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HQ 226887




May 1, 1997

DRA-4-RR:IT:EC 226887 IOR

CATEGORY: DRAWBACK

Port Director of Customs
Drawback Office
610 S. Canal St.
Chicago, IL 60607

RE: Unused Merchandise Drawback; Glass bottles; 19 U.S.C. 1313(j)(1); 19 U.S.C. 1313(q); Use

Dear Sir:

This is in response to an internal advice request initiated by letter dated April 11, 1996 on behalf of United States Distilled Products Co. ("USDP") and discussed in a memorandum dated May 1, 1996 from the Drawback Office. We have received a supplemental submission dated September 12, 1996, which contains cost figures of the subject bottles, their contents and the relative values of the bottles to the contents. We agree with USDP that such cost information is privileged or confidential information not subject to disclosure under Customs Regulations 103.12 (19 CFR 103.12).

FACTS:

USDP imports glass bottles, fills them with domestic alcohol and exports the filled bottles. By letter dated April 20, 1994, USDP notified Customs of its intention to comply with the General Contract, T.D. 81-234, for manufacturing drawback using duty paid alcoholic beverages and glass bottles. However, two drawback claims subsequently received designated imported bottles only. The drawback claims were denied on the grounds that there is no provision for manufacturing drawback for bottles used as containers when the contents are not imported. The Drawback Office takes the position that as the intent to use the bottles was for the specific purpose of filling them with alcohol, the bottles do not qualify as unused merchandise. The Drawback Office cannot determine whether after being emptied of the product, the bottles would be refilled or displayed, or thrown out.

The Drawback Office submitted two drawback claims. In one, Claim No. 908-1098293-5, on the import invoice the imported bottles are described as "Carafe Athena 70 CL," "Voie Maritime" and "Bouchon Athena." On the entry USDP classified the bottles under HTSUS subheading 7010.90.50, which provides for "Carboys, bottles, flasks, jars, pots, vials, ampoules and other containers, of glass, of a kind used for the conveyance or packing of goods; preserving jars of glass; stoppers, lids and other closures of glass: Other: Other containers (with or without their closures)...," with a free rate of duty. The import specialist classified them under HTSUS subheading 7013.39.20, which provides for "Glassware of a kind used for table, kitchen, toilet, office, indoor decoration or similar purposes (other than that of heading 7010 or 7018): Glassware of a kind used for table (other than drinking glasses) or kitchen purposes other than that of glass-ceramics: Other: Other: Valued not over $3 each.," with a 30% rate of duty, and accordingly issued a notice of rate advance. According to USDP, the merchandise was liquidated as such household article. The export is described as "Black Eagle XO Brandy Export." In the second drawback claim, Claim No. 908-1098292-7, on the import invoice the imported bottles are described as "XO Deluxe 660ML Empty Bottles." On the entry, USDP classified the bottles under HTSUS subheading 7013.99.80, which provides for "Glassware of a kind used for table, kitchen, toilet, office, indoor decoration or similar purposes (other than that of heading 7010 or 7018): Other glassware: Other: Other: Other: Valued over $3 each: Other: Valued over $3 but not over $5 each...," with a 14.3% rate of duty, and paid the duty accordingly. The export is described as "Nikka X.O. Deluxe Brandy Exp TI." According to USDP, the merchandise was liquidated as such household article.

The September 12, 1996 submission shows that on average, the relative cost of the imported bottles to the contents is significantly higher. However, the list describing 6 types of bottles does not appear to include either of the bottles that were imported ("Athena" and "XO Deluxe") identified in the representative entries. In contrast, on average, the relative cost of standard glass bottles, to the contents is less than half.

USDP takes the position that because the imported bottles have been classified as household articles suitable for use at table, kitchen, office, etc., they have not been put to their intended use simply by being filled. USDP takes the position that simple filling of the instant bottles with alcoholic beverages does not constitute "use" of the merchandise, and that after the bottles are filled for export, they remain eligible for unused merchandise drawback. In support of its position, counsel for USDP cites HQ 225467, dated October 7, 1994.

ISSUE:

Whether the subject bottles would be eligible for drawback pursuant to 19 U.S.C. ?1313(j)(1).

LAW AND ANALYSIS:

The drawback law was substantively 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. Section 692 of the Act provides that titleVI provisions take effect on the date of enactment.

