DRA-1-06/5 RR:CR:DR 227859 CB
Port Director
U.S. Customs Service
300 S. Ferry Street, Rm. 1098
Terminal Island, CA 90731
ATTN.: Drawback Branch
RE: Protest and Application for Further Review No. 2704-97-101997; Destruction of Merchandise
Dear Sir/Madam:
The above-referenced protest was forwarded to this office for a
determination. We have considered the points raised and a
decision follows.
FACTS:
Protestant filed one unused merchandise drawback claim
covering 1929.6 liters of rice wine. The claim was filed on
December 4, 1996 and indicates that the merchandise was destroyed
on November 7, 1996. Attached to the claim is letter requesting
a waiver of the requirement of destruction under Customs
supervision. The letter states that the merchandise had already
been destroyed because it was unmerchantable on the basis of
unapproved bottle size and improper label designation of Rice
Wine on a product containing more than 24 percent alcohol by
volume.
The claim was liquidated with no drawback on March 28, 1997 due
to the fact that the merchandise was not destroyed under Customs
supervision. The subject protest and application for further
review was filed on June 9, 1997.
Protestant contends the importer "was following the
directions of a person considered knowledgable (sic) of these
situations, namely an Area Supervisor for the Bureau of Alcohol,
Tobacco and Firearms (ATF) of the Department of the Treasury."
Protestant submitted a copy of a letter dated February 20, 1997,
from an ATF Area Supervisor to the importer confirming that ATF
"advised you in error about the procedures to follow in having
the product destroyed." Protestant also submitted a copy of a
"Wine Destruction Affidavit". The affidavit states "[t]his is to
certify that on 10-18, 1996 at 12:00 AM/PM. The following
quantities of wine were delivered . . . and subsequently
destroyed by fermentation and distillation at . . . ." The
affidavit is neither signed nor dated by an employee of the
importer. The affidavit is signed by an employee of the company
where the distillation took place. It is also signed by an
employee of the California Board of Equalization (presumably that
is what the letters BOFE stand for) and dated November 7, 1996.
Protestant requests that this information be taken into account
by Customs in re-evaluating its denial of the drawback claim.
Subsequent to the filing of the subject protest, your office
requested additional information. Specifically, by a letter
dated October 14, 1997, you requested the following information:
1. Was the complete destruction (for instance, by breaking
the bottles and letting the wine drain into the sewer or by
dumping the bottled in a land fill, etc.) of this merchandise an
option?
2. Did the importer pay Parallel Products to destroy the
rice wine and, if so, how much? If any payment was made, was the
payment reduced by a discount or rebate linked to the value of
the alcohol recovered by Parallel Products?
3. Was any separate payment made to the importer by
Parallel Products for the value of the recovered alcohol?
4. What happened to the alcohol recovered from the rice
wine? Please describe the fermentation and distillation process
of Parallel Products.
Protestant forwarded the importer's response dated October 27,
1997. The importer responded to the questions in the same
sequence and stated as follows:
1. Complete destruction: Attached (Affidavit destruction of
Bachwha 24 Rice Wine) (referring to the Wine Destruction
Affidavit discussed above).
2. Paid to Parallel Products to destroy the merchandise
$174.20.
3. There are no reductions by a discount or rebate linked
to the value of the alcohol recovered by Parallel Products.
4. There were no payments made to the importer by Parallel
Products for the value of the recovered alcohol.
5. The importer attached a copy of Parallel Products
Processing Diagram to describe the fermentation and distillation
process.
We note that protestant and/or the importer failed to
respond to the question regarding what happened to the recovered
alcohol.
ISSUE:
Was denial of the subject drawback claim proper?
LAW AND ANALYSIS:
Initially, we note that the protest was timely filed under
the statutory and regulatory provisions for protests (see 19
U.S.C. 1514 and 19 CFR Part 174). We note that the refusal to
pay a claim for drawback is a protestable issue (see 19 U.S.C.
1514(a)(6)).
This protest involves drawback under 19 U.S.C. 1313(j)(1).
Basically, under this statutory provision, drawback is authorized
if imported merchandise on which was paid any duty, tax, or fee
imposed under Federal law because of its importation is, within 3
years of the date of importation, exported or destroyed under
Customs supervision and was not used in the United States before
such exportation or destruction.
The requirements for claiming drawback on destroyed
merchandise are set forth in 19 CFR 191.71 (formerly 191.141(f)).
The claimant is required to notify Customs of the intended
destruction at least 7 working days before the intended date of
destruction. Customs has 4 working days, after receipt of the
notice, to decide whether it wants to witness the destruction.
Destruction of merchandise after such notification is deemed to
have been destroyed under Customs supervision.
It is well established that drawback laws confer a
privilege, not a right. Swan & Finch Company v. United States,
190 U.S. 143, 23 Sup. Ct. 702 (1903). When merchandise is
imported and a drawback statute may potentially be applicable, an
accruing or inchoate right may be said to arise. However, the
right to recover drawback ripens only when all provisions of the
statute and applicable regulations prescribe under its authority
have been met. Romar Trading Co., Inc. v. United States, 27
Cust. Ct. 34 (1951); General Motors Corporation v. United
States, 32 Cust. Ct. 94 (1954). Drawback claimants must
strictly adhere to the requirements set forth in the statutes and
applicable regulations. United States v. Lockheed Petroleum
Services, Ltd., 1 Fed. Cir. (T) 63, 709 F.2d 1472 (1983).
