HQ 0224598 - Manufacturing Drawback Claims; Same Kind and Quality; Orange Juice; Protest 5201-92-100530; 19 U.S.C. 1313(b) - United States International Trade Commision Rulings

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HQ 224598

December 22, 1993

DRA-1-06-CO:R:C:E 224598 PH

CATEGORY: DRAWBACK

Regional Commissioner of Customs
Southeast Region

RE: Manufacturing Drawback Claims; Same Kind and Quality; Orange Juice; Protest 5201-92-100530; 19 U.S.C. 1313(b)

Dear Sir:

The above-referenced protest was forwarded to this office for further review. We have considered the points raised by your office, the protestant, and the materials in the file (we understand that materials submitted by the protestant relating to its alternative proposal are available in your Regional Regulatory Audit office). Our decision follows.

FACTS:

The protest is of the liquidation of three drawback entries (or claims) dated January 9, 16, and 30, 1987. The entries covered by the protest were the subject of a Customs audit (Report 4-88-FRD-13, discussed in the LAW ANALYSIS portion of this ruling) and a ruling on an internal advice request (ruling 220902, April 3, 1992, cited by the protestant). Accelerated payment of drawback was requested and granted for the entries, resulting in a total accelerated payment of drawback in the amount of $959,066.23 (the date of the accelerated payment of drawback for the January 9, 1987, entry was January 30, 1987, that for the January 16 entry was February 23, and that for the January 30 entry was March 13). By check dated December 8, 1989, the protestant returned $34,340.90. The protestant states that all other drawback received on the entries under consideration was returned, with interest, on October 22, 1992. On May 22, 1992, the entries under consideration were liquidated with all drawback denied, and on July 31, 1992, the entries were reliquidated (the reliquidation was to take into consideration the protestant's December 8, 1989, tender of monies, according to notes in the file).

The protestant (the corporate drawback claimant no longer exists, having been succeeded to by a managing corporation; references to the protestant include the original corporate drawback claimant and the succeeding managing corporation, as well as their representative in this matter) held a manufacturing drawback contract (T.D. 83-124 (Y)) under 19 U.S.C. 1313(b) (according to the audit report referred to below, the protestant went out of the orange juice processing and canning business on August 1, 1986). That contract provided for drawback in the manufacture of orange juice from concentrate (reconstituted juice), frozen concentrated orange juice, and bulk concentrated orange juice from 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 or a drawback product and which was to be 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 used to produce the exported article" and that its "records [would] indicate the kind and quality of the material used to produce the exported article."

The audit report (referred to above) recommended denial of all drawback in the audited entries because the auditors found that the protestant did not maintain manufacturing records to show that the product used in manufacture was of the same kind and quality as the designated product. Also, according to the audit report, daily manufacturing records did not show the quantity used in manufacture or the quantity produced in comparable units of measure. Further, in regard to bulk concentrated orange juice ($497,274.04 of the total drawback claimed), the records did not show that a manufacturing process took place. (Other deficiencies regarding the production date of single strength juice sent to Arab countries and non- exportations, duplications in the claims, and the identity (e.g., grapefruit instead of orange juice) of the product shipped were found in the audit, but are understood to have been resolved.)

The ruling issued in response to the internal advice request in this case (referred to above) held that the records in the case did not establish that the duty-free or domestic merchandise used to manufacture or produce the exported articles was of the same kind and quality as the designated imported merchandise. In the ruling, we also commented on the question of whether the records established that the exported COJM had been manufactured or produced. We stated that we could find no records establishing the use of essential oils, flavoring components, water, or fresh juice in the production of the COJM for export.

On August 17, 1992, the protestant filed the protest of the May 22, 1992, liquidation and the July 31, 1992, reliquidation of the drawback entries under consideration. The specific arguments made by the protestant are addressed in the LAW AND ANALYSIS portion of this ruling.

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 duty-free or domestic merchandise 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 the articles manufactured or produced from the duty-free or domestic merchandise are exported, 99 percent of the duties on the imported duty-paid merchandise shall be refunded as drawback, even if none of the imported merchandise was actually used in the manufacture or production of the exported 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 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 these requirements (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. 83-124-(Y), 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)).

The protestant contends in its protest that the records maintained by the protestant, supplemented by records and advice received from the USDA (considered in ruling 220902, referred to above) establish that the merchandise used to produce the exported articles was of the same kind and quality as the imported merchandise designated for drawback. The protestant also contends that a process of manufacture, the addition of oils and essences, did take place and that if tangerine/hybrid juices were used, the quantity used was within permissible limits. To require more, according to the protestant, is to require "batch records", which it states the drawback contract (or "rate") covering the entries under consideration was framed to avoid.

The above contentions, as well as the evidence cited, were thoroughly considered in ruling 220902 (referred to above, copy enclosed, and incorporated by reference into this ruling). That ruling considered all of the evidence then available in the light of the requirements of the law and the Customs Regulations and what the protestant agreed to in its drawback contract. As stated above, in that ruling we held that the records in this case do not establish that the merchandise used to manufacture the exported articles was of the same kind and quality as the designated merchandise, which is an absolute requirement under the law and the Customs Regulations, and which the protestant agreed in its drawback contract to maintain records to establish. After again considering this matter and the evidence in the file, we have come to the same conclusion; i.e., the protest is denied in this regard (however, the new evidence submitted by the protestant is considered below).

