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HQ 228326





April 6, 2001

DRA-4-RR:CR:DR 228326 IOR

CATEGORY: DRAWBACK

Port Director
U.S. Customs Service
C/o Chief, Residual Liquidation & Protest Branch 6 World Trade Center
Rm. 761
New York, NY 10048-0945

RE: AFR 1001-98-102185; 19 U.S.C. 1313(j)(1); documentation; boy’s/men’s shorts

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. The sample forwarded with the file is enclosed and returned.

FACTS:

The protest is against the denial of drawback for drawback entry (D82-xxxx1430) designating merchandise imported by the protestant under six import entries (D82-xxxx5622, D82-xxxx5671, D82-xxxx568-9, D82-xxxx569-7, and D82-xxxx6596, D82-xxxx0136), made from December 16, 1996 through January 15, 1997. The six entries indicate that the imported merchandise consisted of "shorts, men’s other, of cotton” classified under subheading 6203.42.4050, HTSUS (Harmonized Tariff Schedule of the United States), “shorts, boy, oth, cotton: other” classified under subheading 6203.42.4060, HTSUS, and “wom/girl nitdress/pj, man-made” under subheading 6208.22.0000, HTSUS. The merchandise designated in the drawback entry consists only of the shorts and does not include the women’s and girl’s nightdresses. The entered value of the imported shorts ranges from $0.50 to $1.00. According to Customs Automated Commercial System (ACS), the six entries underwent a “general” review by the entry team, which entails a review of the entry paperwork, but does not include a physical examination of the merchandise.

The subject drawback entry was filed by the protestant on June 19, 1997, and designated 1593 cartons and 658,642 pairs of “mens” shorts for same condition drawback. An “Application and Approval to Manipulate, Examine, Sample or Transfer Goods”, on CF 3499 (“Application”), dated June 13, 1997 was submitted by the protestant. The Application was for the destruction of 1593 cartons and 658,642 pieces of merchandise under Customs supervision, for the benefit of drawback under 19 U.S.C. §1313(j). The drawback entry was amended by a submission dated June 30, 1997, which changed the designated merchandise to 1330 cartons and 578,098 pieces of merchandise.

There is a Commercial Enforcement Reporting Form, completed by a Customs officer on July 21, 1997, which states that the Newark Drawback Team witnessed the destruction of merchandise for the subject drawback claim. The report states that upon witnessing the destruction, it was found that “the cotton shorts presented did not seem to fall into the category of men’s or boy’s shorts.” The report describes the shorts as too small even for an infant, and as unfinished, with loose strings, having no color, design or waistband. It is stated that “none of the team leader[sic] could classify these ‘shorts’” as being for either men, boys, infants or dolls. The merchandise was also reported to have sloppily sewed trademark labels. In a letter dated January 8, 1999, counsel for protestant states that the suppliers are authorized manufacturers of goods for licensors or licensees of certain well-known trademarks. However, it was ascertained by Customs that the owner of at least one of the trademarks had never manufactured a product such as the subject “shorts” and had not authorized the manufacturer used by the protestant to manufacture merchandise for its label.

The protest file includes a sample of the merchandise being destroyed. The sample is consistent with the description on the Commercial Enforcement Reporting Form.

On June 21, 1997, Customs noted on the drawback entry that same condition drawback cannot be authorized because the destruction was not approved. A Notice of Action to the protestant was completed by Customs on January 28, 1998, proposing to deny the claimed drawback “for failure to substantiate the merchandise destroyed was the imported merchandise.”

By letter dated April 23, 1998, the protestant submitted documents to establish that the merchandise had been shipped on speculation, was of poor quality, the protestant attempted to sell the imported merchandise at a salvage price, and, that the destroyed merchandise was the same merchandise that was imported in the designated import entries. The documentation submitted included correspondence with potential buyers, CF 7501’s, packing lists, bills of lading, domestic freight bills, and storage receipts, which will be described infra. The entry was liquidated with no drawback on May 22, 1998. The subject protest was filed on June 30, 1998. By letter dated January 8, 1999, the protestant submitted a letter explaining that the manufacturer had confirmed to the protestant that the imported merchandise was of mediocre to poor quality, and explaining that typical first quality men’s and boy’s shorts sold by the vendors range from $3.00 to $10.00 per piece, as opposed to $.50 to $1.00. No supporting documentation was submitted.

