HQ 227671 - Protest number 2002-96-101816; Dixie Yarns, Inc.; Nylon Staple Fiber; Nylon Yarn; Polyester Yarn; 309.4338 TSUS; Accelerated Drawback, 19 CFR 191.72; Overpayment Determination; 19 U.S.C. § 1313(b); Substitution Drawback; Application for Further Review. - United States International Trade Commision Rulings

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HQ 227671

August 22, 2000

PRO-2-05: RR:CR:DR 227671 BJB

CATEGORY: DRAWBACK

Port Director of Customs,
U.S. Customs Service
423 Canal Street, Room 303
New Orleans, LA 70130-2341
Attn: Glenn N. Seale, Chief
Drawback Branch

RE: Protest number 2002-96-101816; Dixie Yarns, Inc.; Nylon Staple Fiber; Nylon Yarn; Polyester Yarn; 309.4338 TSUS; Accelerated Drawback, 19 CFR 191.72; Overpayment Determination; 19 U.S.C. § 1313(b); Substitution Drawback; Application for Further Review.

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:

On June 21, 1996, U.S. Customs Service (“Customs”) liquidated 14 claims submitted by DixieYarns, Inc., (“Dixie”) for substitution drawback pursuant to 19 U.S.C. §1313(b), (CF19, Attachment A). These claims were based upon designated import entries of nylon staple fiber from France and Italy, classified under 309.4338, TSUS. This merchandise was imported over a period of time dating from 1981 through 1985.

The entries of imported nylon staple fiber claimed by Dixie were imported by two companies, Wellman Trading Corporation and J.J. Ryan and Sons, Inc. Dixie, in turn, purchased the subject nylon staple fiber from these two companies.

Dixie filed the following drawback claims on the following dates:

1. C20-XXXX909-2 (3/26/87) 8. C20-XXXX251-8 (8/17/87) 2. C20-XXXX941-5 (12/19/86) 9. C20-XXXX252-6 (8/17/87) 3. C20-XXXX977-9 (1/23/87) 10. C20-XXXX253-4 (8/17/87) 4. C20-XXXX001-7 (3/2/87) 11. C20-XXXX268-2 (9/9/87) 5. C20-XXXX027-2 (3/18/87) 12. C20-XXXX269-0 (9/9/87) 6. C20-XXXX249-2 (8/17/87) 13. C20-XXXX270-8 (9/9/87) 7. C20-XXXX250-0 (8/17/87) 14. C20-XXXX271-6 (9/9/87)

Thirteen of the fourteen Dixie drawback claims lack fundamental information necessary to determine the actual dutiable price of the designated imported merchandise. At the time of liquidation, June 21, 1996, entry summaries, or CF 7501s, were not available for twelve of these fourteen claims. Customs was only able to obtain three CF 7501s. These three CF 7501s represent a portion of the subject merchandise claimed under claim #13, and cover all of the subject merchandise designated under claim #14. Customs received these three CF 7501s in response to requests made to J.J. Ryan and Sons, Inc., and Wellman Trading Company, Inc.

Dixie stated that both Wellman Trading Inc., and J.J. Ryan and Sons, Inc., refused to provide Dixie with copies of the CF 7501s for any of the claimed entries that comprise Dixie’s 14 drawback claims. These suppliers/importers also refused to provide Dixie with the dutiable price of the subject merchandise.

After Dixie filed its claims, and Customs provided Dixie with accelerated drawback payments Customs sought to obtain the above entry information from Dixie. Customs letter to Wellman’s broker dated January 23, 1990, illustrates that request. While Customs received three CF 7501s from J.J. Ryan and Sons, Inc., pursuant to a Customs request for this documentation, Wellman Trading Company, Inc. responded that it no longer had any entry documentation available related to the entries listed on Dixie’s drawback claims.

Dixie filed its 14 claims based upon the prices Dixie claims it paid for the nylon staple fiber from these two importers. Dixie asserted that it paid $.90 a pound for all of the subject nylon staple fiber it purchased from Wellman Trading, Company, Inc. (“Wellman”), and $1.05 a pound, for all of the subject nylon staple fiber it purchased from J.J. Ryan and Sons, Inc. (J.J. Ryan). Dixie submitted invoices from Wellman, for nylon staple fiber, showing a purchase price of $.90 a pound.

