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HQ W231108




May 2, 2007

DRA-2-02 RR:CTF:EP 231108 MAS

Category: DRAWBACK

U.S. Customs and Border Protection
Port of Houston
2350 N. Sam Houston Parkway East, Suite 1000 Houston, TX 77032
Attn: Christina D. Brooks

RE: Protest/AFR No. 5301-04-100371; 19 USC §§ 1313(b), 1313(t) and 1508; 19 C.F.R. §§ 191.72; Drawback of Entry No. AA6-XXXXX811

Dear Ms. Brooks:

The above-referenced protest, filed by Ericsson Inc. (Protestant) on August 20, 2004, has been forwarded to this Office for further review. We have considered the arguments raised by Protestant against, and by your office in favor of, the denial of a drawback refund due to insufficient evidence of export. Our decision follows.

FACTS

Ericsson contests the denial of a substitution merchandise drawback claim for mobile telephone equipment that was filed pursuant to 19 USC § 1313(b). The drawback claim, Entry No. AA6-XXXXX811, was filed with the Port Director of Customs in Houston, Texas (Houston Port), by Ericsson on September 2, 1998, for merchandise imported from September 27, 1994 through April 13, 1997 and exported during September 4, 1997 through November 4, 1997. See Drawback Entry, Claim # AA6-XXXXX811, Customs Form 7551 (Sept. 2, 1998). Accelerated payment was issued on December 14, 1998.

On June 6, 2002, three and one half years later, the Houston Port sought proof of export on three export shipments – 297XXXXXX02 (shipment 1), 726XXXXXXX24 (shipment 2), and 726XXXXXX16 (shipment 3) – because submitted documentation to support the claim was inadequate to satisfy the requirements for proof of export set out in 19 CFR § 191.72. Protestant failed to respond to the 2002 request with any documentation so, on May 25, 2004, the Port notified Protestant that additional evidence was still required and failure to comply “will result in denial of the remaining entries.” See Protestant’s Exhibit 6. The Port concluded that the information on file did not establish proof of export because: the airway bills were either not signed or the signatory did not identify the company they represent; the merchandise could not be cross-referenced to the claimed export based on the unique export number identifier on the chronological summary; and the carrier and flight information were not identified on the chronological summary. The Port also faulted the documentation for failing to clearly identify the merchandise. See Christina D. Brooks, Drawback Specialist, AFR Protest Transmittal (Aug. 20, 2005). This time, Protestant responded by explaining that the desired documents were no longer available but that this should not prejudice their claim because the request was made after the three-year document retention period had expired.

Ericsson claimed: ““We provided the documents available at the time. These POEs are now 7 years old and copies can’t be obtained from carriers.” See Jennifer Lyman, Ericsson, email to Houston Port (May 26, 2004), Protestant’s Exhibit 6.

On June 4, 2004, the Port subsequently denied the claim, reasoning the refusal was justified because a problem was discovered in several other entries, which reflected a weakness in Protestant’s drawback program. See Christina Brooks, AFR Protest Transmittal at 1 (Aug. 20, 2005). The Port explained that Protestant had previously filed a large number of claims with the Port and, while the majority of those claims were liquidated, a problem was discovered in 2004 with the remaining entries, thus prompting further investigation, the request for additional documentation of export, and the ultimate denial of the drawback claim. The Houston Port reasoned that this claimant had “established a record of non-compliance” and a problem discovered in 2004 revealed “apparent weakness in their drawback program.” Christina Brooks, AFR Protest Transmittal at 1 (Aug. 20, 2005). Therefore, CBP liquidated the claim on June 4, 2004 as accelerated drawback overclaim. See Automated Commercial System screen, Exhibit 9.

Protestant filed its protest against the denial of the claim with an Application for Further Review (AFR) on August 20, 2004. In support if its AFR, Protestant submitted airway bills, Shippers’ letters of instruction, commercial invoices, packing lists, and a chronological summary of exportation. Protestant objects to the denial of its drawback claim because the records relating to this claim were destroyed; Protestant argues its claim cannot be denied for failure to provide evidence of export where a demand for such evidence is made more than three years after the claim has been liquidated. See Id. Protestant further asserts that the claim was improperly denied based upon a retroactive application of a May 13, 2002 Customs Directive. Protestant maintains: “[The denial] is extrapolating requirements that were implemented after the date of filing of the above referenced claims.” Memorandum in Support of Protest at 2. Finally, Protestant contends that CBP’s refusal to grant drawback is contrary to law, is “arbitrary and capricious,” and renders a “denial of due process.” See Memorandum to Protest at 9 (stating: “Customs has denied the drawback claimant in this case with due process in that this procedure for post audit review which Customs issued to all interested parties has been rendered nugatory. By denial of this protest without regard to Customs own issuances and a recognition of the commercial realities of bills of lading, Customs’ action is arbitrary, capricious, an abuse of discretion and not in accordance with law”).

Protestant indicates that further review is merited because the decision to deny its drawback claim is inconsistent with prior Headquarters’ ruling C.S.D. 81-146 (Dec. 24, 1980). See Memorandum in Support of Protest at 3. That decision considered whether there are limitations to the time within which a claim for drawback must be verified. The protest of the denial of drawback was granted on a claim for which an audit was performed more than three years after accelerated payment of the claims because the drawback claimant was not required to retain verifying records beyond three years of payment. See C.S.D. 81-146. Where there is an alleged inconsistency between 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, further review of a protest which would otherwise be denied by the port director shall be accorded a party filing an application. See 19 CFR § 174.25(a). The apparent inconsistency between that ruling and this case merits further review. An assessment of the facts against the relevant regulatory and statutory law is discussed below.

