DRA-4 RR:CR:DR
229305 CK
U.S. Customs
Port Director
ATT: Deidra Golden
2350 North Sam Houston Parkway East
Suite 1000
Houston, Texas 77032-3126
RE: Application for Further Review of Protest number 5301-00-100272; Astra Oil Company, Inc.; Drawback; 19 U.S.C. § 1313(p); §1313(j)(2); §1313(r); commercial interchangeability
Dear Sir or Madam:
The above-referenced protest, dated October 25, 2000, was forwarded to our office as an Application for Further Review of Protest No. 5301-00-100272. We also received your transmittal memorandum dated September 6, 2001, regarding this AFR.
Initially, we note that the protest was timely filed on October 25, 2000 under the statutory and regulatory provisions for protests (see 19 U.S.C. §1514 and 19 CFR Part 174). The refusal to pay a claim for drawback is a protestable issue. Here, the port denied the claim on July 28, 2000 (see 19 U.S.C. §1514(a)(6)). However, we note that the request for AFR was not made until July 28, 2001. It is the opinion of your office that the Protestant’s Request for Further Review meets the requirements of 19 C.F.R. §174.24 and is therefore entitled to review by this office. However, 19 CFR §174.23 sets out that a request for further review shall be filed in the time allowed in 19 CFR §174.12. Section 174.12 of the Customs Regulations states, in this case, the time for filing is within 90 days of liquidation. Therefore, the request for AFR on July 28, 2001 is not within 90 days of the liquidation of July 28, 2000, and the request for further review is untimely. Consequently, we note at the outset that the criteria for further review as set out in 19 CFR §§174.23-174.25 have not been met by the subject AFR, and we will treat this application as a request for internal advice per 19 C.F.R. §177.11.
FACTS:
Protestant, Astra Oil Company, Inc. filed a drawback entry, 597-8, dated December 20, 1996, pursuant to 19 U.S.C. 1313(j)(2) for No. 2 fuel oil, also referred interchangeably by the parties as gasoil. The Port of Houston denied the drawback entry on July 28, 2000.
Originally, Protestant designated entries 696-3 and 716-8 as the import entries from which the exported gasoil, the basis of drawback entry 597-8, originated. Protestant claimed drawback on the exportation of 140,229 bbls of gasoil. We note that on the CF 7539 Protestant described the merchandise as “Unl. Gasoline.” A portion, 79,392 bbls, of the exported merchandise was designated against import entry 696-3, and 60,817 bbls were designated against import entry 716-8, entry summary dated March 26, 1996. The drawback entry was denied based on the finding by Customs’ New Orleans, Laboratory and Scientific Services (LSS) that the merchandise in both import entries, and the exported merchandise do not meet the ASTM D 396 specification for #2 fuel oil. Additionally, LSS noted that the merchandise in both entries were not commercially interchangeable with each other.
In its protest, Protestant amended its drawback claim on February 27, 1997, by dropping entry 696-3 as a designated entry, and re-designating entry 231-6, dated November 20, 1996 as the source of 79,392 bbls of the exported gasoil. Protestant further amended its drawback claim by seeking drawback on that amount under 19 U.S.C. 1313(p). Protestant affirmed its use of entry 716-8 as the designated import against the export of 60,837 bbls of exported gasoil, and states that the imported and exported gasoil is commercially interchangeable. Protestant further amended its protest by changing the description of its merchandise from “Unl. Gasoline” to “No. 2 Fuel Oil” and stating in parenthesis “gasoil.”
A CF 7501 was submitted for entry 716-8, dated March 26, 1996. Line item 1 is 95,868 bbls of “oth, fuel oils,” classified as 2710.00.1008, HTSUS. The carrier is the M/V Overseas Vivian. A report of analysis (certificate of quality) from Inchcape Testing Services was submitted, and the following is found:
Property
Test Method
Result
Units
API Gravity @ 60 F
ASTM D287
32.3
API
Flash Point
ASTM D93A
163
Degree F
Sulfur Content
ASTM D4294
.29
% of weight
10% Distillation
ASTM D86
404.8
Degrees F
50 % Distillation
ASTM D86
522.9
Degrees F
90% Distillation
ASTM D86
639.1
Degrees F
Final B.P.
