DRA-4 RR:CR:DR 228199 WGR/CB
Port Director
U.S. Customs Service
6 World Trade Center, Room 761
New York, NY 10048-0945
Attn.: Lawrence Ryan
RE: Protest and Application for Further Review No. 1001-98-102076; 19 U.S.C. §1313(j)(1); disassembly of drawback merchandise; partial exportation with benefit of drawback; waiver of prior notice; HQ 219606 and 206209 discussed; C.S.D. 88-14, 85-49; HQ 226473 followed
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:
During 1994, the claimant imported 12,468 units of Model L465 (a particular lighting fixture) which were entered for consumption and placed in a public warehouse in California. The warehouse operator, pursuant to the claimant’s instructions, inspected the shipments and determined that 10,620 of the imported lamps had arms that were defective. According to the protestant, discussions ensued with the supplier and he agreed to repair the defective items. Protestant states that instructions were verbally issued (presumably to the warehouse operator) to package the defective items for shipment to the manufacturer in Taiwan and to have the necessary Customs documents prepared in order that the repaired lamps could be returned under the appropriate tariff provision for 9802 treatment as articles exported and returned. The defective lamp arms were exported from Los Angeles on February 16, 1995 per the attached bill of lading. In April and May of 1995 the arms (10,140) were returned to the United States. However, according to protestant, because the proper paperwork for the arms to be returned as articles exported and returned was not prepared, the repaired goods were entered a second time as fully dutiable.
An unused merchandise drawback claim was filed on July 1, 1997 together with a request for a waiver of prior notice of intent to export. The cover letter attached to the claim states that the protestant was unable to identify specifically which imports the returned units came from and, therefore, protestant was requesting “blanket identification of the exported units to the three imports received.” Also enclosed with the claim were the following:
1. A list of import shipments and copies of CF 7501 with supporting documentation for 12,486 lamps.
2. Export bill of lading covering 10,620 lamps.
3. Letter from supplier concerning returned merchandise.
4. Copies of subsequent entries showing import at full value of lamps.
A Customs Form 29 (CF 29 Notice of Action) was issued informing the claimant that the request for waiver of prior notice was denied and that the claim would be denied without the benefit of drawback because imported merchandise was entered as lamps and the exported merchandise consisted of parts of lamps. The claim was liquidated “no drawback” on March 27, 1998. The subject protest was filed on June 23, 1998.
ISSUES:
1. Was denial of the subject request for waiver of prior notice proper?
2. Does the exported merchandise qualify for drawback under 19 U.S.C. §1313(j)(1)?
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 also note that the refusal to pay a claim for drawback is a protestable issue (see 19 U.S.C. §1514(a)(6)).
Section 313(j) of the Tariff Act of 1930, as amended (19 U.S.C. §1313(j)(1)), provides for a refund of duties on imported merchandise, exported or destroyed under Customs supervision, within three years from the date of importation, and not used within the U.S. before such exportation or destruction. Prior to the amendment of the drawback statute by section 632, title VI - Customs Modernization, Pub. L. No. 103-182, the North American Free Trade Agreement Implementation (“NAFTA”) Act (107 Stat. 2057) (hereinafter the “Customs Mod Act”), enacted December 8, 1993, an additional requirement under section 1313(j) was that the merchandise be in the same condition as when it was imported.
Issue #1
At the time the subject claim was filed, the requirements for filing and documentation prior to exportation were set forth in 19 C.F.R. §191.141. Under paragraph (b) of 19 C.F.R. §191.141, an exporter who desired to export merchandise with drawback under 19 U.S.C. §1313(j) was required to file a completed CF 7539 at least 5 working days prior to the date of intended exportation unless a shorter filing period was approved. Under 19 C.F.R. §191.141(c), the exporter-claimant could seek a waiver of prior notice of intent to export provided certain conditions were met. The regulation provided that “[t]he appropriate Customs officer may waive prior notice at any time . . . .” 19 C.F.R. §191.141(b)(2)(ii).
The drawback regulations were revised to implement the changes to the drawback law contained in the Customs Mod Act. See T.D. 98-16, published in 63 Fed Reg. 10970 (1998). These regulations became effective on April 6, 1998. We are aware of the fact that the criteria for evaluating such a request, in effect at the time the subject request was filed, was different than the current regulation (e.g., the claimant had to have filed six consecutive error free claims, etc.). Nonetheless, given the fact that liquidation has not become final, the current regulations should be applied. Under 19 C.F.R. §191.36(a), merchandise which has been exported without complying with the requirements of §191.35 (notice of intent to export) or §191.91 (waiver of prior notice of intent to export) may be eligible for unused merchandise drawback provided certain conditions are met.
