DRA-1-02-CO:R:C:E 224417 CB/WGR
Director
Commercial Operations
Southeast Region
U.S. Customs Service
909 S.E. 1st Avenue
Miami, FL 33131
RE: Protest and Application for Further Review No. 1703-92-100113; Correction of Invalid Certificates of Waiver;
perfection of Drawback Claim
Dear Sir/Madam:
The above-referenced protest and application for further
review was forwarded to this office. We have considered the
points raised and our decision follows.
FACTS:
Protestant has an approved drawback contract, under T.D. 83-
59, which provides for the manufacture of hard refined sugar with
the use of raw cane sugar. It is our understanding that
protestant's Customs bonded warehouse is part of its factory
premises.
During 1988 and 1989, the Customs Service's Office of
Regulatory Audit conducted an audit of protestant's drawback
program. During the course of this audit, it was determined that
protestant had filed six drawback claims totaling $2,433,776,
which contain invalid assignments of drawback rights by the
exporter. Various individuals, other than those authorized by
section 191.6 of the Customs Regulations (CR), had endorsed the
assignment of drawback rights on the six drawback claims.
Additionally, three of those claims had been filed under 19
U.S.C. 1313(a), which governs direct identification drawback,
rather than 19 U.S.C. 1313(b), which governs substitution
drawback. protestant claims that this error was inadvertent
because, in fact, protestant does not have any 1313(a) drawback
contracts. Finally, during a review of the subject claims, this
office has discovered other insufficiencies regarding these
claims with respect to the certificates of manufacture.
ISSUES:
1) Whether protestant should be permitted to amend and
perfect its claims by filing corrected waivers, as it has done.
2) Whether the fact that protestant checked the wrong box on
the drawback form should defeat the drawback claims.
3) Whether the protestant has filed a completed claim.
LAW AND ANALYSIS:
Initially, we note that the protest, with application for
further review, was timely filed under the statutory and
regulatory provisions for protests (see 19 U.S.C. 1514 and 19
CFR Part 174).
Under section 313, Tariff Act of 1930, as amended (19 U.S.C.
1313), allowance of the privileges provided in 19 U.S.C. 1313
shall be subject to compliance with rules and regulations
prescribed by the Secretary of the Treasury. The Supreme Court
held in Swan & Finch Co. v. United States, 190 U.S. 143 (1903)
that the right to drawback is a privilege granted by the
government. Compliance with the regulations is a prerequisite to
securing the allowance of drawback where the regulations are
authorized and reasonable. See Lockheed Petroleum Services, Ltd.
v, United States, 4 CIT 25, 557 F. Supp. 583 (1982). The Customs
Regulations pertaining to drawback are found in 19 CFR Part 191.
The Customs Service found several errors on the six drawback
claims involved in this protest. The protestant asserts that
since liquidation is not final, having filed a timely protest
against the denial of drawback, it can correct the errors in the
six claims.
The relevant drawback regulations are 19 CFR 191.61 and
191.64. The former requires that a claim be filed within three
years after export and defines filing to include application to
Customs for a Customs-issued document. The latter permits a
claimant to file a correction with the permission of the
appropriate regional commissioner. The Regional Commissioner
referred the protest to the Director, Office of Regulations and
Rulings, as provided by 19 CFR 174.26(b), T.D. 69-126, as
amended, and 19 U.S.C. 1515(a). Under 19 CFR 174.28, a
protesting party may submit alternative grounds for protest
claims that had been timely made. The Director, Office of
Regulations and Rulings, permitted the protestant to supplement
its protest against the denial of drawback on this six drawback
claims.
Under 19 CFR 191.6 (a) and (b), drawback entries and
supporting documentation must be signed by an officer of a
corporation or any person with a power of attorney.
Regarding the subject drawback entries, the audit disclosed
that improperly executed notices of waiver had been filed to
support the six drawback entries. Protestant claims that it
should be permitted to amend and perfect its claims by filing
corrected certificates. Under 19 CFR 191.61 a drawback entry
must be completed within 3 years after the date of exportation of
the articles on which drawback is claimed. In the instant case,
the filing of properly executed waivers verifies or corrects a
deficiency in the claims. It is not a completion of or amendment
to the existing claims. The verification of a claim is
permissible beyond the three year limitation found in 19 CFR
191.61.
