HQ 228706 - Request for internal advice; substitution unused merchandise drawback; 19 U.S.C. §1313(j)(2); 19 C.F.R. §191.34(b); 19 C.F.R. §191.10; multiple transfers; certificate of delivery - United States International Trade Commision Rulings

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HQ 228706

February 12, 2002

DRA-4-RR:CR:DR 228706 DR

CATEGORY: DRAWBACK

Port Director of Customs
Liquidation Branch
Attn: Thomas Valenzuela
555 Battery St.
Rm. 107
P.O. Box 2450
San Francisco, CA 94126

RE: Request for internal advice; substitution unused merchandise drawback; 19 U.S.C. §1313(j)(2); 19 C.F.R. §191.34(b); 19 C.F.R. §191.10; multiple transfers; certificate of delivery

Dear Mr. Valenzuela:

This is in response to your memorandum dated January 10, 2000 (your file number DRA-1-SF:TC:L (MBL)), requesting internal advice pursuant to 19 C.F.R. 177.11(b)(2). In particular, this response pertains to the eligibility of commercially interchangeable merchandise transferred to Cargill Citro-America, Inc., (Cargill) and its subsequent designation upon the exportation of other substituted unused merchandise.

FACTS:

In March 1997, The Minute Maid Company (TMMC) delivered 3,733,072 single-strength liters equivalent of frozen concentrated orange juice for manufacturing (FCOJM) to Cargill. A CF 331, Certificate of Delivery of Imported Merchandise (“CD”), documented the transfer of imported merchandise in accordance with C.F.R. §191.10. TMMC has confirmed that the CD was issued pursuant to 19 U.S.C. §1313(j)(2). The CD identified Brazilian FCOJM imported by TMMC on September 8, 1994, on Import Entry No. 032-0197172-2, as the source of the delivered FCOJM. However, Cargill did not actually receive that identified 1994 FCOJM. Instead, Cargill received from TMMC commercially interchangeable Brazilian FCOJM imported by TMMC in February 1997.

Later, between December 31, 1996, and April 30, 1997, Cargill exported 8,422,861 single-strength liters of its domestically produced FCOJM to China, Korea, and Japan. Subsequently, Cargill filed a substitution unused merchandise Drawback Entry No. RI2-0000106-5 dated May 30, 1997, designating the entire quantity of 3,733,072 single-strength liters identified on the CD issued by TMMC.

You have asserted that an impermissible “double substitution” occurred at the time TMMC delivered the 1997 FCOJM to Cargill. That assertion is based upon confirmation received from TMMC that the delivery certificate, transferring the 1997 imported FCOJM, was issued pursuant to 19 U.S.C. 1313(j)(2). It is your opinion that Cargill’s designation of the referenced import entry listed on the CD by TMMC as the basis of drawback for its exports of other substituted domestic merchandise is invalid. According to you, the point of substitution occurred at the time of TMMC’s delivery of “substituted” merchandise to Cargill in March 1997, and that an impermissible “double substitution” occurred when Cargill subsequently exported its domestic substituted FCOJM and designated the 1994 imports listed in the CD.

Counsel for Cargill contends that no “double substitution” occurred, even though it is not the party who imported the merchandise, contending that 19 C.F.R. §191.34(b) treats transferred imported merchandise, duty-paid merchandise, commercially interchangeable merchandise, or any combination of this merchandise as the imported merchandise covered by the CD. Therefore, it is irrelevant whether or not the FCOJM that TMMC delivered to Cargill was the same FCOJM imported in 1994 or other substituted commercially interchangeable FCOJM because the merchandise transferred to Cargill is deemed imported merchandise. For this reason, counsel believes that TMMC’s delivery to Cargill of commercially interchangeable merchandise, which may or may not have been the same merchandise covered by the import entry listed on the CD, does not constitute a substitution. Counsel for Cargill claims that a substitution only occurred when Cargill subsequently exported its domestic substituted FCOJM and designated the referenced import entry listed on the certificate of delivery as the basis of drawback.