Section 632 of the 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. 19 U.S.C. ?1313(j)(3) provides that:

The performing of any operation or combination of operations (including, but not limited to, testing, cleaning, repacking, inspecting, sorting, refurbishing, freezing, blending, repairing, reworking, cutting, slitting, adjusting, replacing components, relabeling, disassembling, and unpacking), not amounting to manufacture or production for drawback purposes under the preceding provisions of this section...shall not be treated as a use of that merchandise....

In HQ 225985, dated November 30, 1995, based on the language of 1313(j), Customs stated that either an operation results in a manufacture for drawback purposes or the operation does not amount to a use for the purposes of 19 U.S.C. 1313(j). Customs concluded that the listed operations in 1313(j)(3), do not impose a limitation on the qualifying operations, but are illustrative of operations that, may, but do not always, result in a new article being manufactured for drawback purposes. In HQ 225985 it was determined that attaching watch straps to a watch head is an assembly which does not amount to a manufacture or production, and that the assembly does not amount to a "use" for the purposes of 1313(j).

The filling of the imported bottles does not amount to a manufacture or production. It is well established that the filling of imported bottles with a substance is not a manufacture or production. In Joseph Schlitz Brewing Company v. United States, 181 U.S. 584, 21 S. Ct. 740 (1901), the Supreme Court stated with respect to brewed beer and imported bottles, that the bottles and corks were not "imported materials" but finished products, and were not ingredients used in the manufacture of the beer, "but simply the packages" the manufacturer makes use of. 21 S. Ct. at 742. Similarly in this case, the bottles are not ingredients in the exported alcohol products. Each bottle is imported as a bottle and exported as a bottle. The bottle is not transformed into a new and different article with a different name, character or use.

Drawback for packaging material was also substantially changed under section 632. The new law under 19 U.S.C. ?1313(q) provides:

Packaging material, when used on or for articles or merchandise exported or destroyed under subsection (a), (b), (c), or (j) of this section, shall be eligible under such subsection for refund, as drawback, of 99 percent of any duty, tax, or fee imposed under Federal law on the importation of such material.

Under the new drawback law, drawback cannot be obtained for packaging that is filled with domestic product, unless drawback can be claimed on that domestic product under subsection 1313(b) or (j)(2). See HQ 225772, dated February 17, 1995. In this case, no substitution is taking place, and drawback cannot be claimed on the domestic alcohol under 1313(b) or (j)(2), therefore the imported bottles are not eligible for drawback under 1313(q).

A definition of the term "unused merchandise" was not provided in the language of the new act. However, in Customs Service Decision ("C.S.D.") 81-222 and C.S.D. 82-135 it was found that an article is used when it is employed for the purpose for which it was manufactured or intended. In C.S.D. 81-222, Customs stated:

In its primary meaning, "use" as a noun may signify the act of employing anything, the act of using or applying an object to one's service. Further, the verb "to use" means to employ in some manner appropriate to the object to accomplish an end, which, without the use of the object, would not be accomplished. [Citation omitted].

The boxes, bottles, cans, etc. to be imported in this case are to be employed or used for their intended purpose, i.e. to act as containers for the transportation and ultimate sale of merchandise. Nothing per se is being done to these containers: they are being put to use in their primary function, which clearly excludes them for eligibility for drawback under 19 U.S.C. 1313(j). [Citations omitted].

Before determining whether the subject bottles are "used" within the meaning of 19 U.S.C. ?1313(j)(1), we must determine the intended purpose of the subject merchandise. In the instant case, the imported bottles, are being put to use in one of their functions. The bottles have been classified under HTSUS subheadings 7013.39.20 and 7013.99.8000, which are "principal use" provisions (see T.D. 96-7, which sets forth Customs position regarding the scope of three classes of imported glassware). The principal use of the bottles, however, under these classifications is "to hold or store other articles in the home." T.D. 96-7. In HQ 957960, dated February 5, 1996, glass jars packed with candy had been entered under HTSUS subheading 7010.90.50, and the importer protested liquidation of the entries under HTSUS subheading 7013.39.20. In HQ 957960, Customs determined that the candy was classifiable separately from the glass jar, and that the glass jar itself was classifiable under HTSUS subheading 7013.39.20. The fact that the glass jar was being used to contain candy did not preclude it from being classified under HTSUS subheading 7013.39.20. The fact that it was imported containing candy, did not make it classifiable as a glass container of a kind used for the conveyance or packing of goods. Similarly, the filling of the subject bottles with liquor would not render them packaging materials, or containers for the transportation and ultimate sale of merchandise. It is apparent from HQ 957960, that the classification of an item of glassware under HTSUS subheading 7013.39.20 does not preclude its "use" to contain other merchandise, however, it also does not render it packaging material. While we do not find that the classification of the bottles is determinative of whether or not the imported merchandise is packaging material, it is relevant to the analysis of what is the intended purpose of the subject merchandise.

