HQ 226883 - Application for Further Review of Protest No. 0401-96-100082; Destruction of merchandise; Electronic ballast; 19 U.S.C. ?1313(j)(1); 19 CFR 191.22; C.S.D. 82-128 - United States International Trade Commision Rulings

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HQ 226883

January 27, 1997

DRA-1-06/DRA-2-02-RR:IT:EC 226883 IOR

CATEGORY: DRAWBACK

Port Director
U.S. Customs Service
10 Causeway St.
Boston MA 02222-1059

RE: Application for Further Review of Protest No. 0401-96-100082; Destruction of merchandise; Electronic ballast; 19 U.S.C. ?1313(j)(1); 19 CFR 191.22; C.S.D. 82-128

Dear Sir:

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

FACTS:

The protest is of the liquidation of one drawback entry, AK4-xxxx143-2, dated August 10, 1995, for $26,729.90. The protestant is the drawback claimant, and was the importer of the subject merchandise. The drawback claim concerns nine entries of merchandise (nine entries are indicated on the revised coding sheet submitted with the protest; the initial claim concerned seven entries of merchandise). The CF 7501, purchase order and bill of lading is provided for each of the nine entries. The protestant indicated on the CF 7539 (drawback entry) that the merchandise would be destroyed under Customs supervision, and, as required by section 191.141(f) of the Customs Regulations (19 CFR 191.141(f)), notified Customs of the intended destruction by filing a CF 3499. The CF 3499 was filed and approved by Customs on May 30, 1995. The CF 3499 does not state the time and place of destruction. The drawback claim was denied by notice dated October 10, 1995, which stated in its explanation:

The majority of the destruction had been completed when the Inspector arrived at the site at the agreed upon time. He was not abble [sic] to supervise or confirm the destruction of the merchandise.

Import entry U78-xxxx177-6 has been previously designated on an earlier drawback claim.

Documentation regarding the alleged destruction of the merchandise includes the following:

1. A CF 3499 (Application and Approval to Manipulate, Examine, Sample or Transfer Goods), which states that one trailer - shipper's no. 71195d- containing 11 skids of 831 cartons (16,764 pieces) was destroyed (dumped/landfilled) under the supervision of the Customs officer on July 12, 1995. The Customs officer further states that three trailers (shipper nos. 71195a, 71195b and 71195c) allegedly carrying 33 skids of 2450 cartons (48,960 pieces) were allegedly destroyed at the landfill on July 12, 1995, prior to the Customs officer's prearranged and scheduled 8:00 am examination time. Of the contents of the three trailers that had already allegedly been dumped, the Customs officer said due to the volume of other waste subsequently dumped in the landfill, he could only see a couple of cartons of the protestant's merchandise.

2. Copies of manifests that accompanied 4 truckloads of materials from a "Kingtec" facility to a landfill, which identify the contents as "ballasts" and indicate the number of cartons on each trailer, and the weight of the merchandise. Each manifest indicates the number of pieces of merchandise.

3. Copies of weight tickets issued by the scalehouse at the landfill certifying the weight of each truckload.

4. An affidavit from the scalehouse operator stating that on July 12, 1995 four dump trailers entered the landfill to dispose of off-spec lighting ballast from the Kingtec facility.

5. An affidavit from the operations manager of the trucking company stating that the trucking company had provided four dump trailers to transport the off-spec lighting ballasts from the Kingtec facility to the landfill, that the trucks were loaded on July 11, 1995 and proceeded to the landfill for disposal, and that at approximately 7:00 a.m. on July 12, 1995, all four of the loads of ballasts were disposed of at the landfill.

6. An affidavit from each driver of the four trailers stating that on July 11, 1995 he transported a load of ballasts from the Kingtec facility to the landfill, where the truck remained loaded until the morning of July 12, 1995 when he deposited the contents of the trailer onto the landfill at approximately 7:00 a.m. as directed.

On February 15, the protestant's protest was filed. The protestant takes the position that the drawback entry should have been granted at least in part or in whole as the Customs officer did witness the destruction of a portion (16,764 pieces) of the material. The protestant also enclosed a new drawback code sheet and appropriate consumption entries to replace the consumption entry (U78-xxxx177-6) already used on a prior drawback claim.

The Port Director states that the Customs Inspector had arrived at the landfill at the agreed upon time and found three of four trailers had already been dumped, and all of the duties on consumption entry U78-xxxx177-6 had been claimed on drawback N64-xxxx090-1. The Port Director takes the position that:

It is apparent that the claimant did not have adequate internal controls to designate the correct import entries. It is doubtful that he could claim with any certainty that the merchandise which was still available to be examined was not in fact the same merchandise claimed to have been exported previously, on claim N64-xxxx090-1.

ISSUE:

Whether the protest was properly denied for protestant's failure to comply with the requirements of 19 U.S.C. ?1313(j).

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 under 19 U.S.C. 19 U.S.C. ?1313(j)(1).

Section 313(j) of the Tariff Act of 1930, as amended (19 U.S.C. ?1313(j)(1)), provides for a refund of duties on imported merchandise, exported or destroyed under Customs' supervision, and not used within the U.S. before such exportation or destruction. Prior to the amendment of the drawback statute by section 632, title VI - Customs Modernization, Pub. L. No. 103-182, the North American Free trade Agreement Implementation ("NAFTA") Act (107 Stat. 2057), enacted December 8, 1993, an additional requirement under section 1313(j) was that the merchandise be in the same condition as when it was imported. The requirements for claiming drawback on destroyed merchandise are set forth in 19 CFR 191.141(f):

(1) Procedure. A claimant desiring to destroy merchandise to collect drawback under same condition drawback shall file with the drawback office a completed Customs Form 7539. At least 7 working days prior to the intended date of destruction, the exporter-claimant shall notify the appropriate Customs officer of the time and place of destruction, by submitting Customs Form 3499 with Customs Form 7539 at the location wherein the destruction is to occur. It shall certify that the merchandise is in the same condition as when imported and not used within the United States before such destruction. Destruction of merchandise after such notification on Customs Form 3499 shall be deemed to have occurred under Customs supervision.