The signatures on the waivers become important if both
parties file claims on the same material. In this case, there is
no evidence that situation has occurred with respect to the
waivers at issue. Consequently, the amendment is permissible.
Additionally, a review of the six subject claims also
disclosed that for claim no. C17-xxxxx24-2 the second of the
import entries ("84xxx43-4) shown on this claim is a warehouse
entry. The actual warehouse withdrawal dates are much later than
the "received at factory" date shown in the drawback claim. The
entry number is short one digit and elsewhere in the claim it is
referred to as warehouse entry no. 84XXX434-0 which covered a
shipment of raw sugar imported by the protestant from Costa Rica.
Copies of that warehouse entry, together with permit withdrawals
are present in the drawback claim. In actuality, the two correct
consumption entries cover raw sugar from Australia. Counsel for
the protestant provided copies of the correct entries. A review
of the data listed on the CF 331 as to the date of import, date
of liquidation, port of entry, receipt at factory dates and use
in manufacture dates match the corresponding data on the entry
documents.
Issue #2
In three of the six drawback claims, the protestant asserted
that the claim was being made pursuant to 19 U.S.C. 1313(a) even
though the text of the claim showed that the exported refined
sugar was not made from the imported, duty-paid raw sugar. Under
19 U.S.C. 1313(r)(2), as amended by the Act of December 8, 1993
(107 Stat. 2057, Pub. L. 103-182), a drawback claim filed
pursuant to any subsection of section 1313 is deemed filed
pursuant to any other subsection if it is determined that
drawback is not allowable under the claim as originally filed but
would be allowable under the other subsection. The purpose of
this section was to allow a claimant who was denied drawback
under one provision to show that it did, in fact, comply with the
requirements of another provision of 19 U.S.C. 1313. H. Rept.
103-361, Part 1, 131 (1993). By virtue of the legislative history
with respect to section 632 of the Act of December 8, 1993, the
Customs Service is applying the provisions of that law to the
claims under protest. See page 132 of H. Rept. 103-361. By this
protest, the protestant asserted that the three claims that were
erroneously filed under 19 U.S.C. 1313(a) met each of the
requirements of 19 U.S.C. 1313(b).
In each of the six claims, the protestant either failed to
list a certificate of manufacture number that covered the use of
the designated raw sugar or listed the certificate of manufacture
appropriate to the raw sugar that was refined and then exported
as the basis for drawback. Item 24 on the CF 331, which requires
a CM/CD number, was left blank. Of the six claims, the protestant
left that required information blank on three claims. On the
remaining three claims, the protestant listed the Certificate of
Manufacture number applicable to the raw sugar that was actually
used to make the exported articles for both the designated raw
sugar and the substituted raw sugar. Not surprisingly, the
numbers failed to support the protestant's claims. Protestant's
counsel supplied the correct certificates of manufacture. A
comparison of the entry numbers, import dates, vessel names,
factory receipt dates and factory use dates on the CF 331 matched
the dates shown on the protestant's certificates that had been
filed with the regional Commissioner at New York under the
procedure required by item (14) of T.D. 83-59. Consequently, it
is clear that the protestant's amendment would do no more than
correct the claim that was filed originally. It is obvious that
the amendment would not impermissibly substitute new import
entries or new exports on the existing claims.
It is clear that the protestant's erroneous designation of
direct identification manufacturing drawback (19 U.S.C. 1313(a))
instead of substitution manufacturing drawback (19 U.S.C.
1313(b)) on three of the claims can be corrected under 19 U.S.C.
1313(r). The relevant evidence shows that the protestant owned
both the designated raw sugar and the raw sugar that was actually
used to make the exported refined sugar. A comparison of the
relevant data (i.e., dates, amounts, origin and vessels) matches
the corresponding data on the correct certificates of
manufacture. There would be compliance with 19 U.S.C. 1313(b)
even though there would not be compliance with 19 U.S.C.
1313(a).
Issue #3
The requirements for drawback under 19 U.S.C. 1313(b) (and
under the applicable Customs Regulations as well as all drawback
contracts issued under that statute) are:
For the designated imported merchandise it must be
established.
(1) that a sufficient quantity of merchandise was imported,
(2) that it met the same-kind-and-quality criteria set forth
in the drawback contract, and
(3) that it was used in manufacture or production by the
claimant within 3 years of receipt.