DOCUMENTS IN EVIDENCE

In conjunction with its protest, Protestant submitted airway bills, shippers’ letters of instruction, commercial invoices, packing lists, and a chronological summary of exportation. The following documents are relevant to our consideration of this case:

Customs Forms 7551 (CF 7551), Drawback Entry claim AA6-XXXXX811 – About $125,000.00 claimed as substitution manufacturing drawback for merchandise imported September 27, 1994 through April 13, 1997, manufactured between October 11, 1994 and August 14, 1997, and exported from September 4, 1997 through November 4, 1997. The claim identified approximately 81,000 units of merchandise identified as “telecommunication & electrical components”; articles manufactures/produced was described as “radio equipment”. The Port noted on the claim that it was denied for “failure to respond to proof of export.” See Protestant’s Exhibit 8.

Exporters Chronological Summary, Claim # AA6-XXXXX811 – This two-page document provides information relative to the three subject entries in the following eight columns: (1) “Date of Export”; (2) “Exporter”; (3) “Unique Export Identifier”; (4) “Description”; (5) “Quantity/Units”; (6) “Sched B #”; (7) “Dest. Cntry”; and (8) ”Date Produced”. The relevant entries are identified under the “Unique Export Identifier”; no information was provided under the “Exporter” column or under the Schedule B column.

Entry #
Date of Export
Exporter
Unique Export IdentifierFN1
Description
Quantity / Units
Sched
Dest. Cntry
Date Prod.
AA6XXXXXX811
9/04/97
DPY010206250
2000.0000PCS
TW
061697
AA6XXXXXX811
9/23/97
DPY1012083
6200.0000PCS
AR
070597
AA6XXXXXX811
9/28/97
DPY 1012083
3900.0000PCS
AR
071097
FN1 This number is to be used to associate the export transaction presented on the chronological summary of exports to the appropriate documentary evidence of exportation (for example, bill of lading, manifest no., invoice, identification of vessel or aircraft and voyage or aircraft number (see subpart K), etc.). See Protestant’s Exhibit 8.

“Condensed” Schedule of Manufacturing Report, Claim AA6XXXXX811. This multi-page document provides information relative to the three subject entries in the following seven columns: (1) “Component Product #”; (2) “Description of Component”; (3) “Manufactured Item Product #”; (4) “Description of Manufactured Item”’; (5) “Components Used”; (6) “# of Finished Goods Shipped”; and (7) “Approximate Drawback”. Under the “Manufactured Item Product #“ column, appear the “DPY” numbers; the next column provides accompanying component and manufactured item descriptions. The DPY number for Shipment 1, DPY101206250, lists component descriptions as: “battery”, “buzzer”, “inductor”, “filter”, “resistor”, “chipthermistor”, “capacitor”, “lamps”, “inset”, “loudspeaker,” and “oscillator”; the corresponding description of manufactured item is listed as “handheld phone” for each component. See Schedule of Manufacturing Report, Condensed at 16-17 (Protestant’s Exhibit 8). Shipments 2 and 3 have the same DPY number, DPY1012083. Descriptions of components associated with this number included: “buzzer”, “inductor”, “resistor(s)”, “flat chip resistor”, “capacitor(s)”, “lamp(s)”, “microphone”, “loudspeaker”, “oscillator”, “filter”, “screw”, “keypad”, “sleeve”, “contact housing”, “frame”, and “isolator”; the accompanying description of manufactured item is listed as “handheld phone” for all components. See Schedule of Manufacturing Report, Condensed at 34-36 (Protestant’s Exhibit 8).

Imported Duty Paid Designated Merchandise Sorted by Import Entry #/ CM #

CBP Request for Additional Information, Drawback AA6-XXXXX811 On June 6, 2002, the Houston Port sent a letter to Protestant, seeking additional proof of export for: (1) 297XXXXXX02 (9/4/97); (2) 726XXXXXX24 (8/23/97); and (3) 726XXXXXX16 (9/28/97). See Protestant’s Exhibit 2.

In response to the Port’s request for additional documentation as proof of export, Protestant submitted commercial waybills, invoices, shippers’ instructions, and packing lists. The following documents are relevant to our consideration:

For SHIPMENT 1:
Photocopy of air waybill from Ericsson in Lynchburg, Virginia, to Ericsson Taiwan as Consignee. Handwritten under “Handling Information” was “297 83750402, Sept 4, 1997” and “EUS3763” appears under “Accounting Information”. From the inclusion of the number “29783750402”, this document may be associated with Shipment 1. This waybill is stamped entered/duty drawback on May 15, 1998. See Protestant’s Exhibit 3. Photocopy of an Ericsson entry document (DO51929CO) states that mobile telephone equipment, “Shipment No. EUS3763”, was shipped from Lynchburg, Virginia to Taipei, Taiwan on August 18, 1997. This document can be associated with Shipment 1 from the inclusion of DPY 1012062/50; it also references shipment number “EUS3763”, “Invoice No: 738339”, and “Our Order No. CO03133 03”. See Protestant’s Exhibit 3. Photocopy of Shippers’ Letter of Instruction. This record refers to “Shipment ID: EUS 3763”/”Shippers’ Ref No. L84431/CO03313302” to be exported from Ericsson via forwarding agent “ASG USA” in Valley Stream, NY, to Consignee Ericsson Taiwan in Hsichih Cheng, Taipei. Schedule B description identifies the merchandise as 8525.20.9040, “Mobile Telephone Equipment” for which there are 4,000 units (40 cases), valued at about $400,000.00. See Protestant’s Exhibit 3.

