HQ 229322 - Internal Advice; Protest No. 0401-01-100209; drawback of Internal Revenue taxes; 19 U.S.C. § 1313(j)(1)&(2); 19 U.S.C. § 1313(c); 26 U.S.C. § 5062(c); 19 C.F.R. § 161.161. - United States International Trade Commision Rulings

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HQ 229322

December 19, 2001

DRA-4, 5 RR:CR:DR 229322 LLB

Category: DRAWBACK

Port Director of Customs
10 Causeway Street
Boston, MA 02222

RE: Internal Advice; Protest No. 0401-01-100209; drawback of Internal Revenue taxes; 19 U.S.C. § 1313(j)(1)&(2); 19 U.S.C. § 1313(c); 26 U.S.C. § 5062(c); 19 C.F.R. § 161.161.

Dear Sir or Madam::

The above-referenced protest has been forwarded to this office for further review. As explained below, because the requirements for further review have not been met, we are treating the application as a request for internal advice per 19 C.F.R. § 177.11. We have considered the points raised by the protestant and your office. Our decision follows.

FACTS

This protest concerns a claim for drawback, pursuant to the provisions of 19 U.S.C. §§ 1313(c) and 1313(j)(2), of Internal Revenue taxes (hereinafter IR taxes) for the destruction of beer that was allegedly unmerchantable. According to the CF 29 in the record, drawback was denied because the information provided by the protestant was “insufficient to support direct identification of the merchandise with consumption entries.” Further, “the merchandise was sold to various distributors, and retailers, and was out of direct control of the claimant.” The case record contained the following pertinent evidence.

CF 7551 dated October 4, 2000; entry type 43 (rejected merchandise-19 U.S.C. § 1313(c); drawback provision “19 C.F.R. 191.61-68”; intent to destroy indicated; liquidated no change

CF 7553 indicating destruction of merchandise on August 2, 2000, in the presence of Customs at Parallel Products, Inc. Drawback to be filed under 26 U.S.C. § 5062(c). Attachment indicating cases of beer (cans and bottles) to be destroyed by product brand name, SKU number, brew date, and amount.

Protestant’s computer-generated spreadsheets marked “Duty Drawback Management System”. Information therein includes: entry number, import date, product description, product code, and whether the product was destroyed or export.

October 11, 2000, letter from the port to the protestant requesting information regarding whether protestant sent the beer to the retailer and the retailer returned the unmerchantable beer to the protestant

February 21, 2001, letter describing the protestant’s product flow

ISSUE

Whether the protestant may receive drawback of IR taxes

LAW AND ANALYSIS

Initially, we note that the matter under protest, denial of drawback, is protestable under 19 U.S.C. § 1514(a)(6) and the protest was timely filed inasmuch as it was filed within 90 days from the May 25, 2001, denial of drawback. See 19 U.S.C. § 1514(a); 19 C.F.R. § 174.12(e)(1).

We also note that the protestant’s request for further review does not meet the requirements set forth in 19 C.F.R. § 174.24 which provides:

Further review of a protest which would otherwise by denied by the port director shall be accorded a party filing an application for further review which meets the requirements of § 174.25 when the decision against which the protest was filed: (a) Is alleged to be inconsistent with a ruling of the Commissioner of Customs or his designee, or with a decision made at any port with respect to the same or substantially similar merchandise; (b) Is alleged to involve questions of law or fact which have not been ruled upon by the Commissioner of Customs or his designee or by the Customs courts; (c) Involves matters previously ruled upon by the Commissioner of Customs or his designee or by the Customs courts but facts are alleged or legal arguments presented which were not considered at the time of the original ruling; or (d) is alleged to involve questions which the Headquarters Office, United States Customs Service, refused to consider in the form of a request for internal advice pursuant to § 177.11(b)(5) of this chapter.

Therefore, further review will be accorded to the party filing an application for further review which meets the requirements of § 174.25 and at least one of the criterion in § 174.24. In the subject protest, although the port approved the AFR, it did not offer any explanation as to why the AFR was approved. Although the protestant argues that it is filing the application pursuant to § 174.25(a), the protestant does not cite to or reference the ruling, which it alleges is inconsistent with the port’s decision. Consequently, the criteria for further review have not been met and therefore, we are treating protestant’s application as a request for internal advice.

Rejected Merchandise Drawback

The protestant argues that drawback should have been granted pursuant to the provisions of 19 U.S.C. § 1313(c) which provide for drawback of merchandise not conforming to sample or specifications:

Upon the exportation, or destruction under the supervision of the Customs Service, of merchandise—

(1) not conforming to sample or specifications, shipped without consent of the consignee, or determined to be defective at the time of importation . . .
the full amount of duties paid upon such merchandise, less one percent, shall be refunded as drawback.

(emphasis added). Based on the plain language of the statute, drawback is limited to Customs duties paid. The regulations promulgated by § 1313(c) further indicate that IR taxes are not payable under 1313(c) and provide, in pertinent part:

[Section 1313(c)] provides for drawback upon the exportation or destruction under Customs supervision of imported merchandise which has been entered, or withdrawn from warehouse, for consumption, duty-paid; and which does not conform to sample or specifications . . . (see subpart P for drawback of internal-revenue taxes for unmerchantable or nonconforming distilled spirits, wines, or beer).