The documents submitted to establish that the destroyed merchandise was the same merchandise that was imported, includes the following, for each entry (except as otherwise noted):

CF 7501 The CF 7501 includes the total number of cartons of merchandise imported, and the quantity, gross and net weight of merchandise imported broken down by line item. Some of the CF 7501’s indicate the number of cartons imported for each line item. The CF 7501’s include a bill of lading number in Block 19. The merchandise on four of the six entries consists entirely of men’s and/or boy’s shorts, and entries D82-xxxx6596 and D82-xxxx0136 include line items of women’s/girl’s nightdresses.

Invoice Each entry includes either one invoice from the foreign seller of the merchandise covering each line item, or one invoice for each line item on the CF 7501. The invoice identifies the number of cartons of each item sold and the total quantity of each item sold shown on the CF 7501. All the CF 7501s and invoices together show the importation of a total of 1593 cartons of men’s and/or boy’s shorts. For entry no. D82-xxxx5622, although the CF 7501 is an entry for a total of 190,032 pairs of shorts consisting of 60,000 pairs of boy’s shorts and 130,032 pairs of men’s shorts, the invoice is for the sale of 190,010 pairs of boy’s shorts only. Similarly, for entry no. D82-xxxx0136, the CF 7501 only describes men’s shorts, but one of the invoices is for boy’s shorts.

Packing List Each entry includes either one packing list covering each line item on the CF 7501, or one packing list for each line item. The packing list includes the number of cartons of each item shipped, and the total quantity of merchandise shipped. Only the packing list for entry no. D82-xxxx5622 includes a breakdown of the sizes of merchandise shipped. For entry no. D82-xxxx5622, according to the CF 7501, a total of 190,032 pairs of shorts were imported consisting of 60,000 pairs of boy’s shorts and 130,032 pairs of men’s shorts were imported, however, the packing list is for the shipment of 190,010 pairs of boy’s shorts (all size 3T) and no men’s shorts. Similarly, for entry no. D82-xxxx0136, while the CF 7501 lists no boy’s shorts, one of the packing lists shows one of the line items as consisting of boy’s shorts.

Bill of Lading There is no bill of lading for entry D82-xxxx6596. With respect to the other entries, there is either one bill of lading for all of the items on the CF 7501, or a separate bill of lading for each line item on the CF 7501. The bills of lading indicate the quantity of pieces of merchandise shipped, the number of cartons of merchandise, the net and/or gross weight of the shipment, and, with the exception of entry no. D82-xxxx5697, the container and seal number for the shipment. On one entry the merchandise is described only as “shorts” and for all other entries, with the exception of D82-xxxx0136, the description of the merchandise as either men’s or boy’s shorts, is consistent with the description on the CF 7501. For one line item in entry D82-xxxx0136, the merchandise is described as boy's shorts on the bill of lading, although on the CF 7501, all of the shorts are described as men’s.

Domestic Freight Bill For each entry, there is one domestic freight bill. The freight bill for three of the entries describes the merchandise as boy’s shorts. The freight bill for entry D82-xxxx5622 describes the merchandise as men’s shorts. The freight bills for entries D82-xxxx6596 and D82-xxxx0136 describe the merchandise women’s/girls nightdresses. The freight bills show the same weight of the cargo as shown on the CF 7501. In the case of entry no. D82-xxxx6596, the weight on the freight bill is the same as on the original CF 7501 which contained only three line items, and does not reflect the weight on the CF 7501 as corrected to show four line items and slightly different weights. Four of the freight bills, entries no. D82-xxx5689, D82-5697, D82-6596, and D82-0136, include the quantity of cartons shipped, and the number of cartons is equal to the total number of cartons listed on the CF 7501. With one exception, the freight bills show the container number, a bill of lading number, the name of the vessel on which the merchandise was imported, and show the consignee of the merchandise as “River Term. Whse & Dist.” The freight bill for entry no D82-xxxx0136 does not have a container number, but refers to “loose freight.” The bill of lading number shown on the freight bill is on each respective CF 7501, in Block 19.

