HQ 227944 - Application for further review of protest no. 2704-97-101594; drawback; inventory records; accounting method; evidence of exportation; certified notice of exportation; exporter’s summary procedure; transportation entry; CF 7512; 19 U.S.C. 1313(j)(1) - United States International Trade Commision Rulings

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HQ 227944

October 22, 2001

DRA-4-RR:CR:DR 227944 IOR

CATEGORY: DRAWBACK

Port Director
U.S. Customs Service
Port of Los Angeles - Seaport
301 E. Ocean Blvd.
Long Beach, CA 90802

Attn: Richard Andrejko

RE: Application for further review of protest no. 2704-97-101594; drawback; inventory records; accounting method; evidence of exportation; certified notice of exportation; exporter’s summary procedure; transportation entry; CF 7512; 19 U.S.C. 1313(j)(1)

Dear Madam:

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:

The protest concerns the denial of drawback for 16 drawback entries. The drawback entries were filed from September 3, 1993 through May 17, 1996, on the basis of 19 U.S.C. §1313(j)(1). Three of the entries were filed prior to December 8, 1993, the date of the enactment of the Customs Modernization Act. All of the entries were liquidated on February 7, 1997, except for one, which was liquidated on February 14, 1997. The entries were liquidated with no drawback. The subject protest was filed on May 2, 1997.

Drawback was denied on the grounds that the receipt, storage, shipment and exportation of the imported merchandise, was not established by the documentation. A meeting was held at Customs Headquarters with counsel for protestant on May 12, 1999. Subsequent to the meeting, further documentation, tracking a few specific items in two claims, drawback entries C27-xxxx810-6 and C27-xxxx818-9, was submitted on behalf of the protestant by letter dated September 22, 1999. This additional documentation was intended to show Customs exactly how the documentation shows the importation, inventory and exportation of merchandise identified as having been exported on the Chronological Summary of Exports.

The protestant imports mostly toys from China, using the services of a Hong Kong trading company. The protestant sells its imported merchandise domestically and for export to Mexico. On June 24, 1993, the protestant was approved to utilize the Exporter’s Summary Procedure. The Drawback Unit considers approval for Exporter’s Summary Procedure to also constitute a waiver of prior notice of export. The protest file includes representative drawback entries C27-xxxx810-6 and C27-xxxx818-9.

The two drawback claims were the subject of drawback audit report 731-96-DRO-001, dated September 30, 1996. The audit field work took place during June, 1996. The audit concluded that the protestant:

-failed to have operating and internal control procedures to help ensure its compliance with regulations and laws governing drawback claims; -failed to maintain and provide sufficient documentation to determine if claimed exported merchandise was: 1) in its possession prior to exportation; and 2) was the same merchandise imported and in the same condition as required by 19 USC 1313(j)(1) and (2); -failed to provide evidence of exportation under the procedures described in 19 CFR 191.52; -was incorrectly named as the exporter of record for exports listed on its drawback claims, since it does not have knowledge of how the merchandise was exported [19 CFR 191.73(b)]; and, -did not comply with recordkeeping requirements as stipulated by the Mod Act.

Because the protestant was unable to provide delivery tickets to establish receipt of the identified merchandise, the protestant’s inventory records were reviewed. With regard to the inventory records, the audit found as follows:

Based on observation and discussions with the manager, a separate inventory record was created for each entry. The inventory record was: 1) labeled with the entry number and vessel name; and 2), divided into columns to list the various merchandise model numbers applicable to that entry. The beginning balance for each model number was recorded, for every sales transaction a withdrawal was posted by model number. Each withdrawal was annotated with [the protestant’s] sales invoice number. Furthermore, the manager stated that: 1) the sales invoice number corresponded to the invoice issued to its foreign client; and , 2) only the quantity of merchandise for exportation to Mexico was listed.

Information listed on [the protestant’s] inventory records was reviewed and compared to the entry records. This analysis disclosed that on several occasions, withdrawals were annotated as “domestic” instead of having a sales invoice number which, reportedly, indicated a foreign sale. Consequently, since merchandise was withdrawn and sold domestically, the inventory records included more merchandise than was intended for exportation to Mexico. For those transactions the beginning inventory balance was reconciled to quantities reported to Customs at time of entry and no variances were noted. On another entry (number 442-xxxx911-3), we found the listed quantity as 800 cartons, whereas, the inventory record showed a beginning inventory as 750 cartons. The remaining 50 cartons were said to have been stored in the bonded warehouse. These conditions are examples of inconsistencies found in the manner in which the company maintained its inventory records.

With regard to the inventory records, according to the protestant, inventory is maintained on a last-in, first-out (LIFO) basis. In addition to inventory records for each import entry, the protestant kept General Inventory records by item number. Copies of two pages from the General Inventory, from January to March, 1997 were attached to the protest. This General Inventory shows the quantity of a particular toy in inventory, and shows the additions of merchandise by container number, and the withdrawals of merchandise by invoice number and customer name. According to the statements made on behalf of the protestant at the Headquarters meeting, the import entry is traceable by the container number. It does not appear that this General Inventory was included in the audit review. According to the protestant, in August, 1995 the protestant’s warehouse was burglarized and the stolen items included inventory records from 1981 through early 1995, and therefore the General Inventory records for specific items were not available at Customs request for the period in question. A copy of the police report, dated August 4, 1995, reporting the burglary, is attached to the protest. According to the police report, the theft was asserted to have occurred between 6:00 pm on August 3, 1995 and 6:00 am on August 4, 1995. The theft and the General Inventory records were not raised until this protest was filed.