ASTM D86
672.7
Degrees F
Viscosity at 100º F.
ASTM D445
2.82
Cst
Pour Point
ASTM D97
<-30º c/-22 Deg. F
Degrees C and F
A CF 7501 was submitted for entry 231-6, dated November 20, 1996. Line item 1 is 221,020 bbls of “oth, fuel oils,” classified as 2710.00.1008, HTSUS. The carrier is the M/V Yan Shui Hu. A report of analysis (certificate of quality) from Petrotrin for “gasoil” was submitted, and the following is found:
Property
Test Method
Result
Tank 3
Result
Tank 164
Result
Tank 66
Units
API Gravity at 60º
ASTM D1298
32.1
32.4
32.7
API
Flash Point
ASTM D93
85.5
80.0
79.0
Degree C
Sulfur Content
ASTM D4294
.47
.41
.46
% of weight
50 % Distillation
ASTM D86
277
277
277
Degrees C
90% Distillation
ASTM D86
334
334
334
Degrees C
End Point
ASTM D86
363
369
366
Degrees C
Pour Point
ASTM D97
-21
-21
-18
Degrees C
Water and Sediment
ASTM D2709
0.05
0.05
0.05
% of volume
Kinematic Viscosity at 40º C
ASTM 445
3.331
3.342
3.380
mm 2/3
Density at 15º C
ASTM D1298
0.8645
0.8630
0.8615
kg/m3
A tanker bill of lading for the M/T Bolero 1 destined for Costa Rica dated December 25, 1996 is also attached. The bill of lading is for 140,229.14 U.S. barrels of “gasoil.” Also attached is a shipper’s export declaration, dated December 30, 1996 for the export of 140,229 bbls of gasoil commodity number 2710.00.0020 under the Department of Commerce’s Schedule B, leaving from Texas for Costa Rica. (We note that the export declaration is nearly illegible for the commodity number at the seven-digit level).
Also attached is a certificate of analysis from Inspectorate America for gasoil aboard the Bolero 1, and the following is found:
Property
Test Method
Result
Units
API Gravity @ 60 F.
ASTM D287
35.1
API
Flash Point
ASTM D93
170
Degree F
Sulfur Content
ASTM D4294
.29
% of weight
Initial Boiling Point
ASTM D86
370
Degrees F
10% Distillation
ASTM D86
430
Degrees F
50 % Distillation
ASTM D86
524
Degrees F
90 % Distillation
ASTM D86
600
Degrees F
Final B.P.
ASTM D86
640
Degrees F
Viscosity CST @ 100º F.
ASTM D445
3.06
mm 2/3
Ramsbottom Carbon Residue on 10%
ASTM D524
0.16
% of weight
Below are the ASTM D396 specifications for Fuel oil no. 2, as published in the Annual Book of ASTM Standards, 2001.
Property
Method
No. 2 requirements
Flash Point
ASTM D93
Min. 38º C
Water and Sediment
ASTM D2709
0.05
90 % Distillation
ASTM D86
Min. 282º C
Final B.P.
ASTM D86
338º C
Kinematic Viscosity at 40º C, mm 2/3
ASTM 445
1.9 Min./
3.4 Max.
Ramsbottom Carbon Residue on 10%
Distillation Residue, % mass
ASTM D524
0.35 Max.
Sulfur Content
ASTM D4294
0.50 Max.
Density at 15º C, kg/m3
ASTM D1298
876 Max.
Pour Point
ASTM D97
Max. -6º C
ISSUES:
Is the merchandise from entry 776-8 commercially interchangeable with the exported merchandise for purposes of 19 U.S.C. 1313(j)(2)?