The protestant also cites two other drawback entries in which it states that the same record-keeping methodology was used and in which drawback was granted (the dates of these drawback entries are January 10, 1985 and January 8, 1986, and the liquidation dates are July 7, 1986, and October 24, 1986, respectively). According to the protestant, it believed that it was keeping such records as were necessary and appropriate (the protestant notes that the former Customs employee who had prepared the protestant's application for its drawback contract reviewed each entry before submission to Customs) and "Customs' apparent acquiescence [by liquidating these entries with drawback] caused [the protestant] to rely on the efficacy of its record[-]keeping methodology to its detriment."

In this regard, we note that any drawback claim is subject to verification by Customs (see 19 CFR 191.10). The liquidation of the cited entries was based on earlier audits of the protestant performed when the protestant was operating under a different drawback contract (see discussion of this issue in ruling 220902, referred to above). We fail to see how the protestant could have relied on the liquidations on July 7 and October 24, 1986 (note that the liquidations would not have been final until 90 days later; 19 U.S.C. 1501), of the cited entries in the entries under consideration when the dates of the imports for the entries under consideration were from March of 1984 through January of 1986, the imports must have been used before August 1, 1986 (when the protestant went out of the orange juice processing and canning business), the substituted merchandise must have been used to produce the exported articles before August 1, 1986, and the exportations for which drawback was claimed occurred between December of 1984 and July of 1986 (see page 1 of audit report; see also the chronological summary of exports filed by the protestant for the January 9, 1987, drawback entry, according to which only 36,691.88 gallons of 11.8 degrees brix (single strength) orange juice, out of a claimed total 739,957.32 gallons of 11.8 degrees brix orange juice, no 42 degrees brix frozen orange concentrate, and no 65 degrees brix frozen orange concentrate, were exported after the earlier of the liquidations of the cited drawback entries (on July 7, 1986)). Thus, even if detrimental reliance were available if a party could show that it relied on the liquidation of a drawback claim in filing a subsequent claim (which we do not believe to be the case; see 19 CFR 177.9(d)), the protestant clearly has failed to establish such reliance (i.e., because the protestant would be arguing that it was relying on an event (liquidation) before the event occurred).

Alternatively, if drawback is not allowed in full on the basis of the above arguments, the protestant contends that there is no basis to deny the claims in their entirety. The protestant provides additional records, an affidavit as to the manufacturing issue, and other materials. Compliance, on the basis of this additional evidence, with the drawback requirements is reviewed below.

(1) Was imported duty-paid merchandise meeting the specifications in the protestant's drawback contract used by the protestant within 3 years of receipt?

The merchandise designated for drawback in this case consisted of frozen COJM (65 degrees brix) imported from Brazil. According to the audit report, all designated merchandise was imported between March 1984 and January 1986. In the January 9, 1987, entry, according to the import documents 107,184.29, gallons of COJM (stated to be the equivalent of 750,290.83 gallons reconstituted) were withdrawn from warehouse on September 12, 1984, 53.80 gallons of COJM (stated to be the equivalent of 376.57 gallons reconstituted) were withdrawn from warehouse on September 27, 1984 (the date of the warehouse entry for both of these withdrawals was March 15, 1984), and 159,670.5 gallons of COJM (stated to be the equivalent of 1,117,693 gallons reconstituted) were entered for consumption on July 25, 1984 (i.e., total designated merchandise for this entry: 266,908.59 COJM, stated to be the equivalent of 1,868,360.5 gallons reconstituted, upon which duty in the amount of $653,926.04 was paid). The audit found that the protestant imported the COJM and paid the duty. The audit found that the COJM was received at the plant and used in production of domestic and export products. According to the audit report, the protestant went out of the orange juice processing and canning business on August 1, 1986. According to ruling 220902 (referred to above), there are records to establish that the imported COJM was USDA Grade A COJM. Based on the above, we conclude that the designated imported COJM met the same-kind-and-quality specifications in the protestant's contract and was used within 3 years of receipt by the protestant in the manufacture or production of articles.

(In regard to the emphasized clause in the preceding sentence, we note that the imported designated merchandise is required to be used within 3 years of receipt by the manufacturer or producer, not within 5 years of importation (see page 8 of audit report). We note also in this regard, for your information, that use of the designated imported merchandise within 3 years of receipt by the manufacturer or producer is an explicit statutory requirement and the Customs Regulations require the records of the manufacturer or producer to establish this (see 19 CFR 191.32(a)(3)), and the protestant agreed to maintain records establishing this. An assumption that designated merchandise "would have had to have been used" (see page 8 of audit report) may not substitute for these record- keeping requirements (we note, in this regard, that Customs has approved the use of first-in-first-out (FIFO) inventory turnover records to establish this (see C.S.D. 79-301)).)

(2) Was merchandise of the same kind and quality as the imported duty-paid merchandise used by the protestant within 3 years of receipt to manufacture the articles upon which drawback was claimed and were those articles exported within 5 years of the importation of the imported duty-paid merchandise?

Exports. As stated above, the protestant used the exporter's summary procedure. According to the audit report, the imports designated in these entries were imported between March of 1984 and January of 1986 (page 8) and the exports were between December of 1984 and July of 1986 (page 1). According to the audit report (page 14 and Exhibit D), there were a number of deficiencies regarding exportation (primarily non-exports because the claimed exports were to a U.S. possession (see 19 CFR 191.13)), but all related to exports of single-strength products. These are the only deficiencies regarding exports cited in the audit report. The additional evidence presented with the protest relates only to concentrated products (65 and 41.8 degrees brix) and no alternative claim is made in regard to single-strength products. In view of the above and the additional evidence presented (in this regard, invoices for all exports claimed), we are satisfied that the exportations which serve as a basis for drawback on the basis of the additional evidence presented were exportations, for drawback purposes, and were within the time prescribed by the statute (i.e., within 5 years of the importation of the designated, imported merchandise).