Two of the drawback entries, C27-xxxx819-7 and C27-xxxx824-7 cover exports that occurred after August 4, 1995, the date of the police report. The exports in entry C27-xxxx819-7 took place from May 16, 1994 through August 10, 1995, and the exports in entry C27-xxxx824-7 took place from November 24, 1995 through December 29, 1995. We note that all of the exports for entry C27-xxxx824-7 took place after the date the theft is asserted to have occurred. No General Inventory records have been provided regarding the merchandise on which drawback is claimed in those two drawback entries, for the time period in which the exports occurred.

There is no indication in the audit report that any inventory records had been stolen. A July 15, 1996 letter to Customs from counsel for the protestant, states that its inventory records are individually maintained for each import entry. The letter does not mention any general inventory records. By letter dated January 16, 1997, to counsel for protestant, Customs requested documentation demonstrating the inventory procedures, for part numbers 9268D, 8648A, 8248A and 9313, for 1991 to 1994. According to the protestant, it was in response to this letter that the two General Inventory ledger pages were submitted with the protest. According to the protestant, the General Inventory records were for part numbers 8248A and 9268D only, because the other two requested part numbers were for merchandise no longer imported. The General Inventory records submitted were from 1997.

With respect to the export documentation, the protestant asserts that it received authorization from the Los Angeles Drawback Unit to document the transportation to the port of export and the exportation of the subject merchandise by use of CF 7512 Transportation Entries. The protestant has provided a copy of a note dated July 19, 1993, documenting the receipt of advice from the Los Angeles Drawback Unit personnel that a Transportation Entry (“TE”), or CF 7512, can be used to prove exportation of merchandise. According to the Chief of the Los Angeles Drawback Unit, any advice that a CF 7512 could be used to prove exportation, was based on the presumption that the CF 7512 would be complete with a Customs receipt date, and a Customs officer signature verifying clearance for Mexico.

For the purposes of deciding the Protest and AFR, one item on which drawback is claimed in drawback entry C27-xxxx818-9 is tracked in the following paragraphs, based on the documentation provided.

In drawback entry C27-xxxx818-9, it is asserted that 292,532 dozen “toys various” were imported and that 56,826 dozen “toys various” were exported. The chronological summary of exports lists the exportation of a variety of toys from August 19, 1994 through November 8, 1994. The summary describes 16 exports and for each includes the date of export, exporting carrier, bill of lading no., merchandise description, destination, import entry no., import date, quantity of merchandise imported, merchandise model/ part no., quantity of merchandise exported, unit price and total value of imported merchandise, duty rate, and amount of duty refund (based on 100% of duty paid, not 99%). The export date on the summary corresponds to the date of the export invoice, and the bill of lading no. on the summary corresponds to the seal no. and shipper’s receipt no. or the export invoice no. The items tracked in the September 22, 1999 submission, from drawback entry C27-xxxx818-9, are water guns (part no. 9161-64) from import entry no. 442-xxxx608-1, bathtub sets (part no. 9312) from import entry no. 442-xxxx327-7, and dining room play sets (part no. 94011) from import entry no. 442-xxxx691-0.

According to the summary, 11,040 dozen water guns were imported on June 25, 1994 by import entry 442-xxxx608-1, and 4,080 dozen water guns were exported on August 19, 1994. The value of the imported water guns was $1.27 per dozen.

With respect to the import of the water guns, there is a June 3, 1994 invoice no. 245 from the Hong Kong company to the protestant for the sale of 11,040 dozen water guns, in 230 cartons, valued at $1.27 per dozen

 Conversion of Hong Kong dollar to U.S. dollar is based on quarterly rate of exchange for April through June 30, 1994, of 0.129413, as published in T.D. 94-35. The conversion is of the prices shown on the invoice. Based on a $1.27 price per dozen, the total amount for the water guns would otherwise be $14,020.80., for a total of $14,001.45. * There are 48 dozen water guns per carton. The invoice also includes 4,152 dozen plastic toy cap guns in 173 cartons and the total invoice price for both items is $23,673.26. The total number of cartons is 403 and total quantity of pieces of merchandise is 182,304. The packing list identifies the merchandise by part no., and states the total amount of merchandise is 403 cartons, and the gross weight of both items is 92 lbs. (41.73 kgs.). According to the invoice and packing list, the merchandise is to be shipped on the “OOCL Frontier” from Hong Kong to Los Angeles. The signed ocean bill of lading no. 9406LAX10371, shows the merchandise as having been shipped from Hong Kong to Los Angeles, with the protestant as the consignee, on the OCCL FRONTIER, and shipped on board on June 6, 1994. The bill of lading identifies the merchandise as 403 cartons of plastic toys weighing 8.538 kgs. The container no. shown on the bill of lading is APLU81042/1058185.

The CF 7501, 442-xxxx608-1, indicates that 1414 cartons of merchandise from two invoices were imported by the protestant on June 25, 1994. The importing carrier is identified as the PRESIDENT ADAMS. The bill of lading numbers on the CF 7501 are different from the bill of lading submitted with the invoice and CF 7501. The value of the merchandise imported under the first invoice, which is the first line item, is $23,673.26, which is the same as the amount of the invoice provided for the water guns, and the total number of pieces of merchandise is 182,304. The merchandise on the first line item consists of “other toys,w/ a spring mechnsm”. The weight of the merchandise on the CF 7501 is the same as on the bill of lading, but different than that on the packing list. The quantity of merchandise on the CF 7501 corresponds to the quantity shown on the invoice.

