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HQ 226413




January 6, 1997

DRA-4-RR:IT:EC 226413 PH

CATEGORY: DRAWBACK

Area Director of Customs
10 Causeway Street
Boston, Massachusetts 02222-1059
ATTN: Mr. Dave Goguen

RE: Protest 0401-95-100566; Unused Merchandise Drawback; Waiver of Prior Notice of Intent to Export; C.S.D. 88-14; C.S.D. 86-25; C.S.D. 85-35; C.S.D. 83-68; C.S.D. 83-1; 19 CFR 191.141(b)(2)(ii); 19 U.S.C. 1313(j)

Dear Sir:

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

[The decision in the HOLDING of this ruling grants the protest, subject to the conditions stated in the LAW AND ANALYSIS and HOLDING sections of the ruling (i.e., in summary, that the protestant, within the time period given in this ruling, submits a written request for waiver of prior notice of intent to export, that the request contains sufficient information (as described in the ruling) to enable your office to act on the request with a reasonable exercise of discretion, that your office grants the request, and that the protestant satisfactorily establishes compliance with the requirements for drawback in 19 U.S.C. 1313(j)). The protestant should be given written notice of these conditions (a draft letter providing such notice is enclosed and is being electronically forwarded to the preparer of the Customs Form 6445 for this protest). If the protestant fails to meet any of these conditions (i.e., if the protestant fails to submit a written request for the waiver within 45 days of the written notice, if the request for the waiver does not contain sufficient information, if your office does not approve the request for the waiver, or if the protestant fails to satisfactorily establish compliance with the requirements in section 1313(j)), the protest should be DENIED.]

FACTS:

The protest is of the liquidation, without drawback, of a drawback entry/claim for drawback under 19 U.S.C. 1313(j)(1) (unused merchandise drawback). The amount of drawback claimed was $77,668.53. Sixteen consumption entries, for entries between March 25 and August 31, 1994, were designated as the basis for drawback. The total amount of duties for the merchandise under consideration for these entries was $78,452.98 (the slight discrepancy between 99% of this figure and the amount claimed is apparently due to the manner in which the claimant "rounded off" subtotals; of course no more than 99% of the duty paid may be granted as drawback under 19 U.S.C. 1313(j)). According to the entry documents and Customs records, the merchandise entered on these consumption entries was dental cement, classifiable under subheading 3006.40.0000, Harmonized Tariff Schedule of the United States (HTSUS). One pro-forma invoice for "Dyract Bulk", "Compules ...", and "PE barrels dark" is provided.

On June 20, 1995, according to Customs records, the protestant filed a drawback claim on Customs Form (CF) 7539 for drawback in the amount of $77,668.53. The imported merchandise designated for drawback was that described above, described in the drawback claim as 1015.405 kilograms of "Dyract bulk". The exported merchandise is described in the drawback claim as 1015.405 kilograms of "Dyract". In block 31 of the CF 7539, the date given is November 30, 1994, and there is a signature stated to be by a person described as attorney in fact for the protestant. In block 43 through 45 of the CF 7539, the box indicating "Customs has decided not to examine the merchandise and it may now be exported" is checked and there is a signature with the date December 5, 1994.

There is a document titled "[PROTESTANT] CHRON. EXPORTS" (we assume this is meant to be the chronological summary of exports provided for in 19 CFR 191.53) providing the information required in the format provided for in section 191.53 for a chronological summary of exports. According to this document, the exports were in 42 shipments between April 9 and October 7, 1994, and the exports consisted of 2778.6210 net kilograms of "Dyract". There is an air waybill and invoice, both of which can be correlated to one of the exports listed in the chronological summary. The invoice describes the merchandise as "FLD DYRACT COMPULE DG". (The air waybill and invoice are inconsistent with the data on the chronological summary of exports, in that Switzerland is shown as the country of export and the date of export appears to be October 9, 1994 (instead of, respectively, Germany and October 7, 1994, as shown on the chronological summary of exports.)

There is a Notice of Action (CF 29), dated June 22, 1995, advising the protestant that the drawback claim was denied because "[t]he merchandise was exported prior to filing the claim." There is a notation on the CF 7539 that the claim is "[d]enied - mdse was exported prior to filing the claim." According to Customs records, the drawback entry was liquidated, with no drawback, on July 7, 1995.

The drawback claimant filed the protest under consideration on July 14, 1995. In the protest, the protestant concedes that the merchandise "was indeed exported prior to filing [its] claim ...." The protestant contends, on the basis of Customs Service Decision (C.S.D.) 85-35, that your office has authority to waive the requirement for prior notice "at any time." The protestant contends that a waiver of prior notice should be granted in this case. The protestant describes the operation in this case as follows:

The merchandise that is the basis for this [d]rawback entry is dental cement that was imported by [the protestant] from their sister division in Germany. It was put into capsules and immediately shipped back to Germany for sale in the European market. None of the cement remained in the U.S. ...