Manufacture of exported articles from merchandise of the same kind and quality as the designated imported duty-paid merchandise. The protestant attempts to establish its compliance with this requirement by the submission of additional records for concentrated products (i.e., 65 degrees brix COJM and 41.8 degrees brix frozen orange juice concentrate). The evidence submitted for each is reviewed separately below.

COJM (65 degrees brix). The protestant provides copies of invoices for each claimed export. With each invoice is a drum manifest, which lists the drums by number and the date of production, degrees brix, net weight, ratio (sugar (in degrees brix) to acid), pounds solid, and product description for each drum. Also related to each invoice and drum manifest there is a weekly "Production Drum Proof" report (in some cases, a "Daily Transaction Proof"), on which may be found the drum numbers from the drum manifest. This report lists the date of production, batch, ratio, acid, degrees brix, N-value (related to color score), oil, weight, pounds solid, gallons, location, color score, defects score, flavor score, and total score. Related to the "Production Drum Proof" report is a "Drum Usage Proof" report. This report shows the drum usage (stated to include usage of all drums of orange, reticula, and hybrid products on the date of production) in orange juice manufacture. This report lists the drum number, date of production, batch, ratio, acid, degrees brix, N-value, oil, weight, pounds solid, gallons, location, color score, defects score, flavor score, total score, and group of the drums used (with certain exceptions described below). Also listed is the date of "update" (i.e., the date the drum was used) and the type (of product produced).

(USDA Certificates of Quality for the exported articles are also provided (except in the case of two shipments) with the above-described documents. For the reasons explained in ruling 220902, referred to above, these certificates are unnecessary and do not establish same-kind-and-quality. I.e., what is required is that the designated imported merchandise and the substituted merchandise which is used to produce the exported articles be of the same kind and quality; not that the designated imported merchandise and the exported articles be of the same kind and quality.)

The protestant proposes the use of these records to establish the production date of the exported articles (i.e., the exported drums (by drum number, off the drum manifest attached to the invoice) are traced to the Production Drum Proof report (listing the same drum numbers and dates of production)). Using the date of production off the Production Drum Proof report, the protestant proposes to establish the minimum quantity of merchandise of the same kind and quality as the imported designated merchandise which must have been used to produce the exported articles. This is done by totalling all of the drums of orange juice products used in production on the date of production of the exported articles and separating this into qualifying drums of COJM and non-qualifying drums. Qualifying COJM is all Grade A COJM meeting the same-kind-and-quality specifications in the protestant's drawback contract and non- qualifying drums are all other drums used in production on that date. It is assumed that all of the non-qualifying drums were used in the production of the exported articles, so that the quantity of pounds solid qualifying for drawback is the difference between pounds solid exported and non-qualifying pounds solid (if there were sufficient qualifying pounds solid produced on that date).

On the issue of whether the exported COJM was manufactured or produced, the protestant provides an affidavit, dated November 3, 1992, by a person who states that he was employed by the protestant in a supervisory position between 1977 and 1987. The affiant states that, during this employment, he was personally responsible for juice extraction and blending and for the concentrate area, which included the manufacture of orange juice concentrate for foreign and domestic consumption. The affiant states that his duties included supervising the addition of oils and essences during the manufacture of each batch of orange juice concentrate. The affiant states that "[f]rom [his] personal knowledge, oils and essences were added to each batch of concentrate, whether for export or domestic sale, during the manufacturing process to meet USDA and Florida Department of Citrus specifications and custom requirements." The affiant describes the procedures involved and concludes, "[i]n summary, each batch of concentrate required the addition of oil and essence as part of the manufacturing process; and to my personal knowledge, essence and either essence oil or cold press oil, as described above, were necessarily added to each batch."

To illustrate the protestant's proposal, we are describing how it works in the case of two export shipments. In the case of invoice 0077407 (identified as F-877 in the protestant's submission) 77 drums (identified as numbers 420 through 496) were shipped to Japan. The pounds solid for these drums are stated to be 28,403.76. The drums are listed (by number) on the Production Drum Proof report as having been produced on July 15, 1985, and the other information described above is provided for each drum. According to the Drum Usage Proof report, 21,285.03 pounds solid of qualifying (Grade A) COJM were used on July 15, 1985, and 23,032.21 pounds solid of non-qualifying (less than Grade A) product were used on July 15, 1985 (note: there is a discrepancy here with the protestant's figures in that the protestant found 20,156.20 pounds solid of qualifying COJM (apparently because the protestant omitted drums 4025, 4027, and 94495) but the discrepancy has no effect on the calculations because it is on the qualifying side and there is sufficient qualifying COJM in either case). Since 28,403.76 pounds solid of COJM were exported and 23,032.21 pounds solid of non-qualifying product are assumed to have been used to produce the exported COJM, drawback is claimed on 5,371.55 pounds solid of COJM. As to the manufacturing issue, we note that according to the Production Drum Proof and Drum Usage Proof reports, in no case does a drum which was exported have the same scores (color 38, defects 20, flavor 37, totalling 95), oil (.0150), and ratio (15.01) as does any of the drums of product used on the date of production of the exported articles.