With respect to the protestant’s inventory records, there is a ledger page showing import entry number 442-xxxx608-1 at the top, and several part numbers as having been received in 1994, under that import entry. The total number of cartons shown on the ledger page is 1414, equal to the total number of cartons shown as imported under the CF 7501. The 1414 cartons are divided on the ledger page, into columns according to the different part numbers. With respect to the water guns, part no. 9161-64, the ledger page shows that 230 cartons were received. The next entry for part no. 9161-64, shows that 100 cartons were shipped pursuant to invoice no. 1982, followed by a shipment of 85 cartons pursuant to invoice no. 2278, followed by a shipment of 35 cartons pursuant to invoice no. 4845, followed by a domestic shipment of 10 cartons. The documentation submitted by the protestant only includes invoice no. 2278. Invoice no. 2278 is dated August 19, 1994, and shows the sale of 4080 dozen water guns, part no. 9161-64, in 85 cartons, to a “Juan Lopez” in Puebla Mexico. The 4080 dozen quantity of water guns is equivalent to 85 cartons of water guns, as each carton contains 48 dozen water guns. The total number of cartons of merchandise on the invoice is 350.

With regard to the export shipment of the 85 cartons of water guns, no. 9161-64, the documentation submitted consists of a CF 7512 and a shipper’s receipt. The shipper’s receipt is not dated, and it does not indicate any shipping or trucking company. Next to the lines marked “Truck Broker” and “Truck Company”, there is a mark that appears to be “10+”. It has a number WT 3141. This number is in the bill of lading no. column on the Chronological Summary of Exports. It has an undated shipper’s signature and an undated pickup driver signature. Both of these signatures appear to be the same. There is an undated consignee signature. The merchandise is described as 350 cartons of toys. There is a seal and container number, and another number, possibly the driver’s license number. The seal no. is also WT 3141. The shipper is identified as the protestant and the consignee is identified as “Juan Lopez” in Puebla Mexico. There is no date or time of shipment or delivery. The CF 7512 is a Transportation Entry (TE), and references the import entry number and date. The CF 7512 indicates that the merchandise consisting of 85 cartons of toys (9161-64) was consigned for shipment from Los Angeles, California to Calexico, California, with the final foreign destination of Mexico. On the CF 7512, the consignee is identified as “Juan Lopez”. The CF 7512 indicates that the shipping is via “Dynasty Trans.” The CF 7512 is signed and dated by a Customs Inspector as having been cleared for Mexico on September 22, 1994. The CF 7512 is also date stamped as received on the same date.

The information provided with regard to the importation and sale of bathtub sets (part no. 9312) is substantially similar. However, one difference is that on the shipper’s receipt, the signature of the consignee is dated October 18, 1994, seven calendar days prior to October 25, 1994, the date on which the merchandise is stated to have been cleared for Mexico on the CF 7512. There is no indication that the consignee signature is that of the named consignee in the consignee block of the document.

There are substantial differences in the documents submitted supporting the drawback claim for the dining room play sets (part no. 94011) claimed to have been exported on October 11, 1994. The consumption entry is a warehouse withdrawal, type 31. The second line item is for the 570 cartons of dining room play sets set forth on the invoice. The CF 7501 indicates that the duties on all of the line items were paid on August 4, 1994. The Customs Automated Commercial System (ACS) collection information shows that duty for all of the merchandise on the warehouse entry was paid on August 3, 1994. ACS shows that the warehouse entry, type 21, was liquidated on November 14, 1994. A CF 7512 shows that on October 12, 1994, a TE was opened in Los Angeles, for a total of 566 cartons of toys, including 440 cartons of item no. 94011, the dining room play sets. The TE references the CF 7501 number corresponding to the warehouse entry and warehouse withdrawal, and identifies the merchandise destination as Calexico, California, and the final foreign destination as Mexico. On the CF 7512 the consignee is identified as “Juan Lopez”. The CF 7512 indicates that the shipping is via “Dynasty Trans”. The CF 7512 is stamped as received in Calexico on October 19, 1994. The CF 7512 is signed and dated October 19, 1994, stating that the merchandise was laden on a truck and cleared for Mexico on October 19, 1994. The accompanying shipper’s receipt is for 386 cartons of merchandise, and is signed by the consignee on October 18, 1994, one day before the CF 7512 was stamped as received by Customs in Calexico, and one day before the merchandise was said to clear for Mexico. Again, there is no indication that the consignee signature is that of the named consignee in the consignee block of the document, and the shipping or trucking company is not identified. Next to the line marked “Truck Company” is a mark that appears to be a “10+”. The export invoice is for 440 cartons of item no. 94011, for a total of 1760 dozen of item no. 94011.

The information provided with regard to claim C27-xxxx810-6, is similar to that described above, except for different export shipping documents as described below, and the CF 7512’s submitted do not show receipt of the 7512 by Customs after transportation in bond, and do not contain any date or signature indicating clearance for export. The CF 7512’s show the in bond destination of the merchandise as Laredo, Texas. This claim is based on 20 asserted exports. The information was provided for bathtub sets (part no. 9312) from import entry no. N83-xxxx327-7, toy masks (part no. 9404) from import entry no. 442-xxxx780-7, plastic dolls (part no. 9319) from import entry no. 442-xxxx052-0, and kitchen play sets (part no. 3905) and container trucks (part no. 635) from import entry no. 442-xxxx406-1. Of the foregoing items, there appears to be an overclaim of drawback for the bathtub sets (part no. 9312).

According to the Chronological Summary of Exports, 684 dozen of the bathtub sets were exported and identified against import entry N83-xxxx327-7, although only 471 dozen bathtub sets (part no. 9312), 157 cartons, were imported under that entry. The file contains export invoices for the sale of the 684 dozen units. The protestant has also provided a Designation Summary by Part Number Sequence for drawback claim C27-xxxx810-6, which indicates essentially the same information as the Chronological Summary of Exports with regard to the importation and exportation of the merchandise. According to the summary by part number, a total of 759 dozen bathtub sets were exported and identified against import entry N83-xxxx327-7.

