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HQ 229073




August 29, 2001

DRA-2-02 RR:CR:DR 229073DR

SUBJECT: Drawback

Acting Assistant Port Director of Customs Trade Operations
Chicago, IL 60607

RE: Application for Further Review, Protest No. 3901-00-100573; 19 U.S.C. 1313(b); 19 C.F.R. 171; substitution manufacturing drawback; evidence of destruction.

Dear Sir or Madam:

The above-referenced protest was forwarded to our office for further review. Our decision follows.

FACTS:

According to the record before us, this application for further review involves a protest of the denial of drawback on imported merchandise used to manufacture articles that were allegedly destroyed in lieu of exportation. According to the entry documents included in the file, 14,873 pieces of merchandise were imported by protestant on January 23, 1996, with various amounts classified under HTSUS 4016.99.6050, 8505.11.0000, 8529.90.2300, and 8529.90.7600. See CF 7501. Protestant claimed to have used 11,909 pieces of “telephone and telephone parts” classified under HTSUS “852990” in a manufacturing process that yielded 8,622 pieces of merchandise, and submitted a notice of intent to destroy those 8,622 pieces. See CF 7551, Block 32, and CF 7553, Block 14. Also, protestant had obtained approval for a substitution manufacturing drawback contract under 19 U.S.C. 1313(b) with which to designate imported parts of cellular telephones appearing in manufactured cellular telephones. See Contract # 44-05912-000, T.D. 81-300 (Approved March 30, 2000).

Customs waived the opportunity to witness the destruction and the articles were apparently transported by carrier Mercury Waste Solutions Lamp and Ballast Recycling, Inc. (“Mercury”) and delivered to MARC/5R, Ltd. on November 10, 1999. On November 29, 1999, MARC/5R sent a letter to Mercury in which it detailed the disposition of the merchandise as follows:

All hardware and relative documentation has been shredded and residue segregated into a commodity classification for further recycling. Components and electronic circuitry have been baked to a metal residue and processed as a low-grade precious metal residue. Plastics have been mixed with other commingled like material for further recycling. The electronic hardware identified as MWSI truck 205178, six skids (3336 lbs. Gross weight) consisting of approximately 16,520 pieces no longer exists.

On March 15, 2000, Protestant claimed manufacturing drawback under 19 U.S.C. §1313(b) on the 8,622 pieces of “telephones and telephone parts” manufactured between April 30, 1996, and September 10, 1996, with the use of the imported merchandise, and allegedly destroyed. See CF 7551, Block 32. At the time of the filing of the drawback entry, a manufacturing drawback ruling had been requested by protestant, but had not yet been approved. The application has since been approved. See Contract # 44-05912-000.

On April 21, 2000, the port denied Protestant’s drawback claim for failure to establish that the merchandise was in fact destroyed, per 19 C.F.R. 191.71(b). The port noted that the term “recycling” used in the November 29, 1999, letter from MARC/5R implied that the remaining merchandise still retained commercial value. The drawback claim for the imported merchandise was liquidated on April 21, 2000, without drawback.

On May 10, 2000, MARC/5R sent a letter to Protestant in which it corrected its November 29, 1999, letter to Mercury. The letter read as follows:

With reference to the Denise Gibson letter dated November 29, 1999. This letter was worded incorrectly. The six skids of material were processed as End of Life EDP/Tel-com. Which simply means material was rendered to a non-usable state by going through a shredder and was land filled. The outcome material would be the size of a black eyed pea and would be of no use to anyone.

On May 19, 2000, Protestant protested the denial of drawback and liquidation of the merchandise. On November 19, 2000, a letter from Expeditors Tradewin, LLC, to Customs identified Mercury as the carrier of the unused merchandise delivered to MARC/5R, and MARC/5R is described as being “responsible for the actual destruction.” Attached to this letter were copies of the November 10, 1999 letter from MARC/5R, supra, a letter dated October 27, 2000 (described below) from 5R Processors, Ltd. (apparently MARC/5R’s parent company), along with other associated documents.

