DRA-4-CO:R:C:E 224287 AJS
Siegel, Mandell & Davidson, P.C.
1515 Broadway
43rd Floor
New York, NY 10036
RE: Substitution same condition drawback; 19 U.S.C. 1313(j) (2);
Central Soya v. U.S.; corporations as separate legal entities;
"possession"; C.S.D. 85-52; HQ 222500; B.F. Goodrich v. U.S.;
"fungible"; 19 CFR 191.2(l); Guess? Inc. v. U.S.; 19 CFR 191.73;
19 U.S.C. 1641(a)(2); 19 U.S.C. 1641(b)(1); HQ 222097; 19 CFR
191.141(b)(2)(ii).
Dear Sir:
This is in reply to your letter of November 10, 1992,
requesting a ruling on behalf of Liz Claiborne, Inc. (LCI),
concerning a substitution same condition (SSC) drawback claim.
FACTS:
LCI recently formed RTVCH Holdings, Inc., a U.S. importer
and distributor of women's wearing apparel. LCI is the sole
owner of RTVCH and has acquired a possessory interest in all of
its assets. RTVCH maintains a separate corporate existence. LCI
enjoys a very high degree of control over goods purchased by
RTVCH. Specifically, LCI has unfettered access to all warehouse
facilities maintained by RTVCH and actively participates in all
final decisions as to the final disposition (e.g., sale, export,
destruction, etc.) of the goods purchased by RTVCH which are
present therein.
LCI intends to export certain goods purchased by RTVCH which
are fungible with other goods previously imported by RTVCH.
Information is not provided which indicates in what manner LCI
will obtain possession of these goods from RTVCH. Your
submission states that merchandise will only be consid- ered
fungible in instances when the imported and substituted
-2-
merchandise perfectly conform with respect to type of garment,
style no., color and size. LCI requests whether they may claim
SSC drawback, on their own behalf, in connection with such
exportations. Alternatively, LCI proposes to file claims for SSC
drawback on behalf of RTVCH as its duly authorized agent.
LCI wishes to rely on the "waiver from requirements of prior
notice of exportation" issued to it by the Head of the Drawback
Liquidation Section of the New York Region Drawback Branch on May
10, 1991, in connection with such exportations and claims for SSC
drawback.
All claims will only be made where the substituted goods are
exported within three years of importation of their imported
counterparts. Moreover, the substituted merchandise will not be
used in the United States and will be exported in the same
condition as were the imported goods at the time of their
importation.
ISSUE:
Whether LCI may claim SSC drawback under 19 U.S.C.
1313(j)(2) in connection with substituted merchandise purchased
by RTVCH. Specifically, whether LCI satisfies the possession
requirement for substituted merchandise under 19 U.S.C.
1313(j)(2).
Whether LCI may alternatively file claims for SSC draw- back
on behalf of RTVCH as its duly authorized agent.
LAW AND ANALYSIS:
Section 313(j)(2) of the Tariff Act of 1930, as amended (19
U.S.C. 1313(j)(2)), allows for SSC condition drawback on imported
merchandise provided that the substituted merchandise (either
domestic or imported) is fungible with the imported merchandise;
is exported before the conclusion of the three-year period
beginning with the date of the importation of the imported
merchandise (i.e., drawback period); is in the possession of the
drawback claimant prior to exportation; and is in the same
condition as the imported merchandise when exported.
LCI proposes to export certain goods purchased by RTVCH
which are fungible with other goods previously imported by RTVCH.
LCI desires to claim SSC drawback, on its own behalf, in
connection with such exportations. Information is not provided,
however, which establishes in what manner LCI will
-3-
obtain possession of the exported merchandise. The exported
goods are purchased by RTVCH and appear to remain in the
possession of RTVCH during the drawback period. Your submission
refers to Central Soya v. United States, 761 F. Supp. 133 (CIT
1991), affirmed 953 F.2d 630 (CAFC 1992), in which the courts
held that 19 U.S.C. 1313(j)(2) does not require that the claimant
be the exporter of the substituted merchandise. However, the
substituted merchandise must nevertheless be in the possession of
the party claiming drawback before the close of the drawback
period. Central Soya, p. 139. Based on the proposed facts, it
does not appear that LCI will in fact possess the substituted
merchandise during the drawback period because the merchandise
will instead be in the possession of RTVCH.
