DRA-4/DRA-2-02/PRO-2-01-RR:IT:EC 226891 PH
Port Director
U.S. Customs Service
555 Battery Street
San Francisco, California 94111
RE: Protest 2809-96-100166; Premature Protest; Unused
Merchandise Drawback; Destruction in Lieu of Exportation; 19
U.S.C. 1313(j); 19 U.S.C. 1514(c)(3)
Dear Madame or Sir:
The above-referenced protest was forwarded to this office for
further review. Our decision on the protest follows.
FACTS:
The protest is of the liquidation of two drawback entries (or
claims) (No. AY...1789, and No. AY...1805) in which drawback in
the amount of $7,488.73 and $1,758.71, respectively, was claimed.
Accelerated payment of drawback was requested but, according to
Customs records, not granted. The drawback entries were
liquidated on February 16, 1996, with no (zero) drawback.
According to documents in the file, the imported merchandise upon
which drawback is claimed consisted of cables and boot sheets.
According to materials in the file (an October 11, 1995, letter
from the protestant/drawback claimant), the cable and boot sheets
"are used in manufacture on finished products which have been
obsolete [and] [the protestant] no longer plans [on] producing
the finished product so the components are no longer needed." As
stated above, drawback entries on Customs Form (CF 7439) were
filed for the merchandise. In the case of each drawback entry,
the drawback entry date (block 2) is not completed. In the case
of drawback entry AY...1789, the date of signature of declarant
and exporter, in blocks 22 and 29, is indicated to be September
28, 1995, and in the case of drawback entry AY...1805, that date
is indicated to be October 3, 1995. In each drawback entry, in
block 31 of the CF 7539, it is stated "[t]he subject merchandise
will be destroyed under Customs supervision or exported as per
attached on or about [no date indicated]." In each drawback
entry, block 46 of the CF 7539 ("Customs examination is
required") is checked, and blocks 47 and 48 are completed to
indicate the location of the examination and date of examination.
In the file, for each drawback entry, there is a CF 3499
(Application and Approval to Manipulate, Examine, Sample or
Transfer Goods) dated October 17, 1995. Each CF 3499 lists part
numbers and quantities (the CF 3499 for drawback entry AY...1789
lists part numbers HW69812, RX46042, and RX69948 and the CF 3499
for drawback entry AY... 1805 lists part numbers 59662, 55974,
57403, and 563221), and cites consumption entries (with a
description of the merchandise and the tariff classification).
In block 2 (GOODS EXPORTED FROM), there is the notation
"Destruction." In the "APPROVED" section of the CF 3499, blocks
13 (date) and 14 (signature and title of approving Customs
officer) are completed, with the date indicated to be October 17,
1995, and a signature indicated to be that of a Customs officer.
In the file there is an October 11, 1995, letter from the
protestant/drawback claimant to Customs, stated to be in regard
to Customs request for an explanation as to the reason for filing
a "destruction drawback claim." According to this letter, the
protestant's part numbers HW69812 (cable), RX69948 (cable), and
RX46042 (boot sheet) were located at a warehouse of the
protestant in El Paso, Texas. As stated above, this letter
stated that the cables and boot sheets were being disposed of as
scrap due to the fact that the components are used in manufacture
of finished products which have become obsolete, so the
components were no longer needed. According to the letter:
We are scrapping to reduce our inventory and carrying costs.
The components have been identified as having no marketable
value in our industry.
The cables will be sold to a recycle company who will reduce
the product into useless fragments to salvage the copper
and/or steel wiring. The recycle company will be present in
El Paso to take possession of these cables under Customs
supervision. The boot sheet has no recycle value [and] will
be destroyed and moved to the Las Cruces Sanitation
Department ... for disposal.