The language in C.S.D. 82-222, defining "to use" arguably could be broad enough to include the filling of bottles that are also appropriate for display on their own, without being filled. However, in this case, unlike in C.S.D. 81-222, the primary item to be sold is the bottle, as opposed to the contents. In C.S.D. 81-22 the boxes, bottles and cans were imported for packaging processed foods, beverages and produce. The decision did not address the relative value of the packaging to the contents, but the decision gives no indication that the boxes, bottles and cans were anything but ordinary packaging materials of little value without their contents. In this case it is clear that the intended purpose of the bottles is not to act as containers for the transportation and ultimate sale of merchandise, but to be sold as decorative items, the desirability of which may be enhanced by the fact that they can be purchased with some contents. Based on the relative values of the bottles to the contents, the bottles have significantly more value than the contents, and the liquor acts to showcase the bottle, as opposed to the bottle showcasing the liquor. In this case we find that the bottles are not being employed for the purpose for which they were manufactured or intended, when they are filled with the relatively inexpensive liquor.

Based on the foregoing, we find that the imported bottles are not containers intended or manufactured for packaging and therefore are "unused merchandise" as they are not "used" for their intended purpose. On this basis we find that the bottles are not "used" within the meaning of 19 U.S.C. ?1313(j)(1). Our decision is consistent with HQ 225467, dated October 7, 1994, cited by USDP in support of the position that the filling of the subject bottles is not a use. In HQ 225467, Customs determined that the filling of cosmetic bags with sample size products was an incidental operation performed on the bags, and therefore 19 U.S.C. ?1313(j)(3) was applicable. In HQ 225467, as in the instant matter, the bags were not filled for the purpose of marketing the contents. The filling of the bags with the sample products was not a "use" as the bags were not being used for their intended purpose.

Our position is not in conflict with the provision contained in 19 U.S.C. ?1313(q), which by its adoption affirms C.S.D. 81-222. We do not find that the subject bottles under the facts of this case are packaging as was in issue in C.S.D. 81-22, or is the subject of ?1313(q). This is consistent with the recent decision in HQ 226898, dated February 10, 1997. HQ 226898 addressed drawback under 19 U.S.C. ?1313(a), and considered the relative value of the components of a scent sprayer to the eau de parfum contents. The fact that the parts were found to be a substantial part of the value of the total article, was determined to be supportive of the conclusion that the assembled scent sprayer was a new and different article, rather than "mere packaging." The relative value of the scent sprayer strengthened the position that 19 U.S.C. ?1313(q) was inapplicable to the case.

This decision is not impacted by the Customs notice of Proposed Revocation of Customs Ruling Letter Relating to the Post-Production use of Manufactured Containers Under 19 U.S.C. 1313(a) ("proposed revocation") published in the February 26, 1997 Customs Bulletin. The proposed revocation pertains to the post production use of containers manufactured from imported merchandise. The subject matter has to do with imported containers that are not subject to a manufacturing process. More importantly, the proposed revocation concerns the filling of containers with liquids such as water, soda and juice, the intended purpose of which containers is to contain liquids for their sale and exportation. The bottles which are the subject of the proposed revocation, are not household articles as are the bottles which are the subject of this decision. The fact that the bottles in the proposed revocation may even be kept by the purchaser for a fugitive use, such as storage of some household materials, does not make the bottles household article as are the subject bottles.

HOLDING:

The subject imported bottles qualify for drawback pursuant to 19 U.S.C. ?1313(j)(1) as they are not containers intended for the conveyance or packing of merchandise and therefore by being filled they are not "used in the United States" prior to exportation within the meaning of this provision.

This decision should be mailed by your office to the internal advice requester no later than 60 days from the date of this letter. On that date 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 to the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

Director,
International Trade Compliance
Division

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