In the case of invoice 0085433 (identified as G-518 in the protestant's submission) 82 drums (identified as numbers 136300 through 136331, 136336 through 136338, 136341, 136342, 136344, 136676 through 136709, and 136950 through 136959) were shipped to Japan. The pounds solid for these drums are stated to be 30,255.00. The drums are listed (by number) on the Production Drum Proof report as having been produced on March 10, 1986 (the above listed drums through 136344) and March 11, 1986 (the above listed drums 136676 through 136709 and 136950 through 136959), and the other information described above is provided for each drum. According to the Drum Usage Proof report, on March 10, 1986, 57,322.39 pounds solid of qualifying (Grade A) COJM were used (note: there is a minor discrepancy here with the protestant's figures in that the protestant found 57,323.39 pounds solid of qualifying COJM (probably explained by the difficulty in reading some of the numbers on the Drum Usage Proof report) but the discrepancy has no effect on the calculations because it is on the qualifying side and there is sufficient qualifying COJM in either case) and no pounds solid of non- qualifying product were used. On March 11, 1986, 74,575.88 pounds solid of qualifying (Grade A) COJM were used and 3,148.71 pounds solid of non-qualifying (less than Grade A or ungraded) product were used (note: there is a minor discrepancy here with the protestant's figures in that the protestant found 74,762.89 pounds solid of qualifying COJM (probably explained as above) but the discrepancy has no effect on the calculations because it is on the qualifying side and there is sufficient qualifying COJM in either case). Since 30,255.00 pounds solid of COJM were exported and 3,148.71 pounds solid of non-qualifying product are assumed to have been used to produce the exported COJM, drawback is claimed on 27,106.29.

(Note: The production on March 10, 1986, was also claimed in the following shipments: invoice 0085429 (G-516) (8,962.27 pounds solid); invoice 0085428 (G-515) (22,315.01 pounds solid); invoice 0085427 (G-514) (7,430.30 pounds solid); and invoice 0085334 (G-512) (2,964.17 pounds solid). Thus, a total of 55,654.24 pounds solid of COJM produced on March 10, 1986, were claimed as exports, on the basis of a total of 57,322.39 pounds solid qualifying COJM used on that date. Since no non-qualifying product was used on that date, drawback is claimed on the entire total of 55,654.24 pounds solid.)

As to the manufacturing issue, we note that according to the Production Drum Proof and Drum Usage Proof reports, in no case does a drum which was exported have the same scores (color 36, defects 20, flavor 37, totalling 93), oil (.0120, .0100, .0060, or .0080), and ratio (17.65, 17.66, or 17.76) as does any of the drums of product used on the dates of production of the exported articles.

We have ruled that a drawback claimant may reconstruct lost records or provide proof of records by alternate means or records (see C.S.D. 82-30; see also Aurea Jewelry Creations, Inc., v. United States, 13 CIT 712, 720 F. Supp. 189 (1989), aff'd 932 F.2d 943 (Fed. Cir. 1991)). In this case, except as noted below, the protestant has provided evidence (i.e., the additional evidence submitted with the protest and described above) in regard to the export shipments of 65 degrees brix COJM covered in the additional evidence that the shipments were manufactured or processed (i.e., from the records showing the differences in the specifications of the exported COJM and the product used to produce the exported COJM, supplemented by the affidavit by the responsible employee of the protestant (see C.S.D. 80-162)) from merchandise of the same kind and quality as the imported designated merchandise (i.e., the records tracing the exported drums back to the date of production, used to show that on the date of production Grade A COJM, for which there are records establishing same-kind-and-quality, must have been used to produce the exported COJM by treating all non-qualifying product used on that date as used in the production of the exported articles and reducing the available drawback accordingly). Therefore, on the basis of the above and because the other requirements have been met (as described above), drawback may be granted to the extent described on the exportations of the 65 degrees brix COJM, except as noted below.

One exception to the above is the export shipments produced on dates when Brazilian COJM was used. In invoice 0076259 (F- 884), for the COJM produced on May 15, 1985, 15,719.46 pounds solid of Grade A COJM were used and 8,351.18 pounds solid of Brazilian COJM were used. 5,228.64 pounds solid of COJM produced on May 15, 1985, were exported and both the Grade A and Brazilian COJM are treated as qualifying, so drawback is claimed on the full 5,228.64 pounds solid of COJM. The Drum Usage Proof reports (which are used to establish same-kind-and-quality of the merchandise used to produce the exported articles) for the Brazilian COJM do not list scores or oil content. Although it is true that imported, duty-paid merchandise may be used to manufacture exported articles for which drawback is claimed under 19 U.S.C. 1313(b) (see T.D. 84-95), the imported, duty-paid merchandise must still be of the same kind and quality as the designated merchandise.

The protestant attempts to establish that the Brazilian COJM was of the same kind and quality as the designated merchandise by the use of supplemental evidence (i.e., instead of Drum Usage Proof reports with scores). This evidence consists of an invoice, dated January 2, 1985, listing the bill of lading date as December 19, 1984, for the sale and shipment of 1,500 drums containing 65 degrees brix frozen concentrated orange juice from Brazil to the protestant; a record of drums purchased, said to be prepared by the protestant's clerk, showing the purchase of 1,500 drums (containing 137,039 gallons) of Brazilian orange juice on January 4, 1985, and listing Fruitropic S.A. as the "inventory" source; a report on the specifications of 1,500 drums of frozen orange juice concentrate, in batches of 60 drums per batch (the batches identified by number, e.g., "4.956"), on the letterhead of Fruitropic S.A. listing, among other things, the degrees brix, acid, ratio, defects score, color score, flavor score, oil, and pulp, and totalling 137,039.91 gallons; and a list of drum numbers said to be in each of the above-referenced batches. In the report on the specifications of the batches of 60 drums of frozen orange juice concentrate, the scores are those for USDA Grade A COJM and the measurements of degrees brix vary no more than .13 from 65 degrees brix.