Customs position, as evidenced by a series of Customs Service Decisions, is that the requirement for prior notice of intent to export may be waived at any time, including after exportation. See Customs Service Decision (“C.S.D.”) 83-1, 83-68, 85-35, and 88-14. When such a request is filed, the appropriate Customs field office must act on the request reasonably exercising his or her discretion. Furthermore, Customs Headquarters position has always been not to substitute its judgment for that of the appropriate field office in the absence of a clear abuse of discretion. See C.S.D. 88-14. In the instant case, there is no evidence to indicate on what basis the waiver request was denied. The Customs position, as embodied in 19 C.F.R. §191.36(c) and the cited decisions, has always been to provide a reasoned decision setting forth the basis for the denial. That is the only way Customs Headquarters can determine whether the action of the field office was a clear abuse of discretion. In the instant case, the CF 29 simply states that the waiver was denied. There is no explanation provided as to why the request was denied. There is no basis, in the statute or regulations, to deny a request for waiver if a claimant is able to satisfactorily establish by other means, as set forth in 19 C.F.R. §191.36(a)(1), that the merchandise was not used in the United States prior to exportation and the date and place of exportation.
Issue #2
As stated above, prior to the Customs Mod Act, in order to qualify for drawback under 19 U.S.C. §1313(j)(1) the exported merchandise had to be in the same condition as when it was imported. However, the current standard is that merchandise may not have been used in the United States. Under 19 U.S.C. §1313(j)(3), the performing of certain operations or combination of operations, not amounting to a manufacture or production for drawback purposes on the imported merchandise, is not treated as a “use” of that merchandise.
It is protestant’s position that there is no statutory requirement that the complete duty paid item (in this case, the entire lamp) be exported in order to qualify for unused merchandise drawback. Protestant relies on two rulings HQ 219606, dated August 24, 1987 (which in turn relied on C.S.D. 85-49) and HQ 206209, dated May 18, 1976 in support of its position. HQ 206209 held that there is no requirement “. . .[in 19 U.S.C. §1313(c)] that an entire shipment must be exported in order for an importer to receive a drawback of duties on that portion of the merchandise which is rejected as not conforming to sample or specifications or, shipped without the consent of the consignee.” In HQ 206209, two packages of diamonds were covered by one mail entry. The exporter invoiced the diamonds separately, one invoice covered a large number of stones and the other covered four stones totaling 6.25 carats. The four stones covered by the second invoice were the subject of the drawback claim. The value of the exported merchandise was readily ascertainable because of the separate invoicing. Additionally, as stated in that decision, “[i]t is . . . incumbent upon the importer to establish his claim in all particulars and, clearly, he must establish that the merchandise exported is in fact the merchandise that is the subject of the import entry at issue.” In that particular instance, there was no difficulty in establishing that the exported merchandise was the imported merchandise. Diamonds were imported and diamonds were exported.
The same reasoning holds true for HQ 219606 and C.S.D. 85-49. In HQ 219606 a company imported four fully equipped prototype subway cars. The importer sought to strip the imported and domestic parts from the nonconforming cars and destroy the rejected shells under Customs supervision. Customs held that drawback was allowed on the stripped car shells provided the Customs officer could verify from the entry documents the amount of duty paid on the car shell. It must also be pointed out that, in that particular instance, the assembled cars were imported under item 807, TSUS (currently 9802, HTSUS), because they contained U.S. articles which were incorporated into the subway cars abroad. Thus, upon entry into the United States of the subway cars the importer would have had to provide an itemization of the merchandise and exclude the U.S. parts which were incorporated into the imported subway cars. This decision was based on HQ 206209 and C.S.D. 85-48. In C.S.D. 85-48 we held that if non-reusable containers have value, that value can be deducted from the total value of the imported merchandise before computing drawback. Thus, in both instances, the determining factor was that the value of the designated merchandise could be determined from the entry papers. See former sections 10.17 - 10.19 and 10.24, Customs Regulations (1984 ed.) For the valuation procedures and documentary requirements applicable to imported goods assembled with U.S. components for which an exemption was claimed.
Finally, there is no support in the language of the statute (or legislative history) to support a conclusion that an imported article may be disassembled and drawback claimed on only certain parts of the article which are exported, based on an apportionment of the duties paid on the imported article. A basic tenet of statutory interpretation is that “the starting point for interpreting a statute is the language of the statute itself.” See Consumer Prod. Safety Comm’n v. GTE Sylvania, Inc., 447 U.S. 102, 108 (1980). The statute at issue in this case, 19 U.S.C. §1313(j)(1), states that:
(1) If imported merchandise, on which was paid any duty, . . .
