HQ 228541 - Protest and AFR No. 5301-99-100021; drawback; 19 U.S.C. 1313(c); 19 CFR 191.35(d); failure to transfer drawback merchandise in-bond; failure to submit evidence of defective merchandise - United States International Trade Commision Rulings

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HQ 228541

April 5, 2000

DRA-2-02-DRA-5
RR:CR:DR 228541 CK

Category: DRAWBACK

Port Director of Customs
Houston Drawback Center
Attn: Christina D. Brooks
2350 N. Sam Houston Pkwy E. Ste. 1000
Houston, TX 70032

RE: Protest and AFR No. 5301-99-100021; drawback; 19 U.S.C. 1313(c); 19 CFR 191.35(d); failure to transfer drawback merchandise in-bond; failure to submit evidence of defective merchandise

Dear Ms. Brooks:

This is in response to the above-referenced protest you forwarded to this office on August 9, 1999. We have considered the issues and arguments raised and our reply follows.

FACTS:

Protestant, Regal Industrial Sales, Inc., made a drawback claim under 19 U.S.C. 1313(c) on March 16, 19996. The Port of Houston denied the drawback claim on November 13, 1998, and this protest, 5301-99-100021, was filed on January 18, 1999, against the denial of the drawback claim.

Protestant filed a CF 7539, dated March 14, 1996, for drawback under 19 U.S.C. 1313(c), rejected merchandise drawback. The merchandise claimed for drawback is 25,000 pieces of die cast locks. That amount of merchandise, 25,000, is also the amount listed as the merchandise imported. According to the CF 7539 the merchandise was imported on February 20, 1996, in consumption entry 531-XXXX315-9, and that entry was liquidated on June 14, 1996. Both the Importer of Record and the Exporter on the CF 7539 is Regal Industries, and the merchandise was examined by a U.S. Customs Service officer at the Houston Port on March 21, 1996. The exporting port is listed as Long Beach, CA, the exporting carrier is listed as the Anna Maersk, and the ultimate port of destination is listed as Kaohsiung, Taiwan.

The Port of Houston denied the claim for drawback based on Protestant’s failure to move the merchandise in-bond from Houston to Long Beach, CA, the port of export. The port states that the merchandise was inspected on March 15, 1996 in Houston, at the request of the Protestant, but the Protestant failed to comply with regulations requiring the movement of goods inspected for export to be moved to the port of export in-bond.

Attached is a commercial invoice from Regal Industries, to Han Te International Corp. of Taiwan, the foreign manufacturer of the locks. The invoice states that die cast cable locks are being returned for rework. It states that 50,000 pieces are being shipped from Houston, Texas to Taiwan, and lists the price per piece and the total amount paid.

Also attached is a letter dated March 5, 1996 from Protestant to Intermodal Exports. The letter states that 50,000 pieces of cable locks packed in 500 cartons, on 14 skids, weighing 5,000 kgs are being returned to Han Te International of Taiwan. The letter also requests that drawback be filed on two consumption entries, one being 531-XXXX315-9. The second is consumption entry 531-XXXX172-4, which contained 25,000 cable locks, at the same price per unit as the other entry, but that entry was not involved in the protested drawback claim.

Also attached is a CF 7501, and a commercial invoice from Han Te International Corp. The invoice, dated February 2, 1996, is for 25,000 pieces of die cast locks and 15,000 pieces of shotgun recoil pads. The price per unit is stated, as is the total amount in US currency. The CF 7501 contains only one line item as both the locks and the shotgun recoil pads were entered under the same HTSUS subheading. The CF 7501 lists 400 packages of merchandise with a gross weight of 5180 kgs.

Included also is a bill of lading from Air-Sea Transport, Inc., number NYCOEX60311T. Regal Industrial is listed as the shipping party and Han-Te International as the consignee. The place of receipt is Houston, TX, the port of lading is Long Beach, Ca, the ocean vessel is Anna Maersk to Kaohsiung. The merchandise is 14 skids, 500 cartons of cable locks (return cargo) weighing 5,488.50 kgs. The on board date is March 31, 1996. Also included is a non-negotiable sea waybill from Maersk Line. It contains the receipt of MASU8069865, freight of all kinds, weighing 13837.23 kgs, and states the freight was laden on board April 1, 1996.

Finally, a receipt from Prime International Agency to Maersk listing the freight contained in container MAEU806986-5 is attached. The fourth line of the merchandise is 14 skids, 500 cartons of cable locks weighing 2088.52 kgs.

ISSUE:

Was drawback claim correctly denied?

LAW AND ANALYSIS:

We note initially, that a protest is timely if filed within 90 days of liquidation. See, 19 U.S.C. 1514. We also note that the denial of a drawback claim is a protestable matter under 19 U.S.C. 1514(a)(6). In this case, Protestant filed the protest well within 90 days of the liquidation, and the denial of its drawback claim is protestable.

Section 313(c) of the Tariff Act of 1930, as amended (19 U.S.C. §1313(c)), provides for a refund of duties on imported duty-paid merchandise, exported or destroyed under Customs’ supervision, within three years from the date of importation, which was found to not conform to sample or specifications, was shipped without the consent of the consignee, or was determined to be defective as of the time of importation.

Effectively, section 1313(c) has two distinct requirements. One, that the merchandise identified in the drawback claims is exported or destroyed under Customs’ supervision within three years of the date of importation. Two, that the merchandise identified in the drawback claim was shown to be defective at the time of importation.

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).

The first requirement under section 1313(c) is that the merchandise identified in the drawback claim be exported or destroyed under Customs supervision within three years of the date of importation. Section 191.42(f) of the Customs Regulations states in regards to merchandise intended for export, upon which a claim for drawback under 1313(c) has been made, and which has been examined by Customs in preparation for such export, “if the examination is completed at a port other than the port of actual exportation, the merchandise shall be transported in-bond to the port of exportation.”

