HQ 228294 - Protest and Application for Further Review No. 5301-98-100004; Unused Merchandise Drawback; 19 U.S.C. 1313(j)(1); Accounting Methods; 19 CFR 191.14; 19 CFR 181.45 - United States International Trade Commision Rulings

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HQ 228294

November 3, 1999

DRA-4 RR:CR:DR
228294 CK

Category: DRAWBACK

United States Customs Service
Houston Service Port
Attn: Port Director
2350 North Sam Houston Parkway East, Suite 1000 Houston, TX 77032-3216

RE: Protest and Application for Further Review No. 5301-98-100004; Unused Merchandise Drawback; 19 U.S.C. 1313(j)(1); Accounting Methods; 19 CFR 191.14; 19 CFR 181.45

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:

Sasol Alpha Olefins North America, Protestant, imports Hexene-1 by the metric ton, from South Africa into the Port of Houston. Protestant puts the Hexene in storage tanks in Houston, and then exports the Hexene-1 by rail to Canada. Protestant makes claims for drawback under 19 U.S.C. 1313(j)(1), unused merchandise drawback.

Attached is the CF 7501 for entry 116-xxxx805-7, imported on November 1, 1994, Protestant is the importer of record, and entry consists of 1401.710 mt, Hexene in bulk, classified as 2901.29.50000, HTSUS, entered value is about $569,000.00, and the duty rate is 3.7% ad valorem.

Attached to the CF 7501 is an invoice with Sasol Alpha Olefins letterhead. It lists under description, Sasolfin-Hexene, shipped per “Infra” on September 14, 1994. Quantity is 1403.098 mt. And price is $xxx.xx per mt CIF Houston. Handwritten is about $569,000.00 net of costs, but the handwritten amount is almost $600.00 greater than the entered value found on the CF 7501.

Attached to this is a “summary report” by Inchcape Testing Services, signed and dated, November 11, 1994, listing the vessel, Hexene-1 as the cargo, Baytank as the location, pounds as 3,090,245.75, gallons @ 60 is 547,818,75, barrels @ 60 is 13,043.30, and metric tons as 1,401.71. Date commenced discharge is November 1, 1994.

Quantity Discrepancy:

We note, that the invoice supplied by the Protestant lists the quantity of the Hexene-1 as 1403.098 metric tons. The CF 7501 and the “summary report” by Inchcape Testing Services state the quantity of Hexene-1 received is 1401.710 metric tons, which is a difference of 1.988 metric tons. Protestant has not submitted any explanation regarding the quantity disparity.

Attached also is a “Certificate of Quantity,” dated November 1, 1994 from Inchcape Testing Services. It is for Baytank terminal, the cargo is listed as Hexene, and the reference number is HO/94-05786. It lists the following as description:

Tank
No.

Gauge

Temp

Gravity
API

TOV
Barrels

Water
Barrels

GOV
Barrels

Volume
Corr.
Factor

GSV
Barrels

3-27

70.0

77.4

59.66

0.00

59.66

0.9922

59.19

3-27
c 37'10"

75.0

77.4

11997.63

0.00

11997.63

0.9882

11856.06

Difference

11937.97

0.00

11937.97

11796.87

A plus amount loaded to Railcars: 1221.09A Less line: -19.86

Also described is the following chart:

Tank # 3-27

Tank #

Tank #

Total

Barrels @ 60 F

11,796.87

1,221.09

-19.86

12,998.10

Gallons @ 60 F

495,468.54

51,285.78

-834.12

545,920.20

Pounds

2,793,451.63

289,149.23

-4,702.77

3,077,898.09

Long Tons

1,247.08

129.08

-2.10

1,374.06

Metric Tons

1,267.09

131.16

-2.13

1,396.12

Short Tons

1,396.73

144.57

-2.35

1,538.95

Kilos

1,267,089.85

131,156.04

-2,133.14

1,396,112.75

WCF Table 8 5.63800 5.63800 5.63800
API/Gravity 77.4

Quantity Discrepancy and Missing Information:

The Inchcape “Certificate of Quantity,”described above, states the total Hexene-1 in its Baytank terminal is 1396.12 metric tons. The CF 7501 and the “summary report” by Inchcape Testing Services state the quantity of Hexene-1 received is 1401.710 metric tons, which is a difference of 5.59 metric tons. Additionally, the invoice attached to the CF 7501, supplied by the Protestor lists the quantity of the Hexene-1 as 1403.098 metric tons, which is a difference of 6.978 metric tons than the 1396.12 metric tons recorded by Inchcape. Protestant has not offered any explanation for the discrepancy in the quantities reported.