(A) is, before the close of the 3-year period beginning on the date
of importation–
(i) exported, or . . . .
Thus, the plain language of the statute requires that drawback be paid upon the exportation of the imported merchandise. There is no provision, in 19 U.S.C. §1313(j)(1), for apportioning the duties paid on the imported merchandise (a complete lamp) to the exported merchandise (lamp arms). As stated by the Court of International Trade, in 718 Fifth Avenue, Corp. v. United States, 741 F. Supp. 1577, 14 CIT 403 (1990), “[t]he legislative history [to 19 U.S.C. §1313(j)] indicates, as does the resultant enactment itself, that the condition of the merchandise upon exportation and the three-year period were the primary focus of Congress.” (Emphasis added.)
The fact situation subject to this protest is similar to the fact situation in HQ 226473, issued March 19, 1996. In said ruling, we held that a pistol which is imported with a magazine and exported without a magazine is not eligible for drawback pursuant to 19 U.S.C. §1313(j)(1). This conclusion was based on the reasoning that because the imported pistol (with a magazine) is not the same merchandise as the exported pistol (without a magazine), based upon the language
of the statute, the exported pistol was not eligible for drawback. Likewise, in the instant case, the imported complete lamp is not the same merchandise as the exported lamp arm.
Additionally, there are several judicial decisions which limit the scope of Customs authority under 19 U.S.C. §1313 to the plain language of the statute. In The B.F. Goodrich Company v. United States, 794 F. Supp. 1148, 16 CIT 333 (1992), the Court of International Trade concluded that Customs cannot infer a purpose from the design of the drawback statute taken as a whole. In B.F. Goodrich, the court rejected Customs interpretation that the drawback statute, 19 U.S.C. §1313(j)(2), required actual possession of the imported merchandise based on a reading of the clear language of the statute because the statutory text contains no such provision. See also Central Soya Co., Inc. v. United States, 761 F. Supp. 133, 15 CIT 105 (1991) (Customs cannot require that the drawback claimant be the exporter of the substituted merchandise because no such text was present in the statute); and 718 Fifth Avenue v. United States, supra (Customs cannot restrict attempts to claim drawback by a series of importation/exportation cycles because the court found that Customs had stipulated that the good on that last export met every textual requirement of the statute). As stated above, there is no statutory authority for Customs to conclude that drawback may be paid on duties which have been apportioned. In contrast to the text of 19 U.S.C. §1313(j), the text of 19 U.S.C. §1313(a) requires a distribution of drawback where two or more products result from the processing of the imported merchandise. That provision in 19 U.S.C. §1313(a) was made applicable to substitution manufacturing drawback under 19 U.S.C. §1313(b) by the words “. . . there shall be allowed, . . ., an amount of drawback
equal to that which would have been allowable had the merchandise used therein been imported ....” There is simply no similar statutory authority for Customs to apportion drawback based on the exportation of components that were part of a single imported good when entered. The intent of Congress to permit Customs to apportion value must be found in the relevant statutory text. Another illustration of this principle is found in 19 U.S.C. §1563. That statute expressly provides authority for Customs to allow a reduction in duty that are shown to be the result of loss or damage to the imported goods. Samsung Electronics America Inc. v. United States, CIT Slip Op. 99-3 (Jan.6, 1999). By comparison where Customs attempted to assign to one entry the values of merchandise in other entries or the duties owing on them, the court held that there was no support for the Customs action under the relevant statute. Alyeska Pipeline Service Co. v. United States, 643 F. Supp. 1128, 10 CIT 510 (1986); reh.. 683 F. Supp. 817, 11 CIT 931 (1987), vacated as moot on other grounds, unpublished order (May 19, 1998).
There is simply no language in 19 U.S.C. §1313(j) which permits Customs to apportion drawback when a component of the imported merchandise, rather than the imported merchandise itself, is exported.
HOLDING:
The protest should be DENIED. Drawback, under 19 U.S.C. §1313(j)(1), may not be apportioned to non-conforming portions of imported merchandise which are separated from conforming portions and exported.
In accordance with Section 3A(11)(b) of Customs Directive 099 3550 065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to mailing the decision.
Sixty days from the date of the decision, the Office of Regulations and Rulings
will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.ustreas.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
John A. Durant, Director
Commercial Rulings Division