Further review was requested and granted.

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.

Under 19 U.S.C. 1313(j)(1), as 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, drawback may be granted if imported duty-paid merchandise is exported or destroyed under Customs supervision within 3 years from the date of importation. The imported duty-paid merchandise may not have been used in the United States. The exporter (or destroyer) of the merchandise may claim drawback, or may endorse the right to claim drawback to the importer or any intermediate party. Substitution for the imported merchandise is provided for under 19 U.S.C. 1313(j)(2), subject to the conditions therein. Under 19 U.S.C. 1313(j)(3), the performing of any operation or combination of operations, including, among others, repacking, not amounting to manufacture or production for drawback purposes on the imported merchandise (or the substituted merchandise, if substitution is involved) is not treated as a "use" of that merchandise.

The Customs Regulations pertaining to drawback under 19 U.S.C. 1313(j) are found in 19 CFR 191.141. Section 191.141(b) provides that a person who desires to export merchandise with drawback under section 1313(j) is required to file with the drawback office a completed CF 7539 at least 5 working days prior to the date of intended exportation, unless Customs approves a shorter filing period.

Subsection 191.141(b)(2)(ii) provides a procedure for waiver of prior notice of intent to export. A request for such a waiver is required to be in writing to the drawback office and "[t]he appropriate Customs officer may waive prior notice at any time ...." Subsection 191.141(b)(2)(ii) provides that a waiver shall be granted after the person requesting the waiver files with the appropriate Customs official six consecutive claims free of substantial error, provided that the person has operated under the same condition (now unused) program for a minimum of six months.

Section 191.141 was added, as a new provision, to the Customs Regulations when the drawback regulations were revised by T.D. 83-212 in 1983 (formerly, the drawback regulations were found in 19 CFR Part 22). The requirement for prior notice of intent to export was the subject of considerable comment and consideration, resulting in evolution of the original proposal in the rulemaking process (see August 26, 1982, Federal Register notice (47 F.R. 37563, 37567, 37583-37584), and 1983 bound edition of the Customs Bulletin and Decisions, 465, 496-499).

The requirement for prior notice of intent to export, with the provision for waiver of that requirement, has been the subject of several published administrative rulings. Customs Service Decision (C.S.D.) 83-1, concerned the applicability of same condition drawback on medicinals under interim operating instructions (i.e., instructions used before issuance of regulations), one of which required a claimant to notify Customs prior to exportation so that Customs could examine the merchandise in its discretion. The instructions also provided that if the goods were not examined, Customs could allow the claim if Customs was satisfied that the conditions of law had been met. Customs field office disallowed the same condition drawback claim involved on the basis that examination was required. We agreed with that decision, stating:

Unless it is evident a Customs officer has acted in an arbitrary or capricious manner we will not substitute our judgment for his. We will not do so here. The very nature of the merchandise involved, medicinals, would indicate an examination was in order if only to determine if they had deteriorated. [Note that under the amended 19 U.S.C. 1313(j), no longer requiring same condition, deterioration would no longer be relevant.]

In C.S.D. 83-68, also involving the interim operating instructions used before promulgation of 19 CFR 191.141, Customs noted that under these instructions, a CF 7539 is required to be filed with Customs at least 12 working days prior to exportation. Similar to the decision in C.S.D. 83-1, Customs stated in this C.S.D. that:

... Customs can waive this requirement, either before or after exportation, if it is satisfied that the merchandise was exported in the same condition as when imported. Headquarters does not review a decision in this regard made by a field office unless there is an allegation that the official acted arbitrarily or capriciously.

C.S.D. 85-35 concerned the current regulatory provision (19 CFR 191.141(b)(2)(ii)). According to this ruling:

Inasmuch as the appropriate Customs officer, by virtue of [section] 191.141(b)(2)(ii), can waive the prior notice "at any time," this language is broad enough to allow the officer to waive the requirement in cases where the merchandise has already been exported. The burden on the claimant of proving same condition in these cases is naturally greater, as such proof of same condition must be based on secondary evidence.

The holding in C.S.D. 85-35, in part, was that:

... Written permission for a waiver of the prior notice requirement must be made and permission granted to allow the retroactive claims.

The most recent published ruling on this matter is C.S.D. 88-14. In that ruling, Customs stated:

The requirement of prior notice in same condition drawback may, however, by waived by the appropriate Customs office in the reasonable exercise of its discretion "at any time for any exporter-claimant" (emphasis added) (? 191.141(b)(2)(ii)). This would include retroactive waivers as provided in C.S.D. 85-35. To this end, in the absence of a clear abuse of discretion, Customs Headquarters will not substitute its judgment for that of the appropriate field office (see C.S.D. 83-1; C.S.D. 83-68). [C.S.D. 88-14 also modified C.S.D. 86-25, which was stated to appear to preclude retroactive waivers of the prior notice requirement.]