Storage Receipt For each entry there is one storage receipt from River Terminal Distribution & Warehousing Co. (“River Terminal”). Each receipt has a receipt number which is also the lot number on the receipt. The information on the receipts for the six entries varies, and is described in the chart below:

5622 5671 5689 5697 6596 0136

No. of Cartons X X X X X X
Container No. X X - - - -
Vessel X X X X X X
Freight Company X X X X X X

The vessel name above refers to the vessel upon which the merchandise was imported, and the freight company refers to the domestic freight company that transported the merchandise to River Terminal. The seal no. on the receipt for entry D82-xxxx5671 is not the same as that on the bills of lading for the imported merchandise. All of the receipts describe the merchandise as simply “wearing apparel”. The dates of storage receipt are all within at least 13 days of the date of entry. With respect to entry no. D82-xxxx5671, the number of cartons is 192, as opposed to the 455 shown on the CF 7501, invoices and bills of lading. With respect to the shortage, there is a letter dated June 30, 1997 to customs from the protestant’s broker, enclosing a revised drawback entry to reflect the 263 cartons that were said to be shortshipped.

Finally, the protestant has provided Customs with a River Terminal document dated July 16, 1997 which indicates that certain lots of merchandise were consigned to Alegro Sanitation for pickup. The lot numbers of the items correspond to the receipt and lot numbers assigned to the merchandise on the River Terminal receipts. The number of cartons is included for each lot number, and the number is consistent with the amount imported under the corresponding CF 7501, with minor discrepancies (entry no. D82-xxxx5689 was an importation of 40 cartons and only 39 were identified as released to Alegro Sanitation; and entry no. D82-xxxx013-6 was an importation of 517 cartons of shorts and only 516 were identified as released to Alegro Sanitation). The total number of cartons of merchandise consigned to Alegro Sanitation was 1328.

ISSUE:

Whether the requirements of 19 U.S.C. 1313(j)(1) have been met.

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). Drawback for the subject entry was denied on May 22, 1998, when it was liquidated with no drawback. This protest was timely filed on June 30, 1998, which is within the 90-day filing deadline set forth in 19 U.S.C. §1514(c).

Section 313(j)(1) of the Tariff Act of 1930, as amended (19 U.S.C. §1313(j)(1), provides for a refund of duties on imported merchandise, exported or destroyed under Customs supervision, within three years from the date of importation, and not used within the U.S. before such exportation or destruction.

In this case, drawback was denied for the failure of the protestant to substantiate that the destroyed merchandise was the imported merchandise. Based on the statements in the Commercial Enforcement Reporting Form (“Destruction report”), we conclude that the belief that the destroyed merchandise was not the same merchandise as that imported, arises from the perceived discrepancy between the descriptions of the merchandise on the import entries, supporting documentation, drawback entry, and the actual merchandise being destroyed. The entry documents refer to boy’s and men’s shorts, the supporting documentation, such as the invoices and bills of lading also refer to boy’s and men’s shorts however there are discrepancies between these documents and the entry descriptions (i.e. entry D82-xxxx5622 is for boy’s and men’s shorts, the invoice reflects only boy’s shorts), and the drawback entry only designates men’s shorts for drawback. In contrast, the samples of the actual items being destroyed could not be identified as “shorts” due to their poor quality, and in any event the items were all small and even if they could be classified as shorts, were not men’s shorts.

However, based on the documentation provided by the protestant, we are able to track all of the imported merchandise by quantity and number of cartons, from the entries, through domestic freight and warehousing, to delivery for destruction, with the exception of two cartons of shorts (which were not included among the cartons delivered for destruction). As an example, the merchandise imported under entry D82-xxxx5689, which consists of 40 cartons out of the total of 1593 cartons imported, and 39 out of the total 1328 cartons destroyed, is tracked as follows:

1) 1980 dozen (23,760 pieces) pairs of boy’s shorts are entered in 40 cartons on December 16, 1996, and are valued at $.50 per pair. The merchandise was shipped on the NOL DELPHI.