This request states that LCI formed, is the sole owner of,
and has a possessory interest in all of the assets of RTVCH. In
addition, LCI has unfettered access to all ware- house facilities
maintained by RTVCH and actively partici- pates in all final
decisions as to the final disposition (e.g., sale, export,
destruction, etc.) of the goods purchased by RTVCH which are
present therein. However, RTVCH maintains a separate corporate
existence. Under general principles of corporate law,
corporations are separate and distinct legal persons.
Consequently, while LCI may control the operation of RTVCH
through its corporate ownership, it does not have possession over
the merchandise of RTVCH. This merchandise continues to be in
the possession of RTVCH, which is a separate legal entity.
Possession has been defined in C.S.D. 85-52, which holds
that ownership of a commodity is not necessarily possession of
that commodity for purposes of the SSC drawback law. "Possession
. . . means complete control over the articles or merchandise on
premises or locations where the possessor can put the articles or
merchandise to any use chosen. It does not mean that by trading
commercial paper, e.g., purchase orders or bills of lading,
between brokers or others in a commodity while that commodity
winds its way across America by train or truck, possession is
somehow created. Trans- actions made in order to create a
climate for drawback will not support drawback." In this
instance, LCI does not appear to even own the substituted
merchandise. Another corporation purchased the substituted goods
and maintains these goods in their possession. This case appears
to involve a corporate situation made in order to create a
climate for drawback.
"Possession" was incorporated into the drawback statute in
order to prevent one company from using another company's
drawback rights. (See HQ 222500, July 16, 1990). Under the
-4-
proposed facts, it appears that LCI intends to use the
drawback rights of another corporation. The term "possession" is
defined in Black's Law Dictionary as:
the detention and control, of the manual or ideal custody,
of anything which may be the subject of property, for one's
use and enjoyment, either as owner or as the proprietor of a
qualified right in it, and either held personally or by
another who exercises it in one's place and name. Actual
possession exits where the thing is in the immediate
occupancy of the party . . . Black's Law Dictionary, 1325
(4th ed. 1968).
Under the subject facts, LCI cannot directly detain or control
the merchandise owned by RTVCH. LCI may also not directly use or
enjoy this merchandise. In addition, LCI does not directly own
the merchandise of RTVCH nor is it the proprietor of a qualified
right in the merchandise. LCI also does not hold the merchandise
of RTVCH personally nor may it exercise ownership in RTVCH's own
place and name. Lastly, LCI does not have actual possession of
the merchandise. As stated beforehand, it appears that the
substituted merchandise is in the possession of another separate
corporation (i.e., RTVCH) during the drawback period, and that
LCI may only obtain possession of the substituted merchandise by
operating through this separate corporation. Based on the above
discussion, it is our conclusion that LCI does not satisfy the
possession requirement for SSC drawback under 19 U.S.C.
1313(j)(2).
Your requests also makes reference to B.F. Goodrich v.
United States, 794 F. Supp. 1148 (CIT 1992), in which the Court
of International Trade held that the drawback claimant does not
have to possess the imported duty-paid merchandise. The court
stated that the possession requirement attaches only to the
exported goods, and that section 1313(j)(2) requires only that a
drawback claimant have paid the duty, tax or fee for the
privilege of importing the goods. B.F. Goodrich, p. 1150. As
stated previously, it has not been established if or in what
manner LCI will obtain possession of the substituted merchandise.
Furthermore, it also does not appear that LCI paid the duty, tax
or fee for the privilege of importing the goods. Therefore, we
find this decision instructive for determining that LCI does not
satisfy the requirements of 19 U.S.C. 1313(j)(2).
Alternatively, LCI proposes to file claims for SSC drawback
on behalf of RTVCH as its duly authorized agent.