Can the Protestant change its drawback claim from a 19 U.S.C. 1313(j)(2) claim to a 19 U.S.C. 1313(p) claim based on a different designated import entry?
LAW AND ANALYSIS:
Under 19 U.S.C. §1313(j)(2), as amended, drawback may be granted if there is, with respect to imported duty paid merchandise, any other merchandise that is commercially interchangeable with the imported merchandise and if the following requirements are met. The other merchandise must be exported or destroyed within three years from the date of importation of the imported merchandise. Before the exportation or destruction, the other merchandise may not have been used in the United States and must have been in the possession of the drawback claimant. The party claiming drawback must either be the importer of the imported merchandise or have received from the person who imported and paid any duty due on the imported merchandise a certificate of delivery transferring to that party, the imported merchandise, commercially interchangeable merchandise, or any combination thereof. From the evidence submitted in this case, it appears that Astra Oil had possession of the imported and exported merchandise, however the issue of possession will not be addressed in this decision.
The drawback statute was substantively amended by section 632, title VI Customs Modernization, Pub. L. No. 103 182, the North American Free Trade Agreement Implementation ("NAFTA") Act (107 Stat. 2057), enacted December 8, 1993. The foregoing summaries of sections 1313(j)(2) and 1313(p) are based on the law as amended by Public Law 103 182. Title VI of Public Law 103 182 took effect on the date of enactment of the Act (section 692 of the Act). Except for subsection (p), according to the applicable legislative history the amendments to the drawback law (19 U.S.C. 1313) are applicable to any drawback entry made on or after the date of enactment as well as to any drawback entry made before the date of enactment if the liquidation of the entry is not final on the date of enactment (H. Report 103 361, 103d Cong., 1st Sess., 132 (1993); see also provisions in the predecessors to title VI of the Act; H.R. 700, 103d Cong., 1st Sess., section 202(b); S. 106, 103d Cong., 1st Sess., section 202(b); and H.R. 5100, 102d Cong., 2d Sess., section 232(b)). The amendments to section 1313(p) apply to claims filed or liquidated on or after January 1, 1988, and claims that are unliquidated, under protest, or in litigation on the date of enactment of Public Law 103 182.
Compliance with the Customs Regulations on drawback is mandatory and a condition of payment of drawback (United States v. Hardesty Co., Inc., 36 CCPA 47, C.A.D. 396 (1949); Lansing Co., Inc. v. United States, 77 Cust. Ct. 92, C.D. 4675; see also, Guess? Inc. v. United States, 944 F.2d 855, 858 (1991) "We are dealing [in discussing drawback] with an exemption from duty, a statutory privilege due only when the enumerated conditions are met" (emphasis added)).
Before its amendment by Public Law 103 182, the standard for substitution was fungibility. House Report 103 361, 103d Cong., 1st Sess., 131 (1993) contains language explaining the change from fungibility to commercial interchangeability. According to the House Ways and Means Committee Report, the standard was intended to be made less restrictive, i.e., "the Committee intends to permit substitution of merchandise when it is ‘commercially interchangeable,' rather than when it is ‘commercially identical'" (the reference to "commercially identical" derives from the definition of fungible merchandise in the Customs Regulations, prior to their amendment in 1998 (19 C.F.R. 191.2(l)). The report, at page 131, also states:
The Committee further intends that in determining whether two articles were commercially interchangeable, the criteria to be considered would include, but not be limited to: Governmental and recognized industry standards, part numbers, tariff classification, and relative values.
The Senate Report for the NAFTA Act (S. Rep. 103 189, 103d Cong., 1st Sess., 81 85 (1993)) contains similar language and states that the same criteria should be considered by Customs in determining commercial interchangeability. The amended Customs Regulations, 19 CFR 191.32(c), provide that in determining commercial interchangeability:
...Customs shall evaluate the critical properties of the substituted merchandise and in that evaluation factors to be considered include, but are not limited to, Governmental and recognized industrial standards, part numbers, tariff classification and value.