For SHIPMENT 2:
Photocopy of September 16, 1997 Commercial Invoice: lists “Shipment No. EUS-3880” together with “Order #”: CG29413-019; DPY1012083 is listed under “Item Number & Description” with 6,200 “Telefono Ericsson DH318” listed for a total of about $1,400,000.00. This DPY number also appears with the unique export identifier number 726XXXXX24 on the chronological summary. The invoice states that 6,200 pieces of “Telephono Ericsson DH318” were being shipped from Buenos Aires, Argentina to Miami, Florida, for a total of about $1,400,000,000.00. See Protestant’s Exhibit 4. Photocopy of air waybill from Ericsson in Lynchburg, Virginia, to “Miniphone S.A.” in Buenos Aires, Argentina, for 62 crates of cellular phones. “EUS 3880” is handwritten on the document, which was stamped as entered on May 15, 1998 and certified as true and correct on June 20, 2002. See Protestant’s Exhibit 4, Airway bill no. 4729996. Photocopy of September 16, 1997 Packing List for “Order No CG29413-019 provides for a quantity of 6,200 “Telefono Ericsson DH318”, Item No “DPY1012083”. See Protestant’s Exhibit 4. Photocopy of Shippers’ Letter of Instruction for “Shipment ID: EUS 3880”/”Shipper’s Ref No. CG29413-019” provides for 6,200 (62 cases) of mobile telephone equipment, valued at about $1,400,000.00, to be exported from Ericsson via Forwarding Agent “Circle International” in Miami Florida, to Consignee “Miniphone S.A.” in Buenos Aires, Argentina. The Schedule B description for this merchandise is 8525.20.9040, “Mobile Telephone Equipment.” See Protestant’s Exhibit 4.

For SHIPMENT 3
There are two air waybills related to this entry, both from Ericsson in Lynchburg, Virginia, to “Miniphone S.A.” in Buenos Aires, Argentina. The first waybill – which includes “EUS 3908” as a handwritten entry – is for 39 boxes of transceiver components; it is stamped as entering on May 15, 1998 with duty drawback certification stamped on June 20, 2002. “EUS3915” is handwritten on the second air waybill, all other information is the same as the first. See Protestant’s Exhibit 5. Commercial Invoices: Two commercial invoices were provided for this entry. Commercial Invoice for Order No CG29413-020 (“Commercial Invoice 1”), dated September 18, 1997, lists 2,000 “Telefono Ericsson DH318 230V” at a unit price of about $200.00 for a total of approximately $400,000.00. This invoice refers to shipment number EUS 3908; the merchandise is to be shipped to Miniphone in Miami, Florida, from Buenos Aires. The commercial invoice for Order No. CG29413-021 (“Commercial Invoice 2”), dated September 19, 1997, lists 1,900 “Telefono Ericsson DH318 230V” at the same unit price of about $200.00 for a total of approximately $400,000.00; this merchandise is also to be shipped to Miniphone in Miami, Florida, from Buenos Aires. This invoice refers to “Shipment no. “EUS-3915”. See Protestant’s Exhibit 5, Airway bill no. 04780247. There are also two packing lists relating to this entry. The packing list for “Order No CG29413-020” (“packing list 1”), lists a quantity of 2,000 “Telefono Ericsson DH318” for item “DPY 1012083”. The packing list for order no. CG29413-021 lists a quantity of 1,900 of the same DPY item description. See Protestant’s Exhibit 5. Two Shippers’ Letters of Instruction are also on file for this entry. A September 19, 1997 letter, for “Shipment ID: EUS 3908”/“Shippers’ Ref. No. CG29413-020”, calls for 2,000 units (20 cases) of mobile telephone equipment, valued at abound $400,000.00, to be exported from Ericsson via forwarding agent “Circle International” in Miami, Florida, to Consignee “Miniphone S.A.” in Buenos Aires, Argentina. Another letter, issued on the same date, is for shipment ID EUS 3915, Shippers’ Ref. No GCG29413-021, for 1,900 units (19 cases) with a value of about $400,000.00. See Protestant’s Exhibit 5.

CBP Service Bill
CBP assessed a bill against claim AA6XXXXX811 on August 20, 1998, with interest effective July 1, 2004, and an increased amount due on August 2, 2004. See Protestant’s Exhibit 8.

ISSUE

Whether CBP may properly deny a drawback claim due to insufficient evidence of export where verification was initiated more than three years from the date of accelerated payment?