Thus, Customs current position in this regard, under the current Customs Regulations, is that the requirement for prior notice of intent to export may be waived at any time, including after the exportation. When the requirement for prior notice of intent to export is waived after export, the burden on the claimant of proving compliance with the requirement of the law is greater. A waiver of prior notice of intent to export must be requested in writing. When such a request is filed, the appropriate Customs field office must act on the request, using "the reasonable exercise of its discretion." Absent a clear abuse of discretion, Customs Headquarters will not substitute its judgement for that of the appropriate Customs field office.

In this case, although the protest included the statement that "... we respectfully request this one-time waiver of the prior notice requirement", no request for waiver of prior notice of intent to export was submitted in writing such that the appropriate Customs office could act on the request, using "the reasonable exercise of its discretion." That is, this "request" does not provide enough information for Customs to reasonably exercise discretion in granting or denying the request. In this regard, we note that the applicable Customs Regulation (19 CFR 191.141(b)(2)(ii)) provides that reliability, insofar as drawback is concerned, is a criterion for approval of a request for waiver of prior notice of intent to export. Therefore, a request for such a waiver should include such evidence. Such evidence should include identifying evidence such as that described in Customs Directive (C.D.) 099 3740-007, April 21, 1992, "EXPORTER'S SUMMARY PROCEDURES FOR MANUFACTURING AND SAME CONDITION DRAWBACK" (note that this C.D. refers to retroactive approval of Exporter's Summary Procedures in regard to waiver of prior notice of intent to export for drawback under 19 U.S.C. 1313(j) (page 5)). The evidence should also include evidence as to the claimant's drawback history with any Customs office, as well as the amount of potential drawback (in dollars) which could be claimed under the request for a waiver. The evidence, for a drawback claim under 19 U.S.C. 1313(j)(1) (as is involved in this case), should show how (e.g., by sample records) the claimant will establish that duty was paid on the imported merchandise upon which drawback is claimed, that the merchandise was not used in the United States, and that the merchandise was exported within 3 years of the date of importation.

As stated above, in this case no such request (as described above) for waiver of prior notice of intent to export has been filed with Customs by the claimant. In view of the several published rulings (described above) permitting a claimant to request a waiver of prior notice of intent to export at any time, including before or after export, we are granting the protest, subject to each of the following conditions:

(1) The protestant must file a written request for waiver of prior notice of intent to export with your office within the time stated below;

(2) The request for waiver of prior notice of intent to export must include sufficient information to enable your office to reasonably exercise its discretion in acting on the request (see above, for a description of the sort of evidence that should be included);

(3) Your office, in a reasonable exercise of discretion (based on the information submitted and your past action in regard to requests for such waivers), must act on the request (either granting or denying it) (only if the request is granted, may the protest be granted (subject to the fourth condition, below)); and

(4) The claimant must satisfactorily establish compliance with the requirements for drawback in 19 U.S.C. 1313(j)(1) (see above), bearing in mind the "greater burden" for a claimant to establish compliance, since Customs had no opportunity to inspect the merchandise prior to export and proof of compliance must be based on secondary evidence (C.S.D. 85-35).

Only if each of the above conditions is met, may the protest be granted. A satisfactory written request for waiver of prior notice of intent to export must be filed with your office within 45 days of the date written notice is provided to the protestant of the above conditions (a draft letter providing such notice is enclosed).

HOLDING:

The protest is GRANTED, subject to the following conditions:

(1) The protestant must file a written request for waiver of prior notice of intent to export with your office within 45 days of the date written notice is provided to the protestant of these conditions, as provided for in this ruling;

(2) The request for waiver of prior notice of intent to export must include sufficient information to enable your office to reasonably exercise its discretion in acting on the request;

(3) Your office, in a reasonable exercise of discretion (based on the information submitted and your past action in regard to requests for such waivers), must act on the request (only if the request is granted, may the protest be granted (subject to the fourth condition, below)); and

(4) The claimant must satisfactorily establish compliance with the requirements for drawback in 19 U.S.C. 1313(j)(1) (see LAW AND ANALYSIS section of this ruling).

If any one of these conditions is not met, the protest is DENIED (for failure to provide prior notice of intent to export under 19 CFR 191.141(b), in the absence of an approved waiver of prior notice of intent to export under 19 CFR 191.141(b)(2)(ii), or for failure to satisfactorily establish compliance with the requirements for drawback in 19 U.S.C. 1313(j)(1)).

After action in accordance with this ruling is taken to resolve this matter, 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 such resolution. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Please advise this office of your action in this matter so that the Office of Regulations and Rulings may 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,

Director, International

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