Dixie submitted undated Certificates of Delivery from J.J. Ryan, along with its own handwritten exhibits, to establish the basis of its claimed purchase price for J.J. Ryan merchandise for the J.J. Ryan entries (See e.g. Exhibits A for each of the 14 claims stating that the “invoice price per pound” of nylon staple fiber from J.J. Ryan was $1.05). The record contains no J.J. Ryan invoices or other independent documentation to confirm this $1.05 purchase price. No documentation was provided to show either a dutiable price or a purchase price of $1.05 for the nylon staple fiber J.J. Ryan imported from France.

Except for the CF 7501s available for two of the three import entries comprising of claim C20-XXXX270-8 (claim #13), and all of the import entries of claim C20-XXXX271-6 (claim #14), the duty of the subject merchandise could not be ascertained. Customs has determined that none of the duty or price information for the subject nylon staple fiber is available on the Customs computer data system (ACS).

On September 12, 1995, Customs issued a letter to Dixie, stating Customs determination: Dixie had made an overclaim of $28,924.88 on the $90,124.24 Dixie had received in accelerated drawback payments for these 14 drawback claims. Customs determined that Dixie should have only been paid $61,199.36 in substitution drawback. On June 3, 1996, Customs liquidated the entries and granted drawback based upon the “lowest verifiable duty paid per pound of imported merchandise.” (Customs Response to Protest and Application for Further Review, August 14, 1997).

On September 19, 1996, Dixie Yarns, Inc., (“Dixie”) protested Customs’ determination of overpayment, and Customs methodology in reaching its determination. Dixie requested that its “estimated” purchase prices, and a uniform duty rate of 7.1% per pound, be applied to each of the subject import entries (except for 4 Wellman entries in claims #6 and #10, respectively numbered C20-XXXX249-2 and C20-XXXX250-0, entered in 1983 at a 6.6% duty rate), be used as the basis to compute and grant substitution drawback pursuant to 19 U.S.C. §1313(b).

Pursuant to Proclamation No. 4707 (at p.111), issued December 11, 1979, (44 Fed. Reg. 72348), “Proclamation to Carry Out the Geneva (1979) Protocol to the General Agreement on Tariffs and Trade and for Other Purposes,” nylon fiber staple merchandise classified under item 309.43, TSUS, had a variable ad valorem rate of duty. This rate changed from year to year during the period dating from January 1, 1980 through December 31, 1987. The ad valorem rate of duty for the years relevant to the 14 drawback claims before us are:

1981 1982 1983 1984 1985 1986 1987

7.5% 7.1% 6.6% 6.2% 5.8% 5.3% 4.9%

Based upon the data available, Customs concluded that the applicant had overclaimed the amount of accelerated drawback it had sought and received. The Port Director has recommended that the protest be denied. The protestant has requested that its claims be reliquidated based upon its estimated price and rate of duty methodology.

ISSUES:

Whether there is evidence to support Dixie’s claim for drawback?

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). The protest and application for further review was filed on September 19, 1996, within 90 days from the date of liquidation on June 21, 1996. We note that the refusal to pay a claim for drawback, partially or in full, is a protestable issue under 19 U.S.C. §1514(a)(6). This protest and application for further review of Customs determination that an overpayment on these drawback claims has occurred, involves the partial denial of drawback under 19 U.S.C. § 1313(b). Protestant submitted 14 accelerated claims for substitution drawback pursuant to 19 U.S.C. § 1313(b), and 19 CFR 191.72. Protestant has protested Customs determination that an overpayment of $28,924.88 occurred and that Customs application of a “lowest verifiable duty paid per pound” methodology in determining the overpayment of drawback on Dixie’s claims is improper.

Section 1313(b), often referred to as "substitution manufacturing drawback,” provides that when imported dutypaid merchandise and any other merchandise whether imported or domestic of the same kind and quality are used within three years of receipt of the imported merchandise in the manufacture or production of articles by the manufacturer or producer of the articles and articles manufactured or produced from either the imported dutypaid merchandise or other merchandise, or any combination thereof, are exported or destroyed under customs supervision, 99 per centum of the duties paid on the imported dutypaid merchandise shall be refunded as drawback, provided that none of the articles were used prior to the exportation or destruction. Thus, generally, the drawback statute (19 U.S.C. §1313) provides that the total amount of drawback allowed shall not exceed 99 per centum of the duty paid on such imported merchandise. The regulations governing drawback are found in Part 19 of the Customs Regulations. Pursuant to 19 CFR § 191.71(c), “[d]rawback shall be based on the final liquidated duties paid that have been made final by the importer’s written acceptance of the liquidation or by operation of law.”