LAW AND ANALYSIS

We note initially that the refusal to pay a claim for drawback is protestable pursuant to 19 U.S.C. § 1514(a)(6). As required by statutory and regulatory provisions for protests, this protest was timely filed on August 20, 2004, within ninety days of the date of liquidation for both claims on June 4, 2004. See 19 USC § 1514 and 19 CFR Part 174. 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, 1983. Title VI of Public law 103-182 took effect on the date of enactment of the Act (section 692). According to the applicable legislative history, the amendments to the drawback law (19 USC § 1313) are applicable to any drawback entry made on or after the date of enactment if the liquidation of the entry is not final on the date of enactment. See 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). Thus, the application and analysis of the drawback law in this ruling are as the law was amended by Public Law 103-182.

This protest involves drawback under 19 USC § 1313(b), commonly referred to as the “substitution manufacturing drawback.” The statute provides that if imported duty-paid merchandise and any other merchandise (whether imported or domestic) of the same kind and quality are used within three years of the receipt of the imported merchandise in the manufacture or production of articles by the manufacturer or producer of the articles and articles manufactured or produced from either the imported duty-paid merchandise or other merchandise, or any combination thereof, are exported or destroyed under Customs supervision, ninety-nine percent of the duties on the imported duty-paid merchandise shall be refunded as drawback, provided that none of the articles were used prior to the exportation or destruction, even if none of the imported merchandise was actually used in the manufacture or production of the exported or destroyed articles. Under section 1313(i), no drawback may be allowed under section 1313 unless the completed article is exported within five years after the importation of the imported merchandise. Recordkeeping requirements under 19 USC § 1313(t) require: “Any person who issues a certificate which would enable another person to claim drawback shall be subject to the recordkeeping provisions of this Act, with the retention period beginning on the date that such certificate is issued.”

The Customs Regulations pertaining to drawback, promulgated under the authority of section 1313(l), are found in 19 CFR Part 191. The Regulations pertaining to drawback were revised to implement the amended drawback law in 1998. See Federal Register, 63 F.R. 10970 (March 5, 1998). These Regulations require the manufacturer or producer of articles for which drawback is claimed under section 1313(b) to maintain records establishing compliance with the requirements for drawback. See 19 CFR § 191.26(b) [formerly §191.32]. 19 CFR § 191.26(b) states: “The records of the manufacturer or producer of articles manufactured or produced in accordance with 19 U.S.C. 1313(b) [substitute manufacturing] shall establish the facts in paragraph (a)(1)(i), (iv) through (vi) of this section, and: (1) The quantity, identity, and specifications of the merchandise designated (imported duty-paid, or drawback product); (2) The quantity, identity, and specifications of merchandise of the same kind and quality as the designated merchandise before its use to manufacture or produce (or appearing in) the exported or destroyed articles; [and] (3) That, within 3 years after receiving the designated merchandise at its plant, the manufacturer or producer used it in manufacturing or production and that during the same 3-year period it manufactured or produced the exported or destroyed articles.”. The Regulations provide for examination of these records and verification of drawback claims by Customs pursuant to 19 CFR 191.2(y) 19 CFR § 191.2(y) provides: “Verification means the examination of any and all records, maintained by the claimant, or any party involved in the drawback process, which are required by the appropriate Customs officer to render a meaningful recommendation concerning the drawback claimant's conformity to the law and regulations and the determination of supportability, correctness, and validity of the specific claim or groups of claims being verified”. [formerly § 191.2(o)] and §191.61 [formerly 191.10]. 19 CFR § 191.61(a)(1) states: “All claims shall be subject to verification by the port director where the claim is filed.” Subsection (b) requires: “The verifying office shall verify compliance with the law and this part, the accuracy of the related general manufacturing drawback ruling or specific manufacturing drawback ruling (as applicable), and the selected drawback claims. Verification may include an examination of all records relating to the transaction(s)”. All records under the Regulations are required to be kept for at least three years after payment of such claims under 19 CFR § 191.15 [formerly §191.5]. This claim will be assessed pursuant to the revised Code because the claim at issue was filed in September 1998, six months after the revisions in the Regulations were promulgated. Compliance with the Customs Regulations on drawback is mandatory and a condition of payment of drawback. Chrysler Motors Corp. v. United States,14 CIT 807, 816, 755 F.Supp. 388, aff’d. 945 F.2d 1187(Fed. Cir. 1991); Swann & Finch v. United States, 190 U.S. 143, 146 (1903); 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? Inc. v. United States, 944 F.2d 855, 858 (1991) (concluding: "We are dealing [in discussing drawback] with an exemption from duty, a statutory privilege due only when the enumerated conditions are met"). Therefore, to be entitled to drawback, Protestant must satisfy all requirements of the aforementioned statutes and regulations.

Document Retention Requirement

As noted above, Protestant contends that its claim should not be denied for a lack of sufficient evidence of export because the request for such proof was made after the three-year document retention period had expired. Protestant correctly observes that Section 191.15 of Customs Regulations requires:

“Pursuant to 19 U.S.C. 1508(c)(3), all records which pertain to the filing of a drawback claim or to the information contained in the records required by 19 U.S.C. 1313 in connection with the filing of a drawback claim shall be retained for 3 years after payment of such claims or longer period if required by law (under 19 U.S.C. 1508, the same records may be subject to a different period for different purposes).”

Customs Regulations on recordkeeping for substitution manufacturing drawback reiterate the three-year document retention period, providing: “[A]ll records required to be kept by the manufacturer, producer, or claimant with respect to drawback claims, and records kept by others to complement the records of the manufacturer, producer, or claimant with respect to drawback claims shall be retained for 3 years after the date of payment of the related claims.” 19 CFR § 191.26(f).