For the substituted exported merchandise it must be
established--
(1) that the exported or destroyed articles claimed as the
basis for drawback were actually exported or destroyed
within five years of the date of import of the designated
imported merchandise,
(2) that those exported or destroyed articles were
manufactured or produced from the designated imported
merchandise or the substituted merchandise,
(3) that the substitute merchandise was of the same-kind-and-quality as the designated imported merchandise, and
(4) that the use in manufacture or production of the
substituted merchandise to produce the exported or destroyed
articles occurred within 3 years of receipt of the
designated imported merchandise.
Therefore, under general drawback law, a claimant must
provide proof of use of the designated imported merchandise.
Protestant has an approved drawback contract which provides that
it will comply with the general drawback contract for sugar,
published as T.D. 83-59. Item (14), in said Treasury Decision,
provides that abstracts of a manufacturer's records shall be
filed when drawback is to be claimed on any part of refined sugar
manufactured during such period. Item (19), in the same T.D.,
provides that the drawback entry shall indicate the abstract
numbers, for both the designated and substituted sugars, which
prove use in manufacture during the stated period. A review of
the six claims subject to this protest show that protestant
failed to provide this information.
Customs Form (CF) 331, Manufacturing Drawback Entry and/or
Certificate, sets forth the information a claimant must provide.
Item no. 24, entitled "CM/CD Number" requires that the claimant
provide the certificate of manufacture and/or delivery (CM&D)
number to enable Customs to determine ownership of the designated
merchandise. Item no. 28, entitled "Quantity/description of
merchandise used", provides Customs with the description and
quantity of merchandise actually used to manufacture the exported
article. See Customs Directive No. 3740-03, issued January 14,
1986. Prior to 1986, drawback claims were filed on a CF 7575-B
which also required that certificate of manufacture or delivery
numbers be provided for the designated sugar.
As noted in Issue #2, the protestant had either failed to
fill in .any information in item no. 24 (or its equivalent in CF
7575-B) or had listed the same abstract numbers for both item
nos. 24 and 28. A review of these abstracts show that one
abstract could not possibly prove use of both the designated and
substituted merchandise because, in some instances, there was a
two year gap between the import entry and the time the
substituted merchandise was exported. Therefore, protestant had
failed to provide proof of use of the designated merchandise.
However, protestant has cured this defect in its claims by
providing the correct abstract and certificate of manufacture and
delivery numbers.
A claim by claim analysis of the subject protest discloses
the following:
Claim No. 86XXXX29-2 is based on 17,340,061 refined pounds
shipped to Iskenderun, Turkey on the M/V Dalaman on October 25,
1985. The designated, duty-paid sugar was shown as 2,667,291
pounds imported on September 20, 1982 by entry 82-XXXX78-5 and
14,672,770 pounds imported on October 7, 1982 by entry 83-XXXX00-9. Import entry 82-XXXX78-5 matches a Warehouse Withdrawal
bearing the same entry number and dated March 28, 1983.
Protestant correctly asserts that abstracts 502, 503, 505, and
506 with CMs 38502, 38503, 39497, and 3949 support its production
of 17,340,061 pounds of exported refined sugar. Finally,
abstracts 471, 472, 477 and 428 with the corresponding CM numbers
22896, 22897, 27857, and 28099 support the production of sugar
from the designated import entries.
Claim No. 86XXXX66-1 is based on 30,238,955 refined pounds
shipped to Jordan and Turkey on December 30, 1985 and October 25,
1985 respectively. The designated, duty-paid sugar was shown as
21,343,394 pounds imported on May 3, 1983 by entry 83-XXXX12-2
and 8,895,561 pounds imported on October 26, 1982 by entry 83-XXXX01-2. Protestant correctly asserts that abstracts 507 and 508
and CM 39933 and 39934 support its claim of production of
30,238,955 pounds of exported refined sugar. Abstracts 478, 479,
480 and CM numbers 28098, 28099, and 28336 support the production
of sugar from the designated import entries.
Claim No. 86XXXX47-8 is based on 642,637 refined pounds
shipped to Canada and Jordan between December 19, 1985 and
December 31, 1985. The designated, duty-paid sugar was shown as
624,271 pounds imported on December 8, 1983 by entry 84-XXXX09-4.
Protestant correctly asserts that abstract number 509 and CM
42285 support its claim of production of 642,637 pounds of
exported refined sugar. Abstracts 486, 487, and 488 and CM
numbers 29732, 30015, and 31349 support the production of refined
sugar from the designated import entries.