Also with respect to part no. 9312, the warehouse entry on which this merchandise was imported was not duty-paid in its entirety, at the time of the asserted exportation on December 6, 1993. A portion of the merchandise on the warehouse entry was withdrawn and duty paid as of the time of the asserted export. ACS collection records show that duty was paid on the line item corresponding to the identified merchandise, 157 cartons of item no. 9312, at the time of the asserted exportation. The CF 7512 describes the merchandise as 78 cartons of item 9312. The warehouse entry is not referenced on the CF 7512, however the reference number is a repeat of the CF 7512 number and thus appears to be a typographical error. The CF 7512 is prepared for transportation to Laredo, Texas.

The shipping documents for the asserted exports in claim no. C27-xxxx810-6 are different from the shipper’s receipts provided for the exports in the other claim. The document is on a different form and references a bill of lading number. No bills of lading were submitted with the claim. Like the shipper’s receipts, the document indicates a consignee in Mexico, but unlike the shipper’s receipts, the document also includes a “ship to” address in Laredo, Texas, and indicates that the freight charges are to be paid by the consignee. On the document, the shipper is identified as the protestant. The shipping documents have a handwritten date that is the same as the export invoice date. Some of the shipping documents have handwritten information on the bottom of the document identifying the truck company name. Only one shipping document, from all 20 asserted exports identifies the truck company as “Dynasty”. The shipping document for part no. 9312, the bathtub sets, identifies the truck company as “Rapid Freight of Texas”. All of the CF 7512’s identify the shipping company as “Dynasty Tran Inc” or “Dynasty Transportation Inc.”, regardless of the handwritten truck company name on the shipping document. Except for one instance, for each asserted export, the CF 7512’s, the export invoices and the shipping documents reflect the same consignee.

The cover sheet for the Chronological Summary of Exports for drawback claim no. C27-xxxx810-6 is a further summary of the exports, and does not identify the particular part number of the exported items, or the import entry associated with each part number. This document identifies the exporter of record as the party to which the export items were sold.

Some asserted exportations in the two drawback claims in the file are supported by a CF 7511, Notice of Exportation of Articles with Benefit of Drawback. Specifically, in drawback claim C27-xxxx818-9, two exports are supported by CF 7511’s, and in drawback claim C27-xxxx810-6, six exports are supported by CF 7511’s. For example, the chronological summary in claim C27-xxxx818-9 indicates that on October 4, 1994, there was an exportation of 3,942 dozen toys to Mexico. The bill of lading reference is no. 2607, which corresponds to the export invoice number. To substantiate the export, the protestant has provided its export invoice, no. 2607. The invoice identifies the same 3,942 dozen toys as having been sold as does the chronological summary. The number of cartons of merchandise on the invoice is 278. The invoice is dated October 4, 1994, and identifies the purchaser as being located in La Pruda, Mexico. There is a shipper’s receipt with a reference no. 3129. The CF 7511, references 3129 in the space for a document number, which is the same number as the shipper’s receipt and seal number. For export references, forwarding agent and intermediate consignee, the CF 7511 identifies the International Bonded Warehouse in Calexico, California. The exporter is identified as the protestant. The consignee is the same party as that named on the export invoice. The document describes the merchandise as 278 cartons containing 3942 dozen of various toys. In the block for certification of export, there is a Customs stamp dated October 19, 1994, and the date cleared or departed is filled in with the date of October 19, 1994. The certification is signed by a G. Dhilson, for the District Director of Customs. The document does not identify the exporting vessel or other carrier. Whether the exportation is supported by a CF 7511 or a CF 7512, the export date on the summary of exports, is always the date of the export invoice.

We note that most of the CF 7512’s submitted with the drawback claims neither show receipt of the CF 7512 by Customs after transportation to the destination port, nor any date or signature indicating clearance for export. In the follow-up documentation submitted to this office tracking the specific items in the two claims, the CF 7512’s for the three exports in claim C27-xxxx818-9 are completed (in the protest file the three CF 7512’s submitted had not been completed, and only one completed CF 7512 had been submitted with the drawback claim), and none of the CF 7512’s for the four exports in claim C27-xxxx810-6 are completed. Of all of the documentation submitted for the two representative claims, there are no other completed CF 7512’s. With respect to the signed CF 7512’s, for two of them we have confirmed the Customs officers’ identities and signatures, as well as their having been on duty on the date of their signature.

The audit concluded that the protestant was incorrectly named as the exporter of record, did not have knowledge of how the merchandise was exported, and the audit questioned whether the protestant even had knowledge of the full address of the consignee of the exported merchandise. In response, in a letter dated January 24, 1997 (incorporated in the protest by reference), the protestant cites to the Supplementary Information published with the proposed drawback regulation in the Federal Register (62 FR 3082), on January 21, 1997, to support its position that the address of the consignee is not required on the export documentation.

In the January 24, 1997 letter, with regard to the identity of the exporter, the protestant states that it is the understanding of the parties to the export sale that the terms of the sale are FOB, port of export. The protestant asserts that the title to the merchandise does not pass to the purchaser until the protestant receives payment from the purchaser of the merchandise. The protestant compares delivery to the port of export to delivery to a vessel under FOB vessel terms. With respect to its responsibilities for the export, the protestant states:

In the transactions that are the subject of these drawback claims, [the protestant] is the seller, and principal party in interest, who has the power and responsibility for the export of the merchandise to Mexico. Until the merchandise reaches the U.S.-Mexico border, the goods remain the property of [the protestant]. If the shipment does not reach the Mexican border, and is lost, hijacked, or otherwise diverted, the loss is [protestant’s]. [Protestant] will not receive payment for the goods from the customer under these circumstances. Any claims for reimbursement, through insurance for instance, would be filed by [protestant].

