HQ 226585 - Protest 2809-94-100938; Drawback; Deemed Liquidation; Bond; Accelerated Drawback Payment; 19 U.S.C. 1504(a); 19 U.S.C. 1313; 19 CFR 113.65(b); 19 CFR 191.71(d); 19 CFR 191.72(c); HQs 223235, 227160 - United States International Trade Commision Rulings

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HQ 226585

June 25, 1997

DRA-2-02-RR:IT:EC 226585 LTO

CATEGORY: DRAWBACK

Chief, Drawback Liquidation Branch
U.S. Customs Service
P.O. Box 2450
San Francisco, CA 94126

RE: Protest 2809-94-100938; Drawback; Deemed Liquidation; Bond; Accelerated Drawback Payment; 19 U.S.C. 1504(a); 19 U.S.C. 1313; 19 CFR 113.65(b); 19 CFR 191.71(d); 19 CFR 191.72(c); HQs 223235, 227160

Dear Sir:

This is in reference to Protest 2809-94-100938, filed on behalf of Xidex Corporation, which concerns the denial of drawback on a variety of merchandise. The merchandise was entered between March 29, 1988 and February 2, 1989, and the entries were liquidated on May 6, 1994. This protest was timely filed on July 11, 1994.

FACTS:

The merchandise under consideration includes clamshells, micro-floppy disks, polyester film (floppy disk/cookie), liners (Novonette), pack/carts/tapes, microfilm and fiche readers, microfilm and fiche reader printers, and lenses, toner, toner cartridges and engines.

The protestant protests the denial of drawback for the following reasons: (1) the drawback entries liquidated by operation of law at the amount claimed at the time of entry, citing 19 U.S.C. 1504(a); (2) Customs improperly applied the results of its audit on the clamshells to deny drawback claims involving other product lines; and (3) Customs unlawfully denied claims on which Xidex received payment prior to November 27, 1987, because Xidex was not obligated to maintain records; and (4) Customs cannot properly demand payment from Xidex in excess of that agreed to in the accelerated drawback bond. - 2 -

In HQ 227160, dated September 10, 1996 (copy enclosed), you were advised to deny protest 2809-94-100444, which was filed by three sureties of the importer/protestant, Xidex (which was purchased by Anacomp, Inc., in 1988), two of which had requested further review. This protest concerned the same issues as the current protest.

ISSUE:

Whether the protest should be granted or denied.

LAW AND ANALYSIS:

We note initially that the refusal to pay a claim for drawback is a protestable issue pursuant to 19 U.S.C. 1514(a)(6).

As stated above, the protestant protests the denial of drawback for the following reasons: (1) the drawback entries liquidated by operation of law at the amount claimed at the time of entry, citing 19 U.S.C. 1504(a); (2) Customs improperly applied the results of its audit on the clamshells to deny drawback claims involving other product lines; and (3) Customs unlawfully denied claims on which Xidex received payment prior to November 27, 1987, because Xidex was not obligated to maintain records; and (4) Customs cannot properly demand payment from Xidex in excess of that agreed to in the accelerated drawback bond.

With regard to the first three issues, all were addressed in HQ 227160, wherein we found that these claims were without merit and denied the protest. HQ 227160 is incorporated by reference into this ruling.

With regard to the fourth issue, the protestant has provided a chart listing the bond period, bond limits, total drawback claims and total liability against bond, for Bond IRS #94-xxxx045-DB. The chart, in pertinent part, is reproduced below:

TOTAL DRAWBACK TOTAL LIABILITY
BOND PERIOD BOND LIMITS CLAIMS AGAINST BOND 2/27/87 to 12/21/87 $500,000 $469,831 $469,831 1/8/88 to 8/18/88 500,000 568,299 500,000 8/19/88 to 3/27/89 500,000 525,410 500,000 3/28/89 to 11/5/89 400,000 352,779 352,779 11/6/89 to 11/6/90 400,000 64,443 64,443 $1,980,762 $1,887,053 - 3 -

The protestant argues that "[u]nder the terms of the bonds, Xidex agreed to refund any accelerated drawback payment which Customs should subsequently find to be excessive, but up to the limits in the bonds. Xidex did not agree to refund overpayments regardless of the aggregate amount in a given bond period." According to the protestant, Customs has demanded payment of $68,299 in excess of the bond limit for the period between January 8, 1988 to August 18, 1988, and $25,410 in excess of the bond limit for the period between August 19, 1988 to March 27, 1989. We disagree.

19 CFR 113.65(b), which concerns the accelerated payment of drawback agreement, provides as follows:

If the principal receives an accelerated payment of drawback based on the principal's calculation of the drawback claim, the principal and surety, jointly and severally agree to refund on demand the full amount of any overpayment, as determined on liquidation of the drawback claim (emphasis added).

Further, 19 CFR 191.72(c) provides that "[a] drawback office that approves the claim for accelerated payment shall certify it for payment within 3 weeks after filing. After liquidation, the drawback office shall certify payment of any amount due or demand a refund of any excess amount paid (emphasis added)."

Liquidation is the final determination by Customs whether drawback of duties are due on the basis of the drawback contract and the complete drawback claim. See 19 CFR 191.71(d). Payment is either allowed or disallowed at this time. With the accelerated payment procedure, the claimant has use of the money up-front while Customs has the three year period to verify the claim. The "accelerated drawback program is not a guarantee that the government will not come back seeking a refund if, for example, an audit reveals that the company did not comply with the Customs regulations and statute." HQ 223235, dated June 19, 1992. Accordingly, the principal (the protestant in this instance) is responsible for the full amount of the drawback overpayment.

HOLDING:

For the reasons stated above, the protest should be DENIED.

In accordance with section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision, together with the Customs Form 19, 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 the 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 in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

Director,

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