One of protestant’s fourteen accelerated drawback claims was filed in 1986, all of the other thirteen claims were filed in 1987. At the time each of the fourteen claims was signed, and submitted, by Dixie, Dixie used its purchase price of the nylon staple fiber, (309.4338, TSUS), from its U.S. suppliers. The submitted claims are stated to be based upon entries of nylon staple fiber, from its two suppliers, Wellman Trading Company, Inc., (Wellman), and from J.J. Ryan and Sons, Inc., (J.J. Ryan). Dixie claimed that it paid a static $1.05 per pound price for nylon staple fiber for each of the claimed entries from J.J. Ryan. The J.J. Ryan entries spanned a period of time dating from 1981 through 1985. Dixie claimed that it paid a static $.90 per pound price for nylon staple fiber for each of the claimed entries from Wellman. The claimed Wellman entries spanned a period of time dating from 1981 through 1983.

Even though it was Dixie’s obligation to do so, Dixie did not, at the time of filing its claims for accelerated drawback, or at anytime thereafter, provide Customs with the amount of “duty paid on such imported merchandise.” This is a fundamental failure by Dixie to comply with the terms and requirements necessary to qualify for drawback payment. It was, and remains, a drawback claimant’s obligation to provide Customs with this fundamental and essential information.

The statute states, and Dixie does not dispute, that drawback is limited to 99% of the duty paid by the importer. A drawback claim that is based on the duty-paid price paid by the U.S. customer of the importer necessarily includes the importer’s profit on that sale as well as the duty and would overstate the amount of duty paid.

The role of the Customs Service in processing drawback claims is set in the Customs Regulations. For the period in issue, the relevant regulations were promulgated by TD’s 83-212- and 98-16.

Former section 191.2(o)(1986 ed.) defied verification, in pertinent part, as the examination of all records maintained by the claimant which are necessary to render a meaningful recommendation concerning the drawback claimant’s conformity to the law and the correctness of a claim or claims. Section 191.2(y)(1998 ed.) continues the substance of that definition. Former section 191.10(c)(1986 ed.) required the verifying official to verify the claim and material by examining the manufacturing, accounting and financial records relating to the transaction. Section 191.61(1998 ed.) requires the port office at which the claim is filed to verify compliance with the law of any selected claim.

The requirement to file a correct claim was set in former section 191.9(1998 ed.) and is currently set in section 191.62(1998 ed.) by providing for penalties for filing false claims.

Dixie argues that because it bought the imported goods in the U.S. from the importer, it was under no obligation to ascertain the duty actually paid on the goods on which the claims were made. Dixie argues that the Customs Service is responsible to use Customs records to ascertain the import duty and to then correct Dixie’s drawback claims. Dixie’s position would make the Customs Service a co-preparer of Dixie’s claims.

Customs determined an overpayment on Dixie’s accelerated drawback claims and issued a declaration to this effect on June 3, 1996. On June 21, 1996, Customs liquidated Dixie’s drawback 14 drawback claims.

The Customs Regulations pertaining to drawback, promulgated under the authority of section 1313(l), are found in 19 CFR Part 191. These regulations require the manufacturer of the articles for which drawback is claimed under section 1313(b) to maintain records establishing compliance with these requirements (see 19 CFR §191.22). The protestant, in its drawback contract (T.D. 87-101 (K) & (L)) specifically agreed to comply with all of these requirements. Protestant recognized this requirement in filing its accelerated drawback claims, and yet failed to submit the amount of “duty paid on such imported merchandise.” The protestant admitted its reliance upon purchase prices for the subject merchandise in its protest and application for further review, CF-19, although it knew it was ultimately obligated to submit the duty paid on the merchandise.

A claimant may qualify for the recovery of drawback, even though, like Dixie in the present case, was not the importer of record of the claimed entries. As long as drawback has not been paid to, or claimed by, any other entity on the designated entries claimed, and the drawback rights have been appropriately transferred to the claimant, (conditioned upon compliance with all the other requirements of the statute), drawback may be awarded. According to the protestant, Dixie’s suppliers, J.J. Ryan and Wellman, transferred these rights along with their signed CDs, but these suppliers did not provide Dixie with the duty paid on the subject merchandise. Dixie’s failure to obtain and supply the required duty information to Customs, in no way absolves it of the requirement to do so, if Dixie intended to qualify for drawback under section 1313(b).

