DRA-4-CO:R:C:E 223497 CB
Deputy Regional Commissioner (CO)
U.S. Customs Service
Pacific Region
One World Trade Center
Long Beach, CA 90831-0700
RE: Application for further review of Protest No. 2704-91-
102930; 19 U.S.C. 1313(j)(1); substitution same condition
drawback; 19 U.S.C. 1313(j)(2)(C)(ii); possession of
merchandise
Dear Sir:
The above-referenced protest was forwarded to this office
for further review. We have considered the points raised and our
decision follows. Please be advised that the manufacturing
drawback claims which were included in this protest were
abandoned by protestant by way of letter dated April 9, 1992
signed by protestant's counsel.
FACTS:
The facts as presented in the subject protest are that
protestant ordered computers from overseas vendors. Protestant
was the importer of record for the computers, paid the duties and
all applicable charges, and was the party obligated on the
Customs bonds issued in connection with the importations. On
arrival of the merchandise, protestant directed its customhouse
broker to have the computers delivered to its facilities.
Protestant's employees would sign the Delivery Order and then
direct the truck to be off loaded at its warehouse, which
protestant had subleased to a related company (Company B).
According to protestant, the warehouse was covered by a joint
fire insurance policy made out in both companies' name.
Subsequently, Company B acquired its own warehouse, to which
protestant had the imported computers delivered.
Protestant states that Company B was established
specifically for the purpose of importing, manufacturing and
marketing computers in the United States. According to
protestant, it initially advanced the purchase prices and other
charges for Company B which monies were later repaid. In the
warehouse, Company B provided certain enhancements to most of the
computers. -2-
Thereafter, the computers were sold to United States distributors
including protestant. Protestant took possession of the
computers and when sales were made to purchasers outside of the
United States, the computers were exported by protestant.
The subject drawback entries were filed under the Exporter's
Summary Procedure and accelerated payments of drawback were
received by protestant. Following an audit, protestant was
advised that the claims were denied because: (1) there was a
lack of inventory records for the computers imported in 1987, (2)
certain computers were designated for drawback which were not
exported in the same condition as when imported, and (3) the
claimant did not possess both the imported and exported
merchandise on its substitution same condition drawback entries.
There was also a finding of over claiming on a drawback entry but
this point was conceded by protestant.
ISSUES:
1) Whether the subject substituted computers were in the
same condition as the designated computers when imported?
2) Whether protestant met the possession requirements under
19 U.S.C. 1313(j)(2)?
LAW AND ANALYSIS:
Regarding the finding of a lack of inventory records for
1987, protestant has merely asserted that "it has been clearly
established and should be conceded, that all 1987 inventory
records were furnished and made available for review...."
Protestant did not offer any evidence to confirm that the records
were in fact produced. We will not make a finding, contrary to
the district office's decision, based solely on counsel's bald
assertions regarding the missing records. Thus, that portion of
the protest which covers drawback entries which require 1987
supporting documentation should be denied. As stated above,
protestant has withdrawn its manufacturing drawback claims.
Therefore, Headquarters will not issue a decision regarding those
claims.
Protestant claims that computers and related equipment which
were exported by protestant in the same condition as imported do
satisfy all requirements, including the possession requirement of
19 U.S.C. 1313(j)(2)(C)(ii) or alternatively, such computers are
eligible for same condition drawback under 19 U.S.C. 1313(j)(1).
Section 313(j), of the Tariff Act of 1930, as amended (19
U.S.C. 1313(j)), generally provides for drawback on imported
merchandise exported in the same condition as when imported, or -3-
destroyed under Customs supervision, and not used within the
United States before such exportation or destruction.
Specifically, the statute provides:
(1) If imported merchandise, on which was paid any duty,
tax, or fee imposed under Federal law because of its
importation--
(A) is, before the close of the three-year period
beginning on the date of importation--
(i) exported in the same condition as when
imported, or
(ii) destroyed under Customs supervision; and
(B) is not used within the United States before such
exportation or destruction;
then upon such exportation or destruction 99 per centum of
the amount of each such duty, tax, and fee so paid shall be
refunded as drawback.
Section 313(j)(2) of the Tariff Act of 1930, as amended (19
U.S.C. 1313(j)(2)), provides for substitution same condition
drawback. Specifically, the statute provides:
(2) If there is, with respect to imported merchandise on
which was paid any duty, tax, or fee imposed under Federal
law because of its importation, any other merchandise
(whether imported or domestic) that--
(A) is fungible with such imported merchandise;
(B) is, before the close of the three-year period
beginning on the date of importation of the imported
merchandise, either exported or destroyed under Customs
supervision;
(C) before such exportation or destruction--
(i) is not used within the United States, and
(ii) is in the possession of the party claiming
drawback under this paragraph; and
(D) is in the same condition at the time of
exportation or destruction as was the imported
merchandise at the time of its importation;
-4-
then upon the exportation or destruction of such other
mechandise the amount of each such duty, tax, and fee paid
regarding the imported merchandise shall be refunded as
drawback, but in no case may the total drawback on the
imported merchandise, whether available under this paragraph
or any other provision of law or any combination thereof,
exceed 99 percent of that duty, tax, or fee.