Additionally, the chart in the “Certificate of Quantity,” by Inchcape, has three columns for tanks numbers, yet, only one tank is numbered, “3-27". The chart appears to show that the Hexene-1 was put into two tanks, while fluid was removed from a third, represented by the -2.13 figure. No information is supplied regarding the numbers of the other tanks included in the chart. No information is offered as to whether the tanks were empty or already being used before this shipment of Hexene-1.

Also attached is a Laboratory Report from Inchcape Testing Services setting out the chemical compositions of two samples of Hexene-1. Attached also is a Rider to U.S. Customs Bond, changing the name of the company from “Alpha Olefins North America, Inc.” to Sasol Alpha Olefins North America Inc., dated September 16, 1996. Also attached is a letter dated August 28, 1996 announcing the name change of the company.

There are three drawback entries that are the subject of this protest:

116-xxxx510-1 October 17, 1996
116-xxxx509-3 October 17, 1996
116-xxxx502-8 October 16, 1996

Drawback claim 116-xxxx510-1 is for same condition drawback under 19 U.S.C. 1313(j)(1), was stamped received by U.S. Customs on October 13, 1996, and contains the following information: Importer of record is Alpha Olefins North America inc., import date is listed as November 1, 1994, merchandise is Hexene-1 located at Baytank Houston, the ultimate port of destination is Joffre, Alberta, Ca, carrier is “infra”, exporting carrier is Ex “rail” sp-corsc-ssw-estl-sswn-chgo-cp.,

Marks and Numbers of Packages

Quantity`

Description of Merchandise

Value

Duty Paid

Import

In bulk

1401.710 mt

Hexene-1
$569,052.00
$21,054.92

Export

In bulk

Approx. 472500#
214.323 mt

Hexene-1
$87,009.00
$3,219.33

Entry information consists of entry number 116-xxxx805-7, to Houston, imported on November 1, 1994, and entry was liquidated on February 17, 1995.

Attached to drawback claim number 116-xxxx510-1 is another copy of the CF 7539, however, this one has handwritten on the top “amended,” and is stamped as received by the U.S. Customs Service, January 22, 1997. The export line was amended as follows:

Marks and Numbers of Packages

Quantity`

Description of Merchandise

Value

Duty Paid

Import

In bulk

1401.710 mt

Hexene-1
about $569,000.00
about $21,000.00

Export

In bulk

218.405 mt

Hexene-1
about $88,000.00
about $3,000.00

Attached to the drawback claim are three papers electronically transmitted by Southern Pacific Transportation Co. Each has as the bill date, and date of release as October 25, 1996, lists the shipper as Alpha Olefins N.A. Inc, consignee as Nova Chemicals, Ltd, at Joffre, Alberta, Ca., origin is Bayport . However they each have different weights, Lot numbers, and seal numbers. The first page lists the following: weight is 159300, lot is 05-217-1096, and seal number is 016288. The second page lists the following: weight is 161100, lot number is 05-217-1096, and seal number is 016297. The third page lists the following: weight is 161900, lot number is 05-217-1096, and seal number is 016285.

Missing Information:

The documents submitted by Protestant do not show from which tank the Hexene-1 for drawback claim 116-xxxx510-1 was removed. Protestant has not supplied any evidence regarding its claim that the Hexene-1 in this drawback claim was removed from tank 3-27.

Protestant has not offered any explanation regarding the significance of the seal numbers found in the electronic transmittals from Southern Pacific Transportation Co. No information has been submitted showing how the seal number is related to the tank which held the claimed Hexene-1.

Drawback claim 116-xxxx509-3 is for same condition drawback under 19 U.S.C. 1313(j)(1), was stamped received by U.S. Customs on October 18, 1996, and contains the following information: Importer of record is Alpha Olefins North America inc., import date is listed as November 1, 1994, merchandise is Hexene-1 located at Baytank Houston, the ultimate port of destination is Joffre, Alberta, Ca, carrier is “infra”, exporting carrier is Ex “rail” sp-corsc-ssw-estl-sswn-chgo-cp.,

Marks and Numbers of Packages

Quantity`

Description of Merchandise

Value

Duty Paid

Import

In bulk

1401.710 mt

Hexene-1
about $569,000.00
about $21,000.00

Export

In bulk

Approx. 472500#
214.323 mt

Hexene-1
about $87,000.00
about $3,000.00

Entry information consists of entry number 116-xxxx805-7, to Houston, imported on November 1, 1994, and entry was liquidated on February 17, 1995.