The Brazilian COJM listed on the Drum Usage Proof report for May 15, 1985, is shown in drums with drum numbers appearing on the list of drum numbers referred to in the preceding paragraph. The protestant's basis for linking the batches (the score sheets are for each batch) to the groups of 60 drums is that the ratio and degrees brix are the same in the score sheet of a particular batch and for the 60 drums stated to be included within that batch (e.g., batch 4.956 has a ratio of 15.94 and degrees brix of 65.07 and drums 60164P through 60223P have the exact same ratio and degrees brix).

We are unable to accept this evidence as establishing that the Brazilian COJM listed on the Drum Usage Proof report, the drum numbers of which appear in the list of drum numbers, is identified as the Brazilian COJM, identified by batch number, for which specifications (including, among other things, the degrees brix, acid ratio, defects score, color score, flavor score, oil, and pulp) are listed. Such identification is necessary to establish that the Brazilian COJM used in the production of the exported articles meets the same-kind-and-quality requirement. The basis for this conclusion is that in the case of at least one batch (4.966, having a degrees brix of 65.05 and a ratio of 16.02), there is no matching group of 60 drums with the same specifications. Additionally, we note that batches 4.961 and 4.972 have the same ratios and degrees brix, as do batches 4.968 and 4.988 and, thus, their identities in the drums cannot be conclusively identified in the manner proposed by the protestant (i.e., drums with the same ratios and degrees brix could be from either of batch 4.961 or 4.972 and the same is true of batches 4.968 and 4.988). The protestant attempts to explain the above discrepancy (i.e., that in batch 4.966 there is no matching group of 60 drums) by speculating that it may have been due to computer error. However, as noted above, the drawback law, the applicable regulations, and the protestant's drawback contract require that same-kind-and-quality be established, and the foregoing raises doubts that the Brazilian COJM used in the May 15, 1985, production was the same as that graded by batch (see discussion above on the mandatory nature of compliance with the Customs Regulations on drawback).

Accordingly, we are unable to conclude that the evidence submitted by the protestant establishes that the Brazilian COJM used to produce the COJM on May 15, 1985, was of the same kind and quality as the designated imported COJM. Direct identification drawback, under 19 U.S.C. 1313(a) is not available because the records necessary for such drawback are not made available (i.e., records tracing the imported merchandise to the exported articles). Therefore, the Brazilian COJM must be treated as non-qualifying and, since there is then more non- qualifying product used on the date of production than exported COJM, no drawback may be granted on the basis of the 5,228.64 pounds solid produced on may 15, 1985.

Similarly, the 53,547.31 pounds solid of Brazilian COJM used in production on June 6, 1985 (see invoices 0076057 (F-849) and 0076064 (F-851)), and the 55,448.09 pounds solid of Brazilian COJM used in production on June 5, 1985 (see invoices 0076063 (F- 852) and 0076107 (F-853)), must be treated as non-qualifying. Since there were a total of 56,621.95 pounds solid of COJM exported from the COJM produced on June 6, 1985, and no other non-qualifying product, 3,074.64 pounds solid of COJM are available for drawback from the June 6, 1985, production (i.e., the 53,547.31 pounds solid non-qualifying Brazilian COJM are treated as having been used in the exported COJM). In the case of the June 5, 1985, production, 56,451.78 pounds solid of COJM were exported and there is no other non-qualifying product, so 1,003.69 pounds solid of COJM are available for drawback from the June 5, 1985, production (i.e., the 55,448.09 pounds solid non- qualifying Brazilian COJM are treated as having been used in the exported COJM). The 3,074.64 pounds solid of COJM may be attributed to either invoice 0076057 or 0076064 and the 1,003.69 pounds solid of COJM may be attributed to either invoice 0076063 or 0076107.

In addition to the exception for the non-qualifying Brazilian COJM, in the cases of invoices 85335 and 0085860 (G- 511 and G-582, respectively), we found, respectively, 1,485.62 and 761.25 pounds solid in the Drum Usage Reports for the dates of production (February 10, 1986, and March 22, 1986, respectively) with less than 55 degrees brix. According to the specifications in the protestant's drawback contract, the COJM used to produce the exported articles must be of not less than 55 degrees brix, in addition to meeting the USDA Grade A standard. Therefore, this COJM is non-qualifying and is assumed to have been used in the production of the exported articles. The qualifying pounds solid for each date must be reduced (i.e., the qualifying pounds solid of the February 10, 1986, production is reduced from 16,997.08 to 15,511.46, attributable (with the February 28, 1986, production) to invoice 85335; and the qualifying pounds solid of the March 22, 1986, production is reduced from 26,553.70 to 25,792.45, attributable to invoice 0085860) and the drawback granted for articles produced on these dates and attributable to these invoices must be reduced accordingly.