See 19 C.F.R. § 191.41 (emphasis added). Based on the plain language of the statute and the regulations, IR taxes are not payable under 1313(c) and 19 C.F.R. § 191.41.

However, IR taxes paid for unmerchantable or nonconforming distilled spirits, beer and wine, exported or destroyed under Customs supervision, and which are returned to Customs’ custody, may be refunded under 19 C.F.R § 191.161.

Section 191.161 was promulgated under the authority of 26 U.S.C. § 5062(c). We note that the protestant indicated on the CF 7553 that drawback would be filed under § 5062(c). In order to qualify for drawback under this section, the importer must claim drawback pursuant to § 191.163(a) on a CF 7551 which “shall be accompanied by a certificate of the importer setting forth in detail the facts which cause the merchandise to be unmerchantable and any additional evidence that the drawback office requires to establish that the merchandise is unmerchantable.” 19 C.F.R. § 191.163(b). The protestant has not met the requirements of § 191.163. According to the CF 7551, the protestant filed its drawback claim pursuant to “19 C.F.R. 191.61-68” which apparently is a typographical error insofar as the foregoing section relates to verification of drawback claims and is not a drawback provision. Nevertheless, the protestant has not provided a certificate setting forth in detail facts which caused the merchandise to be unmerchantable. Without this certification, we cannot determine whether the protestant has met the criteria under 26 U.S.C. § 5062(c) and 19 C.F.R. § 191.161.

Unused Merchandise Drawback

Alternatively, the protestant argues that drawback of its IR taxes should be granted pursuant to § 1313(j)(2). The port decided to deny drawback because the evidence was “insufficient to support direct identification of the merchandise with consumption entries”and that “the merchandise was sold to various distributors, and retailers, and was out of direct control of the claimant.” Based on the foregoing statements, it is apparent that the port determined whether drawback was available under § 1313(j)(1) rather than 1313(j)(2). Nevertheless, drawback of IR taxes is not permissible under either statute.

In HQ 227347(April 18, 1997) & 227916, we determined that IR tax on tobacco products was not refundable under § 1313(j) inasmuch as the tax on tobacco products and drawback thereof is specifically provided for in the Internal Revenue Code. Likewise, in the present case drawback for unmerchantable beer is established under the Internal Revenue Code. See 26 U.S.C. § 5062(c); 19 C.F.R. § 191.161. Although Customs enforces the provisions of 26 U.S.C. § 5062(c), the pertinent issue before us is whether drawback is allowed under 19 U.S.C. § 1313(j) or 26 U.S.C. § 5062(c).

In addition, even if this office were to consider protestant’s claim under § 1313 (j)(2), it would fail for lack of evidentiary support. Pursuant to 19 C.F.R. § 191.32 (c) the evaluation factors to be considered in determination of commercial interchangeability “include, but are not limited to, Governmental and recognized industrial standards, part numbers, tariff classification and value.” Underlying purchase and sales contracts, purchase invoices, purchase orders, and inventory records show whether a claimant has followed a particular recognized industry standard or governmental standard, or any combination of the two, relative values of the imported and exported merchandise, and whether a claimant uses part numbers to buy, sell, and inventory the merchandise in issue. See HQ 227473(March 3, 1998)(determining whether imported and exported merchandise met government and industry standards and relative values using contracts and purchase orders); HQ 227106 (September 3, 1997)(determining use of part numbers, using purchase orders, sales documents and invoices, and warehouse receipts). Although the protestant addresses each of these factors, no evidence has been provided to support any of the factors. The CIT has ruled that mere assertions by a complainant without supporting evidence will not be regarded as sufficient to overturn a Customs official’s decision. Bar Bea Truck Leasing Co., Inc. V. United States, 5 CIT 124, 126 (1983).

In conclusion, the protestant may not obtain drawback of its IR taxes pursuant to 19 U.S.C. § 1313(c) insofar as drawback under that statute is limited to Customs duties paid. Although Customs regulations provide for drawback of IR taxes for unmerchantable beer, the protestant has not provided sufficient evidence, as described herein, to show that it meets the requirements of the regulations. See 19 C.F.R. §§ 191.161-168, supra. Further, protestant may not receive drawback of its IR taxes pursuant to 19 U.S.C. §§ 1313(j)(1) or (j)(2), because the beer taxes imposed by 26 U.S.C. § 5051(a) and drawback thereto is established by 26 U.S.C. § 5062(c).

HOLDING

1. The protestant may not receive drawback of its IR taxes under 19 U.S.C. § 1313(c) insofar as drawback under that statute is limited to Customs duties paid. The protest should be DENIED regarding this claim.

2. The protestant may not receive drawback of its IR taxes pursuant to 19 U.S.C. §§ 1313(j)(1) or (j)(2), because the beer taxes are imposed by 26 U.S.C. § 5051(a) and drawback thereto is established by 26 U.S.C. § 5062(c). The protest should be DENIED regarding this claim.

3. The protestant is not entitled to drawback under 26 U.S.C. § 5062(c) as implemented by 191.163(b) for failure to comply with that provision. The protest should be DENIED regarding this claim.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to mailing the decision.

Sixty days from the date of the decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.ustreas.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

John Durant, Director

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