Attached to drawback claim number 116-xxxx509-3 is another copy of the CF 7539, however, this one has typed on the top “amended,” and is stamped as received by the U.S. Customs Service, January 22, 1997. The export line was amended as follows:

Marks and Numbers of Packages

Quantity`

Description of Merchandise

Value

Duty Paid

Import

In bulk

1401.710 mt

Hexene-1
about $569,000.00
about $21,000.00

Export

In bulk

217.747 mt

Hexene-1
about $88000.00
about $3,000.00

Attached to the drawback claim are three papers electronically transmitted by Southern Pacific Transportation Co. Each has as the bill date, and date of release as October 24, 1996, lists the shipper as Alpha Olefins N.A. Inc, consignee as Nova Chemicals, Ltd, at Joffre, Alberta, Ca., origin is Bayport . However they each have different weights, Lot numbers, and seal numbers. The first page lists the following: weight is 160900, lot is 05-217-1096, and seal number is 16281. The second page lists the following: weight is 158450, lot number is 05-217-1096, and seal number is 21484. The third page lists the following: weight is 160700, lot number is 05-217-1096, and seal number is 016281.

Missing Information:

The documents submitted by Protestant do not show from which tank the Hexene-1 for drawback claim 116-xxxx509-3 was removed. Protestant has not supplied any evidence regarding its claim that the Hexene-1 in this drawback claim was removed from tank 3-27.

Protestant has not offered any explanation regarding the significance of the seal numbers found in the electronic transmittals from Southern Pacific Transportation Co. No information has been submitted showing how the seal number is related to the tank which held the claimed Hexene-1.

Drawback claim 116-xxxx502-8 is for same condition drawback under 19 U.S.C. 1313(j)(1), was stamped received by U.S. Customs on October 17, 1996, and contains the following information: Importer of record is Alpha Olefins North America inc., import date is listed as November 1, 1994, merchandise is Hexene-1 located at Baytank Houston, the ultimate port of destination is Joffre, Alberta, Ca, carrier is “infra”, exporting carrier is Ex “rail” sp-corsc-ssw-estl-sswn-chgo-cp.,

Marks and Numbers of Packages

Quantity`

Description of Merchandise

Value

Duty Paid

Import

In bulk

1401.710 mt
3090246#

Hexene-1
about $569,000.00
about $21,000.00

Export

In bulk

Approx. 472500#
214.323 mt

Hexene-1
about $87,000.00
about $3,000.00

Entry information consists of entry number 116-xxxx805-7, to Houston, imported on November 1, 1994, and entry was liquidated on February 17, 1995.

Attached to drawback entry number 116-xxxx502-8 is another copy of the CF 7539, however, this one has handwritten on the top “amended,” and is stamped as received by the U.S. Customs Service, January 22, 1997. The export line was amended as follows:

Marks and Numbers of Packages

Quantity`

Description of Merchandise

Value

Duty Paid

Import

In bulk

1401.710 mt
3090246#

Hexene-1
about $569,000.00
about $21,000.00

Export

In bulk

216.001 mt

Hexene-1
about $87,000.00
about $3,000.00

Attached to the drawback entry claim are three papers electronically transmitted by Southern Pacific Transportation Co. Each has as the bill date, and date of release as October 21, 1996, lists the shipper as Alpha Olefins N.A. Inc, consignee as Nova Chemicals, Ltd, at Joffre, Alberta, Ca., origin is Bayport . However they each have different weights, Lot numbers, and seal numbers. The first page lists the following: weight is 159050, lot is 05-217-1096, and seal number are 016244, 016223. The second page lists the following: weight is 158900, lot number is 05-217-1096, and seal number is 15809. The third page lists the following: weight is 158250, lot number is 05-217-1096, and seal number is 15823.

Missing Information:

The documents submitted by Protestant do not show from which tank the Hexene-1 for drawback claim 116-xxxx502-8 was removed. Protestant has not supplied any evidence regarding its claim that the Hexene-1 in this drawback claim was removed from tank 3-27.

Protestant has not offered any explanation regarding the seal number on electronic transmittals from Southern Pacific Transportation Co. No information has been submitted showing how the seal number is related to the tank which held the claimed Hexene-1.

