HQ 227461 - Protest 0401-97-100099; rejected merchandise drawback; 19 U.S.C. ?1313(c); timeliness of destruction; extension; 19 CFR 191.42 - United States International Trade Commision Rulings

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HQ 227461

June 26, 1997

DRA-5-01-RR:IT:EC 227461 IOR

CATEGORY: DRAWBACK

Port Director
U.S. Customs Service
10 Causeway Street
Boston MA 02222-1056

Attn: David Goguen, Drawback Section, Room 884

RE: Protest 0401-97-100099; rejected merchandise drawback; 19 U.S.C. ?1313(c); timeliness of destruction; extension; 19 CFR 191.42

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:

Entry 036-xxxxx85-9, filed April 11, 1991, was for the importation of swinging dolls (identified as Swing Art on the invoice). The merchandise was released from Customs custody on April 11, 1991. According to the protest, the merchandise was shipped to several vendors and was subsequently returned because the plastic dolls became discolored when exposed to direct sunlight. At the time the protestant was advised by its broker to claim drawback for the dolls, provided they are exported or destroyed, the protestant determined that the three year time limit for filing a same condition drawback claim had expired. The protestant then concluded that under rejected merchandise, Customs Regulations 191.142(a) (19 CFR 142(a)) provides for Customs permission for an extension of the time limitation.

The protestant describes the subsequent actions as follows:

The proper documentation was filled out to file under rejected merchandise and again [the protestant] contacted Customs [the first contact with Customs is not described] to see one more time if he could give [the] product away [to non-profits so that the value of the donation could be written off] instead of destroying it. One more time he was advised that he would have to either export it or destroy it and that Customs in Gloucester would have to be contacted to witness the destruction of the goods. Inspector Richard Stevens arrive[d] on the designated date and time and then signed off that in fact the destruction of the product was complete. Documents were then forwarded to the district and later rejected based on the fact that the proper length of time had expired.

The protestant states that it had hoped for approval of an extension so that it could comply with the drawback requirements, and that had it known that the extension would not be granted, other steps would have been taken to dispose of the merchandise.

The file consists of the Entry Summary for the subject merchandise; an invoice for the imported merchandise, dated March 13, 1991; protestant's invoice to Customs, dated May 30, 1994, describing merchandise, quantity and value, being delivered to Customs for destruction; letter dated June 10, 1994 from the protestant to Customs, Boston District; Application and Approval to Manipulate, Examine, Sample or Transfer Goods (CF 3499); Drawback Entry Covering Rejected Merchandise (CF 7539), no. C04-xxxxx38-5 filed July 11, 1994; Notice of Action dated January 15, 1997; and the protest filed February 21, 1997. The letter of June 10, 1994 states that the merchandise is being returned to Customs custody for destruction and describes the defect with the merchandise. The letter does not mention any drawback claim. The CF 3499 indicates that 360 cartons of the subject merchandise were destroyed by crushing on June 14, 1994. The Notice of Action denies the drawback claim based on 19 CFR 191.8(b) which requires that merchandise for which drawback is claimed, be exported or destroyed within three years from the date of importation.

ISSUE:

Whether the imported merchandise is eligible for drawback under 19 U.S.C. ?1313(c).

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(c). The drawback law was substantially amended by 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(c). Section 692 of the Act provides that Title VI provisions take effect on the date of enactment. 19 U.S.C. to sample or specifications, provides that:

Upon the exportation, or destruction under the supervision of the Customs Service, of merchandise--

(1) not conforming to sample or specifications, shipped without the consent of the consignee, or determined to be defective as of the time of importation;

(2) upon which the duties have been paid;

(3) which has been entered or withdrawn for consumption; and

(4) which, within 3 years after release from the custody of the Customs Service, has been returned to the custody of the Customs Service for exportation or destruction under the supervision of the Customs Service;
the full amount of the duties paid upon such merchandise, less 1 percent, shall be refunded as drawback.

Regarding the issue of rejected merchandise, House Report 103-361, 103d Cong., 1st Sess., 129, states the following:

Section 632 amends the rejected merchandise drawback provisions to extend the period for return to Customs to 3 years, to allow destruction of the imported merchandise as an alternative to exportation, and to allow the importer and foreign supplier to agree that the imported merchandise was defective without reference to purchase specifications or samples. If the importer and foreign supplier could not agree that the merchandise was defective, Customs would be required to make that determination. Under Section 632, imported merchandise could be used for up to 3 years and the importer could get a duty refund if it was shown that the merchandise did not conform to specifications or sample or was defective at the time of importation.

Therefore, to qualify for rejected merchandise drawback, the claimant must provide evidence that the importer and foreign supplier agreed that the imported merchandise was defective at the time of importation, or that the imported merchandise did not conform to sample or specification, and either export or destroy the imported merchandise within three years from the release from Customs custody. The protestant has not provided any evidence that the importer and foreign supplier agreed that the imported merchandise was defective at the time of importation, or that the imported merchandise did not conform to sample or specification. In this case, as conceded by the protestant, the imported merchandise was destroyed more than three years after the merchandise was released from Customs custody. In addition, according to the protestant's invoice form of May 13, 1994, the imported merchandise was not returned to Customs custody within three years after the release of the merchandise.

The facts do not indicate any agreement between the protestant (the importer) and foreign supplier that the imported merchandise was defective as of the time of importation. Because there is no agreement or insufficient evidence of an agreement, Customs is required to make the determination as to whether the imported merchandise was defective at the time of importation. The type of documentation necessary to support such a determination was described in HQ 221245, dated October 19, 1990. In HQ 221245, we stated there were two ways in which a claimant can demonstrate to Customs satisfaction that merchandise did not conform to sample or specifications: "(1) by presenting specifications and showing that the defect was caused by a failure to meet those specifications; or (2) by proving that the imported merchandise failed to meet a warranty guaranty as to length of service, and the credit allowed for it amounted to 90% or more of the purchase price." See also HQ 224227, dated May 2, 1996. The protestant has not provided specifications for the products or evidence that they were indeed defective.

With respect to an extension of time, Customs Regulations 191.42 (19 CFR 191.42), pertaining to merchandise not conforming to sample or specifications, do provide for extensions. However, the regulations are not applicable to the amended statute. Customs has no authority to extend the period of time in which to return the merchandise to Customs custody for exportation or destruction beyond three years from the date of release from Customs custody. The regulations are applicable to the statutory provision prior to its amendment, when the merchandise was required to be exported within 90 days after the release from Customs custody. However, if the regulations were construed to be applicable to 1313(c) as amended, in any event, the protestant does not have any evidence that it received an extension of time authorized in writing, or any other authorization of an extension in time in which to export or destroy the merchandise. The June 10, 1994 letter to Customs from the protestant, does not make any reference to drawback or an extension.

Based on the facts, we find that the destruction of the merchandise and return of the merchandise to Customs custody occurred outside of the three year time limit set forth in the statute and the protestant has not established that the importer and foreign supplier agreed that the imported merchandise was defective at the time of importation, or that the imported merchandise did not conform to sample or specification, and therefore the protestant has not established that it qualifies for drawback under 19 U.S.C. ?1313(c).

HOLDING:

The protest should be denied because the statutory requirements of 19 U.S.C. ?1313(c) have not been met.

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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