According to the audit report, with regard to the exporting carrier and date and time of exportation, the protestant’s manager stated:

1) the mode of transportation and carrier were not known for the exports listed in the drawback claims; 2) the buyer in Mexico was responsible for orchestrating the method of exportation; and, 3) [protestant’s] responsibility ends at the border because the terms of sale to its Mexican buyers is Free on Board.

Drawback was denied on the basis of the verification of the claims by Regulatory Audit, which showed that the protestant was unable to provide sufficient documentary support for the claims.

ISSUE:

Whether drawback was properly denied for the protestant’s failure to comply with the requirements of 19 U.S.C. §1313(j)(1).

LAW AND ANALYSIS:

We note initially that the refusal to pay a claim for drawback is a protestable issue pursuant to 19 U.S.C. §1514(a)(6). Drawback for the subject entries was denied on February 7, 1997 and February 14, 1997, when the entries were liquidated with no drawback. This protest was timely filed on May 2, 1997, 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. Prior to the amendment of the drawback statute by section 632, title VI Customs Modernization, Pub. L. No. 103182, the North American Free Trade Agreement Implementation (“NAFTA”) Act (107 Stat. 2057), enacted December 8, 1993, an additional requirement under section 1313(j) was that the merchandise be in the same condition as when it was imported.

The drawback law was substantively amended by section 632, title VI - Customs Modernization, Public Law 103-182, the North American Free Trade Agreement Implementation Act (107 Stat. 2057), enacted December 8, 1993. The foregoing summary of section 1313(j)(1) is based on the law as amended by Public Law 103-182. Title VI of Public Law 103-182 took effect on the date of enactment of the Act (section 692 of the Act). Except for 19 U.S.C. 1313(p), according to the applicable legislative history, these amendments to the drawback law (19 U.S.C. 1313) are applicable to any drawback entry made on or after the date of enactment as well as to any drawback entry made before the date of enactment if the liquidation of the entry is not final on the date of enactment (H. Report 103-361, 103d Cong., 1st Sess., 132 (1993); see also provisions in the predecessors to title VI of the Act; H.R. 700, 103d Cong., 1st Sess., section 202(b); S. 106, 103d Cong., 1st Sess., section 202(b); and H.R. 5100, 102d Cong., 2d Sess., section 232(b)).

Three of the subject drawback entries were filed prior to December 8, 1993, however, because the protest was timely filed, within 90 days after the liquidation of the drawback entries, the liquidations of the entries are not final, therefore the amended law applies to all of the entries.

Because the protestant is using an inventory method to support its direct identification unused merchandise drawback claims, and because the documentation does not show that the exported merchandise is the same merchandise that was imported, Customs must be able to verify the claim on the basis of inventory records kept in an approved inventory method.

The Customs Regulations pertaining to drawback were revised (the proposed revised regulations were published in the Federal Register (62 FR 3082), on January 21, 1997, and were the subject of considerable comment and consideration, and responses to the comments were published with the final rule document (63 FR 10970), on March 5, 1998. The regulations in effect at the time the subject claims were filed, regarding records, storage and identification, 19 CFR 191.22, provided as follows:

(b) Storage and Identification. The merchandise and articles to be exported shall be stored in a manner which will enable the manufacturer, producer, or claimant (1) to determine, and the Customs officials to verify, the applicable import entry; and 2) to identify with respect to that import entrythe imported duty-paid merchandise.

(c) Identification of two or more lots. Manufacturers, producers, or claimants may identify for drawback purposes commingled lots of fungible merchandiseby applying first-in-first-out (FIFO) accounting principles or any other accounting procedure approved by Customs.

In this case, it appears from our review of the inventory records and from the audit report, that the inventory records had some discrepancies which showed that they are not consistent with approved accounting procedures. For example, according to the audit report, the inventory for merchandise was reconciled to show a beginning balance that did not include merchandise that would ultimately be sold domestically. Also, the inventory did not include merchandise that had been in a bonded warehouse, and was withdrawn duty-paid. Once the merchandise became available, after withdrawal, it should have been included in the inventory.

It is not apparent from the audit report, the General Inventory records provided with the protest, or the inventory records submitted at and subsequent to the May 12, 1999 meeting, that the accounting method used is LIFO, or any other method other than simply a running balance inventory. The inventory records observed in the audit and submitted subsequently to Customs, are insufficient to identify commingled lots of fungible merchandise for drawback purposes. The ledger records which account for the merchandise according to entry cannot even be used jointly with the General Inventory records. The ledger records do not indicate the dates of withdrawal to enable the entries to be matched to the General Inventory. A match may be possible by cross referencing the invoice number in the ledger records relating to the entry, to the invoice number referenced in the General Inventory, however, the ledger pages relating to the entries are from 1994, and the General Inventory sample pages are from 1997. Customs has not been provided with the corresponding pages of accounting records to determine if a LIFO accounting method could be determined from the records. However, even if LIFO could be established with the General Inventory records and corresponding ledger records, and it could be established that the protestant did maintain General Inventory records for the period at issue, the accounting discrepancies described above are not consistent with approved accounting methods.

We do find that contrary to the audit finding that only sales to Mexico are reflected, the inventory records submitted at and subsequent to the May 12, 1999 meeting, do show withdrawals for domestic sales as well as for export sales. Although Customs is able to track the merchandise from the identified import entry to the export sale from the running balance inventory records, as is demonstrated in the FACTS section above, this alone is insufficient to identify the commingled merchandise by inventory method. The running balance inventory records could be sufficient for specific identification of the merchandise if receiving and withdrawal records were also provided. Such records are necessary to establish that the merchandise that was imported was itself exported. According to the Audit Report, such records were not available.