19 CFR 191.73(a) states that the person named as exporter on the
notice of exportation or in bill of lading, air waybill, freight
waybill, Canadian Customs manifest, cargo manifest,
-5-
or certified copies of these documents, shall be deemed to be the
exporter and entitled to drawback. LCI proposes to export the
goods on behalf of RTVCH. However, it is not clear in what
manner LCI will obtain possession of the exported merchandise or
if they will appear as the exporter on any of the required
documents. Therefore, we cannot determine if LCI may properly be
deemed the exporter and entitled to drawback.
The term "customs business" means those activities involving
transactions with the Customs Service concerning the entry and
admissibility of merchandise, its classifi- cation and valuation,
the payment of duties, taxes, or other charges assessed or
collected by the Customs service upon merchandise by reason of
its importation, or the refund, rebate, or drawback thereof. 19
U.S.C. 1641(a)(2). The filing of drawback claims by LCI on
behalf of RTVCH as its agent is the conducting of customs
business. No person may conduct customs business (other than
solely on behalf of that person) unless that person holds a valid
customs broker's license. 19 U.S.C. 1641(b)(1). In this
instance, LCI proposes to transact customs business on behalf of
another legal person. There is no indication that LCI holds a
valid customs broker's license. Thus, LCI may not conduct
customs business (i.e., file drawback claims) on behalf of RTVCH
as its agent.
19 CFR 191.73(b) provides that drawback may be paid to the
agent of the manufacturer, producer, or exporter or to the person
the manufacturer, producer, exporter or agent directs in writing
to receive drawback payment. We have stated that this section is
controlling in determining who has the right to claim same
condition drawback and who may be authorized to receive the
payment on behalf of the claimant. HQ 222097 (July 3, 1990).
This section does not permit the agent to file the drawback
claim. The person described in paragraph (a) must file the
claim. This section permits a drawback claimant to designate the
claimant's authorized agent or any other person as the recipient
of the payment from Customs. Consequently, RTVCH could designate
LCI as the recipient of any payment of drawback due RTVCH.
Your submission states that merchandise will only be
considered for drawback where the imported and substituted
merchandise perfectly conform with respect to type of garment,
style no, color and size. Fungible merchandise for same
condition drawback is defined in section 191.2(l) of the Customs
Regulations (19 CFR 191.2(l)) as "merchandise which for
commercial purposes is identical and interchangeable in all
situations." Customs has interpreted fungibility as not
requiring that merchandise be precisely identical; identical for
"commercial purposes" allows some slight differences.
-6-
The key is complete commercial interchangeability. Most
recently, the Court of International Trade has indicated that
substituted merchandise is "commercially identical" when it
stands in the place of the imported merchandise, but is not more
desirable than the imported merchandise. Guess? Inc. V. United
States, 752 F. Supp. 463 (CIT 1990), vacated and remanded on
other grounds, 994 F.2d 855 (CAFC 1991). Your suggested manner
of substitution would appear to satisfy the fungibility
requirement for SSC drawback.
A General Notice was issued with instructions to the public
for the implementation of the Central Soya and B.F. Goodrich
decisions (copy enclosed). See Customs Bulletin & Decisions,
vol. 26, no. 43, p. 7 (October 21, 1992). This document contains
the revised requirements for drawback claimants. Please review
these requirements and feel free to contact this office if you
have an questions regarding said requirements.
LCI wishes to rely on a waiver from the requirements of
prior notice of exportation issued to it by the New York Region
of Customs on May 10, 1991, in connection with such exportations
and claims for SSC drawback. The granting of waivers is not a
proper subject of a ruling request under 19 CFR 177.1(d). Under
19 CFR 191.141, the granting of such waivers has been delegated
to the appropriate Customs field officer.
HOLDING:
LCI may not claim SSC drawback on its own behalf for
merchandise in the possession of RTVCH nor may LCI file claims
for SSC drawback on behalf of RTVCH as its agent. However, LCI
may be designated by RTVCH to receive the drawback payments of
RTVCH. In order to obtain SSC drawback the applicable
requirements of the October 21, 1992, General Notice must be
satisfied.
Sincerely,
John Durant, Director
Commercial Rulings Division