Protestant maintains that it was no longer obligated to provide proof of exportation pursuant to 19 CFR 191.26(f) because the three-year document retention period mandated by 19 USC § 1508(c)(3) and 19 CFR § 191.26(f) had elapsed. The three-year requirement is not an arbitrary instruction but a carefully reasoned requirement and section 1508 was amended to add the current language in subsection (c)(3) on retention of records. The legislative history on the 1993 amendments to the filing period and the recordkeeping provisions (H. Rpt 103-361(1) at 131(Nov. 15, 1993)) provided: “With respect to the filing period, by virtue of changes elsewhere in this subtitle (i.e., the recordkeeping provisions) the Committee Understands that Customs would have 3 years from the date of payment of a claim to initiate verification of that claim.” Prior to the amendment of 19 USC § 1508, Customs had considered the question of whether drawback may be denied whenever records requested by Customs are not retained for three years after payment of a drawback claim. Under the former version of 19 USCS § 1508, records required under statute must be kept for period of time not to exceed 5 years from date of entry; 19 USCS § 1508 does not place time limit on record subject to summons, and 5 year time limitation on duty to maintain records does not preclude summons under 19 USCS § 1509 of records more than 5 years old. See United States v. Frowein, 727 F.2d 227(1984, CA2 Conn). See 19 USCS § 1508, Time Records must be kept. Customs interpreted regulations under the old statute to require the retention of all records for at least three years after payment of such claims; if the records were destroyed or lost for whatever reason, Customs would not deny drawback solely because these records could not be produced, but "a basis for drawback must exist and it is the responsibility of the claimant to offer the necessary proof." See HQ 222038 (April 22, 1991)(concluding: “Customs cannot deny drawback solely because these records could not be produced. However, a basis for drawback must exist and it is the responsibility of the claimant to offer the necessary proof”). It has been this Office’s view that the amendment to 19 USC § 1508 served to codify what has been CBP’s “longstanding position as reflected in 19 CFR § 191.5 [and] clarify the recordkeeping requirements for the importing community, close existing loopholes, and update the statute.”. See HQ 224815 (April 11, 1994).

As Protestant accurately observes, CBP has previously ruled that a drawback claim should not be denied for a lack of evidence when Customs fails to initiate an audit within three-years of liquidation. See 15 Cust. B. & Dec. 1021 C.S.D. 81-146 (1980). In that decision, the protestant claimed it kept records to support its drawback claims for over four years, but the records were inadvertently destroyed when the building storing those records was razed. Customs granted the protest in that case, concluding: “All records required to be kept by a manufacturer or producer with respect to drawback claims shall be retained for at least 3 years after payment of such claims. A manufacturer is not required to retain such records 3 years after liquidation of a drawback entry.” C.S.D. 81-146 (Dec. 24, 1980). Significantly, in reaching this conclusion, it was reasoned that: “[P]rotestant must have kept adequate records to support at least some of its claims subject to this audit. See Id.

The facts presented here are analogous to those in C.S.D. 81-146. There, as here, the Port did not seek to verify the claim until after three years from the date of liquidation. In the instant case, the dates that pertain to drawback claim AA6-XXXXX811 show that the Protestant was acting in accordance with the law – the drawback claim was filed on September 2, 1998 and payment was subsequently issued to the Protestant on December 14, 1998. Protestant was required by law to maintain the records concerning this drawback claim until December 14, 2001, a period of three-years from the date of payment. CBP did not attempt to verify the claim, however, until June 6, 2002, six months after the obligatory document retention period had expired. See Christina Brooks, Drawback Specialist, CBP Request for Additional Information (June 6, 2002), Protestant’s Exhibit 2. Because the request was issued outside the three-year document retention period, Protestant’s failure to provide proof of exportation is not in violation of any regulatory or statutory requirements and Protestant cannot be required to produce information that it is no longer legally obligated to maintain. As such, it is incumbent upon the Port to verify or investigate the drawback claims using records, or resources, and information available through other means and Protestant’s failure to provide such document cannot be the sole basis upon which to reject this drawback claim. HQ 227217 (April 7, 1997) and HQ 222038 (April 22, 1991)(both rulings held: “Customs cannot deny drawback solely because these records could not be produced.”).

Nevertheless, the simple passage of three years from liquidation does not automatically entitle Protestant to drawback. See HQ 222038 (stating 19 CFR §191.5 “does not automatically entitle a claimant to drawback just because three year period has passed”) and HQ 227217 (recognizing that while a claim cannot be denied solely for a lack of records, “a basis for drawback must exist and it is the responsibility of the clamant to offer the necessary proof”). Moreover, while a claim may not be denied because of a claimant’s failure to provide documented evidence of exportation, where records do still exist, they may be used by CBP to verify entitlement to the refund. See HQ 223235 (June 19, 1992), citing U.S. v. Frowein, 727 F.2d 227 (C.A. Conn. 1984)(holding: “[I]f the records are still retained by the claimant and they can verify the claimant’s entitlement to a drawback refund, there is no reason why the Customs Service cannot have them summoned”). See also HQ 224815 (concluding 19 CFR § 191.5 does not automatically entitle a claimant to drawback just because the three-year time period has passed and that the Customs auditors' request to see the claimant's existing and available records where the sample audit showed no evidence of entitlement to drawback was reasonable, even though the three-year time period under 19 CFR 191.5 had expired). Where available records show deficiencies in the drawback program, or otherwise fail to substantiate the claim, drawback may be denied. See HQ 222038 (April 22, 1991)(denying drawback despite passage of 3-year period because records available did not substantiate claims); HQ 222494 (Feb. 14, 1996)(denying drawback after 3-year period because of system-wide deficiencies in claimant’s drawback program).