In addition, if inventory and accounting records were stolen prior to the audit as asserted, we question why the protestant failed to raise that with the auditor, and attempt at that time to describe any missing records, and establish at that time the type of records that were routinely kept but had been stolen for the merchandise at question. Further as described in the facts, one drawback claim covers exports that occurred only after the theft of records, and there is no indication that the complete accounting records could not have been supplied to Customs regarding this merchandise. However, other than the General Inventory records, there is no assertion from the protestant that any other types of records were kept but were stolen. Therefore it does not appear that drawback is impacted by the loss of any records due to the theft. Finally, prior to Customs liquidations of the drawback claims the protestant was given the opportunity by the drawback office to demonstrate inventory procedures for certain specific part numbers. Here again the protestant had the opportunity to bring to Customs attention the theft of documents and at least provide inventory records with respect to entry C27-xxxx824-7, which covered exports occurring after the theft of documents.

The inadequacy of the accounting records can be demonstrated by the fact that in claim C27-xxxx8106, for item no. 9312 there is an overclaim of drawback. The chronological summary of exports shows the exportation of 288 dozen more units than were imported and 213 of those overclaimed exports are substantiated by export invoices.

With respect to the import documents, there are some discrepancies among the import documents, such as a difference between the bill of lading and the CF 7501, in the name of the ship, and the bill of lading numbers. However, we find that the description of the merchandise on the various import documents such as invoices and bills of lading are consistent with respect to the weight, value and quantity of the merchandise. Therefore we can conclude that the identified merchandise was in fact imported. With respect to the warehouse entries, and subsequent withdrawals, from the documents submitted and ACS records, we find that the identified merchandise which had been the subject of warehouse entries was withdrawn from warehouse and duty-paid, prior to the asserted exportation.

The audit report concludes that possession of the merchandise cannot be determined from the records. Possession is not a requirement under 19 U.S.C. §1313(j)(1) as it is under section 1313(j)(2).

With respect to the exportation of the merchandise, the drawback claimant must provide evidence of exportation as set forth in the Customs Regulations (19 CFR 191.51, 191.52 and 191.53, were applicable at the time the subject drawback entries were filed). In general, exportation under the prior regulations could be established by a certified notice of exportation (191.52(c)(1)), an uncertified notice of exportation (191.52(c)(2)), or an exporter’s summary (191.53). In this case, the protestant used the certified notice of export in some instances and exporter’s summary procedure in others to establish exportation.

For the certified notice of exportation procedure, section 191.52(c)(1) required the simultaneous filing of a CF 7511 and the shipper’s export declaration or ocean/airway export bill of lading, and the subsequent submission of the outbound manifest. After review of the documentation and verification of the exportation, the Customs Officer was to certify the CF 7511. For the exporter’s summary procedure, section 191.53 required certain evidence to support the exportation asserted in the exporter’s summary:

(e) Documentary evidence- (1) Records. The exporter-claimant shall maintain complete and accurate records of exportation, including the identity and location of the ultimate consignee of the exported articles. The exporter shall retain these records for at least 3 years after payment of such claims. (2) Additional evidence. The exporter-claimant shall support the drawback entry with a chronological summary of the exports and any additional evidence required by Customs officers to establish fully the identity of the exported articles and the fact of exportation. In the case where the exporter-claimant uses this procedure for merchandise the subject of same condition drawback, he shall show also that the merchandise was exported in the same condition as when imported.

With respect to the exportations that are supported by the certified notice of exportation, we find that exportation is established. However, because the merchandise cannot be identified through the inventory records, the requirements for drawback have not been met, and drawback should not be allowed. We note that although the notices of exportation are not complete as they do not identify the export carrier of the merchandise, and the file does not contain a shipper’s export declaration or export bill of lading, if the notices were certified by Customs, Customs is now precluded from questioning the validity of its own certifications.

With respect to the exportations supported by the exporter’s summary, according to the statements from the protestant, described in the facts, the protestant was responsible only for delivery to the U.S. border, and the Mexican buyer was responsible for “orchestrating” the exportation. The protestant equates the “FOB border” shipping term with an “FOB vessel” shipping term, and asserts that it retained title to the merchandise until it received payment from the purchaser. Regarding this point, the protestant is correct that once the merchandise is delivered to the border, the protestant is no longer responsible for the merchandise. The term “FOB point of shipment” “means that the seller delivers when the goods pass the ship’s rail at the named port of shipment,” the seller must clear the goods for export, and the buyer bears all costs and risks of loss or damage to the goods from that point. 2000 Incoterms, p. 49. However this term is only applicable for sea or inland waterway transport. Id. Under FOB terms, the seller gives up title to the goods and title passes to the buyer once the goods are delivered to the carrier. Pittsburgh Industrial Furnace Company v. Universal Consolidated Companies, Inc. 789 F.Supp. 184, 189 (W.D. Pa. 1991) (citing U.C.C. §2-401(2)). Under U.C.C. §2-401(2), “unless otherwise specifically agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods.”

With respect to claim no. C27-xxxx818-9, there are no shipping terms or payment terms on the export sales documents, therefore the actual meaning or applicability of FOB terms or other terms are not relevant. With respect to claim no. C27-xxxx810-6, the shipping document indicates payment for shipment to Laredo, the “ship to” address, is to be made by the consignee. This would indicate that the Mexican purchaser acquired responsibility for the merchandise prior to the exportation.

