (1931), and letters CON-13-CO:R:E:E 719052, April 7, 1982 and CON-13 R:E:E 300922 SO, October 3, 1973).

Thus, in the situation you describe, imported jet fuel could be withdrawn for the aircraft under consideration (i.e., United States-registered aircraft actually engaged in trade between Puerto Rico and the United States or foreign trade, assuming that they are operated on a regular schedule). Use of this provision would enable your company to avoid payment of duties on the imported jet fuel altogether (i.e., drawback would not actually be involved, since no duties would have been paid). However, we emphasize that this provision could be used only if the jet fuel was withdrawn for the qualifying aircraft from continuous Customs custody, a Customs bonded warehouse, or a FTZ. That does not appear to be the case, and certainly would not be the case if the imported jet fuel was commingled with domestic fuel as described (see letter CON-13-01 R:E:E 301075 D, December 11, 1973).

Drawback is not authorized by 19 U.S.C. 1309(b) standing alone. What this provision does is provide that articles are considered to be exported, for purposes of the drawback law, when they are loaded as supplies on qualifying aircraft or vessels (qualification of aircraft or vessels is determined by the same criteria as are used for purposes of 19 U.S.C. 1309(a); see above). The articles still must qualify for drawback under a provision of the drawback law (19 U.S.C. 1313).

Basically, under 19 U.S.C. 1313(j)(2), drawback is authorized if:

(1) there is imported merchandise [i.e., the designated merchandise] upon which any duty was paid; and

(2) there is any other merchandise (imported or domestic) [i.e., the substitute merchandise] which--

(a) is fungible with the imported merchandise;

(b) is exported or destroyed within 3 years of the importation of the imported merchandise;

(c) before exportation or destruction--

(i) is not used in the United States; and

(ii) is in the possession of the drawback claimant; and

(d) is in the same condition at the time of exportation or destruction as was the imported merchandise at the time of importation.

In the situation you describe, there is imported merchandise upon which duty was paid (i.e., the jet fuel imported from Venezuela upon which you state duty was paid). There is other merchandise (i.e., the jet fuel which you state is obtained from local sources in Puerto Rico). If this other merchandise: (1) is fungible with the imported merchandise; (2) is exported or destroyed within 3 years of the importation of the imported merchandise; (3) before exportation or destruction is not used in the United States and is in the possession of the drawback claimant; and (4) is in the same condition at the time of exportation or destruction as was the imported merchandise at the time of importation, drawback may be claimed and granted under 19 U.S.C. 1313(j)(2), assuming compliance with all other applicable statutory and regulatory requirements and the Customs General Notice discussed below. The fact that the substituted exported jet fuel may have been, prior to exportation, commingled with other fungible jet fuel, including the designated imported jet fuel, does not preclude the granting of drawback under 19 U.S.C. 1313(j)(2).

For purposes of the foregoing requirements, fungibility may be established as indicated in C.S.D. 91-21. Merchandise meeting the definitions and descriptions in 19 U.S.C. 1309 may be considered exported for drawback purposes, under subsection (b) of that statute. If your company's records can establish compliance with these and the other applicable requirements (see above), drawback may be claimed and granted under 19 U.S.C. 1313(j)(2), as stated above.

Until recently, it had been Customs position that only an exporter could claim drawback under this provision and that the designated imported merchandise, as well as the substituted exported merchandise, had to be possessed by the claimant. However, in the recent Court 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), these positions were reversed. In the Central Soya case, the Court 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 the B.F. Goodrich case, the Court concluded that "19 U.S.C. 1313(j)(2) contains no such requirement [i.e., that the drawback claimant must demonstrate that it possessed the imported merchandise] [nor did Congress] intend otherwise." (794 F. Supp. 1154-1155) (See also, the statement by the Court in this case that "... 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))

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 (copy of General Notice enclosed). As you can see, among the requirements in the General Notice is a requirement that every drawback claimant (under 19 U.S.C. 1313(j)(2)) must provide evidence that "the exporter or destroyer of the merchandise did not an[d] will not authorize any entity (including itself) other than [the] claimant to claim the exportation or destruction for drawback ...." A certification stating compliance with this and certain other requirements, signed by the exporter or destroyer of the merchandise, together with the agreement by the exporter or destroyer to provide evidence in support of the certification, is stated to be satisfactory evidence for this purpose.

HOLDINGS:

(1) The decision of which provision, 19 U.S.C. 1309(a) or 19 U.S.C. 1313(j)(2), your company should seek to use in the described operation is a business decision for your company. Your decision may be based, at least in part, on the different requirements for each provision, as discussed in the LAW AND ANALYSIS portion of this ruling and other HOLDINGS in this portion of the ruling. Under 19 U.S.C. 1309(a), your company may withdraw imported jet fuel for qualifying aircraft (see HOLDING 3) without the payment of duty (i.e., without "upfront" duties being paid), provided that the jet fuel is withdrawn from continuous Customs custody, a Customs bonded warehouse, or a FTZ and is not commingled with domestic fuel. Your company may file for drawback under 19 U.S.C. 1313(j)(2), provided that the jet fuel substituted for the designated imported jet fuel is fungible with the latter (see C.S.D. 91-21), that it meets the requirements for being considered exported under 19 U.S.C. 1309(b) (see HOLDING 3), and that it meets the other applicable requirements in the statutes, regulations, and General Notice published in the October 21, 1992, Customs Bulletin and Decisions, as described in the LAW AND ANALYSIS portion of this ruling.

(2) The decision on fungibility in C.S.D. 91-21 applies to the described situation for purposes of establishing fungibility of the designated imported merchandise and the merchandise to be substituted for it under 19 U.S.C. 1313(j)(2). If your company can establish the exportation (see HOLDING 3) of jet fuel which is fungible, under C.S.D. 91-21, with imported jet fuel upon which your company paid the duties, drawback may be paid on those duties, based on the quantity of jet fuel exported up to the quantity of imported jet fuel designated, notwithstanding that the imported fuel does not remain in a continuously bonded status while in Puerto Rico, provided that there is compliance with all applicable statutory and regulatory requirements and the requirements in the General Notice published in the October 21, 1992, Customs Bulletin and Decisions, as described in the LAW AND ANALYSIS portion of this ruling.

(3) Fuel loaded in Puerto Rico on United States-registered aircraft, when the aircraft are operated on a regular schedule and are transporting passengers and/or merchandise between a port in Puerto Rico and a port in the United States or departing in ballast from one port for another for the purpose of loading passengers and/or merchandise for carriage in such trade, may be considered to be exported for drawback purposes under 19 U.S.C. 1309(b). However, 19 U.S.C. 1309(b) does not, standing alone, authorize drawback. It provides a means by which merchandise may be considered to be exported for purposes of the statutes which do authorize drawback.

(4) Fuel loaded in Puerto Rico on qualifying aircraft (see HOLDING 3) is considered exported for purposes of 19 U.S.C.

(5) Fuel imported from Venezuela which is loaded in Puerto Rico on qualifying aircraft (see HOLDING 3) may be exempt from duties altogether under 19 U.S.C. 1309(a), provided that the jet fuel was withdrawn from continuous Customs custody, a Customs bonded warehouse, or a FTZ and that it was not commingled with domestic fuel.

Sincerely,

John Durant, Director

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