Dixie argues that its own “average” or “estimated” methodology should have been applied to the claims in place of Customs “lowest verifiable duty paid per pound” methodology. In an effort to support its application of its “estimated” or “average” methodology (CF-19, (Dixie uses both terms)), Dixie submitted the Certificates of Delivery it was provided from J.J. Ryan and Wellman. The CDs were provided both as evidence of the transfer of drawback rights from the importers of record and as Dixie’s “best evidence” as to the duty on the subject merchandise. Dixie’s claims as submitted, were flawed and incomplete.

Customs was under no obligation to transfer Dixie’s records or the records of Dixie’s suppliers to its database to supplement or substantiate Dixie’s claims for drawback. Certainly, despite ample opportunity to do so, Dixie has not provided any legal basis for its assertion that Customs was under such an obligation. Dixie, however, was under an affirmative obligation to keep its records and file the appropriate information if it was to qualify for drawback.

At the time of liquidation of Dixie’s claims, Customs Regulations governing the retention of records related to a drawback claim were defined in 19 CFR §191.5 (1996):

“All records required to be kept by the manufacturer or producer under this part with respect to drawback claims, and records kept by others to complement the records of the manufacturer or producer . . . shall be retained for at least 3 years after payment of such claims.”

Thus, Dixie knew or should have known, pursuant to section 191.5, that its suppliers might no longer be under an obligation to retain copies of their entry document records more than three years after the accelerated payment of drawback. Dixie, however, as the claimant, was never excused from the notice provided under 19 CFR 191.72(c), i.e., that Customs still had the authority to make a determination of an overpayment at the time of liquidation, regardless of when that might be, and that Dixie could reasonably therefore, be asked to justify its reliance upon inflated purchase prices. Moreover, section 191.5 states, “shall be retained for at least 3 years after payment of such claims”(emphasis added), suggesting that if unresolved questions remained at liquidation, a claimant could, and would well be, required to prove its qualification for drawback at that time.

As noted above, under the FACTS section of this decision, the rate of duty for item 309.43 TSUS, decreased during the relevant time period covering Dixie’s claims. Dixie errantly, though uniformly, applied a flat 7.1% rate of duty for all of the designated import entries.

Clearly, the appropriate rate of duty for the year of each entry must be properly applied. Even had Dixie correctly submitted the dutiable price of its claimed merchandise, the application of incorrect rates of duty prima facie validates the Port’s allegations of a significant overclaim on Dixie’s part.

The CF 7501s possessed by Customs, show that a claimed entry was made in 1983, (entry numbered 83-xxxx05-1) and that the rate of duty was 6.6%, not 7.1%, as was inaccurately claimed by Dixie. For entries numbered 85-xxxx98-2, and 85-xxxx52-9, both from 1984, Dixie should have used the appropriate applicable rate of duty of 5.8%, and not 7.1%, as was claimed. Although Dixie’s reliance upon asserted purchase prices represents the core of it overclaim, its routine misapplication of duty rates for a third of the entries, and approximately a third of the quantity of the subject merchandise, significantly increased its overclaim.

The degree of overclaim is illustrated by drawback claims C20-XXXX271-6 and C20-XXXX270-8 for which import entry papers were obtained by Customs.

Claim C20-XXXX271-6 designated 27,475 pounds of fiber from import entry 83-XXXX05-1 and 7821 pounds of fiber from import entry 85-XXXX52-9. Contrary to the duty rate of 7.1% used by Dixie to calculate drawback on claim C20-XXXX-XXXX271-6, the correct duty rate was 6.6% for entry 83-XXXX05-1 and 6.2% for entry 85-XXXX52-9. The actual entered value of the fiber was substantially less than the price paid by

Dixie from the importer. The actual duty paid on entry 83-XXXX05-1 was $4144.93 for 73676 pounds of fiber. Consequently, the duty per pound was $.056 rather than the factor of $.075 used by Dixie. The actual duty paid on entry 85-XXXX52-9 was $4198.40 for 93,808 pounds. Consequently the duty per pound was $.045 rather than the factor of $.075 used by Dixie.