The purpose of section 191.42(f) is to give assurance that the requirements in 19 U.S.C. 1313(c) is to retain the identity of the merchandise examined by Customs in one port and there determined to be defective within the terms of 19 U.S.C. 1313(c). By complying with section 191.42(f) the Customs Service is assured that the merchandise examined and found to be defective, consistent with 19 U.S.C. (c), is the same merchandise exported.

In this case, the Port of Houston states that when it requested proof of export, which was provided, the Protestant’s broker stated that the merchandise was not moved in-bond from Houston to Long Beach, the port of export. The merchandise had been examined by Customs on March 21, 1996 at the Port of Houston. Additionally, Protestant has not submitted any evidence showing that the merchandise was moved in-bond from Houston to Long Beach, as required by section 191.42(f).

However, the evidence provided, the CF 7539, contains only a signature of an examining officer and a date. The officer that signed the CF 7539 did not check any of the boxes regarding what was examined. Boxes 41 and 42 allow for the examining officer to state whether the merchandise did or did not show evidence of deterioration, shows or does not show evidence of use since importation, and the merchandise does or does not conform to sample or specification. Therefore, the most that can be inferred from the examining officer’s signature is that the officer viewed the merchandise, since the form contains no determination by the Customs officer as to the condition of the locks.

There is a discrepancy regarding the merchandise viewed at the port and the merchandise that was exported. First, according to the CF 7501, the 25,000 cable locks and recoil pads weighed 5180 kgs. According to the CF 7539, the drawback claim is for 25,000 locks attributable to one entry, 531-XXX315-9. The letter from Protestant to Han Te states 50,000 locks were being returned. The letter from Protestant to Intermodal Exports states that 50,000 locks weighing 5000 kgs, packed in 500 containers on 14 skids were being returned. That same letter further states that those 50,000 locks came from two consumption entries each containing 25,000 locks. The bill of lading from Air-Sea Transport Inc. lists 14 skids and 500 cartons of cable locks, weighing 5488.50 kgs. were transported. However, the shipping report from Prime International Agency, to Maersk, regarding the container that was accepted by Maersk for lading on the Anna Maersk states that it had 14 skids, 500 cartons of cable locks weighing 2088.52 kgs. The evidence submitted shows that Air-Sea Transport Inc. received merchandise in Houston weighing 5488.50 kgs., and that the Anna Maersk laded 2088.52 kgs. of merchandise at Long Beach. That is a difference of almost 3000 kgs for which no explanation is provided. It is impossible to reconcile the weight of the locks imported, with the amount allegedly shipped, and the final weight of the locks laded on board for export. It is unclear how much one shipment of locks weighs, how many locks make up that shipment, and therefore, how many locks were in the shipment when it was accepted in Houston, and how many locks were in the shipment laded on board the exporting carrier in Long Beach.

Moreover, regarding the CF 7539, the examining officer failed to note any determinations regarding the merchandise; therefore, even though the merchandise was viewed, there is no assurance that the merchandise was defective at the time of importation. Therefore, the failure to send the merchandise in-bond is only one problem with this drawback claim. In other words, even if the merchandise had been sent in-bond to California, from where it was exported, there is no evidence that Customs made the determination that the merchandise was defective from the time of importation.

The second requirement to making a claim for drawback under 19 U.S.C. 1313(c) is that the merchandise must have been defective from the time of importation.

This office has issued rulings analyzing claims made under 19 U.S.C. 1313(c), namely, HQ 227461, dated June 26, 1997, and HQ 227971, dated June 29, 1999. Both cases begin the analysis by reviewing the legislative history of rejected merchandise drawback, 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 it 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. Protestant has not even stated how the merchandise is defective.

The facts do not indicate any agreement between Protestant and the foreign supplier that the imported merchandise was defective as of the time of importation. Because there is no 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.

In this case the Protestant has not articulated how the merchandise is defective. Protestant has not submitted any evidence showing a defect, or that the foreign manufacturer has acknowledged a defect. Protestant has only provided a letter it had sent to Han Te International regarding the locks it was returning, and the amount it paid both per piece and in total, there is no documentation from Han Te International regarding its acceptance of the returned locks. The letter from Protestant to Han Te states the locks are “returned for rework.” The words “returned for rework” are insufficient to demonstrate that the locks failed to meet the purchase specification or constitute an agreement between the foreign supplier and the importer that the locks were defective when imported. Furthermore, there is no evidence showing that Han Te accepted such responsibility or acknowledged that the defect existed at the time of importation, as required by 19 U.S.C. 1313(c). In this case, Protestant has not submitted any evidence that the merchandise was defective at the time of importation as required by section 1313(c).

The merchandise was not moved in-bond as required by section 191.42(f) of the Customs Regulations. There is a discrepancy regarding the merchandise moved from Houston, where Customs inspected the merchandise, and the merchandise laden on the carrier at the port of export, Long Beach. There is no evidence that Han Te, the foreign manufacturer, of the locks acknowledged that it shipped merchandise to Protestant defective at the time of importation. Therefore, Protestant has failed to comply with the requirements for claiming rejected merchandise drawback under 19 U.S.C. 1313(c). The port correctly denied the drawback claim.

HOLDING:

The Port correctly denied the claim for drawback under 19 U.S.C. 1313(c). Protestant failed to comply with the requirement that it move its merchandise to the port of exportation from the port in which it was inspected by in-bond transportation. Furthermore, neither the Customs inspection, nor the Protestant make any statements regarding how the merchandise was defective, or even if it was. Finally, Protestant did not submit any evidence regarding this defect.

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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