In the file there is an October 27, 1995, letter from Customs to
the protestant referencing the protested drawback entries and
stating that in no less than 20 days from the date of the notice
it was contemplated that the drawback entries would be liquidated
with zero drawback. The reason given for the difference between
the claimed and liquidated amounts was stated to be a "ruling on
destruction" attached to the letter (according to the protest,
this ruling was HQ Ruling 221050, dated September 20, 1989).
As stated above, the drawback entries under consideration were
liquidated on February 16, 1996, with no drawback. The protest
under consideration was filed with Customs on January 24, 1996.
Further review was requested and granted.
ISSUE:
Is there authority to grant the protest of denial of drawback in
this case?
LAW AND ANALYSIS:
Initially, we note that the refusal to pay a claim for drawback
is a protestable issue (see 19 U.S.C. 1514(a)(6)). However,
insofar as timeliness of the protest is concerned, the statute
providing for protests provides that:
A protest of a decision, order, or finding described in
subsection (a) of this section shall be filed with the
Customs Service within 90 days after but not before--
(A) notice of liquidation or reliquidation, or
(B) in circumstances where subparagraph (A) is
inapplicable, the date of the decision as to which
protest is made. [19 U.S.C. 1514(c)(3), emphasis added;
see also, 19 CFR 191.7, under which protest procedures
for drawback are required to be in accordance with 19 CFR
part 174, and 19 CFR 174.12(e) ("Protests shall be filed,
in accordance with ... (19 U.S.C. 1514) within 90 days
after either ... [t]he date of notice of liquidation or
reliquidation ... [t]he date of the decision, involving
neither a liquidation nor reliquidation, as to which the
protest is made ..." (emphasis added)).]
The requirement that protest be filed within 90 days after but
not before notice of liquidation or reliquidation or the date of
the decision protested has been interpreted by the Courts (see
The Best Foods, Inc. v. United States, 37 Cust. Ct. 1, 9-10, 147
F. Supp. 749, C.D. 1791 (1956) (prematurely filed protest
dismissed); United States v. Reliable Chemical Co., 66 CCPA 123,
605 F. 2d 1179, C.A.D. 1232 (1979) (prematurely filed protest,
filed after a "courtesy" notice advising of scheduled liquidation
but before the date of the bulletin notice of liquidation,
dismissed in appellate decision reversing lower court's denial of
motion to dismiss); and McDonnell Douglas Corp. v. United States,
75 Cust. Ct. 6, 465 F. Supp. 1291, C.D. 4604 (1975)). In the
McDonnell Douglas case, one of the issues was the treatment of a
prematurely filed drawback claim. The Court stated in regard to
this issue:
Inasmuch as the final liquidation of the drawback claim in
the instant case took place on February 4, 1972, the protest
filed November 11, 1971, on which the fourth cause of action
rests, is premature insofar as the drawback claim is
concerned since it was not filed within 90 days after
liquidation as required by [19 U.S.C. 1514(b)(2)(A)]. As
such, the court agrees with defendant that the court is
without jurisdiction to entertain the fourth cause of
action. Defendant's motion to dismiss the fourth cause of
action is granted, and said cause of action is hereby
dismissed. [75 Cust. Ct. at 22.]
On the basis of the foregoing, we have no choice but to DENY the
protest as prematurely filed. Although we must deny the protest
on procedural grounds, we are providing comments on the issue of
the extent of destruction required under the drawback law, when
destruction in lieu of exportation is, is involved.
In interpreting the term destruction, as used in the drawback law
when merchandise or articles are alleged to be destroyed in lieu
of exportation, Customs has followed the Customs Court case
American Gas Accumulator Co. v. United States, Treasury Decision
(T.D.) 43642 (Cust. Ct., 3rd Div. 1929) (see also H.A. Johnson
Co. v. United States, 21 Cust. Ct. 56, 61, C.D. 1127 (1948),
following the American Gas Accumulator case and stating that it
is in line with Lawder v. Stone, 187 U.S. 281, 23 S. Ct. 79
(1902), United States v. Pastene, 3 Ct. Cust. App. 164, T.D.
