HQ 0224501 - Manufacturing Drawback Claims; Same Kind and Quality; Records, Affidavit in Absence thereof; Orange Juice; Aurea Jewelry Creations, Inc., v. United States, 13 CIT 712, 932 F.2d 943; Protest 1801-93-100013; 19 U.S.C. 1313(b) - United States International Trade Commision Rulings

United States International Trade Commision Rulings And Harmonized Tariff Schedule

faqs.org Rulings By Number Rulings By Category Tariff Numbers

faqs.org > Rulings and Tariffs Home > Rulings By Number > 1994 HQ Rulings > HQ 0224091 - HQ 0224514 > HQ 0224501

HQ 224501

February 10, 1994

DRA-1-06/DRA-2-02-CO:R:C:E 224501 PH

CATEGORY: DRAWBACK

Regional Commissioner of Customs
Southeast Region

RE: Manufacturing Drawback Claims; Same Kind and Quality; Records, Affidavit in Absence thereof; Orange Juice; Aurea Jewelry Creations, Inc., v. United States, 13 CIT 712, 932 F.2d 943; Protest 1801-93-100013; 19 U.S.C. 1313(b)

Dear Sir:

The above-referenced protest was forwarded to this office for further review. Our decision follows.

FACTS:

The protest is of the liquidation of four drawback entries (or claims) respectively dated June 7 and October 9, 1984, and May 8, 1985 (two entries, one for $54,184.98 and the other for $385,458.38). Accelerated payment of drawback was requested and granted for the entries, resulting in a total accelerated payment of drawback in the amount of $845,784 (the date of the accelerat- ed payment for the June 7, 1984, entry was June 22, 1984).

Southern Gold Citrus Products, Inc., was the drawback claimant in the drawback entries under consideration. In 1982, Southern Gold Citrus Products, Inc., was purchased by another company. The company is now no longer in the orange juice processing business and, we understand, is being, or has been, liquidated. The term "protestant" in this ruling includes the drawback claimant, its purchaser corporation, and the attorney who filed the protest on behalf of Southern Gold Citrus Products, Inc.

At the time under consideration in this matter, the protestant had an approved drawback contract (see Treasury Decision (T.D.) 84-2-(V), which revoked without prejudice to outstanding claims T.D. 72-55-(B), as amended by T.D.'s 72-218- (I), 75-245-(N), and 76-300-(P)) for substitution manufacturing drawback under 19 U.S.C. 1313(b). The contract (the description of the drawback contract below refers to the contract abstracted in T.D. 84-2-(V); the predecessor contract contained similar provisions) provided for drawback in the manufacture of orange juice from concentrate, frozen concentrated orange juice, bulk concentrated orange juice, and (orange) juice base with the use of concentrated orange juice for manufacturing (COJM). The contract permitted the substitution of duty-paid, duty-free, or domestic COJM for COJM of the same kind and quality which was imported and designated as the basis for drawback on the exported products. In the contract, the specifications for the designated imported COJM and the substituted COJM are listed as:

CONCENTRATED ORANGE JUICE FOR MANUFACTURING (OF NOT LESS THAN 55o BRIX) AS DEFINED IN THE STANDARD OF IDENTITY OF THE FOOD AND DRUG ADMINISTRATION (21 CFR 146.153) AND MEETS THE GRADE A STANDARD OF THE U.S. DEPARTMENT OF AGRICULTURE (7 CFR 2852.2221-2231).

In its drawback contract, the protestant agreed to maintain records to establish "[t]he quantity of merchandise of the same kind and quality as the designated merchandise [the protestant] used to produce the exported article." With specific regard to the production of the exported articles, the protestant agreed that its production records would reflect "[w]hat was produced and [the] date or period of production", "[w]hat was used to produce the exported article" and "... the kind and quality of the material used to produce the exported article."

INITIAL AUDITS OF DRAWBACK CLAIMS

The entries were the subject of Customs audits (Reports 33- 88-DRO-001; 3-88-DRO-002; 3-88-DRO-003; and 3-88-DRO-004, respectively, each dated October 23, 1987). The audit reports are summarized below.