From the documents, it appears that the protestant delivered the merchandise to be exported to a shipper and received a shipper’s receipt, because in those instances where both the shipper’s receipt is dated and the CF 7512 is dated upon arrival at the destination port, the shipping date is prior to the Customs receipt of the CF 7512 at the destination port. As noted in the facts, with regard to one asserted export, the consignee’s signature is dated seven days prior to the date the CF 7512 shows clearance for Mexico. Clearly the shipper’s receipts do not establish that the merchandise was received at the border for shipment to Mexico. With respect to the other type of shipping document submitted, those documents are dated with the same date as the export invoice, and, there is no indication by whom they are dated or what the date is supposed to reflect. As described in the facts, those documents each refer to a bill of lading number, which bill of lading has not been provided. Upon the arrival of the merchandise in bond, at the U.S. border, in some instances, the CF 7512 was stamped as arrived (most documents do not have this stamp). Subsequently the merchandise could have cleared for Mexico (most documents do not contain the clearance date or any signature). Where the CF 7512 is not dated and signed by Customs, there is no evidence of actual export to Mexico. The protestant has not provided any explanation why signed and dated CF 7512s were not provided to Customs, or whether they have signed and dated CF 7512’s. The shipper’s receipts are not all accurate either. In claim no. C27-xxxx818-9, the asserted October 11, 1994 export of item no. 94011 is for 440 cartons of item no. 94011, while the shipper’s receipt submitted is only for 386 cartons of merchandise. The shipper’s receipt does not correspond with either the CF 7512 or the export invoice with respect to the quantity of merchandise. The other shipper’s receipts do not even show any quantity of cartons.

A CF 7512, TE, that is not stamped as received by Customs, and that does not contain a Custom’s officer’s signature indicating clearance for Mexico, is insufficient to establish exportation for purposes of drawback. The protestant asserts that it was advised by the Los Angeles Drawback Unit that a CF 7512 could be used to establish exportation, and it relies on such advice. However, based on the documents in the file, for nearly all of the claimed exports, the protestant has not provided CF 7512’s that show arrival at the destination port, or clearance for Mexico. Completed CF 7512’s were required by the Los Angeles Drawback Unit in any event, to establish exportation by CF 7512, and such documentation was not provided in most cases. Even in the case of claim no. C27-xxxx818-9, only one completed CF 7512 was provided in support of the claim at the time it was filed. It was not even until after a meeting at HQ on the AFR that the three other completed CF 7512’s were submitted.

The protestant’s use of CF 7512’s and the transportation of merchandise in bond of duty-paid merchandise is confusing. By referencing the import entry or warehouse entry on the CF 7512, it appears that the merchandise on the CF 7512 is not duty-paid and that therefore no drawback can be claimed. From our review of the ACS records and the CF 7512’s, we cannot conclude with a certainty that all of the merchandise subject to the CF 7512’s submitted was duty paid. In the case of Drawback claim C27-xxxx810-6, at the time the CF 7512 for the December 6, 1993 exportation was opened, all of the merchandise on the identified warehouse entry, N83-xxxx327-7, had not been duty paid. While based on the description on the CF 7512 it appears that the merchandise was from the duty paid merchandise from the warehouse entry, without other documentation evidencing the items shipped, or use of an approved inventory method, it cannot be concluded with a certainty that the merchandise was the merchandise described and was duty paid.

With respect to whether the protestant had accurate records of the identity and location of the ultimate consignee of the merchandise, contrary to the protestant’s assertion, the identity of the consignee is required. The protestant misstates Customs published language in the Procedures to Evidence Exportation (62 FR 3091), in the January 21, 1997 proposed drawback regulations, by asserting that the bill of lading used to establish exportation need not identify the consignee. The notice says instead, that there are instances where the consignee shown on the bill of lading is not the ultimate consignee. A consignee must always be on the bill of lading.

The audit raised the issue of the identity of the actual exporter. The statute, 19 U.S.C. §1313(j)(1), provides that the right to claim drawback lies with the exporter (unless the exporter assigns the right to the importer or an intermediate party). At the time of filing the drawback claims, the provision for right to receive drawback, section 191.73, provided that the person named as exporter on the notice of exportation or on the bill of lading, air waybill, freight waybill, Canadian Customs manifest, or certified copies thereof is deemed the exporter and entitled to drawback. At the time the claims were filed, an “exporter” was not specifically defined by the Customs Regulations. In the current regulations, 19 CFR 191.2(m)(2), an “exporter” is defined as “that person who, as the principal party in interest in the export transaction, has the power and responsibility for determining and controlling the sending of the items out of the United States”.

With regard to the certified notice of exportation, the protestant is identified as the exporter, and would therefore be entitled to drawback, provided the other requirements were met. For those exports for which there is a completed CF 7512, that is one for which the Customs officer has signed the certification that the merchandise cleared for Mexico, the exporter still cannot be determined, because there is no document identifying the party determining and controlling the sending of the merchandise to Mexico. According to the CF 7512’s the merchandise was consigned to the Mexican purchaser of the merchandise to be exported. The CF 7512’s only pertained to the in bond transportation of the merchandise to Calexico or Laredo. The shipping documents for both representative claims reflect initiation of shipment prior to the merchandise having reached either Calexico or Laredo. Specifically, in claim C27-xxxx818-9, for the two asserted exports for which both the CF 7512 was completed and the shipper’s receipts indicated any date, the shipper’s receipts were dated prior to receipt of the merchandise at Calexico. Therefore, the documents do not establish exportation of the merchandise from Calexico. The documents could just as well be for shipments to Calexico. In claim C27-xxxx810-6, all but one of the shipping documents contain a “ship to” address in Laredo, Texas, and indicate that payment for shipment is to be collected from the consignee. Thus, it appears that the shipping documents only cover shipment to Laredo, and we have no evidence of the exporter on the shipment from Laredo to Mexico. The reference to “Dynasty Trans” or “Dynasty Transportation” on the CF 7512’s also is not documented, as the name of “Dynasty Tran” or “Dynasty Transportation” appears on only one of the shipping receipts or shipping documents. Finally, because the Mexican purchaser of the merchandise is identified as the consignee on the CF 7512’s, it appears that upon arrival at the U.S. destination port, Calexico or Laredo, the merchandise was destined for the control of the purchaser, prior to exportation across the border. This is consistent with the consignee having paid for the shipment of the merchandise to the Port of Laredo. We conclude that from the facts, there is evidence that the principal party in interest in the export transaction, and who has the power and responsibility for determining and controlling the sending of the items out of the United States, was the Mexican purchaser of the merchandise as opposed to the protestant.