As noted above, the Protestant to this case did retain records relating to the drawback claim and although CBP was entitled to review those records, Protestant neglected to share this information. Instead, Protestant requested this claim be allowed solely because, at the time of filing the AFR in August 2004, it had been almost six years since accelerated payment was made (in December 1997), thereby obviating the need for proof of export. It was not until the claim was denied, however, that Protestant produced several documents in support of its claim. Thus, while this claim may not be denied on the grounds of a lack of evidence, evidence in this case did exist and the Port would be justified in denying drawback if the documents revealed deficiencies in the drawback program or otherwise did not support the drawback claimed. As such, an evaluation of the documents on file is appropriate to determine whether they substantiated the claim or revealed deficiencies in the Protestant’s drawback program and whether this claim should be afforded drawback.

Proof of Exportation

As previously noted, Protestant did not respond to the Houston Port’s request for proof of exportation until its claim was denied. Then, with its Application for Further Review, Protestant submitted the following as proof of exportation: an exporter’s summary for claim AA6XXXXX811; photocopies of airway bills; commercial invoices; and shippers’ letters of instruction. The Port deemed the information submitted with the AFR to be insufficient, however, because the airway bills were not signed, or if signed, the signatory did not identify the company with which they were affiliated. The Port also noted that it was unable to cross-reference the claimed export based upon the unique export identified on the chronological summary and because the chronological summary did not identify the carrier or flight information to establish fact of export. See Christina Brooks, AFR Protest Transmittal at 2 (Aug. 20, 2005).

Exportation of articles for drawback purposes is established by complying with one of the procedures provided in Part 191 of the Customs Regulations. Under these regulations, supporting documentary evidence is established by: (a) actual evidence of exportation, consisting of documentary evidence such as a signed bill of lading, air waybill, or cargo manifest; (b) use of the export summary procedure (§ 191.73); (c) certified export invoice for mail shipments (§ 191.74); (d) notice of lading for supplies on certain vessels or aircraft (§ 191.112); or (e) notice of transfer for articles manufactured or produced in the U.S. which are transferred to a foreign trade zone (§ 191.183). The exporter summary procedure consists of a chronological summary of exports, which may be submitted as part of the claim in lieu of actual documentary evidence of exportation. 19 CFR § 191.73(a). 19 CFR § 191.73(a) provides: “The export summary procedure consists of a Chronological Summary of Exports used to support a drawback claim. It may be submitted as part of the claim in lieu of actual documentary evidence of exportation. It may be used by any claimant for manufacturing drawback, and for unused or rejected merchandise drawback, as well as for drawback involving the substitution of finished petroleum derivatives (19 U.S.C. 1313(a), (b), (c), (j), or (p)). It is intended to improve administrative efficiency.”

The chronological summary for Claim AA6XXXX811 lists the date of export, unique export identifier, quantity, destination, and date produced for each disputed entry; neither the exporter nor Schedule B numbers were included for the shipments at issue. See supra, page 4. The Houston Port faulted this chronological summary as failing to establish the fact of exportation because it did not clearly identify the merchandise claimed and did not include carrier or flight information. The Port noted that the documents Protestant offered to support fact of exportation lacked any reference to the unique export identifier numbers that appeared on the exporter’s summary. The Port reasoned: “[I]t is assumed that they utilize that unique [exporter identifier] number to keep track of the export; however, the unique number was not found on the documentation provided.” See Christina D. Brooks, AFR Protest Transmittal at 2 (Aug. 20, 2005). Because this merchandise was not clearly identified on the documentation, the Port believed it was “unable to cross reference to the claimed export.” See Id.

This Office’s review of the exporter’s summary and other documents on record compels a different conclusion. Namely, while it may be assumed that the unique export identifier would be used to identify the merchandise, it is not required to the exclusion of other identification mechanisms. Instead, the Regulations simply require a number be “used to associate the export transaction presented on the chronological summary of exports to the appropriate documentary evidence of exportation.” See 19 CFR § 191.73(b), footnote 1. Therefore, Protestant is entitled to (and did) use other reference numbers in association with the unique export identifier to distinguish the merchandise claimed for drawback as that identified in the chronological summary. Accordingly, an evaluation of the export documents on file is appropriate to determine whether they “furnish the appropriate documentary evidence of exportation” to the three contested export shipments – 297XXXXX402 (Shipment 1), 726XXXXX024 (Shipment 2), and 726XXXX116 (Shipment 3) – on the exporters summary.