In the case of the June 7, 1984, entry, the audit found that the protestant received the designated imported merchandise between October 5 and 15, 1982 (according to the audit report, the designated imported merchandise was imported under a single consumption entry dated October 1, 1982). In the case of the October 9, 1984, entry, the audit found that the protestant received the designated imported merchandise between August 29 and September 27, 1982 (according to the audit report, the first import on the claim was on August 29, 1982). In the case of the May 8, 1985, entry ($54,845 claimed), the audit found that the protestant received the designated imported merchandise between September 13 and October 5, 1982 (according to the audit report, the first import on the claim was on September 13, 1982). In the case of the May 8, 1985, entry ($385,458 claimed), the audit found that the protestant received the designated imported merchandise between September 10 and October 5, 1982 (according to the audit report, the first import on the claim was on September 10, 1982).

In the case of the June 7 and October 9, 1984, entries, there is no comment in the audit reports, nor are there any materials in the files relating to the audit reports, on whether the designated imported merchandise met the same-kind-and-quality criteria in the protestant's drawback contract. In the case of the two May 8, 1985, entries, according to materials in the files relating to the audit reports, the audits found that the designated imported merchandise met the same-kind-and-quality criteria in the protestant's drawback contract.

In the case of each of the entries, the drum numbers on the protestant's 1982 and 1983 receiving and production records were different and there were no records to trace the conversion of the drum numbers (i.e., records to show the transfer of drums from the receiving department to the production department). Therefore, although importation of the designated import could be established, use in manufacture was found not to have been established. In the case of each of the entries, according to materials in the files relating to the audit reports, the protestant did not have its 1984 production score sheets, which would show the quantity, grade, and quality of the merchandise used in the production of the exported articles, and therefore same-kind-and-quality of the substituted merchandise was found not to have been established. Because of the absence of production records and inventory records, compliance with the requirement that the merchandise used in the production of the exported articles must be used in production during the same 3- year period in which the designated imported merchandise was used in production was found not to have been established. The exportation data was verified but, because of the absence of production and inventory records, it could not be established that the exported articles were manufactured or produced from the imported or substituted merchandise (in the case of the October 9, 1984, entry, the audit report noted that in attachment 1 to the drawback entry, pounds solid and single-strength gallons are overstated (34,718.43 and 33,740, respectively, instead of 20,660 pounds solid and 20,078 single-strength gallons), resulting in an over-payment of drawback of $4,782).

The audit findings were discussed with the Treasurer of the protestant and he stated that the protestant intended to submit alternative records. On August 3, 1987, the Treasurer of the protestant submitted 1984 USDA Daily Inspection Reports to substantiate the missing 1984 production reports. However, these records were found not to be satisfactory alternatives because they did not identify drum numbers.

SUBPOENA OF PROTESTANT'S RECORDS

By letter of October 22, 1987, the U.S. Attorney for the Middle District of Florida subpoenaed certain records of the protestant from January 1, 1983, to the time of the letter. The records subpoenaed were those pertaining to, among other things, the claiming of and receiving of drawback and related records including records relating to the manufacture of pulpwash, USDA score sheets, and many other records on drawback. According to the protestant, 48 boxes of records which were thought to contain records covered by the subpoena were retrieved from the storage facility in which the protestant's records were maintained. After examination of these boxes, "approximately 24 of the 48 boxes were sent to the U.S. Attorney ...." According to the protestant, "[o]rdinarily copies would have been made, but time was short [the subpoena required delivery of the documents by December 1, 1987] and Customs agents assured that all records would be returned promptly."

According to the protestant, after an approximately 2 and 1/2 year investigation, and after "delays by Customs and many requests by [the protestant], a portion of the records were finally returned in 14 boxes ...." Also according to the protestant, it was evident that fewer records were returned than were sent, but the protestant could not ascertain which records were not returned. The protestant states that it (i.e., the protestant) "... assumed, correctly, that there was nothing amiss in [the protestant's] records, and those records [were] returned to the ... retention facility ...."

FOLLOW-UP AUDIT OF ENTRIES

According to the protestant, when it learned that the entries concerned were to be liquidated without drawback, the Customs office which had performed the initial audits was requested to again audit the protestant's records. The Customs office agreed to do so. This follow-up audit was performed in June of 1991 (Report 321-91-FRO-003, dated June 9, 1992). The findings of the follow-up audit are summarized below.

Although the difficulty in tracing the designated imported merchandise from the receiving to the production records remained, the audit concluded that the designated imported merchandise was used in production as claimed, on the basis of its review of drums used in production during more than one month of the time under consideration. There is no comment in this audit report, nor are there any materials in the file relating to the audit report, on whether the designated imported merchandise met the same-kind-and-quality criteria in the protestant's drawback contract. Therefore, we assume that the problem with establishing that the designated imported merchandise met the same-kind-and-quality criteria (referred to in regard to two of the entries in the initial audit reports) was resolved in this audit.

