HQ 224417 - Protest and Application for Further Review No. 1703-92-100113; Correction of Invalid Certificates of Waiver; perfection of Drawback Claim - United States International Trade Commision Rulings

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HQ 224417

February 16, 1995

DRA-1-02-CO:R:C:E 224417 CB/WGR

CATEGORY: DRAWBACK

Director
Commercial Operations
Southeast Region
U.S. Customs Service
909 S.E. 1st Avenue
Miami, FL 33131

RE: Protest and Application for Further Review No. 1703-92-100113; Correction of Invalid Certificates of Waiver; perfection of Drawback Claim

Dear Sir/Madam:

The above-referenced protest and application for further review was forwarded to this office. We have considered the points raised and our decision follows.

FACTS:

Protestant has an approved drawback contract, under T.D. 83- 59, which provides for the manufacture of hard refined sugar with the use of raw cane sugar. It is our understanding that protestant's Customs bonded warehouse is part of its factory premises.

During 1988 and 1989, the Customs Service's Office of Regulatory Audit conducted an audit of protestant's drawback program. During the course of this audit, it was determined that protestant had filed six drawback claims totaling $2,433,776, which contain invalid assignments of drawback rights by the exporter. Various individuals, other than those authorized by section 191.6 of the Customs Regulations (CR), had endorsed the assignment of drawback rights on the six drawback claims.

Additionally, three of those claims had been filed under 19 U.S.C. ?1313(a), which governs direct identification drawback, rather than 19 U.S.C. ?1313(b), which governs substitution drawback. protestant claims that this error was inadvertent because, in fact, protestant does not have any ?1313(a) drawback contracts. Finally, during a review of the subject claims, this office has discovered other insufficiencies regarding these claims with respect to the certificates of manufacture.

ISSUES:

1) Whether protestant should be permitted to amend and perfect its claims by filing corrected waivers, as it has done.

2) Whether the fact that protestant checked the wrong box on the drawback form should defeat the drawback claims.

3) Whether the protestant has filed a completed claim.

LAW AND ANALYSIS:

Initially, we note that the protest, with application for further review, was timely filed under the statutory and regulatory provisions for protests (see 19 U.S.C. ?1514 and 19 CFR Part 174).

Under section 313, Tariff Act of 1930, as amended (19 U.S.C. shall be subject to compliance with rules and regulations prescribed by the Secretary of the Treasury. The Supreme Court held in Swan & Finch Co. v. United States, 190 U.S. 143 (1903) that the right to drawback is a privilege granted by the government. Compliance with the regulations is a prerequisite to securing the allowance of drawback where the regulations are authorized and reasonable. See Lockheed Petroleum Services, Ltd. v, United States, 4 CIT 25, 557 F. Supp. 583 (1982). The Customs Regulations pertaining to drawback are found in 19 CFR Part 191.

The Customs Service found several errors on the six drawback claims involved in this protest. The protestant asserts that since liquidation is not final, having filed a timely protest against the denial of drawback, it can correct the errors in the six claims.

The relevant drawback regulations are 19 CFR ?191.61 and years after export and defines filing to include application to Customs for a Customs-issued document. The latter permits a claimant to file a correction with the permission of the appropriate regional commissioner. The Regional Commissioner referred the protest to the Director, Office of Regulations and Rulings, as provided by 19 CFR ?174.26(b), T.D. 69-126, as amended, and 19 U.S.C. ?1515(a). Under 19 CFR 174.28, a protesting party may submit alternative grounds for protest claims that had been timely made. The Director, Office of Regulations and Rulings, permitted the protestant to supplement its protest against the denial of drawback on this six drawback claims.

Under 19 CFR ?191.6 (a) and (b), drawback entries and supporting documentation must be signed by an officer of a corporation or any person with a power of attorney.

Regarding the subject drawback entries, the audit disclosed that improperly executed notices of waiver had been filed to support the six drawback entries. Protestant claims that it should be permitted to amend and perfect its claims by filing corrected certificates. Under 19 CFR ?191.61 a drawback entry must be completed within 3 years after the date of exportation of the articles on which drawback is claimed. In the instant case, the filing of properly executed waivers verifies or corrects a deficiency in the claims. It is not a completion of or amendment to the existing claims. The verification of a claim is permissible beyond the three year limitation found in 19 CFR

The signatures on the waivers become important if both parties file claims on the same material. In this case, there is no evidence that situation has occurred with respect to the waivers at issue. Consequently, the amendment is permissible.