Includes an invoice from Mercury to protestant, a bill of lading from Protestant to MARC/5R, a bill to Protestant from Mercury for shipment of the merchandise to MARC/5R, and a check from Protestant as payment for the shipping.

The port’s position is that neither letter from MARC/5R identified its interest in the destruction or what its part may have been in the destruction, and therefore, the protest should be denied. Because of that, the port asserts that proof of destruction has not been met and that the protest should be denied.

Further review was requested and granted. Our analysis and decision follows.

ISSUE:

Whether Protestant has submitted adequate proof of destruction for purposes of claiming drawback on the imported and allegedly destroyed merchandise

LAW AND ANALYSIS:

First, we note that Protestant timely filed the protest. The drawback claim was denied and liquidated on April 21, 2000, and Protestant filed the protest on May 19, 2000. In accordance with 19 C.F.R. 174.26, the port has forwarded this application for further review to this office for review.

Under 19 U.S.C. 1313(b), drawback is authorized if imported duty-paid merchandise and any other merchandise (imported or domestic) of the same kind and quality is used in the manufacture or production of articles within 3 years of the receipt of the imported merchandise by the manufacturer or producer, and the articles are destroyed under Customs supervision or exported. The exported or destroyed articles may not be used before exportation or destruction, and the decision as to whether to elect to export or destroy the articles is left up to the claimant.

The Customs regulations governing the destruction of manufactured articles for purposes of claiming drawback are found in 19 C.F.R. Part 191. Because drawback is an exemption from duty, or a statutory privilege due only when enumerated conditions have been met, “[s]uch a claim is within the general principle that exemptions must be strictly construed, and that doubt must be resolved against the one asserting the exemption.” Guess? Inc. v. U.S., 944 F.2d 855 (CAFC 1991) (quoting U.S. v. Allen, 163 U.S. 499, 504, 41 L. Ed. 242, 16 S.Ct. 1071 (1896)).

According to 19 C.F.R. §191.26(b), a substitution manufacturing drawback claimant must keep records that establish, among other things, the date or inclusive dates of manufacture or production; the quantity and description of the articles manufactured or produced; the quantity of the waste incurred, if any; and that the finished articles on which drawback is claimed were exported or destroyed within 5 years after the importation of the duty-paid merchandise, without having been used in the U.S. prior to exportation or destruction. Also, drawback claims may be filed before the letter of notification of intent to operate under a general manufacturing drawback ruling covering the claims is acknowledged (§191.7), or before the specific manufacturing drawback ruling covering the claims is approved (§191.8), but no drawback shall be paid until such acknowledgement or approval, as appropriate. See 19 C.F.R. 191.27. A complete drawback claim consists of the drawback entry on Customs Form 7551, applicable certificate(s) of manufacture and delivery, applicable Notice(s) of Intent to Export, Destroy, or Return Merchandise for Purposes of Drawback, applicable import entry number(s), coding sheet unless the data is filed electronically, and evidence of exportation or destruction under subpart G of part 191. See 19 C.F.R. 191.51(a).

Additionally, according to 19 C.F.R. 191.71(a), a claimant must file a Notice of Intent to Export, Destroy, or Return Merchandise for Purposes of Drawback on Customs Form 7553 before the intended date of destruction of such merchandise or articles. Customs then may advise the filer in writing of its determination to witness or not to witness the destruction. If Customs fails to so notify the filer, the merchandise or articles may be destroyed without delay and will be deemed to have been destroyed under Customs supervision. If Customs does not attend the destruction, as was the case here, the drawback claimant must submit evidence that the destruction took place in accordance with the approved CF 7553. The evidence must be issued by a disinterested third party (for example, a landfill operator). The type of evidence depends on the method and place of destruction, but must establish that the merchandise or articles were, in fact, destroyed, within the meaning of “destruction” in 19 C.F.R. 191.2(g) (i.e., that no articles of commercial value remained after destruction). See 19 C.F.R. 191.71(b).