This claim includes 514,333 pounds of refined sugar which
were refined under a tolling agreement. A review of the tolling
agreement between protestant and the owner of the sugar discloses
that protestant agreed to provide the owner with correct
documentation showing that protestant was holding the raw sugar,
and subsequently the refined sugar, for the account of the owner.
The parties also agreed that all drawback of previously paid U.S.
import fees and duties would be for the account of protestant.
Claim No. C17-XXXXX40-8 is based on 1,519,509 refined pounds
shipped on eight different exportations between September 3, 1986
and September 26, 1986. The designated, duty-paid sugar was shown
as 1,543,771 pounds imported on September 14, 1984 by entry 84-XXXX43-4. Protestant correctly claims that abstract number 518
and CM 43933 support its claim of production of 1,519,509 pounds
of refined exported sugar. And, abstract 494 and CM number 34139
support the production of refined sugar from the designated
import entry.
Claim No. C17-XXXXX24-2 is based on 5,195,085 refined pounds
shipped on three different exportations between August 17, 1986
and September 9, 1986. The designated, duty-paid sugar was shown
as 4,459,154 pounds imported on September 5, 1984 by entry
84XXXX42-1, and 837,476 pounds imported on September 14, 1984 by
entry 84XXXX43-4. Protestant correctly claims that abstract
number 517 and CM 43789 support its claim of production of
5,195,085 pounds of refined exported sugar. And, abstract number
494 and CM number 34139 support the production of refined sugar
from the designated import entries.
Claim No. C17-XXXXXOl-0 is based on 27,833,846 refined pounds
shipped to Iskenderun, Turkey on the M/V Golden Cross on
September 9, 1986. The designated, duty-paid sugar was shown as
28,245,882 pounds imported on September 5, 1984 by entry
84XXXX42-1. Protestant correctly claims that abstracts 509, 510,
511, 512, 513, and 516 and CMs 42285, 42886, 43157, 43141, 43142,
and 43274 support its claim of production of 27,833,846 pounds of
refined exported sugar. And, abstract 494 and CM number 34139
supports the production of refined sugar from the designated
import entries.
Claims No. C17-XXXXX24-2, C17-XXXXX40-8, and C17-XXXXX01-O,
however, illustrate a potential problem with respect to two
claimants claiming use of the same sugar. In addition to
manufacturing for its own account, the protestant apparently
processed sugar for other refiners who claimed the protestant's
processing as their processing under the agency concept set forth
in 19 CFR 191.34. As noted above, the protestant asserted that
the processing of the raw sugar on consumption entries 84-XXXXX42-1 and 84-XXXXX43-4 was shown by its certificate of
manufacture no. 34139 that was abstracted by the Regional
Commissioner at New York as abstract 494. That certificate of
manufacture, with respect to each one of the listed import
entries, shows that the protestant was the importer. A review of
each of the entries showed that the raw sugar was imported by the
protestant, was removed from storage by the protestant, and was
refined by the protestant. Another refiner with whom the
protestant had an agency contract also asserted that sugar
recorded in CM 34139 was its sugar. The sugar purportedly owned
by that other refiner was identified by the name of the importing
vessel. There was no such vessel listed in the certificate of
manufacture. It appears that the protestant erroneously provided
the reference to CM 34139 to the other refiner which enabled that
other refiner to make its claim for drawback. Because drawback
claims can be filed in more than one location, the potential for
double claims on the use of the same merchandise makes it
critical that the certificate of manufacture correctly identify
whose merchandise is being processed. The evidence must show the
ownership of the merchandise if an agency relationship is claimed
so that a toll processor cannot claim processing, for both its
own account and as a toll processor on the same merchandise.
HOLDING:
Protestant has verified its claims by filing properly
endorsed certificates of waiver. Additionally, protestant has
corrected the clerical mistake made in filing the CF 331 with
respect to checking the wrong box and providing correct proof of
use of the designated merchandise. Finally, protestant has also
corrected the typographical error in claim no. C17-xxxxx24-4.
Protestant has satisfied the requirements for drawback.
Therefore, this protest should be GRANTED.
In accordance with Section 3A(ll)(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 this decision
must be accomplished prior to the mailing of the decision.
Sixty days from the date of this 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,
John Durant, Director
Commercial Rulings Division