For the first shipment at issue, unique export identifier “297XXXXXX02” is listed on the exporter’s summary with “DPY 101206250” under the “Description” column. See Exporter’s Chronological Summary, Protestant’s Exhibit 8. This DPY number, in turn, appears in the Condensed Schedule of Manufacturing and included a description of all related component parts. See “Condensed” Schedule of Manufacturing Report, supra at 3-4 for enumeration of listed components. The same unique identifier number is also handwritten as a shipment on a photocopy of air waybill that shows the merchandise being shipped from Virginia to Taiwan. Also handwritten on this air waybill is the number “EUS3763.” See Protestant’s Exhibit 3. This EUS number again appears in a photocopy of an Ericsson shipment document (internal code DO51929CO), which lists “Shipment No. EUS3763”, as a quantity of 2,000 mobile telephone packs that were shipped from Lynchburg, Virginia to Taipei, Taiwan on August 18, 1997. See Order No. CO03133 02, Shipper Ericsson Taiwan, Protestant’s Exhibit 3. To further connect this document to Shipment 1 is the inclusion of DPY 1012062/50. See Protestant’s Exhibit 3. Finally, a photocopy of the Shippers’ Letter of Instruction refers to “Shipment ID: EUS 3763”, which identifies the exporter as Ericsson and provides Schedule B information as “8525.20.9040, “Mobile Telephone Equipment.” See Protestant’s Exhibit 3. The aforementioned information correlates with the export figures provided on the chronological summary, which lists 2,000 pieces of merchandise (described as “DPY01020625”) to be shipped to Taiwan on September 4, 1997. Thus, although it is not immediately evident in the exporter’s summary, by relating the unique export identifier with other documentation on file, as instructed by the footnote, it is evident that this number can be used to associate export shipment 1 on the chronological summary with documentary evidence of exportation on file.

For the second shipment, unique export identifier 726XXXXXX24 is described on the chronological summary as “DPY 1012083”. As with the first shipment, this DPY number appears in the Condensed Schedule of Manufacturing in association with component parts. See “Condensed” Schedule of Manufacturing Report, supra at 4 for enumeration of listed components. The same DPY number is also used on a commercial invoice, under “Item Number & Description”; the September 16, 1997 invoice can be further attributed as part of the second shipment by the shipment number, “EUS-3880”, and order number, “CG29413-019.” The invoice states that 6,200 pieces of “Telephono Ericsson DH318” were being shipped from Buenos Aires, Argentina to Miami, Florida, at a unit price of about $200.00, for a total of approximately $1,400,000.00. See Commercial Invoice, Order No. CG29413-019 (Protestant’s Exhibit 4). This “EUS 3880” number again appears as a handwritten entry on a photocopy of air waybill, which shows the merchandise being shipped from Lynchburg, Virginia to Buenos Aires, Argentina. See Protestant’s Exhibit 4. The order and item numbers on a photocopied packing list – “Order No CG29413-019” and “Item No “DPY1012083” – associate this document with Shipment 2 and provide for a quantity of 6,200 “Telefono Ericsson DH318”, the same quantity listed on the Exporter’s Summary. See Protestant’s Exhibit 4. Finally, a photocopy of a Shippers’ Letter of Instruction for “Shipment ID: EUS 3880”/”Shippers’ Ref No. CG29413-019” calls for 62 cases (quantity of 6,200) of mobile telephone equipment, valued at about $1,400,000.00, to be exported from Ericsson via Forwarding Agent “Circle International” in Miami, Florida, to Consignee “Miniphone S.A.” in Buenos Aires, Argentina. The Schedule B description for this merchandise is 8525.20.9040, “Mobile Telephone Equipment. See Protestant’s Exhibit 4. The quantity listed under the unique export identifier number on the chronological summary is also 6,200 pieces, with destination of Argentina on September 23, 1997. Thus, as with the first shipment, the unique export identifier used in the chronological summary can be connected, through association with other documentation, to establish the merchandise claimed for drawback is that which was actually exported.