The product score sheets from September 1 through December 31, 1983, and for the entire year of 1984 were missing (note that in the initial audits, the protestant did not have the score sheets for the entire year of 1984). Because of the absence of these records, same-kind-and-quality of the substituted merchandise could not be established. The daily and weekly processing reports between October 31 and December 31, 1983, were missing. Therefore, compliance with the requirement that the merchandise used in the production of the exported articles must be used in production during the same 3-year period in which the designated imported merchandise was used in production could not be established for the period in which these records were missing, nor could it be established that the protestant produced the exported articles for the period in question. The problem of tracing the exported articles back to the designated imported merchandise or substituted merchandise (i.e., establishing that the exported articles contained the imported or substituted merchandise), found in the initial audits, remained.

In the case of the June 7, 1984, drawback entry, allowance of some drawback ($17,598 of the $165,662 claimed) was recommended. The basis for this recommendation was that production records were available and established production and score sheets were available (in some instances, the actual dates of production were at a time when score sheets were not found to be missing in the initial audit, instead of at the time stated on the drawback entry when score sheets were found to be missing in that audit).

The audit findings were presented to the representatives of the protestant in a meeting on August 27, 1991, at which time the protestant stated that the missing records could not be located and asked that Customs consider the use of alternative records. In response to this request, Customs asked the protestant to provide the protestant's 1983 and 1984 financial statement information, general ledger and subsidiary ledger. The protestant did provide Customs with these records. Customs found that these alternative records did not contain the information necessary to establish same-kind-and-quality of the substituted merchandise or that the protestant produced the exported articles from the designated imported merchandise or substituted merchandise in the required time.

On October 9, 1992, the entries were liquidated with denial of all drawback except $17,598, attributable to the first of the four entries. On January 4, 1993, the protestant filed the protest under consideration. The contentions made in the protest will be addressed in the LAW AND ANALYSIS section of this ruling.

As Exhibit B of the protest, the protestant provides an affidavit (dated December 22, 1992) by the person who states that she was in charge of and responsible for the protestant's drawback operations from 1974 or 1975 until the close of operations by the protestant in 1984. This person states that she "prepared all drawback entries for submission to Customs" during this time. This person states that she prepared and documented the entries under consideration. "After preparation of the subject entries and the close of business by [the protestant], [the affiant states that she] personally packed all records, including score sheets arranged by month and year in boxes properly marked as to contents for shipment to a central records facility [and that] [t]he records which could not be located by auditors were most assuredly placed in boxes by [the affiant] personally as [the affiant] kept very orderly records and exact records." The affiant states that "[she] cannot explain why the records which auditors could not locate during the June, 1991, audit were not available, but the claims would not have been submitted had [she] not personally confirmed the existence of proper backup records necessary to support each claim at the time it was submitted." The affiant states that "[a]lthough the records which [she] had carefully packed and labelled were in mixed order and disarray at the June, 1991, audit, [she] [and representatives of the protestant] were able to trace many of the drums back to the original manifests." The affiant states that "[s]core sheets, production, and reprocessing records were always accurately prepared by the Inventory and Production supervisors - the score sheets were kept by [the then president of the protestant] and the rest by [the affiant]."

As Exhibit C of the protest, the protestant provides a copy of a letter dated August 5, 1991, to the protestant from a USDA official in Winter Haven, Florida, stating that records which the letter states the protestant was seeking are no longer available because of the USDA's 5-year retention date for such plant records. According to the protestant, the records sought were USDA duplicate score sheets.

ISSUE:

Is there authority to grant the protest of denial of drawback in this case?

LAW AND ANALYSIS:

Initially, we note that the protest was timely filed under the statutory and regulatory provisions for protests (see 19 U.S.C. 1514 and 19 CFR Part 174). We note that the refusal to pay a claim for drawback is a protestable issue (see 19 U.S.C.