2) The invoice is for the sale of 23, 760 pairs of boys shorts, in 40 cartons, for $.50 per dozen, and is dated November 5, 1996.

3) The packing list is dated December 3, 1996 and indicates the shipment of 23,760 pairs of boy’s shorts in 40 cartons.

4) The bill of lading shows the shipment of 23,760 pairs of boy’s shorts in 40 cartons. The container number is OCLU073749-7 and the seal number is B466882.

5) The domestic freight bill is for the delivery of 40 cartons of boy’s shorts from the NOL DELPHI, container number OCLU073749, to the River Terminal. The delivery date is December 26, 1996.

6) The River Terminal receipt no. 15738 is for 40 cartons of wearing apparel, shipped from DELPHI, by the domestic freight company on December 26, 1996. The lot number for the merchandise is 15738.

7) The River Terminal document dated July 16, 1997 indicates that River Terminal delivered to Alegro Sanitation lot no. 15738-01, consisting of 39 cartons of wearing apparel.

8) The Destruction report indicates that on July 21, 1997, Customs witnessed the destruction of 1330 cartons of merchandise. The total number of cartons that was delivered to Alegro Sanitation was 1328.

Although some of the documents have discrepancies such as identifying the merchandise shipped domestically as women’s and girls’ nightdresses, a different seal number on the warehouse receipt, or entering and classifying the merchandise as men’s shorts when the invoice refers only to boy’s shorts, on the whole, the information is consistent with the quantities of “shorts” imported and designated for drawback. The issue presented is whether inaccurate entry information precludes drawback although through documentation, the protestant has substantiated that the merchandise which was destroyed was the same merchandise that was imported.

Under 19 U.S.C. §1514, upon the liquidation of an entry becoming final, the classification of the imported merchandise becomes final and conclusive, and binds all persons, including the United States. Under 19 U.S.C. §1500(b), the Customs Service is required to fix the final classification of imported merchandise. Under 19 U.S.C. §1514, Customs and the protestant are bound as to the classification under which the imported merchandise was liquidated. Under 19 U.S.C. §1313(j)(1), the importer must establish that the imported merchandise was exported or destroyed. The statute does not preclude drawback if the classification of the import is inaccurate. Even if it were established that the imported merchandise was entered and liquidated under an incorrect tariff provision, such a determination would not preclude Customs from finding that the imported merchandise was in fact exported or destroyed. As it has been established that the imported merchandise was in fact the same merchandise that was destroyed, it is not necessary for us to determine the correct classification, or exact nature of the imported merchandise.

This finding is limited to the facts of this case and drawback under 19 U.S.C. §1313(j)(1). Inaccurate entry information may preclude drawback under other provisions, or other fact situations under this same drawback provision.

Due to the discrepancies between the invoices and CF 7501’s, and the inaccurate description of the merchandise on the drawback entry, we do recommend that the circumstances of the purchase and importation, and preparation of documents be more closely examined to determine if reasonable care was taken in the preparation of the documents. This may also include an examination of the sample merchandise and determination of the proper classification of the merchandise. While the eight digit classification number for the men’s and boy’s shorts is the same, the statistical suffix is different for each. Under 19 U.S.C. §1484(a)(1)(B)(ii), the importer is required to use reasonable care in completing the entry, including the classification applicable to the merchandise, to enable Customs to collect accurate statistics with respect to the merchandise. Thus for statistical purposes, the classification of the merchandise was not accurate.

In addition we find that the remaining statutory and regulatory requirements for drawback have been met. We find that the subject drawback claim meets the requirements of 19 U.S.C. §1313(j)(1), and the protest should be granted, to the extent of the destruction of 1328 cartons of merchandise. It appears that the quantity of pieces per carton varies from 100 to 600. As it cannot be determined which two cartons were not destroyed, unless the protestant can establish which two cartons were not destroyed, Customs can liquidate the drawback claim with a denial of drawback for 1,200 pieces of merchandise.

HOLDING:

The protestant has established by documentation that 1328 cartons of the imported merchandise was destroyed and has met the requirements for drawback under 19 U.S.C. §1313(j)(1).

The protest should be GRANTED in part. 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 make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,


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