It is well established that drawback laws confer a privilege, not a right. Swan & Finch Company v. United States, 190 U.S. 143, 23 Sup. Ct. 702 (1903). When merchandise is imported and a drawback statute may potentially be applicable, an accruing or inchoate right may be said to arise. However, the right to recover drawback ripens only when all provisions of the statute and applicable regulations prescribed under its authority have been met. Romar Trading Co., Inc. v. United States, 27 Cust. Ct. 34 (1951); General Motors Corporation v. United States, 32 Cust. Ct. 94 (1954). Drawback claimants must strictly adhere to the requirements set forth in the statutes and applicable regulations. United States v. W. C. Hardesty Co, Inc., 36 CCPA 47, C.A.D. 396 (1949); Spencer, Kellogg & Sons (Inc.) v. United States, 13 CCPA 612 (1926).

C.S.D. 82-128 held that the language "destroyed under Customs supervision" does not require on site observation of the destruction by Customs but does require the opportunity to observe the destruction. Although C.S.D. 82-128 pertained to the language in 19 CFR 10.39(a), relating to temporary importation bonds (TIB), the language "destroyed under Customs supervision" is the same, and in interpreting the term destruction, as used in the drawback law, Customs has followed the Customs Court case American Gas Accumulator Co. v. United States, Treasury Decision (T.D.) 43642 (Cust. Ct., 3rd Div. 1929), which involves the applicability of a TIB provision. See, e.g. HQ 222975, dated September 4, 1991. In United States v. Lockheed Petroleum Services, Ltd., 709 F.2d 1472 (Fed. Cir. 1983), the Court of Appeals reversed the lower court and held that the drawback claimant was not entitled to drawback of customs duties because the claimant had failed to file an abstract of manufacture with Customs prior to the subject vessel's departure and thereby Customs had no opportunity to verify the contents of the abstract through an examination of the vessel. The court held that the subject regulation was mandatory and "compliance is a condition precedent to the right of recovery of drawback." Id., at 1474.

Based on the language of the statute, 19 U.S.C. ?1313(j), the applicable regulations and the precedent cited above, it is clear that Customs must have the opportunity to supervise the destruction of merchandise for which drawback will be claimed under section 1313(j). Customs was denied such opportunity in this case. According to the Customs officer completing the inspection report on the CF 3499, by the previously agreed upon time of examination and destruction, 8:00 am, merchandise contained in three out of the four trailers had already been destroyed. The protestant has not provided any evidence that the agreed upon time of destruction was any time other than that stated by the Customs officer. Due to the protestant's failure to comply with the statutory requirement that the merchandise be destroyed under Customs supervision, and by denying Customs the opportunity to observe the destruction, the protestant is not entitled to drawback for the merchandise contained in the first three trailers for the alleged destruction of which the Customs officer was not present.

With respect to the remaining 16,764 pieces, their destruction was observed and supervised by Customs. The protestant has also submitted nine import entries for which it claims drawback. The protestant has not attempted to link the contents of any one trailer to any of the import entries on which drawback is claimed. As the protestant has not identified which import entry or entries corresponds to the contents of the fourth trailer, there is no basis upon which to allow drawback on the contents of the fourth trailer.

Under 19 CFR 191.141(e), the Customs Regulations provide that the provisions relating to direct identification drawback, specifically 191.22(b) and (c) is applicable to drawback under 19 U.S.C. ?1313(j). Customs Regulations 191.22 (b) and (c) provide as follows:

(b) Storage and identification. The merchandise and articles to be exported shall be stored in a manner which will enable the manufacturer, producer, or claimant (1) to determine, and the Customs officials to verify, the applicable import entry, certificate of delivery, or certificate of manufacture and delivery number or numbers; and (2) to identify with respect to that import entry, certificate of delivery, or certificate of manufacture and delivery, the imported duty-paid merchandise or drawback products used in the manufacture or production.

(c) Identification of two or more lots. Manufacturers, producers, or claimants may identify for drawback purposes commingled lots of fungible merchandise and commingled lots of fungible products by applying first-in-first-out (FIFO) accounting principles or any other accounting procedure approved by Customs.

The foregoing requirements are equally applicable to merchandise to be destroyed as well as exported. In this case, the protestant has not provided any evidence that it has determined the applicable import entry or entries, from the nine entries submitted, to the destroyed merchandise in the fourth trailer, and Customs has not been provided any information based upon which it could verify the applicable import entry or entries, therefore drawback was properly denied with respect to the destroyed merchandise contained in the fourth trailer.

HOLDING:

The protest was properly denied for the protestant's failure to provide Customs with the opportunity to observe the destruction of the merchandise in three trailers, and failure, with respect to the contents of the fourth trailer, to determine the applicable import entry to the destroyed merchandise, or to provide Customs with information sufficient to verify the applicable import entry.

Consistent with the decision set forth above, you are hereby directed to deny the subject protest. 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 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, Freedom of Information Act and other public access channels.

Sincerely,

Director,

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