ISSUE:

Whether to claim §1313(j)(2) drawback, must Cargill have received the imported, duty-paid merchandise listed on the Certificate of Delivery.

LAW AND ANALYSIS:

Customs is bound by the statutory language in 19 U.S.C. 1313(j)(2). Under the that statute, the other (substituted merchandise) must be commercially interchangeable with the imported merchandise, exported or destroyed within 3 years after import of the imported merchandise, and before exportation or destruction, not be used in the United States and be in the possession of the drawback claimant. The drawback claimant (under § 1313(j)(2)(C)(ii)) must be the importer of the imported merchandise or have received from the importer (and person who paid any duty) a certificate of delivery transferring to the claimant the imported merchandise, commercially interchangeable merchandise, or any combination thereof (and the transferred merchandise will be treated as the imported merchandise and any retained merchandise will be treated as domestic merchandise), and upon exportation or destruction of the other merchandise, drawback shall be refunded. 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 (C.A.F.C. 1991) (quoting U.S. v. Allen, 163 U.S. 499, 504, 41 L. Ed. 242, 16 S.Ct. 1071 (1896)). Furthermore, compliance with the Customs Regulations on drawback is mandatory and a condition of payment of drawback. United States v. Hardesty Co., Inc., 36 CCPA 47, C.A.D. 396 (1949); Lansing Co., Inc. v. United States, 77 Cust. Ct. 92, C.D. 4675; see also, Guess? at 858 (“We are dealing [in discussing drawback] with an exemption from duty, a statutory privilege due only when the enumerated conditions are met.”) (emphasis added).

The regulations governing unused substitution drawback are found in 19 C.F.R. Subpart C of Title 19, Part 191. Section 191.33(b)(ii) allows that “[i]n situations where the exporter or destroyer receives from the person who imported and paid the duty on the imported merchandise a certificate of delivery documenting the transfer of imported merchandise, commercially interchangeable merchandise, or any combination of imported and commercially interchangeable merchandise, and exports or destroys such transferred merchandise, that exporter or destroyer shall be entitled to claim drawback. (Any such transferred merchandise, regardless of its origin, will be treated as imported merchandise for purposes of drawback under § 1313(j)(2), and any retained merchandise will be treated as domestic merchandise.).” And §191.34 states that “[f]or purposes of substitution unused merchandise drawback, 19 U.S.C. 1313(j)(2), if the importer transfers to another party imported merchandise, duty-paid merchandise, commercially interchangeable merchandise, or any combination thereof, the transferor shall prepare and issue in favor of such party a certificate of delivery covering the transferred merchandise. The certificate of delivery must expressly state that it is prepared pursuant to 19 U.S.C. 1313(j)(2). Merchandise so transferred for which drawback is allowed under 19 U.S.C. 1313(j)(2) may not be designated for any other drawback purposes.” Finally, §191.10 requires, among other things, that the certificate include the import entry number and provide a description of the delivered merchandise.

Here, Cargill’s drawback claim fails because the certificate of delivery was alleged to certify the delivery of FCOJM that was imported on September 8, 1994. See CF 331, Blocks 18, 19. However, TMMC later confirmed that the merchandise that was actually delivered to Cargill was not the 1994 imported FCOJM, but was instead FCOJM imported in February 1997. Therefore, the Certificate of Delivery was incorrectly completed and Cargill’s drawback claim is defective. We remind you that §191.62 imposes penalties upon the fraudulent or negligent filing of false documents for the payment of drawback and that 19 U.S.C. 1313(v) prohibits the satisfaction of any drawback claim using merchandise that has already been used as the basis of another drawback claim.

HOLDING:

Cargill’s drawback claim, in which it designated FCOJM imported in 1994 as the basis of its claim and identified such merchandise on the certificate of delivery received from the importer TMMC, but in which it actually received FCOJM imported in 1997, is defective and should be denied because the certificate of delivery is fatally inaccurate.

You are directed to mail this decision to the drawback applicant no later than 60 days from the date of this letter. On that date 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 public methods of distribution.

Sincerely,

John Durant, Director
Commercial Rulings Division

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