All three were drawback entry claims were liquidated on October 3, 1997, without benefit of drawback. The Port states that the entries were denied because the Protestant could not show that the merchandise exported was the merchandise imported by entry number 116-xxxx805-7. The CF 19 states that the Port requested that the Protestant show, how under one of the U.S. Customs approved inventory management methods, the Protestant can identify the import entry from which the drawback entries originated. This request was made pursuant to the drawback claim made, that the Protestant’s claim is based on a direct identification drawback section, same condition drawback under 19 U.S.C. 1313(j)(1).

Protestant on the CF 19 argues that it practices the First In/First Out method of inventory control. That all product is imported from a plant in South Africa and is discharged into storage tanks at Baytank terminal. Each parcel is assigned a lot number. Inventory levels and outbound shipments are recorded in Excel Spreadsheet as well as in SAP/R3 computer system. Lot numbers are shown on all corresponding paperwork pertaining to shipments “ex” storage tanks. Protestant states that the documents, discussed above, support their inventory management method.

In response to a letter from the Port requesting information and accounting records, Protestant supplied tank records, for tank 3-27, from Baytank, for calender years 1997 and 1998. Additionally, Protestant supplied a purchase order, which while “illegible” is dated August 22, 1997, and two shipping orders to different customers, dated September 19, 1997. Protestant also submitted two electronic orders from Southern Pacific Transportation Co., for September 19, 1997. In addition, Protestant supplied an explanation for the lot numbers found in the records they supplied and are found in the electronic transmittals from Southern Pacific Transportation Co. Protestant states the first two numbers represent that number vessel for the year, the middle three numbers represent the storage tank, and the last four represent the month and year the vessel discharged.

Tank discrepancies:

The lot numbers found in the Southern Pacific Transportation Co. electronic transmittals that are attached to drawback claim 116-xxxx510-1, are 05-217-1096. The lot numbers found in the Southern Pacific Transportation Co. electronic transmittals that are attached to drawback claim 116-xxxx509-3, are 05-217-1096. The lot numbers found in the Southern Pacific Transportation Co. electronic transmittals that are attached to drawback claim 116-xxxx502-8, are 05-217-1096. According to the explanation of the lot numbers provided by the Protestant, 2-17 is the storage tank number, within which the Hexene-1 was housed, and later removed for withdrawal.

By letter dated July 2, 1999, the Port of Houston, at the request of this office, wrote to Protestant, requesting its inventory records accounting for receipts and withdrawals in and out of inventory for exports claimed under drawback entries 116-xxxx502, 116-xxxx509, 116-xxxx510; specifically exports occurring on October 21, 22, 24, and 25, 1996. Protestant was given 30 days to submit the requested documents so they may be considered in the subject protest. Additionally, this office requested that the Port hold the opportunity for Protestant to submit the requested documents for an additional 30 days. At no time has this Protestant made any contact, nor submitted any additional information.

ISSUE:

Did the Port properly deny the three drawback claims, made pursuant to 19 U.S.C. 1313(j)(1)?

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). The three drawback entries were liquidated on October 3, 1997 This protest was timely filed against the denial of drawback for the subject entries on December 31, 1997 since the 90-day statutory and regulatory filing deadline was met under 19 U.S.C. § 1514 and 19 CFR Part 174.

Protestant filed three drawback claims pursuant to 19 U.S.C. 1313(j)(1). As the exports were to Canada, the transaction is subject to NAFTA. For purposes of drawback to NAFTA countries the regulations found in 19 CFR part 181, distinguish between same condition merchandise under 19 U.S.C. 1313(j)(1), and unused merchandise under 19 U.S.C. 1313(j)(1), which for all other countries of export has taken the place of same condition merchandise.

For exportations to Canada, section 203 of the North American Free Trade Agreement (NAFTA) Implementation Act (Public Law 103182; 107 Stat. 2057, 2086; 19 U.S.C. §3333), provides for the treatment of goods subject to NAFTA drawback. Under 19 U.S.C. §3333(a) (Section 203(a) of the NAFTA), such goods mean any good other than, among other things

(2) A good exported to a NAFTA country in the same condition as when imported into the United States. For purposes of this paragraph

(A) processes such as testing, cleaning, repacking, or inspecting a good, or preserving it in its same condition, shall not be considered to change the condition of the good[.] ...

Furthermore, this section provides that “[a] good exported to a NAFTA country in the same condition as when imported into the United States” is not a good subject to the NAFTA drawback limitation. This section applies only to goods imported into the United States that are subsequently exported into Canada on or after January 1, 1996, or into Mexico on or after January 1, 2001. See Annex 303.7, section C, NAFTA; 19 CFR §181.41.