32458, (1912), and Poole Co. v. United States, 9 Ct. Cust. App.
271, T.D. 38216 (1919)). In American Gas Accumulator, involving
the applicability of a temporary importation under bond (T.I.B.)
provision (now in chapter 98, subchapter XIII, Harmonized Tariff
Schedule of the United States (HTSUS)) of certain cylindrical
tubular tanks which were imported for testing after which the
drums were sold as scrap or salvaged, the Court defined
destruction as follows:
Destruction in this connection means destruction as an
article of commerce. In other words, if articles were
destroyed to such an extent that they were only valuable in
commerce as old scrap they still would be articles of
commerce to which duty attached upon importation, and
therefore could not be said to have been destroyed. [56 T.D.
368, 370]
In ruling HQ 222975, September 4, 1991, following American Gas
Accumulator, supra, we held that an operation consisting of
striking machine parts with a heavy, solid metal ball and then
dismantling the parts for scrap iron, did not amount to a
destruction for purposes of drawback under 19 U.S.C. 1313(j)
because "... destruction means destruction as an article of
commerce, and valuable scrap iron is an article of commerce."
In ruling HQ 222742, December 11, 1991, we considered the
applicability of drawback under 19 U.S.C. 1313(j) to the
destruction of beer and malt liquor. The destruction left a
residue of crushed cardboard containers, crushed bottles, and
salvaged alcohol content. State law was said to proscribe the
disposition of liquid wastes without a permit from the state, and
the protestant in that case stated it was unaware of any landfill
in the state that was allowed to accept such waste. The salvaged
alcohol was sold as scrap rather than dumped as waste. The value
of the residue was less than the cost of salvaging the residue.
On the basis of "an economic infeasability claim as delineated in
C.S.D. 79-419", the ruling held that drawback could be allowed
"because the merchandise has been destroyed as required under
statute and existing law."
Customs Service Decision (C.S.D.) 79-419, cited in ruling HQ
222742, supra, held that scrap metal so buried in a public
landfill that its recovery would be economically infeasible was
considered destroyed, for purposes of the provision in 19 U.S.C.
1557(c) providing for the destruction under Customs supervision,
in lieu of exportation, of merchandise entered under bond (the
merchandise had been entered under a Temporary Importation under
Bond provision (item 864.30, Tariff Schedules of the United
States (TSUS); predecessor to subheading 9813.00.30, HTSUS)).
See, in addition to the above cases, Treasury Decision (T.D.)
54899(1) ("Reduction of an iron mold to scrap (by melting) would
not constitute a destruction ... as the scrap would have a value
and would still be an article of commerce", citing American Gas
Accumulator, supra); C.S.D. 80-24; C.S.D. 80-67; C.S.D. 81-100;
ruling 221571, February 4, 1991; and ruling HQ 224110, March 17,
1993. Several of these cases (C.S.D. 80-67, C.S.D. 81-100, and
rulings 221571 and 224110) involve destruction in a foreign trade
zone (FTZ) of merchandise, when the merchandise has been admitted
into the FTZ in zone restricted status. In such cases, scrap or
residue resulting from the destruction (e.g., valuable molten
metal resulting from the melting of gold or silver chains in
ruling 221571) may only be exported, further destroyed, or stored
in the FTZ unless the FTZ Board approves the return of the stored
scrap to Customs territory, because the merchandise is in zone
restricted status (i.e., such merchandise is "considered to be
exported" for purposes of the drawback laws and regulations, and
the other purposes enumerated in 19 U.S.C. 81c(a), 4th proviso).
As explained in rulings 221571 and 224110, this is distinguished
from the general rule, under American Gas Accumulator, supra,
requiring destruction to the extent that the articles destroyed
are no longer articles in commerce and no valuable scrap remains
(see ruling 221571, making this distinction on the basis that
when merchandise is in zone restricted status "any valuable
remnants from the destruction process in the zone cannot reenter
U.S. commerce").