Thus, the duty attributable to the 27,475 pounds of fiber designated from entry 83-XXXX05-1 would be $1538.60. The duty attributable to the 7821 pounds of fiber designated from entry 85-XXXX52-9 would be $351.95. Drawback based on the duty attributable to the designated merchandise would be $1871.65 rather than Dixie’s claimed amount of $2620.71, an overclaim of $749.06

Claim C20-XXXX270-8 also designated fiber from import entry 85-XXXX52-9. The claim also designated fiber from import entry 85-XXXX98-2 and import entry 83-XXXX03-3. Dixie designated 5800 pounds of fiber from import entry 85-XXXX52-9, 64,349 pounds from import entry 85-XXXX98-2, and 10,826 pounds from import entry 83-XXXX03-3. The duty paid on import entry 85-XXXX98-2, which covered the entire 64,349 pounds of fiber that were designated, was $2945.68. Consequently, the duty per pound would be $.046. The duty per pound on import entry 85-XXXX52-9 was $.045.

No records were provided for entry 83-XXXX03-3. However, since the statutory duty for fiber classifiable in item 309.4338, TSUS was 6.6% rather than 7.1% as used by Dixie and Dixie’s admission that it used the price it paid from the importer rather than the entered value, there is no evidence to support Dixie’s claim with respect to that merchandise. On the contrary, the evidence of entry 83-XXXX05-1, which involves the same importer, of the same merchandise during the same time period shows Dixie made a similar unsupported overclaim of drawback with respect to entry 83-XXXX03-3.

In any event, with respect to only the merchandise designated from import entries 85-XXXX52-9 and 85-XXXX98-2, Dixie overstated the entitlement to drawback by $2054.50 ($5261.18 (claimed) - $3206.68 (actual)).

In addition, there were apparent discrepancies in the CD’s used by Dixie in support of the drawback claims.

Based upon the CDs provided by J.J. Ryan, and the CF 331s submitted by Dixie’s broker, the fourteen drawback claims appear to have been timely filed. However, none of the Certificates of Delivery submitted from J.J. Ryan, were properly completed. While it appears that J.J. Ryan’s representative signed the CDs presented for the entries claimed, none of the CDs were dated at the time of signing. This raises doubt not only as to the accuracy of Dixie’s assertions concerning when the
merchandise was actually delivered to Dixie’s factory, but also in turn, whether the information contained on the documentation, can be relied upon in toto.

The CDs submitted by Dixie failed to include, although they were not required to include, either the purchase prices, or the dutiable prices, paid for the claimed entries of merchandise. Although Dixie supplied Wellman invoices as to bolster its claim that Wellman charged Dixie $.90 per pound purchase price for its nylon staple fiber, Dixie did not provide any comparable documentation for the claimed J.J. Ryan entries.

Upon examination of the J.J. Ryan CDs, a number of inconsistencies have become apparent, further calling into question their reliability. One example, is reflected on the J.J. Ryan CD provided in support of claim no. C20-XXXX252-6 (Claim #9). Here, the date of importation for the claimed merchandise appears on the CD, as July 6, 1982. However, Dixie also lists this same date, July 6, 1982, as the date the subject merchandise was actually received at its factory. On its face, this appears unlikely. Given the time it takes to actually complete each task in the import process, from the arrival of the merchandise at port to its delivery at the claimant’s factory, it is doubtful that the subject goods could have been imported, processed through Customs, loaded, transported, and received at the claimant’s factory in Dalton, Georgia, (over 250 miles away) in one day. This inconsistency, and the fact that a similar inconsistency appears on nearly every J.J. Ryan CD, casts doubt upon the reliability of the information contained in these documents.

Dixie’s thirteenth claim was filed on September 3, 1987. Listed on its submitted Customs Form 331 (“CF 331") for Claim #13, Dixie designated three import entries of nylon staple fiber, numbered 83-xxxx03-3, 85-xxxx98-2, and 85-xxxx52-9. J.J. Ryan issued “Certificates of Delivery of Imported Merchandise to Candlewick Div. Dixie Yarns.” These CDs, numbered 8601004 and 8601005, include the above three entry numbers, the names of the carriers that transported the shipments, date of importation, location of importation, description of merchandise, quantity - weight - measure, and rates of duty paid. On the bottom of the CD form, a representative of J.J. Ryan, signed a declaration affirming that records pertaining to the imported merchandise would be kept. However, as mentioned above, and as with all of its other CDs, J.J. Ryan failed to date the CDs related to these entries.

Even though Dixie asserts that it received the following entries of merchandise on the dates noted below, J.J. Ryan failed to include the required delivery dates for these entries on its CDs provided Dixie. There is no independent confirmation of the dates provided.