Protestant has submitted several documents as evidence of manufacture of the subject articles and their alleged ultimate destruction. Most notable are three letters from representatives of MARC/5R, the asserted destroyer of the manufactured articles. The first of those letters were dated before the drawback claim was filed and the other two were dated after the claim was denied. All purport to describe the “destruction” of the articles, albeit in markedly different terms. The first letter, signed by Denise Gibson of MARC/5R to Mercury, described in detail that the articles were shredded with components and electronic circuitry baked to a metal residue that was processed as a low-grade precious metal residue. The plastics (presumably more residue) were mixed with other commingled material for further recycling. The letter ends with the statement “The electronic hardware identified as MWSI truck 205178, six skids no longer exists.”

The second letter, dated May 10, 2000 and signed by Mike Mitchell of MARC/5R, presents a wholly different account of the fate of the manufactured articles. The letter first “corrects” the Gibson letter, then goes on to state that the material was rendered to a “non-usable state by going through a shredder and was land filled the outcome material would be the size of a black eyed pea and would be of no use to anyone.” There is no reference to what the land-filled material actually consisted of and why it would be “of no use to anyone.” Furthermore, the letter states that the land filled material was processed as “End of Life EDP/Tel-com,” which, considering that the articles were manufactured in 1996 and “destroyed” in 1999, and that Protestant has submitted no evidence to show that the articles remained in finished inventory for those three years, suggests that the articles may have been used before their “destruction.” Clearly, if that were the case, then those articles would not be eligible for manufacturing drawback.

Finally, a October 27, 2000, letter signed by Dan Drake, the Director of Operations at the “Atlanta facility,” Although the other submitted documentation does not explicitly reference “Lot #A2533” or the “Atlanta facility,” we assume that it refers to the shipment of the merchandise to the MARC/5R facility located in Lithonia, GA, especially since Protestant submitted the letter in support of its claim. The letterhead reads “5R Processors Ltd. – Corporate Office” and the MARC/5R plant in Lithonia is approximately 18 miles outside of Atlanta. informs Protestant that “all hardware from Lot #A2533, was shredded and precious metals refined. The equipment was rendered as non-usable, along with the components as non-usable.” There is no mention of the articles being buried in a landfill, or whether the refined precious metals had any value.

Clearly, MARC/5R was the company asserted as being responsible for the receipt and “destruction” of the articles. However, we are unable to conclude that the articles were, in fact, destroyed within the meaning of “destruction” in 19 C.F.R. 191.2(g) because of the deficiencies and inconsistencies in the descriptions of the destroyed articles, as well as the inconsistencies in the accounts given of the “destruction.”

First, with regard to the descriptions of the destroyed articles, on the CF 7553 and the CF 7551 the articles are described as “telephones and telephone parts,” and are purportedly classified under HTSUS 8529.90, which covers parts suitable for use solely or principally with transmission or reception apparatus in telephones, televisions, video cameras, etc. However, but for the part numbers listed on the notice form (CF 7553), we do not have any information that unequivocally describes the destroyed articles. The various letters and documents submitted by protestant contain an assortment of descriptions of the “telephones and telephone parts” claimed to have been destroyed. For instance, the November 29, 1999, letter from Ms. Gibson refers to the destroyed material as 16,520 pieces of “electronic hardware,” or “components and electronic circuitry.” Then the October 27, 2000, letter from Mr. Drake described the “hardware form Lot #A2533” as “equipment” and “components”; the bill of lading from Oki to Mercury describes the material as “computer and electronic debris”; the November 10, 1999, letter from MARC/5R describes it as “hardware, components and ‘material’”; and the invoice from Mercury to Oki merely describes the material as “electronic equipment.” Moreover, the amounts claimed to have been destroyed could include the claimed 8,622 pieces but clearly do not match the amount (16,520 pieces) sent to the recycler MARC/5R, and there is a complete absence of a showing of which components were used in the manufacture of the articles and how the value of drawback was calculated. The only consistency between each of the above accounts is that each consistently failed to identify the material as “telephones and telephone parts,” as alleged on the notice of intent to destroy and drawback entry.