Additionally, a review of the six subject claims also disclosed that for claim no. C17-xxxxx24-2 the second of the import entries ("84xxx43-4) shown on this claim is a warehouse entry. The actual warehouse withdrawal dates are much later than the "received at factory" date shown in the drawback claim. The entry number is short one digit and elsewhere in the claim it is referred to as warehouse entry no. 84XXX434-0 which covered a shipment of raw sugar imported by the protestant from Costa Rica. Copies of that warehouse entry, together with permit withdrawals are present in the drawback claim. In actuality, the two correct consumption entries cover raw sugar from Australia. Counsel for the protestant provided copies of the correct entries. A review of the data listed on the CF 331 as to the date of import, date of liquidation, port of entry, receipt at factory dates and use in manufacture dates match the corresponding data on the entry documents.

Issue #2

In three of the six drawback claims, the protestant asserted that the claim was being made pursuant to 19 U.S.C. ?1313(a) even though the text of the claim showed that the exported refined sugar was not made from the imported, duty-paid raw sugar. Under 19 U.S.C. ?1313(r)(2), as amended by the Act of December 8, 1993 (107 Stat. 2057, Pub. L. 103-182), a drawback claim filed pursuant to any subsection of section 1313 is deemed filed pursuant to any other subsection if it is determined that drawback is not allowable under the claim as originally filed but would be allowable under the other subsection. The purpose of this section was to allow a claimant who was denied drawback under one provision to show that it did, in fact, comply with the requirements of another provision of 19 U.S.C. ?1313. H. Rept. 103-361, Part 1, 131 (1993). By virtue of the legislative history with respect to section 632 of the Act of December 8, 1993, the Customs Service is applying the provisions of that law to the claims under protest. See page 132 of H. Rept. 103-361. By this protest, the protestant asserted that the three claims that were erroneously filed under 19 U.S.C. ?1313(a) met each of the requirements of 19 U.S.C. ?1313(b).

In each of the six claims, the protestant either failed to list a certificate of manufacture number that covered the use of the designated raw sugar or listed the certificate of manufacture appropriate to the raw sugar that was refined and then exported as the basis for drawback. Item 24 on the CF 331, which requires a CM/CD number, was left blank. Of the six claims, the protestant left that required information blank on three claims. On the remaining three claims, the protestant listed the Certificate of Manufacture number applicable to the raw sugar that was actually used to make the exported articles for both the designated raw sugar and the substituted raw sugar. Not surprisingly, the numbers failed to support the protestant's claims. Protestant's counsel supplied the correct certificates of manufacture. A comparison of the entry numbers, import dates, vessel names, factory receipt dates and factory use dates on the CF 331 matched the dates shown on the protestant's certificates that had been filed with the regional Commissioner at New York under the procedure required by item (14) of T.D. 83-59. Consequently, it is clear that the protestant's amendment would do no more than correct the claim that was filed originally. It is obvious that the amendment would not impermissibly substitute new import entries or new exports on the existing claims.

It is clear that the protestant's erroneous designation of direct identification manufacturing drawback (19 U.S.C. ?1313(a)) instead of substitution manufacturing drawback (19 U.S.C. both the designated raw sugar and the raw sugar that was actually used to make the exported refined sugar. A comparison of the relevant data (i.e., dates, amounts, origin and vessels) matches the corresponding data on the correct certificates of manufacture. There would be compliance with 19 U.S.C. ?1313(b) even though there would not be compliance with 19 U.S.C.

Issue #3

The requirements for drawback under 19 U.S.C. ?1313(b) (and under the applicable Customs Regulations as well as all drawback contracts issued under that statute) are:

For the designated imported merchandise it must be established.

(1) that a sufficient quantity of merchandise was imported,

(2) that it met the same-kind-and-quality criteria set forth in the drawback contract, and

(3) that it was used in manufacture or production by the claimant within 3 years of receipt.

