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HQ 955883




February 27, 1995

CLA-2 CO:R:C:F 955883 JGH

CATEGORY: CLASSIFICATION

TARIFF NO.: 2710.00.25

District Director of Customs
701 San Jacinto
P.O. Box 52790
Houston, Texas 77052

RE: Decision on Application of Further Review of Protest No. 5301-3-100303, on the Classification of Naphtha to be Further Refined.

Dear Sir:

This decision concerns the classification of certain naphtha from the United Kingdom, under the Harmonized Tariff Schedule of the United States (HTSUS).

FACTS:

The naphtha was entered, in behalf of Aectra Refining, at your port on February 23, 1990, and liquidated on June 4, 1993, with the protest being filed on August 31, 1993. Although entered as naphtha in subheading 2710.00.25, HTSUS, the entry was liquidated as blendstock under subheading 2710.00.18, HTSUS.

The cargo (211,881 bbls of naphtha) was discharged from the importing vessel into shoreside storage tanks at the GATX Terminal, Galena Park, Texas. The importer then blended all of the imported naphtha with 407,228 bbls of domestic naphtha, for a total of 619,109 bbls of blended naphtha. The importer sold 593,991.89 bbls to customers who certified that they used the naphtha as feedstock for further processing in a reformer or ethylene cracking unit and not for motor fuel. (Customs identified end-use certificates for 593,873 bbls).

In accounting for the approximately 25,236 bbls outstanding, the importer explains that 8000 bbls were used for blending into motor fuel; an additional 13,824 bbls were sold to customers who used it for other than motor fuel. However, certification of end-use can not be obtained from these customers for various reasons (e.g., some are no longer in business). Finally, 3,293.11 bbls were transferred to other tanks and cannot be accurately traced as to actual use.

ISSUE:

Classification of naphtha under subheading 2710.00.25, HTSUS, as naphthas (except motor fuel or motor fuel blending stock), or under 2710.00.18, HTSUS, for motor fuel blending stock; application of the actual use requirements of 19 CFR 10.131-10.139.

LAW AND ANALYSIS:

Basically, it is the protestant's argument that since it can be demonstrated that 203,278 bbls of the 221,881 bbls imported were not used for fuel use, the higher duty rate for blending stock (under 2710.00.18) should only apply to 8,603 bbls of the importation. It is the port's position that since this is commingled merchandise, the accepted inventory method of First-In - First-Out (FIFO) should apply, and the burden is on the importer to supply certification for the entire amount; that, in fact, an amount of 25,236 bbls cannot be accounted for, and it is this amount on which the higher duty would apply.

Amounts in BBLs.
211,881 = Imported ( 34.22% of total amount) 407,228 = Domestic

619,109.11 = Total

Accounted For 593,991.89 (593,873 - based on end-use certificates)

Not Accounted For 25,236 bbls (according to Customs)

The importer admits that for about 25,236 bbls, end-use certificates can not be obtained, but argues that the higher duty rate should not apply to the total amount, but merely to that percentage of the total which represents the imported amount 8603 (8622) bbls (i.e., 34.22% of the remainder of 25,236 barrels).

Under U.S. Note 4, Chapter 27, HTSUS, motor fuel blending stock, in subheading 2710.00.18, HTSUS, is defined as any product (except naphthas of subheading 2710.00.25) derived primarily from petroleum, shale oil, or natural gas, whether or not containing additive, to be used for direct blending in the manufacture of motor fuel.

Since this is an actual use provision, in order for an importer to have an entry of naphtha of blending-stock quality liquidated at the lower naphtha duty rate, he would have to satisfy all of the actual use requirements and thus prove the imported naphtha was not used as motor fuel.

Of the total - 619,109 bbls.- of blended naphtha, 593,873 bbls were certified by customers as not being used for motor fuel purposes. The importer admits that another 8,603 (8,622)bbls (of the 25,236 bbls remainder) were either used for motor fuel or can not be accounted for. It is this amount which the importer concedes is subject to the higher duty rate.

It is argued by the port, that under the commingling theory, the FIFO accounting method should be employed, and under such a method the remaining amount of naphtha in the tank (25,236 bbls.) would be assessed with the high duty rate, since certificates of use had not been received on this amount.

Commingled merchandise shall be assessed with duty at the highest rate applicable to any one kind of merchandise included in the commingling, unless the quantity and value of each of the kinds so included can be readily ascertained by the usual method of Customs examination. 19 CFR 152.13 In U.S. Industrial Chemicals, Inc. v. United States 29 Cust. Ct. 131, C.D. 1458 (1952), the court held that molasses imported in bulk from the Dominican Republic and from Cuba, mixed together in the tanks of the importing vessel, was readily segregable by utilizing the documentary evidence of the amount laden in each country. Similarly, Customs has held, in regard to ethanol subject to additional duties if used for motor fuel, where foreign and domestic ethanol were commingled in the same storage tank, any diversion of ethanol for fuel use would be based on content of foreign product, using the percentage of product relative total amount sold. (HQ 082360)

In this case, the products commingled are fungible, with the respective imported and domestic amounts being known. The imported naphtha represents approximately 34.22% of the total of 619,109 bbls in the tank. Therefore, following the regulations concerning commingled merchandise, since the amounts of imported and domestic naphtha are known, it is that portion of the imported product or 34.22% of the remainder in the tank (25,236 bbls) which would be subject to the higher rate. Thus, approximately 8,622 bbls of remaining naphtha would be subject to the blendstock rate.

In other words, in the case of naphtha subject to differing duty rates, where the amount of naphtha imported is commingled with domestically produced naphtha in a storage tank, and the amount, both added and withdrawn, can be documented to Customs' satisfaction, the higher duty would only apply to that portion of the import for which end-use documentation had not been supplied.

HOLDING:

Imported naphtha - 211,881 bbls - was blended with domestic naphtha - 407,228 bbls.-, for a total of 619,109 bbls. The imported product representing 34.22% of the total product.

Certification of non-fuel use was provided for 593,873 bbls., with 25,236 bbls. remaining as not certified; 34.22% of the remainder represents imported portion. Thus, the duty rate for subheading 2710.00.0018 is applicable to approximately 8,622 bbls.

Protest is allowed.

In accordance with Section 3A(11)(b) of the Customs Directive 0993550-65, dated August 3, 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 liquidation of the entry in accordance with this decision must be accomplished prior to the 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 and ACS and public through the Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director
Commercial Rulings Division


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