Also, in invoices 0076057 (F-849) and 0076064 (F-851), the Drum Usage Proof for June 6, 1985, does not provide the scores for 36 drums (containing 14,020.80 pounds solid) of concentrate used on June 6, 1985 and these drums are not listed on the "Daily Transaction Proof" report submitted with this invoice (this latter report is used for other drums for this date of production to establish the scores of the drums on the Drum Usage Proof report). There is a hand-written notation on the Drum Usage Proof report above these drums indicating that they were "used in single strength" production, but there is no evidence establishing that. In the absence of such evidence, we must assume that these non-qualifying drums were used in the production of the exported articles on the date of production and the pounds solid available for drawback must be reduced accordingly (i.e., 14,020.80 must be added to the non-qualifying COJM used on this date; since the Brazilian COJM is also considered non-qualifying, the non-qualifying COJM exceeds the exported articles based on this date of production and no drawback may be granted for the date).

(Note: No 10 percent reduction for the possible use of tangerine and/or hybrid juice is necessary in the case of the COJM (as discussed below in regard to the 41.8 degrees brix frozen orange juice concentrate) because in this case, as contrasted with the case of the 41.8 degrees brix frozen orange juice concentrate, the protestant has provided satisfactory evidence that tangerine and/or hybrid juice was not used in the production of the exported articles. This evidence consists of a letter, dated June 10, 1992, from a responsible official of the USDA in Winter Haven, Florida, stating that "... based on our Continuous Inspection procedure and the cited WH-MEMO [listing Florida citrus code designations], our in-plant inspection personnel would have required a code marking of 'OMT' or 'OMTD' on any product produced at the referenced establishment [i.e., that of the protestant] if it contained any tangerine/hybrid juices." (Emphasis in original.) In the drum manifests for the invoices for the exported articles, the product description for all drums is either "OMD" or "OM" and in the "Daily Transaction Proof" reports which list the product, the product code is

Frozen orange juice concentrate (41.8 degrees brix). The protestant provides copies of invoices for each claimed export with a shipping order which lists the cases, size, brand, commodity, product, label, and weight, as well as shipping information. There is a hand-written notation on the shipping orders which the protestant states identifies the date of production (e.g., "21 C-5" is stated to mean March 21, 1985, and "L-18-5" is stated to mean December 18, 1985 (the alphabetic notation indicates the month of production)). According to the protestant, this hand-written notation is made on the shipping order at the loading dock by the loader, and the initial on the shipping order (in the stamped block at the indication for "signature") is of the person who made this notation. Related to each invoice and shipping order is a weekly inventory report, which lists, among other things, the weekly production of various products, including the product listed on the shipping order. Also related to each invoice and shipping order are "Drum Usage Proof" reports (see discussion of 65 degrees brix COJM above, for information listed on these reports). No USDA Certificates of Quality for the exported articles are included (see our comments above, as to why such certificates are unnecessary for same- kind-and-quality purposes).

The protestant proposes the use of these records to establish the production date of the exported articles (i.e., by the hand-written notation on the shipping orders, supported by the weekly inventory report showing that more than the quantity of articles exported was produced in the week of the date of production). The protestant converts the quantity of exported articles (given in cases of cans or other containers, e.g., 308 cases of 12/32 (12 32 ounce containers) to pounds solid (using a ratio of 4.156 per gallon of frozen concentrate (Note: we understand that this is the ratio for 42 degrees brix, and that the ratio for 41.8 degrees brix is actually 4.133; we understand that the use of the ratio for 42 degrees brix for calculating pounds solid for this product is consistent with the practice in this regard). Using the production date developed from the above information, the protestant proposes to establish the minimum quantity of merchandise of the same kind and quality as the imported designated merchandise which must have been used to produce the exported articles (as was proposed in the case of the 65 degrees brix COJM, as described above). The protestant proposes to establish manufacture or production by the affidavit described above. Because the protestant cannot establish that tangerine and/or hybrid juice was not used in the production of the frozen concentrate, the protestant proposes to reduce the above resulting qualifying pounds solid by 10 percent (see C.S.D. 79-409, citing the FDA regulations identifying frozen concentrated orange juice to permit the addition of not more than 10 percent tangerine juice). Because the protestant cannot establish that fresh juice was not used as "cutback" (i.e., to reduce the degrees brix of the COJM from 65 degrees to the 41.8 degrees brix of the frozen orange juice concentrate, in which case a portion of the pounds solid of the exported articles would be derived from fresh juice not qualifying for drawback in this case), the protestant proposes a further reduction of 12.18 percent (see C.S.D. 83-7).

To illustrate the protestant's proposal, we are describing how it works in the case of invoice 0082618 (G-218). According to that invoice, 308 cases of 12 containers of 32 ounces of Bluebird frozen orange concentrate (identified by production code 1601, label 010) were sold to and shipped to Solomon Bros. Ltd., care of Tropical-Ships Mail, of Miami, Florida (as stated above, on the basis of the audit report we are assuming that the exportation requirements have been met; in particular regard to this case (see also invoices 0077371 (F-948), 0085860 (G-582), 0086505 (G-632), 0086438 (G-653), 0074719 (F-659), 0083512 (G- 326), and 0088933 (G-845), in which the invoices indicate that the exporter may be someone other than the protestant), see 19 CFR 191.51 et seq., regarding the evidence required to support exportation, and 191.73, regarding reservation by the manufacturer or producer of the right to claim drawback).