For the substituted exported merchandise it must be established--

(1) that the exported or destroyed articles claimed as the basis for drawback were actually exported or destroyed within five years of the date of import of the designated imported merchandise,

(2) that those exported or destroyed articles were manufactured or produced from the designated imported merchandise or the substituted merchandise,

(3) that the substitute merchandise was of the same-kind-and-quality as the designated imported merchandise, and

(4) that the use in manufacture or production of the substituted merchandise to produce the exported or destroyed articles occurred within 3 years of receipt of the designated imported merchandise.

Therefore, under general drawback law, a claimant must provide proof of use of the designated imported merchandise. Protestant has an approved drawback contract which provides that it will comply with the general drawback contract for sugar, published as T.D. 83-59. Item (14), in said Treasury Decision, provides that abstracts of a manufacturer's records shall be filed when drawback is to be claimed on any part of refined sugar manufactured during such period. Item (19), in the same T.D., provides that the drawback entry shall indicate the abstract numbers, for both the designated and substituted sugars, which prove use in manufacture during the stated period. A review of the six claims subject to this protest show that protestant failed to provide this information.

Customs Form (CF) 331, Manufacturing Drawback Entry and/or Certificate, sets forth the information a claimant must provide. Item no. 24, entitled "CM/CD Number" requires that the claimant provide the certificate of manufacture and/or delivery (CM&D) number to enable Customs to determine ownership of the designated merchandise. Item no. 28, entitled "Quantity/description of merchandise used", provides Customs with the description and quantity of merchandise actually used to manufacture the exported article. See Customs Directive No. 3740-03, issued January 14, 1986. Prior to 1986, drawback claims were filed on a CF 7575-B which also required that certificate of manufacture or delivery numbers be provided for the designated sugar.

As noted in Issue #2, the protestant had either failed to fill in .any information in item no. 24 (or its equivalent in CF 7575-B) or had listed the same abstract numbers for both item nos. 24 and 28. A review of these abstracts show that one abstract could not possibly prove use of both the designated and substituted merchandise because, in some instances, there was a two year gap between the import entry and the time the substituted merchandise was exported. Therefore, protestant had failed to provide proof of use of the designated merchandise. However, protestant has cured this defect in its claims by providing the correct abstract and certificate of manufacture and delivery numbers.

A claim by claim analysis of the subject protest discloses the following:

Claim No. 86XXXX29-2 is based on 17,340,061 refined pounds shipped to Iskenderun, Turkey on the M/V Dalaman on October 25, 1985. The designated, duty-paid sugar was shown as 2,667,291 pounds imported on September 20, 1982 by entry 82-XXXX78-5 and 14,672,770 pounds imported on October 7, 1982 by entry 83-XXXX00-9. Import entry 82-XXXX78-5 matches a Warehouse Withdrawal bearing the same entry number and dated March 28, 1983. Protestant correctly asserts that abstracts 502, 503, 505, and 506 with CMs 38502, 38503, 39497, and 3949 support its production of 17,340,061 pounds of exported refined sugar. Finally, abstracts 471, 472, 477 and 428 with the corresponding CM numbers 22896, 22897, 27857, and 28099 support the production of sugar from the designated import entries.

Claim No. 86XXXX66-1 is based on 30,238,955 refined pounds shipped to Jordan and Turkey on December 30, 1985 and October 25, 1985 respectively. The designated, duty-paid sugar was shown as 21,343,394 pounds imported on May 3, 1983 by entry 83-XXXX12-2 and 8,895,561 pounds imported on October 26, 1982 by entry 83-XXXX01-2. Protestant correctly asserts that abstracts 507 and 508 and CM 39933 and 39934 support its claim of production of 30,238,955 pounds of exported refined sugar. Abstracts 478, 479, 480 and CM numbers 28098, 28099, and 28336 support the production of sugar from the designated import entries.

Claim No. 86XXXX47-8 is based on 642,637 refined pounds shipped to Canada and Jordan between December 19, 1985 and December 31, 1985. The designated, duty-paid sugar was shown as 624,271 pounds imported on December 8, 1983 by entry 84-XXXX09-4. Protestant correctly asserts that abstract number 509 and CM 42285 support its claim of production of 642,637 pounds of exported refined sugar. Abstracts 486, 487, and 488 and CM numbers 29732, 30015, and 31349 support the production of refined sugar from the designated import entries.