This protest involves drawback under 19 U.S.C. 1313(b). Basically, section 1313(b), often called the substitution manufacturing drawback law, provides that if imported duty-paid merchandise and any other merchandise (whether imported or domestic) of the same kind and quality are used within three years of the receipt of the imported merchandise in the manufacture or production of articles by the manufacturer or producer of the articles and articles manufactured or produced from either the imported duty-paid merchandise or other merchandise, or any combination thereof, are exported or destroyed under Customs supervision, 99 percent of the duties on the imported duty-paid merchandise shall be refunded as drawback, provided that none of the articles were used prior to the exportation or destruction, even if none of the imported merchandise was actually used in the manufacture or production of the exported or destroyed articles. Under section 1313(i), no drawback may be allowed under section 1313 unless the completed article is exported within five years after the importation of the imported merchandise.

The drawback law was substantively amended by section 632, title VI - Customs Modernization, Public law 103-182, the North American Free Trade Agreement Implementation Act (107 Stat. 2057), enacted December 8, 1993. Title VI of Public Law 103-182 took effect on the date of the enactment of the Act (section 692 of the Act). According to the applicable legislative history, the amendments to the drawback law (19 U.S.C. 1313) are applicable to any drawback entry made on or after the date of enactment as well as to any drawback entry made before the date of enactment if the liquidation of the entry is not final on the date of enactment (H. Report 103-361, 103d Cong., 1st Sess., 132 (1993); see also provisions in the predecessors to title VI of the Act; H.R. 700, 103d Cong., 1st Sess., section 202(b); S. 106, 103d Cong., 1st Sess., section 202(b); and H.R. 5100, 102d Cong., 2d Sess., section 232(b)).

The Customs Regulations pertaining to drawback, promulgated under the authority of section 1313(l), are found in 19 CFR Part 191. These regulations require the manufacturer or producer of articles for which drawback is claimed under section 1313(b) to maintain records establishing compliance with the requirements for drawback (see 19 CFR 191.32). The regulations provide for examination of these records and verification of drawback claims by Customs (19 CFR 191.2(o) and 191.10) and that all records required to be kept by the manufacturer or producer with respect to drawback claims must be retained for at least three years after payment of such claims (19 CFR 191.5). The claimant, in its drawback contract (T.D. 84-2-(V), referred to above), specifically agreed to comply with all of these requirements.

Compliance with the Customs Regulations on drawback is mandatory and a condition of payment of drawback (United States v. Hardesty Co., Inc., 36 CCPA 47, C.A.D. 396 (1949); Lansing Co., Inc. v. United States, 77 Cust. Ct. 92, C.D. 4675; see also, Guess? Inc. v. United States, 944 F.2d 855, 858 (1991) "We are dealing [in discussing drawback] instead with an exemption from duty, a statutory privilege due only when the enumerated conditions are met" (emphasis added)).

Basically, the problem in this case is that the protestant has not established that the exported articles were manufactured by the protestant from the designated imported merchandise, merchandise of the same kind and quality as the designated imported merchandise, or any combination thereof within 3 years of receipt of the designated imported merchandise. The records which would establish this are score sheets and production records (daily and weekly processing reports). According to both the initial audits and the follow-up audit, score sheets were unavailable for the entire year of 1984 and according to the follow-up audit, score sheets were also unavailable for the period from September 1 through December 31, 1983. According to the initial audits, production and inventory records were unavailable for all claims and according to the follow-up audit, the production records for the period between October 31 and December 31, 1983, were unavailable.

In order to establish that the exported articles were manufactured from the designated imported merchandise or merchandise of the same kind and quality (which, as is noted above, is required by law and the Customs Regulations and was agreed to as a condition of drawback by the protestant in its drawback contract), the protestant must establish that the merchandise used to manufacture the exported articles was COJM of not less than 55 degrees Brix as defined in the standards of the FDA and met the grade A standard of the USDA. The protestant could establish this with production score sheets for merchandise which it shows (by use of production records) was used to manufacture the exported articles. In fact, the protestant did establish this for some of the articles for which drawback is claimed (see the four paragraphs immediately following this paragraph for a demonstration of how drawback could have been obtained in this operation) and, according to the protestant and protestant's affiant, has in the past "gained millions of dollars in drawback" by doing so. However, in this case these records (i.e., score sheets and production records) were not available (the score sheets for all of 1984 and for September 1 through December 31, 1983, and the production records for October 31 through December 31, 1983). Even for the period in which daily and weekly processing reports were available, same-kind-and- quality of the merchandise used to produce the exported products could not be established in the absence of score sheets for the merchandise so used (contrary to the protestant's allegation about daily and weekly processing records, see page 7 of protest attachment) (i.e., because there is no evidence of the USDA Grade of the merchandise so used).

