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HQ 226752




October 23, 1997

DRA-2-02-RR:IT:EC 226752 SAJ

CATEGORY: DRAWBACK

Port Director
U.S. Customs Service
2323 South Shepard, Ste. 1200
Houston, TX 77019

RE: Application for further review of Protest No. 5301-96-100062; 19 C.F.R. 191.141; 19 C.F.R. 191.52; 19 U.S.C. 1514; 19 U.S.C. 1313(j)(1); Unused merchandise drawback; C.S.D. 84-6; HQ 222284; HQ 223791; Export examination requirement

Dear Sir:

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

FACTS:

According to the documentation in the file, Capro, Inc. (protestant) filed two claims for unused merchandise drawback under 19 U.S.C. 1313(j) for wired cable. The subject protest was timely filed against the denial of drawback for entry numbers 027-2xxxx29-2 (29-2) and 027-2xxxx82-6 (82-6) on the grounds of failure to present shipments for examination prior to export, as provided under 19 C.F.R. 191.52.

Customs Form (CF) 7501, which has an export date of February 10, 1995 and an import date of March 3, 1995, reveals that under entry number 601-xxxx66-9, protestant entered 17,787 kg of "ROPES, CBLS, CRDG, OTH:OTH, GALVAN" under 7312.10.9030/3.6% of the Harmonized Tariff System of the United States.

Invoice No. AC95-0206 dated February 6, 1995 reflects that 1,000,000 m of "GT Cable Capro" Parts No. 10-3064, 1.5mm1x19+8x7 "GT" (20 Pallets, 80 Reels), 750,000 m of "GO Cable Capro" Parts No. 10-3062,, 1.5mm1x19+8x7 "GO" (15 Pallets, 60 Reels), and 610 m "KIKU-GT" 7x7 GT/0 1.5 mm , were imported from Japan..

Protestant filed the two subject drawback entries with Customs on Customs Form (CF) 7539. Entry number 29-2 has a drawback entry date of April 11, 1995, and describes the merchandise as "ROPES, CBLS, CRDG, OTH: OTH, GALVAN". Blocks 15 and 16 list the imported part numbers as "JP PART #10-3064" "80 reels 10,160 kgs", "JP PART #10-3062" "60 reels 7,620 kgs", and "JP PART #KIKU-GT" "1 case 7 kgs", and the exported part number as "JP PART #10-3062" "32 reels 4,064 kgs". Block 46 of the CF 7539, which states that "Customs examination is required", contains a check mark and the inspector's initials. Sections 50 and 51 of the CF 7539, contains handwritten remarks by the inspector stating that the protestant "[f]ailed to present shipment for examination." These remarks are dated September 28, 1995.

Entry number 82-6 has a drawback entry date of October 26, 1995, and describes the merchandise in Block 17 of the CF 7539 as "CABLE". Blocks 15 and 16 list the imported part number as "JP PART #10-3062" "40 reels 5080 kg", and the exported part number as "JP PART #10-3062" "3 reels 381 kg". Block 46 of the CF 7539, which states that "Customs examination is required", is checked and also contains the inspector's initials. Sections 50 and 51 of the CF 7539 contain handwritten remarks by the inspector dated October 27, 1995, stating that the "[m]erchandise [was] exported without supervision or examination."

The file also contains copies of two Pedimentos covering the merchandise exported to Mexico. Pedimento No. 1200-50056959 has an entry summary date of April 18, 1995. This Pedimento contains 14 lines of merchandise. Line number 6 describes the merchandise as "CARRETES DE CABLE GALVANIZADO C/CA PA E/ESTANO, 1.5mm.1x19+8x7, 1.584113, 73129001, 150000.00-03, 1500.0000-01, MQ 2824, PC 0", which are "Reels of Galvanized Cable" measuring 1.5mm.1x19+8x7. Line number 7 describes the merchandise as "CARRETES DE CABLE GALVANIZADO, MEDIDAS: 1.5mm.1x9+8x9, 0.508902, 73129001, 38587.00-03, 386.0000-01, MQ 2824, PC 0", which are "Reels of Galvanized Cable" measuring 1.5mm.1x9+8x9. We note that there are no matching part numbers to the CF 7539 on the Pedimento for this merchandise. We also note that protestant's broker was alerted of this fact and given ample opportunity to submit matching documentation.

The second Pedimento No. 1200-5018045 has an entry summary date of October 23, 1995. This Pedimento has 22 lines of merchandise. Line number 17 describes the merchandise as "CARRETES D/CABLE GALVANIZADO C/CA - 10-3064 PA D/ESTANO P/ENS..10-3062, 1.784567, 10-3070, 73129001, 1519834.00-03, 17624.0000-01, MQ 2824, PC 0", which are "Reels of Galvanized Cable". This Pedimento identifies the part numbers of the merchandise as 10-3064, 10-3062, and 10-3070.