Import entry 83-XXXX03-3 was entered on January 6, 1983, and used in manufacture over a six-month period dating from the date it was received, to June 30, 1984. On the CD this designated import entry was listed as having the same date of entry as its date of delivery, January 6, 1983. When merchandise has not yet cleared by Customs on that date, it is implausible for the merchandise to have been delivered to Dixie’s factory.

Import entry 85-XXXX98-2 was entered on December 4, 1984, and used in manufacture during a period dating from December 4, 1984 through May 21, 1985. As with the first designated import entry, the CD lists the date of importation as the same as the date of delivery listed on the CF 331. No date of signature appears on the CD, and Customs is unable to otherwise verify the date of delivery or the accuracy of this document.

Import entry 85-XXXX52-9 was entered on December 27, 1984, as evidenced by the CF 7501. Dixie claimed that the merchandise was used in manufacture during a period dating from December 22, 1984 through June 30, 1985. However, according to the CF331, this designated import entry was delivered to Dixie’s factory on December 22, 1984. The CF 7501 in the file is signed by the importer’s agent on December 27, 1984, and shows a handwritten entry date in the top right hand corner in the box labeled, “Entry No. and Date,” as December 27, 1984. However, on the CD supplied by Dixie, numbered 8601005, the date of importation is set as December 22, 1984. It is clear that the date of entry is 12-27-84, and not 12-22-84. Since 19 CFR 141.68, then, as now, determines the date of entry according to the date appearing upon the CF 7501, release from Customs custody could not have occurred before December 27, 1984, and still have been in compliance with Customs requirements. This documentation appears to be inaccurate.

Dixie submitted claim #14 on September 3, 1987. The Customs Form 331, designated two import entries of nylon staple fiber. These were numbered 83-XXXX05-1, and 85-XXXX52-9, respectively. In the fourteenth claim, Dixie listed, inter alia, J.J. Ryan entry numbered 83-XXXX05-1, for 27,475 pounds of nylon staple fiber, as being imported on July 11, 1983. The CF 331, and the CD, suggest that the merchandise was processed, loaded, transported, and received at Dixie’s factory, in Dalton, Georgia, all on the same date. On the CF 7501, Customs obtained for this entry, the date of importation is listed as 7/11/83, but in the upper right hand corner, in the section entitled, “This Space For Customs Use Only, Entry No. and Date,” the entry number appears alongside a handwritten date “7/12/83,” apparently written by Customs personnel. This notation is inconsistent with the information filed on Dixie’s claim, (CF 331). It would have been impossible for the merchandise to have arrived in Dalton, Georgia on July 11, 1983, prior to its release from Customs in Savannah, Georgia on July 12, 1983.

J.J. Ryan’s CD covering this entry is incomplete. On the CD, the date of delivery of the merchandise to “CandleWick Division of Dixie Yarns,” has been left blank. The claimed delivery date of the merchandise to Dixie, from J.J. Ryan, cannot be independently verified. On the J.J. Ryan CD relevant to this entry, numbered 8601004, the only other indication of the delivery date available, is the broker’s CF 331 assertion, filed on September 3, 1987, years after the alleged date of delivery.

The merchandise covered by import entry 83-XXXX05-1 is listed on the CF 331, as having been received at Dixie’s factory on July 11, 1983, and used in manufacture, during the period dating from July 11, 1983 through to December 31, 1983. However, the CF 7501 for this entry shows the date of importation occurred on July 11, 1983, and that the merchandise was entered on July 12, 1983. Since there is nothing in the documentation to substantiate a release from Customs custody prior to July 12, 1983, Dixie’s asserted claim of receipt, is not supported by the available evidence. The CF7501 also shows a rate of duty of 6.6% was applied, and a total amount of duty paid as $4,144.93 for 73,676 pounds of nylon staple fiber was paid. This represents a purchase price cost of $.57 per pound of duty. Again, on its Exhibit A for Claim #14, Dixie used $1.05 as the invoice price for the nylon staple fiber. This is nearly a one hundred percent overstatement of the value of the designated merchandise.

The second designated import entry 85-XXXX52-9, listed on the fourteenth claim, is presented on the CF331 as having been received on December 22, 1984, and used in manufacture during a period dating from December 22, 1984, through June 30, 1985. As discussed above in our discussion of claim #13, the entry record on import entry 85-XXXX52-9, shows an entry date of December 27, 1983, which indicates that it was not released from Customs custody before that date. The documentary evidence as such, contradicts Dixie’s assertion that the merchandise was received on December 22, 1983, five days before Customs released the merchandise. In both of these two claims, Dixie asserts a use in manufacture of the merchandise when evidence suggests this is simply not accurate.