According to the notation ("L-18-5") on the shipping order for this invoice, the date of production was December 18, 1985. According to the weekly inventory run on December 23, 1985, 2,867 cases of this product (12/32 frozen orange concentrate-981, 1601- 010 Bluebird) were produced during that week. According to the protestant, the 308 cases of 12/32 frozen orange concentrate may be converted to 3,840.14 pounds solid (i.e., 12 32 ounce containers equals 3 gallons, multiplied by 308, multiplied by 4.156). According to the "Drum Usage Proof" report, 9,266.88 pounds solid of qualifying (Grade A) COJM were used on December 18, 1985 (note: there is a discrepancy here with the protes- tant's figures in that the protestant found 9,276.88 pounds solid of qualifying COJM but the discrepancy has no effect on the calculations because it is on the qualifying side and there is sufficient qualifying COJM in either case) and 914.41 pounds sol- id of non-qualifying (ungraded) product were used on that date. Since 3,840.14 pounds solid were used in the exported articles and the 914.41 pounds solid of non-qualifying product are assumed to have been used to produce the exported articles, drawback is claimed on 2,925.73 pounds solid of COJM, with reductions for the possible use of tangerine/hybrids (10 percent) and cutback (12.18 percent) (resulting in 2,315.07 pounds solid) (note: rather than making the reductions from each invoice, the protestant calcu- lates the reductions on the total pounds solid allowed for the 41.8 degrees brix frozen orange juice concentrate).

As to the manufacturing issue, in the case of the 41.8 degrees brix frozen orange juice concentrate (as contrasted with the 65 degrees brix COJM exports) there are no Production Drum Proof reports with which the scores of the merchandise described in the Drum Usage Proof reports can be compared in order to establish that the required manufacture or production took place. Of course, there is a difference in the degrees brix of the mer- chandise used to produce the exported articles and the exported articles themselves (i.e., the merchandise was more than 55 degrees brix and the exported articles are 41.8 degrees brix) but the changing of the degrees brix by itself is not necessarily a manufacture or production for drawback purposes (see C.S.D. 80- 162).

In the absence of Production Drum Proof reports for the 41.8 degrees brix frozen orange juice concentrate, the protestant has provided as supplemental evidence USDA sampling reports for 12 out of the 15 dates on which the exported 41.8 degrees brix frozen orange juice concentrate was produced. These sampling reports, taken approximately hourly, report, among other things, the degrees brix, ratio, color score, defects score, flavor score, total score, N-value, and oil by volume (the N-value and oil by volume are not reported for each sample, but are reported at least once for each date's production). The sampling reports are indicated to be for the production of a particular label (Bluebird, the same as the label of the exported articles) and a particular sized container (the same, in each instance, as those of the exported articles).

Except as specifically described below, in no case is the oil content greater (since the degrees brix of the COJM is reduced from 65 degrees brix to 41.8 degrees brix for the frozen orange juice concentrate, the oil content of the 65 degrees brix COJM would have to have been decreased if the degrees brix was merely reduced by adding water; which would not be a manufacture or production for drawback purposes (see C.S.D. 80-162)), the ratio the same, and the scores the same for both the sampling reports and the Drum Usage Proof reports for the dates on which the exported merchandise was produced. For example, in the case of invoice 0082618 (G-218), according to the USDA sampling report, the oil content was .018 percent, the ratio was 16.4, 16.5, or 16.6, and the scores were 36 (color), 20 or 19 (defects), and 38 or 37 (flavor). The COJM used on the date of production had an oil content of .017 or less, except for four drums which had an oil content of .021 percent. Those four drums had a ratio of 17, different from the ratio reported in the USDA sampling report. On the basis of this evidence, in addition to the affidavit described above, we conclude that the exports for which USDA sampling reports were provided were manufactured from the substituted merchandise (except in the case of the February 5, 1986 production attributed to invoice 0086159 (G-580), discussed below).

As stated above in regard to the 65 degrees brix COJM, we have ruled that a drawback claimant may reconstruct lost records or provide proof of records by alternate means or records. In this case, except as noted below, the protestant has provided evidence (i.e., the additional evidence submitted with the protest and described above) in regard to the export shipments of 41.8 degrees brix frozen orange juice concentrate covered in the additional evidence that the shipments were manufactured or produced (see immediately preceding paragraphs) from merchandise of the same kind and quality as the imported designated merchandise (i.e., the records tracing the exported articles to the date of production, used to show that on the date of production Grade A COJM, for which there are records establishing same-kind-and-quality, must have been used to produce the exported 41.8 degrees brix frozen orange juice concentrate by treating all non-qualifying product used on that date as used in the production of the exported articles and reducing the available drawback accordingly). Therefore, on the basis of the above and because the other requirements have been met (as described above), drawback may be granted to the extent described on the exportations of the 41.8 degrees brix frozen orange juice concentrate, except as noted below.

One exception to the above is that no drawback may be allowed on the 12,395.88 pounds solid of Brazilian COJM used on March 21, 1985 (see invoice 0074719 (F-659)), for the reasons given above (i.e., this COJM must be treated as non-qualifying because of the lack of same-kind-and-quality evidence and because there is no evidence supporting direct identification drawback under 19 U.S.C. 1313(a) for this COJM). The drawback based on the March 21, 1985, production must be reduced accordingly. Also, in this invoice, the Drum Usage Proof for March 21, 1985, does not provide the scores for 22 drums (containing 7,696.98 pounds solid) of concentrate used on March 21, 1985, and these drums are not listed on the "Update Listing" report submitted with this invoice (this latter report is used for other drums for this date of production to establish the scores of the drums on the Drum Usage Proof report). There is an illegible hand-written notation on the Drum Usage Proof report beside these drums which may indicate that they were "used in single strength" production (see invoices 0076057 (F-849) and 0076064 (F-851), discussed above), but there is no evidence establishing that. In the absence of such evidence, we must assume that these non- qualifying drums were used in the production of the exported articles on the date of production and the pounds solid available for drawback must be reduced accordingly (i.e., 7,696.98 pounds solid must be added to the non-qualifying COJM used on this date; since the Brazilian COJM is also considered non-qualifying, the non-qualifying COJM exceeds the exported articles based on this date of production and no drawback may be granted for the date).