For the remaining asserted exports, where the CF 7512’s are not complete, exportation has not been established and no notice of exportation, bills of lading, air waybills or freight waybills have been supplied. Where exportation has not been established, we do not reach the issue of the identity of the exporter. We note that on protestant’s cover sheet for the Chronological Summary of exports, for at least one claim, C27-xxxx810-6, the exporter of record is identified as the Mexican purchaser.

Under the regulations in effect at the time the drawback claims were filed, 19 CFR 191.73, and the current regulations, 19 CFR 191.82, the exporter is entitled to claim drawback, unless the exporter waives the right to claim drawback and assigns such right to the importer, manufacturer or importer. The protestant has not submitted any waivers in this case, nor has it established that it was the exporter, except where the certified notice of exportation was provided. Therefore, except where the certified notice of export was provided, the protestant has not established that it is entitled to claim drawback in this case.

The present applicable regulation on evidence of exportation is in 19 CFR 191.72:

Exportation of articles for drawback purposes shall be established by complying with one of the procedures provided for in this section (in addition to providing prior notice of intent to export if applicable (see §§191.35, 191.36, 191.42, and 191.91 of this part)). Supporting documentary evidence shall establish fully the date and fact of exportation and the identity of the exporter. The procedures for establishing exportation outlined by this section include, but are not limited to: (a) Actual evidence of exportation consisting of documentary evidence, such as an originally signed bill of lading, air waybill, freight waybill, Canadian Customs manifest, and/or cargo manifest, or certified copies thereof, issued by the exporting carrier;...(emphasis added).

Under the current regulations, an export summary procedure is also required to be supported by the foregoing actual evidence of exportation. Therefore, except in those instances where the protestant has a certified notice of export which establishes the exportation as well as the exporter, the protestant does not meet both the evidence of exportation and identity of exporter requirements of either the current regulations, or those in effect at the time the subject drawback entries were filed.

Under both the prior and current regulations, a drawback claimant under unused merchandise drawback was required to file a notice of intent to export merchandise, or obtain a waiver of such notice, in order to give Customs the opportunity to examine the merchandise or waive such examination. At the time the subject drawback claims were filed, the requirements for filing and documentation prior to exportation were set forth in 19 C.F.R. §191.141(b):

(b) Filing and documentation prior to exportation (1) Filing. An exporterclaimant who desires to export merchandise with drawback under 19 U.S.C. 1313(j) shall file with the drawback office a completed Customs Form 7539. The exporterclaimant also shall furnish a copy of the import entry or identify the import entry, date of entry, and port of entry under which the merchandise was imported into the United States. It shall certify that the merchandise is in the same condition as when imported and not used within the United States before such exportation. Transfers shall be documented by certificates of delivery (see §191.65).

(2)(i) Time of filing. The completed Customs Form 7539 shall be filed with the drawback office at least 5 working days prior to the date of intended exportation of the merchandise, unless the Customs officer approves a shorter filing period.

(ii) Waiver of prior notice of intent to export. A request for a waiver of prior notice by an exporterclaimant shall be in writing to the drawback office. The appropriate Customs officer may waive prior notice at any time for any exporterclaimant. An exporterclaimant shall be granted this waiver after filing with the appropriate Customs official six consecutive claims free of substantial error, provided that such exporterclaimant has operated under the same condition program for a minimum of six months. An exporterclaimant who repeatedly files inaccurate claims may have the privilege (of filing without prior notice) revoked. Customs will so notify the exporterclaimant in writing of the revocation as soon as possible.

(3) Examination (i) Decision to examine. Within 3 working days after Customs Form 7539 is filed, the exporterclaimant shall be notified whether Customs will examine the merchandise. If the exporterclaimant is not notified within the 3day period, the exporterclaimant shall export the merchandise without delay.

In this case, the drawback unit is of the understanding that the requirement of a notice of intent to export was waived by Customs in conjunction with the June 24, 1993 letter permitting the protestant to use the exporter’s summary procedure. In HQ 222609, dated November 7, 1990, we cited C.S.D. 88-14, which stated that “in the absence of a clear abuse of discretion, Customs Headquarters will not substitute its judgment for that of the appropriate field office” with respect to waiver of prior notice of exportation. Therefore we find that because the Drawback Unit believes the notice of intent to export requirement was waived, the protestant did in fact meet the requirements of notice of intent to export. There is no evidence that the merchandise asserted to have been exported was used. Because the examination of the merchandise was waived, Customs cannot now assert that the protestant has not established that the exported merchandise was not used.

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. Guess? Incorporated v. United States, 944 F.2d 855 (Fed. Cir. 1991); 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, and the. 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). Compliance with the regulations is a condition precedent to the right to recover drawback. See id., and W.R. Grace & Co. v. United States, 15 Cust. Ct. 105, C.D. 953 (1937).

We find that the protestant has not met the requirements of 19 U.S.C. §1313(j)(1) and the applicable regulations with respect to the drawback claimed, on the basis that 1) it is not clear that all of the exported merchandise was the identified merchandise and duty paid, 2) the inventory method used by the protestant was insufficient for the identification of merchandise under 19 U.S.C. §1313(j)(1), and 3) for the exports supported by the CF 7512’s there is either no evidence of exportation or that the protestant is the exporter entitled to drawback, or both. We therefore find that the protestant is not entitled to drawback.

HOLDING:

The protestant has not established that it met the requirements for drawback under 19 U.S.C. §1313(j)(1) for the drawback claimed.

The protest should be DENIED. 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

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