For purposes of illustration, we are describing how the protestant could, and did in the case of some of the drawback claimed in the June 7, 1984, entry, satisfy the requirements for drawback. For the imported designated merchandise, it must be established that a sufficient quantity of merchandise was imported, that it met the same-kind-and-quality criteria set forth in the drawback contract, and that it was used in manufacture or production by the claimant within 3 years of receipt. Import documents and records of receipt by the protestant, specifying the merchandise designated (e.g., by drum or batch number or other identifying data), with score sheets showing that the specified merchandise was COJM of not less than 55 degrees brix meeting the USDA Grade A standards could be used to satisfy the first two of these requirements. The requirement for use in manufacture or production could be satisfied by actual use records (showing use in manufacture or production of the specified merchandise) or by inventory turnover records (see C.S.D. 79-301, approving the use of first-in-first-out (FIFO) for this purpose). As stated above, the audits found that the drawback requirements concerning the imported designated merchandise were met.

It also must be established that the exported articles claimed as the basis for drawback were actually exported within five years of the date of the import of the designated imported merchandise, that those exported articles were manufactured or produced from the designated imported merchandise or merchandise which was substituted for the designated imported merchandise, that the substituted merchandise was of the same kind and quality as the designated imported merchandise, and that the manufacture or production of the exported articles occurred within 3 years of receipt of the designated imported merchandise.

Compliance with the export requirements may be established under one of the procedures authorized in 19 CFR 191.51. We note that the protestant used the exporter's summary procedure (provided for in 19 CFR 191.53) and that the audits verified the exportations (with the exception of an over-claim of drawback in the October 9, 1984, entry). Production of the exported articles from the designated imported merchandise or substituted merchandise could be established by tracing the specifying data (e.g., drum numbers from a drum manifest or cases with identifying data from the invoice) of the exported articles back to the particular drums or batches (specified by number) used to produce those articles on the date of production. If records establishing the actual drums or batches from which the exported articles were produced were unavailable, records establishing the date of production would be acceptable under the conditions described below. To establish the same kind and quality of the substituted merchandise, score sheets (showing that the criteria in the drawback contract were met) specifying the merchandise used (if on an actual drum or batch basis, specifying the drums or batches by number) could be used. These score sheets must show that the substituted merchandise was COJM of at least 55 degrees brix meeting each of the USDA Grade A scoring criteria (i.e., color (36 - 40 points), defects (18 - 20 points), and flavor (36 - 40 points)). The auditor states that he observed such score sheets in the case of the drawback granted (i.e., in the case of part of the June 7, 1984, claim).

Alternatively, if records establishing the actual tank or batch from which the exported articles were produced were unavailable, same-kind-and-quality could be established on the basis of the date of production (see C.S.D.'s 82-30 and 83-7). This could be done by providing records showing the date's production and all of the product which could have been used in that date's production to produce the exported articles. Any of the product which could have been so used in that date's production not established to be same-kind-and-quality (COJM of at least 55 degrees brix meeting each of the USDA Grade A scoring criteria) would be assumed to have been used in the production of the exported articles. (E.g., if 50 drums of product containing 17,500 pounds solid were used on the date of production and 4 of the drums (containing 1,400 pounds solid) could not be established to be same-kind-and-quality (because there were no score sheets, or they were less than Grade A, etc.), the 1,400 pounds solid would be deducted from the available qualifying merchandise and, if there were exports containing 8,000 pounds solid, drawback could be granted for the remainder (6,600 pounds solid), assuming compliance with all other requirements.)

The protestant contends that the missing records do not preclude drawback. The protestant states that fewer records were returned from the Government than had been provided to the Government in response to the subpoena, although the protestant states it could not ascertain which records were not returned and that those records returned were in disarray. According to the protest, "[the protestant] assumed, correctly, that there was nothing amiss in [the protestant's] records, and sent those records returned to [its] retention facility ...."