Drawback claims on entry numbers 29-2 and 82-6 were denied on November 13, 1995 and December 15, 1995 respectively, due to exporting the merchandise without proof of Export Summary Procedure privilege or Customs supervision or examination requirement under the regulations.

Protestant refers to Headquarters ruling 225569 which provides internal advice on whether certain documentation satisfies the regulatory requirements for proof of exportation. The file also contains copies of the Pedimentos covering the merchandise exported.

Entry number 29-2 was liquidated on November 3, 1995 and entry number 82-6 was liquidated on December 15, 1995. The subject protest, with application for further review was filed for each of the entries on January 19, 1996.

ISSUE:

Whether unused merchandise drawback may be denied for failure to comply with the exportation exam requirement under 19 C.F.R. 191.141.

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). Drawback for entry 29-2 was denied on November 13, 1995 and entry 82-6 was denied on December 15, 1995. This protest was timely filed against the denial of drawback for the subject entries on January 19, 1996, since the 90-day statutory and regulatory filing deadline was met under 19 U.S.C. 1514 and 19 C.F.R. Part 174.

The applicable law if found in section 632, title VI - Customs Modernization, Public Law 103-182, the North American Free Trade Implementation Act (107 Stat. 2057), enacted December 8, 1993. Title VI of that Act amended 19 U.S.C. 1313(j). Section 692 of the Act provides that Title VI provisions take effect on the date of enactment.

Section 632 of the new act changes same condition direct identification drawback by providing that imported merchandise for which duty was paid and is, before the close of the 3-year period beginning on the date of importation, exported or destroyed under Customs supervision and is not used within the United States before such exportation or destruction is eligible for "unused merchandise drawback." The law no longer requires that the merchandise be in the same condition as when imported.

In the instant case, the protestant asserts that the merchandise was exported. The Customs Regulations issued under the authority of this provision are found in 19 C.F.R. 191.141. Under paragraph (b) of 19 C.F.R. 191.141, an exporter who desires to export merchandise with drawback under 19 U.S.C. 1313(j) is required to file a completed Customs Form (CF) 7439 (Drawback Entry Covering Same Condition Merchandise) at least 5 working days prior to the date of intended exportation unless a shorter filing period is approved.

The exporter-claimant may request, in writing, waiver of this advance notice. Customs may grant such a waiver or, in certain circumstances, is required to grant it. Within 3 working days after the CF 7539 is filed, Customs is required to notify the exporter-claimant whether the merchandise will be examined. If the exporter-claimant is not so notified, he or she is required to export the merchandise without delay. Under paragraph (c) of 19 C.F.R. 191.141, within 3 years after exportation of merchandise under 19 C.F.R. 191.141(b), an exporter-claimant is required to complete his or her drawback claim by filing with the same Customs official who received the CF 7539 evidence of exportation under the procedures described in 19 C.F.R. 191.52 or 191.54. Under paragraph (e) of 19 C.F.R. 191.141, the provisions relating to direct identification drawback apply to claims for drawback, insofar as applicable and not inconsistent with 19 C.F.R. 191.141-191.142.

One of the provisions relating to drawback claims is that drawback claim "shall be subject to verification by the director at whose port the claim is filed. 19 C.F.R. 191.10(a). Such verification means "the examination of any and all records ... maintained by the claimant ... which are required by the regulatory auditor to render a meaningful recommendation concerning the drawback claimant's conformity to the law and regulations and the determination of supportability, correctness, and validity of the specific claim or groups of claims being verified." 19 C.F.R. 191.2(o). It is specifically provided that verification includes "an examination of ... all the accounting and financial records relating to the transaction(s)." 19 C.F.R. 191.10(c)).

Under 191.51, exportation of articles for drawback purposes shall be established by one of the procedures listed in that section, one of which is 19 C.F.R. 191.52. Under section 191.52, a drawback claimant may support the drawback claim with a notice of exportation on Customs Form 7511 which is required to show the information listed in paragraph (b) of section 191.52. Under paragraph (c) of section 191.52, the notice of exportation may be certified or uncertified. If uncertified, it must be supported by documentary evidence of exportation, such as "the bill of lading, air waybill, freight waybill, ... cargo manifest, or certified copies thereof, issued by the exporting carrier."