In order to determine commercial interchangeability, Customs adheres to the Customs regulations, which implement the operational language of the legislative history. The best evidence as to whether those criteria are used in a particular transaction are the claimant’s transaction documents. Underlying purchase and sales contracts, purchase invoices, purchase orders, and inventory records show whether a claimant has followed a particular recognized industry standard, or a governmental standard, or any combination of the two, and whether a claimant uses part numbers to buy, sell, and inventory the merchandise in issue. The purchase and sale documents also provide the best evidence with which to compare relative values. Also, if the claimant used another criterion to sort the merchandise, the claimant’s records would show that fact which will enable Customs to follow the Congressional directions.
Government or Industry Standard
In this case there is a recognized industry standard. Governmental and recognized industry standards are generally considered the most important of the four criteria with respect to the issue of commercial interchangeability. While the New Orleans LSS originally looked at the ASTM D396 specifications for Fuel oil no. 2 and determined the imported merchandise and exported merchandise was not used interchangeably, new specifications submitted by the Protestant were sent to the Washington, D.C. LSS.
A chart comparing the merchandise from entry 716-8, the exported merchandise, and the ASTM specifications for Fuel oil no. 2 is below:
Property
Method
ASTM D396
Entry 716-8
Export
API Gravity @ 60 F
ASTM D287
32.3
35.1
Flash Point
ASTM D93A
Min. 100.4
163
170
Sulfur Content
ASTM D4294
0.50 Max.
.29
.29
10% Distillation
ASTM D86
404.8
430
50 % Distillation
ASTM D86
522.9
524
90% Distillation
ASTM D86
Min. 539.6
639.1
600
Final B.P.
ASTM D86
Max. 640.4
672.7
640
Pour Point
ASTM D97
-6º c Max.
<-30º C/-22 Degree F
Viscosity CST @ 100º F.
ASTM D445
1.9 Min./
3.4 Max.
2.82
3.06
Ramsbottom Carbon Residue on 10%
ASTM D524
0.35 Max.
0.16
Water and Sediment
ASTM D2709
0.05
Density at 15º C, kg/m3
ASTM D1298
876 Max.
The Washington, D.C. LSS determined that the imported fuel from entry 716-8, and the exported gasoil were interchangeable, and that both met the specifications for Fuel oil no. 2. Therefore, this criterion is met.
A chart comparing the merchandise from entry 231-6, the exported merchandise, and the ASTM specifications for Fuel oil no. 2 is below.
Property
ASTM D396
Entry 231-6
Tank 3
Entry 231-6
Tank 164
Entry 231-6
Tank 66
Export
API Gravity @ 60 F
32.1
32.4
32.7
35.1
Flash Point
Min. 100.4
185.9
176
174.2
170
Sulfur Content
0.50 Max.
.47
.41
.46
.29
10% Distillation
430
50 % Distillation
277
277
277
524
90% Distillation
Min. 539.6
633.2
633.2
633.2
600
Final B.P.
Max. 640.4
685.4
696.2
690.8
640
Pour Point
-6º c Max.
-21
-21
-18
Viscosity CST @ 100º F.
1.9 Min./
3.4 Max.
3.331
3.342
3.380
3.06
Ramsbottom Carbon Residue on 10%
0.35
0.16
Water and Sediment
0.05
.05
.05
.05
Density at 15º C, kg/m3
876 Max.
.8645
.8630
.8615
The Washington, D.C. LSS has also determined that the imported fuel from entry 213-6, and the exported gasoil were interchangeable, and that both met the specifications for Fuel oil no. 2. Therefore, this criterion is met for entry 213-6.