. . .
(4) The performing of incidental operations (including, but
not limited to, testing, cleaning, repacking, and
inspecting) on--
(A) the imported merchandise itself in cases to which
paragraph (1) applies, or
(B) the merchandise of the same kind and quality in
cases to which paragraph (2) applies,
that does not amount to manufacture or production for
drawback purposes under the preceding provisions of this
section shall not be treated as a use of that merchandise
for purposes of applying paragraph (1)(B) or (2)(C).
Customs administration of the same condition drawback law
is governed by 19 CFR 191.141 which sets forth the general
provisions for same condition drawback. Generally, the
regulations provide the time frame within which documentation
must be filed, examination of the merchandise and completion of
the drawback entry. Under 19 CFR 191.141(d) an exporter-claimant
may apply for permission to use the exporter's summary procedure.
When this procedure is used, no prior notice of intent to export
or examination of the merchandise is required.
In the instant case, during an audit of protestant's
unliquidated drawback entries conducted by the Regulatory Audit
Division, Pacific Region, it was determined that protestant was
unable to show movement and identity of imported computers while
in inventory. Under both the statute and regulations, the
claimant must show that the merchandise was exported in the same
condition as imported. Since protestant was using the exporter's
summary procedure, Customs did not examine the merchandise prior
to exportation; therefore, Customs must rely on claimant's
records to confirm same condition. Protestant has not presented
any evidence to show that its records did in fact support its
same condition drawback claims.
-5-
Additionally, protestant was receiving accelerated payment
as provided for in 19 CFR 191.72. Treasury Decision (T.D.) 81-
242 establishes the requirements for recordkeeping procedures
that a claimant must maintain when filing for accelerated payment
for same condition drawback. T.D. 81-242 provides that a
claimant must satisfy the Regional Commissioner that the
claimant's recordkeeping will show that (1) the identity of the
imported merchandise will be maintained on the merchandise which
forms the basis of the claim, (2) any use of the merchandise will
be recorded (for example, the record-keeping procedure must be
designed to record any movement of the merchandise in or out of
storage), (3) any change in condition in the merchandise will be
recorded, (4) the dates of importation, entry, and exportation of
the merchandise will be recorded, and (5) the import-export will
satisfy the examination requirements of the importing and
exporting regions. The audit disclosed that protestant had not
complied with the above stated recordkeeping requirements. To
date, protestant has not presented any evidence to refute
Regulatory Audit's findings that insufficient records were
maintained to support a same condition drawback claim and to
receive accelerated payment. Consequently, we concur that the
same condition drawback claims should be denied because
protestant failed to prove that it satisfied the statutory and
regulatory requirement that the merchandise be exported in the
same condition as when imported by maintaining the required
records.
We reach the same conclusion with respect to the
substitution same condition claims. The audit disclosed that
those records which were available indicated that the merchandise
protestant repurchased came from a commingled inventory. The
commingled merchandise consisted of merchandise purchased by
protestant and Company B. Company B's inventory recordkeeping
system did not distinguish or segregate protestant's purchases
from their own. Therefore, the computers purchased by protestant
constitute substituted merchandise. The protestant must show,
under both the statute and regulations, that the substituted
merchandise is fungible with the imported merchandise and that it
was in the same condition as the imported merchandise.
Additionally, protestant has failed to support its claim that it
had possession of both the imported and substituted merchandise.
Protestant did not provide any documentary evidence to show
possession, i.e. bills of lading, invoices or sales contracts.
Rather, protestant has merely asserted that it has satisfied all
requirements for substitution same condition drawback.
Therefore, Headquarters has no basis on which to make a
determination on whether protestant did in fact meet all of the
requirements for substitution same condition drawback.
-6-
HOLDING:
Protestant has failed to meet the statutory and regulatory
requirements under 19 U.S.C. 1313(j)(1) and (2). Protestant
failed to present any evidence that the merchandise was in the
same condition at the time of exportation or that the substituted
merchandise was fungible with the imported merchandise or that it
met the possession requirement. Therefore, this protest should
be denied in full.
A copy of this decision should be attached to the Customs
Form 19 and provided to the protestant as part of the notice of
action on the protest.
Sincerely,
John A. Durant, Director
Commercial Rulings Division