This claim includes 514,333 pounds of refined sugar which were refined under a tolling agreement. A review of the tolling agreement between protestant and the owner of the sugar discloses that protestant agreed to provide the owner with correct documentation showing that protestant was holding the raw sugar, and subsequently the refined sugar, for the account of the owner. The parties also agreed that all drawback of previously paid U.S. import fees and duties would be for the account of protestant.

Claim No. C17-XXXXX40-8 is based on 1,519,509 refined pounds shipped on eight different exportations between September 3, 1986 and September 26, 1986. The designated, duty-paid sugar was shown as 1,543,771 pounds imported on September 14, 1984 by entry 84-XXXX43-4. Protestant correctly claims that abstract number 518 and CM 43933 support its claim of production of 1,519,509 pounds of refined exported sugar. And, abstract 494 and CM number 34139 support the production of refined sugar from the designated import entry.

Claim No. C17-XXXXX24-2 is based on 5,195,085 refined pounds shipped on three different exportations between August 17, 1986 and September 9, 1986. The designated, duty-paid sugar was shown as 4,459,154 pounds imported on September 5, 1984 by entry 84XXXX42-1, and 837,476 pounds imported on September 14, 1984 by entry 84XXXX43-4. Protestant correctly claims that abstract number 517 and CM 43789 support its claim of production of 5,195,085 pounds of refined exported sugar. And, abstract number 494 and CM number 34139 support the production of refined sugar from the designated import entries.

Claim No. C17-XXXXXOl-0 is based on 27,833,846 refined pounds shipped to Iskenderun, Turkey on the M/V Golden Cross on September 9, 1986. The designated, duty-paid sugar was shown as 28,245,882 pounds imported on September 5, 1984 by entry 84XXXX42-1. Protestant correctly claims that abstracts 509, 510, 511, 512, 513, and 516 and CMs 42285, 42886, 43157, 43141, 43142, and 43274 support its claim of production of 27,833,846 pounds of refined exported sugar. And, abstract 494 and CM number 34139 supports the production of refined sugar from the designated import entries.

Claims No. C17-XXXXX24-2, C17-XXXXX40-8, and C17-XXXXX01-O, however, illustrate a potential problem with respect to two claimants claiming use of the same sugar. In addition to manufacturing for its own account, the protestant apparently processed sugar for other refiners who claimed the protestant's processing as their processing under the agency concept set forth in 19 CFR ?191.34. As noted above, the protestant asserted that the processing of the raw sugar on consumption entries 84-XXXXX42-1 and 84-XXXXX43-4 was shown by its certificate of manufacture no. 34139 that was abstracted by the Regional Commissioner at New York as abstract 494. That certificate of manufacture, with respect to each one of the listed import entries, shows that the protestant was the importer. A review of each of the entries showed that the raw sugar was imported by the protestant, was removed from storage by the protestant, and was refined by the protestant. Another refiner with whom the protestant had an agency contract also asserted that sugar recorded in CM 34139 was its sugar. The sugar purportedly owned by that other refiner was identified by the name of the importing vessel. There was no such vessel listed in the certificate of manufacture. It appears that the protestant erroneously provided the reference to CM 34139 to the other refiner which enabled that other refiner to make its claim for drawback. Because drawback claims can be filed in more than one location, the potential for double claims on the use of the same merchandise makes it critical that the certificate of manufacture correctly identify whose merchandise is being processed. The evidence must show the ownership of the merchandise if an agency relationship is claimed so that a toll processor cannot claim processing, for both its own account and as a toll processor on the same merchandise.

HOLDING:

Protestant has verified its claims by filing properly endorsed certificates of waiver. Additionally, protestant has corrected the clerical mistake made in filing the CF 331 with respect to checking the wrong box and providing correct proof of use of the designated merchandise. Finally, protestant has also corrected the typographical error in claim no. C17-xxxxx24-4. Protestant has satisfied the requirements for drawback. Therefore, this protest should be GRANTED.

In accordance with Section 3A(ll)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed 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 this decision must be accomplished prior to the mailing of the decision.

Sixty days from the date of this 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, Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director
Commercial Rulings Division

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