As provided in the FACTS portion of this ruling, protestant's broker was given ample opportunity to submit the necessary documentation. Customs has previously considered the question which is raised in this case, whether drawback may be denied whenever records requested by Customs are not provided by a drawback claimant. In Customs Service Decision (C.S.D. 82-38) this question was thoroughly considered. In that case, we held that a claimant must make available records which prima facie evidence show importation, manufacture, and exportation for purposes of the drawback law. Headquarters ruling (HQ) 222431 (January 30, 1991), provided that although C.S.D. 82-38 concerned manufacturing drawback, there is no reason why C.S.D. 82-38 should not be applicable to "same condition drawback" (currently referred to as unused merchandise drawback). C.S.D. 82-38 was modified to hold that the claimant must make available records which prima facie show, with regard to the merchandise for which drawback is sought, importation, exportation or destruction of the imported merchandise within 3 years from importation, and non-use in the United States. Thus, the provisions relating to direct identification drawback apply to claims for unused merchandise drawback insofar as applicable and not inconsistent with 19 C.F.R. 191.141 - 191.142.

Prima facie evidence to show importation may consist of an entry or entry summary, with detailed invoice, for the merchandise. Prima facie evidence to show that the merchandise was not used in the United States may consist of the completed Customs Form 7539 where it is marked and signed by the appropriate Customs officer to indicate that either "Customs has decided not to examine the merchandise that it may now be exported" or, of the form is checked to indicate that "Customs examination is required", that Customs has examined the merchandise and found it to comply with the regulations.

Protestant filed the two subject drawback entries with Customs on CF 7539. For entry number 29-2, Block 46 of the CF 7539 contains a check mark and the inspector's initials indicating that "Customs examination is required." Section 50 and 51 of the CF 7539 contains handwritten remarks by the inspector stating that the protestant "[f]ailed to present shipment for examination." Block 46 of the CF 7539 for entry number 82-6 is also checked and contains the inspector's initials indicating that "Customs examination is required." Sections 50 and 51 of the CF 7539 contain handwritten remarks by the Inspector stating that the "[m]erchandise [was] exported without supervision or examination."

In this case, there is prima facie evidence of importation (i.e., entry summaries and detailed invoices). However, there is no prima facie evidence that the merchandise was not used in the United States before it was exported, since Customs did not have the opportunity to examine the merchandise to determine whether it matched the imported merchandise. Moreover, there are no matching part numbers to the CF 7539 on the Pedimento for this merchandise. Again we note that protestant's broker did not submit any further documentation to match the identity and the quantity of the cable imported and exported. Without the imported merchandise matching the Pedimento, drawback cannot be authorized.

Protestant refers to section 191.141(3)(iii) which indicates that not more than 10% of the exports will be examined. It is protestant's contention that because Customs had already examined prior exportations for the protestant, Customs should have "waived on the next 250 exportation in order to reach the 10% mark." See Block 9 of CF 19. We disagree with protestant's reasoning since nowhere in the regulations does it state that the requirement under 191.141(2)(I) is waived if the 10% figure is exceeded.

The Customs Court has held that right to recover drawback arises only when all of the provisions of the statute and the applicable and lawful regulations prescribed under its authority have been completed. Romar Trading Co. v. United States, 27 Cust. Ct. 34, C.D. 1344 (1951), followed in 718 Fifth Avenue Corp. v. United States, 741 F. Supp. 1579, CIT slip op. 90-59 (1990). Thus, the regulations must be adhered to before the exporter is eligible for drawback. Customs reserves the right to examine merchandise before exportation to verify that the exported goods were the imported goods and that those goods bear no evidence of a change in condition or of use. In the case at hand, protestant failed to meet the statutory and regulatory requirements in depriving Customs the opportunity to examine the exported merchandise.

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 to the right of recovery of drawback." Id. at 1474. In the case at hand, protestant also failed to meet the statutory and regulatory requirements by depriving Customs the opportunity to examine the exported merchandise.

Protestant refers to HQ 225569, which provides internal advice on whether certain documentation satisfies the regulatory requirements for proof of exportation. However, the issue for the subject drawback claims is not whether certain documentation satisfies the regulatory requirements for proof of exportation. The drawback claims at issue failed to comply with the export examination requirement under the regulations.

Drawback claims 29-2 and 82-6 were properly denied on November 13, 1995 and December 15, 1995 respectively, due to exporting the merchandise without proof of Export Summary Procedure privilege or Customs supervision or examination requirement under the regulations.

HOLDING:

In view of the fact that protestant failed to show that the merchandise exported was the imported merchandise, and that the drawback claims at issue failed to comply with the export examination requirement, which determines that exportation or destruction of the merchandise was not used in the United States, this protest is DENIED.

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 the decision. Sixty days from the date of the decision of 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,
International Trade

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