The Customs Regulations issued under the authority of the NAFTA Implementation Act specifically provide for the availability of drawback on the exportation of merchandise to a NAFTA country. Under 19 CFR §181.44(g), with regard to unused goods under 19 U.S.C. §1313(j)(1) that have changed in condition,:

An imported good that is unused in the United States under 19 U.S.C. §1313(j)(1) and that is shipped to Canada or Mexico not in the same condition within the meaning of § 181.45(b)(1) may be eligible for drawback under this section, except when the shipment to Canada or Mexico does not constitute an exportation under 19 U.S.C. §1313(j)(4).

Under 19 CFR §181.45(b), a good imported into the United States and subsequently exported to Canada or Mexico in the same condition is eligible for drawback under 19 U.S.C. §1313(j)(1) without regard to the limitation on drawback provided for in 19 CFR §181.44 (i.e., that such drawback may be granted only on the lesser of the total duties paid or owed on the importation into the United States or the total amount of duties paid on the exported good on its subsequent importation into Canada or Mexico). Subparagraph (b)(1) of section 181.45 provides that: For purposes of this subpart, a reference to a good in the “same condition” includes a good that has been subjected to any of the following operations provided that no such operation materially alters the characteristics of the good: (i) Mere dilution with water or another substance; (ii) Cleaning, including removal of rust, grease, paint or other coatings; (iii) Application of preservative, including lubricants, protective encapsulation, or preservation paint; (iv) Trimming, filing, slitting, or cutting; (v) Putting up in measured doses, or packing, repacking, packaging or repackaging; or (vi) Testing, marking, labeling, sorting or grading.

Applying the statute and regulations to the merchandise in question, Hexene-1, it does not appear that it has been changed, nor manipulated, once it was imported into the United States. From the evidence submitted the Hexene-1 is merely put into a tank, chemically analyzed, and then put into tanks for exportation aboard a railroad. These activities would be allowed activities under 19 CFR 181.45, allowing the Protestant to file for same condition drawback under 19 U.S.C. 1313(j)(1), which would not make the exported Hexene-1 subject to NAFTA drawback limitations.

However, in order to file a drawback claim under 19 U.S.C. 1313(j)(1), the claimant is required to directly identify the import entry from which the exported merchandise was entered into the United States. A claimant may choose to identify the import entry by an inventory management method. Since the Protestant claims that the Hexene-1 is imported from South Africa then the Hexene-1 would be a non-originating material. Under 19 CFR 181.45(b)(2)(B), a claimant that has an inventory that consists of all non-originating materials, “identification of entries for designation for same condition drawback shall be on the basis of one of the accounting methods in §191.14 of this chapter, as provided therein.”

Section 191.14 states the general principles for identification of merchandise or articles for drawback purposes by the use of accounting methods. Section 191.14(b) sets out the conditions and criteria for identification by accounting method. Protestant claims that it is using the First-In/First-Out method of identification as found in 191.14(c)(1). However, as Protestant has only submitted records for calender years 1997 and 1998, and has submitted no accounting records for 1996, the year the exports took place, nor any records at all regarding imports, we are unable to verify its use of the First-In/First-Out method. Furthermore, since no records were submitted to verify the exports for the subject drawback claims, and we are unable to verify the use of the First-In/First-Out method for those exports. Therefore, since no records were submitted in order to verify the use of one of the accounting methods found in section 191.14, and we are unable to verify the exports which make up the subject drawback claims, the drawback claims were correctly denied, and this protest is denied.

Additionally, we note, that while Protestant claims that all shipments may be identified by lot numbers, and inventory levels, the documents submitted contain lot numbers showing the storage tank that held the Hexene-1 for all three claims was tank number 2-17. This is a direct contradiction to the claims made by Protestant that the exported Hexene-1 was removed from storage tank 3-27. Therefore, the records submitted for tank 3-27, while not only being for the wrong years, appear also to be for the wrong tank, as the documents show the exported Hexene-1 came from tank 2-17.

Furthermore, Protestant claims that it has Excel spreadsheets as well as a SAP/R3 computer system to identify shipments and lots, however, none of these documents were submitted with the protest.

HOLDING:

Protestant has failed to submit any evidence to show that the merchandise involved in the drawback claims qualified for drawback under 19 U.S.C. 1313(j)(1) as asserted.

The protest should be DENIED. In accordance with Section 3A(11)(b) of Customs Directive 099 3550065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with the Customs Form 19, to the Protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to mailing the decision.

Sixty days from the date of the decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.ustreas.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

John Durant, Director
Commercial Rulings Division

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