In C.S.D. 82-128 we held that the language "destroyed under
Customs supervision" does not require on site observation of the
destruction by Customs but does require the opportunity to
observe the destruction. Although C.S.D. 82-128 pertained to
temporary importations under bond, the language "destroyed under
Customs supervision" is the same. In the Lockheed Petroleum
case, supra, the Court of Appeals reversed the lower court and
held that the drawback claimant was not entitled to drawback of
customs duties because the claimant had failed to file an
abstract of manufacture with Customs prior to the subject
vessel's departure and, thereby, Customs had no opportunity to
verify the contents of the abstract through an examination of the
vessel. The court held that the subject regulation was mandatory
and "compliance is a condition precedent to the right of recovery
of drawback." Id., at 1474.
Based on the language of the statute, 19 U.S.C. 1313(j),
the applicable regulations and the precedent cited above, it is
clear that Customs must have the opportunity to supervise the
destruction of merchandise for which drawback will be claimed
under section 1313(j). In the instant case, not only was Customs
denied the opportunity to witness the destruction but the
evidence submitted in support of the subsequent request for a
waiver is faulty. As discussed in the FACTS portion of this
ruling, protestant has submitted a "Wine Destruction Affidavit"
as proof that the imported wine was destroyed. However, such
affidavit contains certain internal inconsistencies. We note
that it is not clear from the record whether this affidavit was
prepared by the importer or Parallel Products. Specifically, we
note that the affidavit states that on October 18, 1996 at 12:00
am/pm the merchandise was delivered and subsequently destroyed by
Parallel Products. However, the certification from the BOFE
representative is dated November 7, 1996. There is no
explanation as to this twenty-day gap. Additionally, the
affidavit is not signed by the importer. Finally, the affidavit
provides a space to indicate the bill of lading number. This
information has been left blank. Due to the protestant's failure
to comply with the statutory requirement that the merchandise be
destroyed under Customs supervision, and by denying Customs the
opportunity to observe the destruction, the protestant is not
entitled to drawback.
More importantly, even if the noted date and identity
deficiencies of the affidavit were corrected, we conclude that
the imported wine was not destroyed for purposes of the drawback
law. According to protestant and the importer, the subject wine
was distilled and fermented. It has long been Customs position
that distillation of alcoholic beverages does not constitute a
destruction for purposes of the Customs laws. The Customs
Service has uniformly applied the definition of destruction
enunciated by the Customs Court in American Gas Accumulator Co.
v. United States, T.D. 43642, 56 Treas. Dec. 368 (Cust. Ct., 3d
Div. 1929). The court held that destruction (for purposes of a
temporary importation under bond) means destruction as an article
of commerce. Any subsequent commercial use of the article
precludes a finding that there was a destruction. See HQ 221050,
dated September 20, 1989, wherein we held that complete
destruction had not occured when the remnant of the destruction
process, i.e., crushed cardboard containers, crushed beer
bottles, and recoverd beer alcohol content, had a scrap value of
38 cents per crushed case of beer.
Protestant contends that it followed ATF's instructions
regarding destruction of the wine. However, it appears that ATF
does not believe the use of the term "exportation" in the phrase
"destruction in lieu of exportation" is to be accorded any
significance. When Congress provides destruction as an
alternative to exportation for purposes of avoiding tariff and
tax liability otherwise attaching, it is only logical for
destruction to have a meaning commensurate with exportation,
i.e., an act that removes an article entirely from the commerce
of the United States so that the imported good is not used in any
commercial activity within the United States. Transforming the
imported good into another article of commerce within the United
States is, itself, a commercial activity and, not, a destruction
of the imported good.
In the instant case, protestant has not provided an
explanation as to what happened to the alcohol recovered from the
rice wine. The Parallel Products processing diagram submitted by
the importer simply shows alcohol product coming out of the
fermentation and distillation process. There is no explanation
as to what is done with the recovered alcohol. In fact, it
appears to be used in a manufacturing process to make another
article. Thus, protestant has failed to establish that there has
been a complete destruction of the rice wine as an article of
commerce.
Finally, it must also be noted that we are not persuaded by
protestant's contention that both the ATF and BOFE determined
that the imported rice wine had been destroyed. Nor, are we
persuaded by the fact that the importer followed the directions
of the local ATF Area Supervisor. There is no evidence in the
record as to what the ATF and BOFE standard is for destruction of
merchandise. Consequently, we cannot make a determination as to
whether those Agency's standards would satisfy the meaning of the
term "destruction" under Customs laws as interpreted by the
courts.
HOLDING:
The subject protest should be DENIED in full. Protestant
failed to accord Customs the opportunity to witness the
destruction of the subject merchandise. Further, protestant has
failed to establish that there was a complete destruction of the
rice wine.
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, with
the Customs Form 19, 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,
John A. Durant, Director
Commercial Rulings Division