In its protest and application for further review, Dixie cites HQ 225195 for the proposition that Customs decision here, “to liquidate the drawback entries using the designated import entries when available or the lowest duty per pound from any available designated entry if the designated entry could not be located,” should be rejected. Inter alia, Dixie claims that HQ 225195 stands for the proposition that,

Customs methodology is unacceptable;
Customs methodology contradicts the terms of CFR 191.71(b)(1); Regulations requiring Customs liquidate drawback entries in reliance upon the use of final liquidated import duties override a drawback claimant’s inability to provide accurate information to support its claims; and Customs delay in liquidating Dixie’s claims should excuse Dixie’s failure to provide the required dutiable price information for its designated import entries (Dixie, in its Supplement 1 to Protest, page 2 of 3).

Customs decision in HQ 225195, however, does not stand for Dixie’s above-asserted propositions. HQ 225195 is an internal advice that affirms Customs long-standing practice of rejecting the “use of weighted averages.” (HQ225195, at 2). No weighted averages, as described in or were reflected in the facts of HQ 225195, or in C.S.D. 89-20, upon which HQ 225195 relies, are used in the present case. Neither Customs use of the lowest dutiable price, when available, to determine the dutiable price of subject merchandise, nor Dixie’s use of estimated purchase prices, constitutes the type of “weighted averaging” methodology discussed in HQ 225195 and in C.S.D. 89-20.

One proposition that HQ 225195 does uphold, however, is that the courts have been consistent in their support of Customs efforts to reject the use of “averages” generally, where it could result in an over-allowance of drawback. (p.2). The ruling affirms that, “[t]he courts have consistently held that ‘[a]ny doubt arising in the decision of a drawback case in the construction of the statute and regulations must be decided in favor of the Government.’” (p.2)

Moreover, unlike Dixie, the claimant in HQ 225195, did not seek to provide an estimated dutiable price for its designated imports. The claimant in HQ 225195 relied upon a computed value method of appraisement that involved an annual reconciliation of the estimated value and actual value of the claimed entries. Additionally, the claimant in HQ 225195 paid Customs for any duty underpayment arising as a result of the annual reconciliation, which was in turn applied to a single unliquidated entry rather than to the individual entries from which they originated. In Dixie’s case, except for CF 7501s covering 14% of the quantity of the combined J.J. Ryan import entries, no one is able to determine, much less prove, the actual dutiable price per pound for the claimed nylon staple fiber. The circumstances and methodology discussed in HQ 225195, are not comparable to the facts in the present case.

Dixie has also stated that, “[t]he CDs provided to Dixie from their suppliers did not indicate the final liquidated duty amount although the majority of the import entries had been liquidated when the drawback entries were filed.” Customs reviewed the available claim documentation submitted by Dixie and determined that there was “substantial evidence” that Dixie’s estimates were fundamentally flawed and overpayments made. The port was correct in its conclusion that an overpayment has been made.

In its protest and application for further review, Dixie has argued that, “Customs has liquidated [the] drawback claims using “estimated duties” rather than actual liquidated duties available to Customs.” Specifically, Dixie charged that “Customs action violates Customs Regulations (CR)191.71(b)(2)(i) and 191.71(c).” (CF19) Dixie is mistaken. Customs has relied upon liquidated duties. In fact, Customs based its decision on final liquidated duties, and thus, is not in violation of the aforementioned regulations. Customs compliance with this regulation is predicated upon a claimant accurately filing its claims for drawback.

What Customs does not have, is the total amount of duty paid for the quantities of merchandise imported. If Customs had been supplied with accurate figures for the actual quantities of nylon staple fiber imported and delivered, the amount paid in duty for the claimed entries, or given the dutiable price for the subject merchandise, it would not have been necessary for Customs to apply its “lowest verifiable estimation” methodology.

Dixie claims that Customs should not be allowed to demand an overpayment on all or a part of the accelerated payments made to Dixie. In fact, Customs Regulation 19 CFR 191.71(b)(2)(i) requires that, “[a] drawback claim, once liquidated on the basis of estimated duties, thereafter shall not be adjusted by reason of a subsequent liquidation of an import entry.” However, this provision specifically pertains to the liquidation of the drawback claim generally, as opposed to “accelerated payment of drawback on a drawback claim” which are covered by further specific requirements under 19 CFR 191.2 (1986-1987). The provision provided:

19 CFR 191.72 Accelerated payment.

(b) Submission with request. A claimant who requests accelerated payment of a claim . . . If outstanding unliquidated accelerated drawback claims exceed the estimated amount of accelerated drawback, the regional commissioner shall require additional bond coverage.”