The unique identifier for the third shipment, 726XXXXXX16, is similarly described as “DPY1012083” on the chronological summary. An enumeration of the components associated with this DPY description is listed on Condensed Schedule of Manufacturing in association with component parts. See “Condensed” Schedule of Manufacturing Report, supra at 4 for enumeration of listed components. Although this is the same DPY number as that for Shipment 2, the documentation for this shipment can be distinguished from that for the second shipment, and attributed to Shipment 3, through other reference numbers. Namely, by reference to shipment numbers EUS3908 and EUS3915. First, “EUS3908” is handwritten on an air waybill that shows merchandise being shipped from Virginia to Argentina. The air waybill (no 04780247) is from Ericsson in Lynchburg, Virginia, to “Miniphone S.A.” in Buenos Aires, Argentina, for 39 boxes of transceiver components, stamped as entering on May 15, 1998. Duty Drawback certification stamped by “Dominick Mangione” on June 20,2002. See Airway bill number 4780247, Protestant’s Exhibit 5. Similarly, “EUS3915” appears as a handwritten entry on another air waybill, which also shows merchandise being shipped to Argentina from Ericsson’s Lynchburg, Virginia office. See Id. Two commercial invoices, which list the same DPY number, refer to shipment numbers EUS 3908 and 3915 by different invoice numbers. The first invoice lists Shipment Number EUS 3908 with order number is CG29413-020; the second invoice lists shipment number EUS 3915 with order number CG29413-021. Commercial Invoice for Order No CG29413-020 (“Commercial Invoice 1”), dated September 18, 1997, lists 2,000 “Telefono Ericsson DH318 230V” at a unit price of about $200.00 for a total of approximately $400,000.00. The merchandise is to be shipped to Miniphone in Miami, Florida, from Buenos Aires. The Commercial Invoice for Order No CG29413-021 (“Commercial Invoice 2”), dated September 19, 1997, lists 1,900 “Telefono Ericsson DH318 230V” at the same unit price of about $200.00 for a total of approximately $400,000.00; this merchandise is also to be shipped to Miniphone in Miami, Florida, from Buenos Aires. Combined, the quantities on the two invoices total 3,900, the quantity listed on the Chronological Summary. See Protestant’s Exhibit 5. Additionally, there are two corresponding packing lists which identify the item by this DPY number and which distinguish the merchandise as part of the third shipment by reference to the order numbers that appear on Commercial Invoice 1 (CG29413-020) and Commercial Invoice 2 (CG39413-021). Packing List for “Order No CG29413-020”, lists a quantity of 2,000 “Telefono Ericsson DH318” for item “DPY 1012083”. Packing List for “Order No CG29413-021”, lists a quantity of 1,900 “Telefono Ericsson DH318” for item “DPY 1012083”. See Protestant’s Exhibit 5. Similarly, there are two September 19, 1997 Shippers’ Letters of Instruction. One identifies shipment number “EUS 3908” with “Shippers’ Ref. No.CG29413-020” while the other letter refers to “EUS3915” with “Shippers’ Ref. No. CG2913-021”; both letters instruct shipment of mobile telephone equipment with Schedule B description of “8525.20.9040” be shipped to Buenos Aires, Argentina. The Shippers’ Letter of Instruction for Shippers’ Ref. No. CG29413-020, dated September 19, 2997, provides for 2000 (20 cases) of mobile telephone equipment, valued at about $400,000.00 to be exported from Ericsson via forwarding agent “Circle International” in Miami Florida, to Consignee “Miniphone S.A.” The Shippers’ Letter of Instruction for Shippers’ Ref. No. CG29413-021, dated September 19, 1997, provides for 1900 (19 cases) of mobile telephone equipment, valued at approximately $400,000.00 to be exported from Ericsson via forwarding agent “Circle International” in Miami Florida, to Consignee “Miniphone S.A.” See Protestant’s Exhibit 5. Thus, the drawback claimed can similarly be connected with merchandise exported on this third shipment. The chronological summary for this shipment similarly identifies 3,900 pieces of merchandise “DPY1012083” to be sent to Argentina. These numbers correlate with the figures listed under the unique export identifier number on the chronological summary for the third shipment – which states that 3,900 units (2,000 for Order No. CG29413-020 + 1,900 units for Order No. CG29413-021 for a total of 3900 units) were exported to Argentina on September 28, 1997.

The review of documents available for each of the three shipments enables correlation of merchandise exported with that claimed for drawback and furnishes the basis upon which drawback was claimed. At the same time, this review did not reveal any deficiencies with the drawback program. It should also be noted that while the exporter’s summary did not list a Schedule B number with these unique export identifier numbers, this information may be found by referring to the other documents. As described above, a Shippers’ Letter of Instruction was provided for each entry and on that letter a Schedule B Export number, 8525.20.9040, was listed. See U.S. Dept. of Commerce, Schedule B Export Codes, 8525.20.9040, Product Description (described as “Cellular handsets (cell phones)”). Moreover, while the exporter is not identified in the second column of Protestant’s exporters summary, the sample format offered in the Regulations for the chronological summary provides that the exporter should be listed “if different from the claimant”. See 19 CFR §191.73(b). In this case, Protestant is the claimant and therefore is not required to include its own name in the second column of the chronological summary. Thus, although facially incomplete, when considered with the documents submitted with the AFR, the exporter’s summary satisfies the requirements of 19 CFR §191.73 and no other proof of exportation is required.

Although four elements must be established to qualify for substitution drawback under 19 USC § 1313(b) – (1) exported articles claimed as the basis for drawback must be exported within five years of the date of the importation, (2) the exported articles must be manufactured or produced from the designated imported merchandise, merchandise which was substituted for the designated imported merchandise, (3) the substituted merchandise must also be the same kind and quality as the designated imported merchandise, and (4) the designated imported merchandise and the substituted merchandise must be used in the manufacture or production within three years of receipt of the designated imported merchandise – the Port raised only the first basis, fact of export, as a basis for denying drawback. We are assuming, for purposes of this decision, that the designated imported merchandise met the time frame limitations and requirements for same kind and quality (with the caveat that the claimant agreed in its contract and is required by Customs Regulations, to maintain records to establish that this is so). CBP Regulations for verification of drawback claims mandate: “The verifying office shall verify compliance with the law and this part, the accuracy of the related general manufacturing drawback ruling or specific manufacturing drawback ruling (as applicable), and the selected drawback claims. Verification may include an examination of all records relating to the transaction(s).” 19 CFR § 191.61.

HOLDING:

The protest of the denial of drawback claims is GRANTED.

The protest is granted in regard to the AA6XXXXX811 (about $125,000.00) claim. Given the facts presented in this case, verification by Customs and subsequent denial of drawback, both occurring more than three years from the date of accelerated payment of a claim, is not valid action on the part of Customs.

Consistent with the decision set forth above, you are hereby directed to grant the protest. 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 take steps to make the decision available to customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

Myles Harmon, Director

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