The problem with this argument is that it ignores (as does the entire protest) the fact that audits were performed of the protestant in regard to the entries protested before the issuance of the subpoena and Customs met with the protestant to discuss the findings of those audits (including the absence of 1984 score sheets) before the issuance of the subpoena. Also before the issuance of the subpoena, the protestant submitted records with which it attempted to overcome the absence of the missing records. Therefore, we cannot understand why the protestant assumed that there was nothing amiss with its records (as stated in the above quotation from the protest). (Similarly, we question the statement in the protest that "[i]t is surprising that the same kind and quality issue is now raised by the Customs Service [since] [none] of the parties involved ... ever mentioned that same kind and quality was an issue" (page 6 of attachment to protest). In view of the initial audits of these entries, as well as Exhibit 3 of the protest (a letter responding to the July 31, 1991 (i.e., before the meeting at which the final audit findings were presented to the protestant and before the date of the audit report), letter from the protestant seeking same-kind- and-quality evidence), this statement appears to be patently false.)

The protestant argues that same-kind-and-quality is established on the basis of the quality of the articles produced and exported, contending that the protestant's overseas customers would not have accepted a less-than Grade A product. Basically, this argument is that since the final manufactured product was USDA Grade A, the substituted merchandise used to produce it must also have been USDA Grade A.

We disagree with the above argument (see, in this regard, ruling 220902, dated April 3, 1992). The drawback law requires the designated imported merchandise and the substituted merchandise to be of the same kind and quality and the Customs Regulations require a drawback claimant to keep records to establish that the designated imported merchandise is the same kind and quality as the substituted merchandise. The protestant specifically agreed to keep records to establish this. The protestant has clearly failed to comply with the statutory and regulatory requirements, as well as with what it agreed to do in its drawback contract (as described above) in this regard (see discussion above on the mandatory nature of compliance with Customs Regulations on drawback).

Similarly, the protestant contends that the same-kind-and- quality of the substituted merchandise may be established because "[e]very shipment of concentrate purchased domestically and all imported concentrates were graded on site in the USDA laboratory [and] [i]f any concentrate or juice ever tested lower than Grade A it was 'flagged' by the USDA 'Not to be used in FOJC' pursuant to Florida's Code" (page 6 of attachment to protest). We considered a similar contention in ruling 220902 (referred to above). We held that this was unacceptable to establish same- kind-and-quality because the restriction to which the protestant refers is actually that "bulk" products blended or used to produce FCOJ must be of Grade A quality with regard to flavor only, as a prerequisite to assignment of Grade A to the final product (see Chapter 20-64 of the Official Rules Affecting the Florida Citrus Industry). Since the flavor criterion used for USDA grading of COJM is one of three criteria (color, defects, and flavor) and, relatively speaking, is no more important than color, we were unable to accept that evidence which may indicate that COJM was of Grade A flavor necessarily meant that the COJM was Grade A in all three criteria (as stated above, in order to qualify as Grade A, the COJM must meet the Grade A criterion for each of color (36 - 40 points), defects (18 - 20 points), and flavor (36 - 40 points)). We are unable to accept the protestant's argument in this regard.

We also disagree with the protestant's argument that, "the records provided to [Customs] and all records provided for previous claims are in order" (attachment to protest, page 8) and, therefore, the absence of the required records in this case should not preclude drawback. I.e., we disagree because the protestant has clearly failed, in the case of these entries, to comply with the statutory and regulatory requirements, as well as with what it agreed to do in its drawback contract.

The protestant contends that the absence of the required records can be overcome by the affidavit provided with the protest, citing Aurea Jewelry Creations, Inc., v. United States, 13 CIT 712, 720 F. Supp. 189 (1989), aff'd 932 F.2d 943 (Fed. Cir. 1991). The Aurea case involved drawback under the direct identification manufacturing drawback statute (19 U.S.C. 1313(a)). Customs had denied drawback because the documents submitted by the drawback claimant were found insufficient to trace the merchandise from the importer to its subsidiary (which was the manufacturer) and to establish the date of manufacture for one of the three lots of gold jewelry involved. The Court of International Trade held that testimony at trial by the responsible individuals of the claimant and its subsidiary that the records had been created but could not be produced satisfied the requirements for drawback. The Court of Appeals for the Federal Circuit affirmed, stating:

Compliance with the drawback regulations is mandatory and a condition precedent to the right of recovery of drawback. See, e.g., United States v. Lockheed Petroleum Servs., Ltd., 709 F.2d 1472, 1 Fed. Cir. (T) (1983). The Court of International Trade's conclusion that testimony may establish the existence of required records is not inconsistent with the mandatory nature of the requirement to maintain certain documentation.
The drawback provisions involved here are both detailed and specific in outlining the required documentation. Testimony could be used to establish that the necessary records, no longer available for reasons shown to be excusable, were in fact maintained as required. Further testimony could then be used to establish the contents of those unavailable records, and to establish that those contents would have satisfied the substance of the drawback provisions. A claimant's testimonial evidence thus could be used to satisfy a two- pronged inquiry - 1) whether appropriate documentation was maintained as required; and 2) whether the contents of that documentation adequately established claimant's right to the drawback. [932 F.2d at 946.]