In this case, the alleged destruction of the cable consists
reducing the merchandise into "useless fragments" to "salvage the
copper and/or steel wiring." Thus, under American Gas
Accumulator, T.D. 54899(1), and ruling HQ 222975, this would not
be a destruction for drawback purposes.
The protestant argues that Customs application of the American
Gas Accumulator case in interpreting the requirement for
destruction "is becoming unenforceable and ineffective as
recycling and landfill reclamation re-introduce destroyed goods'
into commerce." The protestant argues that Customs should
"[allow] for recycling and reclamation of goods destroyed' [to]
ease - if not eliminate - conflicts between Customs' requirements
and those of other agencies as businesses try to destroy goods
...."
Destruction was provided for when same condition drawback was
first enacted (Act of December 28, 1980, Public Law 96-609, title
II, 201(a), 94 Stat. 3560). Since then, the same condition
drawback law has been substantively amended several times (Act of
October 30, 1984, Public Law 98-573, Title II, 202, 98 Stat.
2973; Act of December 8, 1993, Public Law 103-182, Title II,
203(b)(3) and (c), Title VI, 632(a), 107 Stat. 2089, 2092,
2192), and other provisions of the drawback law have been amended
to provide for destruction in lieu of exportation in other
situations (manufacturing drawback under 19 U.S.C. 1313(a) and
(b), rejected merchandise drawback under 19 U.S.C. 1313(c), and
drawback for packaging material under 19 U.S.C. 1313(q) (Act of
December 8, 1993, Public Law 103-182, Title VI, 632(a), 107
Stat. 2192)). In none of these enactments is a definition of
destruction provided, nor is there any indication in the
legislative history for any of these enactments as to how the
Congress intended Customs to interpret the provisions authorizing
destruction (see Sen. Report 96-999 (Finance Committee), page 3,
96th Cong., 2d Sess. (1980), reprinted at 1980 U.S.C.C.A.N. 7345,
7347; Sen. Report 98-308 (Finance Committee), pages 28-29, 98th
Cong., 2d Sess. (1983), House Report. 98-1015 (Ways and Means),
page 64, 98th Cong., 2d Sess. (1984), House Conf. Report 98-1156,
page 125, 98th Cong., 2d Sess. (1984), reprinted at 1984
U.S.C.C.A.N. 4910, 4937-4938, 5023, 5242); House Report 103-361
(Ways and Means), part I, pages 128-132, 103d Cong., 1st Sess.
(1993); Senate Report 103-189 (Finance Committee, and others),
pages 81-85, 103d Cong., 1st Sess., page 85 (1993)).
In view of Customs long-standing administrative practice, in
interpreting destruction, based on long-standing Court decisions,
we believe, in the absence of a statutory definition of
destruction modifying that practice, or at least legislative
history indicating an intent by Congress to modify that practice,
that we have no choice, under current law, but to continue to
apply that long-standing practice. See, e.g., Joshua Hoyle &
Sons., Ltd., Inc. v. United States, 25 CCPA 128, T.D. 49244
(1937), and United States v. Samuel Dunkel & Co., Inc., 33 CCPA
60, C.A.D. 317 (1945).
Accordingly, even if the protest had not been prematurely filed
in this case, drawback would have been denied in regard to the
cable because the alleged "destruction" does not meet the above-described requirements. If the alleged "destruction" of the boot
sheets met the above-described requirements, as alleged and as
indicated by your office, drawback would have been allowed in
regard to the boot sheets (assuming all other drawback
requirements were met) if the protest had been timely filed. As
stated above, because the protest was prematurely filed, we have
no choice but to deny the protest in its entirety.
HOLDING:
There is no authority to grant the protest in this case, because
the protest was prematurely filed.
The protest is DENIED. 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, with
the Customs Form 19, 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,
Director, International
Trade Compliance Division