19 CFR 191.72(c) requires:

(c) Approval. A drawback office that approves the claim for accelerated payment shall certify it for payment within 3 weeks after filing. After liquidation, the drawback office shall certify payment of any amount due or demand a refund of any excess amount paid.”

Pursuant to 19 CFR §191.81(e) (1986-1987):

“When the drawback claim has been completed by the filing of the entry and other required documents, and exportation (or destruction) of the articles has been established, the drawback office shall determine drawback due on the basis of the complete drawback claim, the applicable general manufacturing drawback ruling or specific manufacturing drawback ruling, and any other relevant evidence or information.”

The evidence shows that the overstated claims were the direct result of the failure to comply with the requirements of 19 CFR 191.5 (1996) by both Dixie and the importers who furnished certificates of delivery.

Dixie asserts that its failure was due to undue delay by Customs in processing the claims. This assertion is not supported by the available evidence. First, Dixie admits that it never had the dutiable values of the designated merchandise; it states that Dixie’s suppliers did not provide Dixie with that information. However, as the claimant for 99% of the duties paid on that merchandise, it was Dixie’s obligation to obtain that information. There was no obligation on Customs, except to verify the correctness of Dixie’s claims. Since it never had that information any delay was irrelevant to Dixie’s incorrect claims. Second, because of errors noted in the CD’s, the Customs Drawback office requested the import entry information from the importers as early as January, 1990. The letter of January 23, 1990, to Rogers & Brown; the customhouse brokers for Wellman Trading Company, from the Customs Drawback office is evidence of that fact. Those importers, Dixie’s suppliers, failed to keep records which would enable Customs to verify the CD’s issued by them, except for import entries 83-XXXX05-1, 85-XXXX52-9 and 85-XXXX98-2. With only the possible exception of drawback claim C20-XXXX941-5, which was filed December 19, 1986, the Customs letter of January 23, 1990 shows that the request for verifying information was made within three years from the date of the accelerated payments and that at that time neither Dixie nor its suppliers who issued the certificates of delivery on which the claims would be based retained the import records on which Customs could verify the claims.

As a result of the noted discrepancies in the certificates of delivery and the evidence which demonstrated that the claims were erroneous, an audit of Dixie’s records was conducted which delayed liquidation of Dixie’s claims.

The evidence of the import entries on the last two claims, the admission of Dixie that it based its claims on estimated amounts rather than actual duties paid and the findings of the audit shows that there were significant overclaims of drawback. The evidence of Customs request for records on January 23, 1990 shows that verification of those claims started within three years, with one possible exception, of the date of accelerated payment. The admission of Dixie that it never had records of the amount of duty paid shows that passage of time between the accelerated drawback payments and the liquidation of those claims was irrelevant to Dixie’s record retention practices; Dixie never had the relevant records when it made the claims. The evidence shows that Dixie’s suppliers failed to retain records to support the certificates of delivery that they issued for the three-year period set by 19 CFR 191.5 (1996).

As a result of the failure by Dixie and its suppliers to keep records in compliance with 19 CFR 191.5 (1996), Customs was unable to verify the validity of Dixie’s drawback claims. The decision of U.S. v. Lockheed Petroleum Services, Ltd., 709 F.2d. 1472, 1CAFC63 (1983) is relevant to this situation. In that case the court found that Lockheed’s failure to notify Customs timely so as to enable Customs to verify the bona fides of Lockheed’s claim was a basis to deny recoupment of drawback duties due to its own negligence. There, the court found Lockheed failed to comply with the mandate of former section 22.4(g), C.R. Here, Dixie and Dixie’s supplier’s failed to comply with 19 CFR 191.5(1996) in that they could not supply the import records needed for the claim verification when requested by Customs within the three-year period. Denial of all unverifiable claims would have been appropriate.

Inasmuch as those claims were liquidated with some drawback, there is no authority available to Customs to reliquidate the unverifiable claims. However, if summons is filed on this protest, a counterclaim under 28 USC 1583 would be appropriate to recover those duties.

HOLDING:
The protest is to be denied.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, 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 that 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 A. Durant, Director
Commercial Rulings Division

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