Also, in the cases of invoices 0083132 and 0088933 (G-260 and G-845, respectively), we found, respectively, 3,837.02 and 8,131.97 pounds solid in the Drum Usage Reports for the dates of production (January 13, 1986, for invoice 0083132 and May 13, 1986, for invoice 0088933) with less than 55 degrees brix. As stated above, this COJM is non-qualifying and is assumed to have been used in the production of the exported articles. Since in each instance the pounds solid of non-qualifying merchandise exceeds the pounds solid of the exported articles, no drawback may be granted for articles produced on these dates.

Another exception to the above is found in invoice 0086159 (G-580). In this case, in the February 5, 1986, production, four drums (109779 through 109782) containing 1,396.61 pounds solid have an oil content (.017 percent) greater than that in the USDA sampling report (.014 percent), the same ratio (16.20), and the same scores (36 (color), 20 (defects), and 37 (flavor)). Therefore, these records do not support the claim that the exported articles were manufactured or produced from these drums. Because the quantity of pounds solid for which no manufacture or production is established (as discussed below) must be assumed to have been exported and since that quantity exceeds the quantity of pounds solid actually exported from that date's production, no drawback may be granted for that date (i.e., no drawback may be granted for the February 5, 1986, production attributed to invoice 0086159 (523.66 pounds solid).

In the case of the 41.8 degrees brix frozen orange juice concentrate for which no USDA sampling reports were submitted and in the case of the drums of COJM for which there can be no comparison of the specifications as described in the immediately preceding paragraph, the only evidence of manufacture or production is the above-described affidavit. In the case of 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 Courts permitted the use, for purposes of drawback under 19 U.S.C. 1313(a), of testimony 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." [932 F.2d at 946; emphasis added.] The Court of Appeals clearly stated that this does not mean 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 (in regard to the applicability of the Aurea case to this affidavit, we also note that an affidavit is not entitled to the same weight as testimony in court (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 this case, the affidavit does not meet the test set out in the Aurea case for testimony (i.e., it is not established that records, no longer available for excusable reasons, were maintained as required and would have satisfied the substance of the drawback provisions). Furthermore, as stated in the Andy Mohan case, the affidavit is "... entitled to little weight, being incomplete and based on unproduced records, and having been executed years after the transactions to which [it] attest[s]" (63 CCPA 107).

In the absence of any evidence, other than the described affidavit, as to the use of the substituted merchandise in the manufacture or production of the exported 41.8 degrees brix frozen orange juice concentrate for which no USDA sampling reports are provided, no drawback may be allowed on the exportation of these articles. Use of the substituted merchandise in the manufacture of the exported articles is a statutory requirement, the Customs Regulations (19 CFR 191.32) require the manufacturer or producer to keep records establishing this, and the protestant agreed to keep such records in its drawback contract. Therefore, no drawback may be granted on the basis of the May 14, 1986, production attributed to invoices 0087803 (G-761), 0088190 (G-754), and 0090043 (G-931) (no qualifying pounds solid claimed in any event); the January 7, 1986, production attributed to invoice 0083132 (G-260) (392.74 qualifying pounds solid claimed), and the May 13, 1986, production attributed to invoice 0088933 (G-845) (3,840.14 qualifying pounds solid claimed).

In the cases of the production for January 13, 1986 (invoice 0083132 (G-260)), February 26, 1986 (invoice 0086159 (G-580)), and April 1, 1986 (invoice 0086160 (G-585)), the protestant described (on its worksheet submitted with its supplemental submission) as non-qualifying COJM which actually meets the same- kind-and-quality criteria in its drawback contract. We under- stand that this occurred because during its review of the documents relating to these invoices the protestant was applying a standard higher than that of USDA for Grade A (i.e., scores of at least 36 for flavor and color and at least 18 for defects). Drawback for the January 13, 1986, production is precluded because the of the non-qualifying COJM used in production on this date which failed to meet the same-kind-and-quality criteria in the protestant's drawback contract due to being of less than 55 degrees brix. However, the qualifying pounds solid for the other dates and invoices should be increased accordingly (i.e., qualifying pounds solid for invoice 0086159 should be the full quantity exported, 841.59 instead of 731.94 pounds solid; and for invoice 0086160 the full quantity exported, 16,582.44 instead of 7,403.48 pounds solid (reduced in each case for possible use of tangerine and/or hybrid juices and cutback, as described above).

HOLDING:

There is authority to grant, in part, the protest of the denial of drawback in this case. Drawback may be granted on 523,189.33 pounds solid, to be attributed as follows:

01/09/87 Entry 01/16/87 Entry 01/30/87 Entry

163,826.37 323,804.12 35,558.84 lbs. solid lbs. solid lbs. solid

(Note: We are attributing the pounds solid in invoice 0074719 (F-659) to the January 9, 1987, entry and the pounds solid in invoice 0083512 (G-326) to the January 16, 1987, entry because the information available to us does not make clear under which entry these invoices were claimed.)

The protest is GRANTED in part and DENIED in part, as provided in this ruling. 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 by your office, with the Customs Form 19, 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
Commercial Rulings Division

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