The above shortcomings are compounded by protestant’s failure to provide adequate proof of destruction, regardless of the various descriptions of the articles claimed to have been destroyed. In interpreting the term destruction as used in the drawback law, when merchandise or articles are alleged to be destroyed in lieu of exportation, Customs has followed American Gas Accumulator Co. v. United States, T.D. 43642, 56 Treas. Dec. 368 (Cust. Ct., 3d Div. 1929). In American Gas Accumulator, the Court defined destruction as follows:

Destruction in this connection means destruction as an article of commerce. In other words, if articles were destroyed to such an extent that they were only valuable in commerce as old scrap they still would be articles of commerce to which duty attached upon importation, and therefore could not be said to have been destroyed. [56 T.D. 368, 370]

See also H.A. Johnson Co. v. United States, 21 Cust. Ct. 56, 61, C.D. 1127 (1948) (following American Gas Accumulator and stating that it is in line with Lawder v. Stone, 187 U.S. 281, 23 S. Ct. 79 (1902), United States v. Pastene, 3 Ct. Cust. App. 164, T.D. 32458, (1912), and Poole Co. v. United States, 9 Ct. Cust. App. 271, T.D. 38216 (1919)). In Customs ruling HQ 222975, September 4, 1991, following American Gas Accumulator, supra, we held that an operation consisting of striking machine parts with a heavy, solid metal ball and then dismantling the parts for scrap iron, did not amount to a destruction for purposes of drawback under 19 U.S.C. 1313(j) because “destruction means destruction as an article of commerce, and valuable scrap iron is an article of commerce.”

As illustrated by the above cases and regulations, the critical inquiry is whether the merchandise or articles remain a valuable article of U.S. commerce. If the merchandise is subjected to a process whereby only valueless waste or scrap remains, then the merchandise is deemed removed from the commerce of the U.S. even if it physically remains in the United States. The definition of valueless may, among other things, mean the value of the waste or scrap is less than the cost of salvaging it, i.e., scrap metal may be buried in a landfill, thus making it valueless because its recovery would be economically unfeasible. See C.S.D. 79-419.

Here, there was residue of metal and plastic that was further recycled, according to the second Gibson letter. Although the Mitchell letter purports to correct the second Gibson letter, stating that the merchandise was rendered into a non-usable state (the size of a “black-eyed pea”) by going through a shredder and then land filled, no further information was given. That omission is amplified by the statement in the later Drake letter that the merchandise was shredded, with precious metals refined. It is important to note that the last description of the ultimate disposition of the merchandise was the most recent submitted to Customs and was signed by the Director of Operations of the MARC/5R facility, whereas the previous letter from the MARC/5R facility was only signed by a “Mike Mitchell,” with no reference to his role or responsibility in the handling of the merchandise. Furthermore, the only consistency that exists between the three accounts of the “destruction” is that something resulted from the shredding of the merchandise, whether it was metal and plastic “residue,” “outcome material the size of a black-eyed pea,” or “precious metals.” Without more specific and probative information, and strictly construing the law of drawback, we cannot conclude that protestant has proven that the articles claimed to have been destroyed were in fact destroyed within the meaning of drawback law.

HOLDING:

This protest should be DENIED. Because Protestant has not satisfactorily addressed the inconsistencies between the documentation, i.e., which imported articles were designated for drawback, and whether and how the resulting material was recycled or “refined,” and thus, valuable, or was actually buried in a landfill as scrap, we cannot conclude that Protestant has proven that the manufactured articles containing the designated merchandise were destroyed for purposes of claiming drawback.

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,

John Durant
Director,
Commercial Rulings Division

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