Thus, in summary, the Aurea case stands for the proposition that testimony may be used to establish that: "records, no longer available for reasons shown to be excusable, were in fact maintained as required" and that "the contents of those unavailable records ... would have satisfied the substance of the drawback provisions." As the Court of Appeals clearly stated, this does not mean that testimony may be used instead of records which were not created. It means that testimony may be used, in the conditions described, when records which were created are, for reasons shown to be excusable, no longer available.

As the protestant states, we have noted in a past ruling (223235, June 19, 1992) that "[a]n affidavit is not the equivalent of testimony at trial because an affidavit is not subject to cross-examination and, therefore, not entitled to the same weight as testimony in court" (citing Andy Mohan, Inc. v. United States, 74 Cust. Ct. 105, C.D. 4593 (1975), aff'd 63 CCPA 104, C.A.D. 1173, 537 F.2d 516 (1976)). In the CCPA decision, the Court noted that the affidavits in question "... are entitled to little weight, being incomplete and based on unproduced records, and having been executed years after the transactions to which they attest" (63 CCPA 107). In this regard, we note the statement of the CIT in Central Soya Co., Inc. v. United States, 15 CIT 35, 40 (1991) (cited by the protestant), that "... all relevant evidence is admissible, provided that it is not deemed inadmissible by the Constitution or by statute" but this "... is no indication of the credit or probative value of [affidavits]."

In this case then, under the Aurea case, the protestant would have to establish that the score sheets and production records were in fact maintained, that they would have established the protestant's right to drawback, and that they were no longer available for reasons shown to be excusable. The only reason given for the unavailability of the records is the subpoena of the protestant's records and the delayed return of those records in disarray with (implicitly) some of the records missing. As stated above, however, the 1984 score sheets and the production and inventory records for the pertinent time were found to be unavailable in the initial audits. These initial audits were performed before the issuance of the subpoena, and Customs officials met with the protestant to discuss the results of the audits before the issuance of the subpoena. Therefore, the subpoena cannot be used as an excuse for the unavailability of the records found to be unavailable before issuance of the subpoena.

As to the other two requirements given in the Aurea case, we note that the affidavit in this case is similar to those described in the Andy Mohan case (i.e., the affidavit is "incomplete" in that the affiant does not state what the scores on the score sheets were and what the production and inventory records under question would have shown (compare to the specificity of the testimony in Aurea); the affidavit is "based on unproduced records"; and the affidavit was "executed years after the transactions to which [it] attest[s]" (in this case, 5 years after the initial audits and at least 8 years after the time the records were stated to have been maintained)). See also, in regard to the last point, United States v. Baar & Beards, Inc., 46 CCPA 92, C.A.D. 705 (1959), in which an affidavit more than 2 years after the event to which it related which was not supported by any records was found insufficient to overcome the valuation affixed by the appraiser.

The follow-up audit found that score sheets were unavailable for all of 1984 and for the period between September 1 through December 31, 1983. Since there is no reference in the initial audits to the unavailability of score sheets for the latter period, it could be argued that the score sheets for this period (September 1 through December 31, 1983) are unavailable for an excusable reason. Even if that were so and even if score sheets establishing the same-kind-and-quality of the merchandise claimed to have been used during the period to produce the exported articles were found to have been maintained on the basis of the affidavit, production and inventory records were found to be unavailable in the initial audits for all claims and in the follow-up audit between October 31 and December 31, 1983. Therefore, even if the affidavit were accepted as evidence to the greatest degree possible, the only claims which could be affected would be those in which the date of manufacture was before October 31, 1983. According to the entries under consideration and any other available information in the file, drawback has already been granted (in the June 7, 1984, entry) to the extent possible for claims in which the date of manufacture was before October 31, 1983.

HOLDING:

There is no authority to grant the protest of the denial of drawback in this case.

The protest is DENIED. In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed, with the Customs Form 19, by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Lexis, Freedom of Information Act, and other public access channels.

Sincerely,

John Durant, Director

Previous Ruling Next Ruling