Tariff Numbers
The merchandise in both entries (231-6 and 716-8), according to the CF 7501s, is classified as 2710.00.1008, HTSUS. The exported merchandise according to the export declaration, which is illegible at the seven digit level, is commodity number 2710.00.0020 under the Department of Commerce’s Schedule B. The Harmonized Tariff Schedule and Schedule B share chapter headings, but are not necessarily corresponding through the eight and ten digit level. However, it states in T.D. 98-16, 63 F.R. 10978 (March 5, 1998), Final Rule promulgating revision of Part 191, Customs Regulations that
In any event, although only the 6-digit HTSUS or Schedule B commodity number is required on the certificate of delivery for the transfer of substituted merchandise under 19 U.S.C. 1313(j)(2), full tariff classification is required to establish commercial interchangeability under 19 U.S.C. 1313(j)(2). (emphasis added)
Based on the above information, the imported and exported merchandise appears to be the same only through the six digit number, rather than the full tariff classification. Additionally, our research of the obsolete and current commodity numbers of Schedule B, showed that there was never a commodity number 2710.00.0020, nor any number other similar number. Any higher numbers such as 2710.00.60 or 2710.00.80 would not correspond to the physical or chemical properties found in the exported commodity. Our research also showed that the corresponding Schedule B commodity number to subheading 2710.00.1008, HTSUS would have been 2710.00.1007, and the commodity number supplied on the export declaration could not possibly be interpreted to be 2710.00.1007. Therefore, this criterion does not support a finding of commercial interchangeability for either entry 716-8 or 231-6.
Part Numbers
Part numbers are not applicable, instead the only distinguishing actions taken is into which tank number the merchandise is offloaded or removed from. This criterion is neutral for both entries.
Relative Values
Protestant has not submitted any commercial information or evidence to support the value of the merchandise. No sales or purchase orders or invoices, letters of credit, or any other financial information was submitted. However, Protestant states that the price of the import cargo (716-8) was $24.84 and price of the export cargo (Costa Rica) was $26.54. Protestant also states that the price of the import cargo in entry 231-6 was $27.67 and price of the export cargo (Costa Rica) remains $26.54. The price per bbls for the import is the dutiable value declared on the CF 7501s divided by the number of bbls. The export price per bbls is based on the declared value on the export declaration divided by the quantity exported. We accept these figures as a stipulation of price by Protestant. Therefore, since Protestant has stipulated the price, based on the dutiable value and export declaration, we accept that there is only a small difference in the relative values of the imported and exported merchandise and this criterion is met.
In this case part numbers are inapplicable. Tariff numbers do not support a finding of commercial interchangeability. However, industry standards and relative values criteria are favorable to a finding of commercial interchangeability. Based on an analysis of the four criteria above, we find that the merchandise in entry 716-8 and entry 231-6 is commercially interchangeable with the exported gasoil. The protest should be granted for this portion of the drawback claim.
The second issue is whether Protestant can amend its 19 U.S.C. 1313(j)(2) claim to base drawback entitlement under 19 U.S.C. 1313(P).
We note that under 19 U.S.C. 1313(r)(2), a drawback entry filed pursuant to any subsection of section 1313 shall be deemed filed pursuant to any other subsection of section 1313 if it is determined that drawback is not allowable under the entry as
originally filed but is allowable under such other subsection.
Based on the plain language in 19 U.S.C. 1313(r)(2), Protestant’s drawback claim filed pursuant to 19 U.S.C. 1313(j)(2), is also considered filed pursuant to 19 U.S.C. 1313(p).
Generally, section 1313(p) of the United States Code (19 U.S.C. §1313(p)) provides for drawback for certain petroleum derivatives. Under section 1313(p)(1), notwithstanding any other provision in section 1313, if:
(A) an article (referred to in section 1313(p) as the “exported article”) of the same kind and quality (as specifically defined in section 1313(p)) as a qualified article is exported;
(B) the requirements set forth in section 1313(p)(2) are met; and
(C) a drawback claim is filed regarding the exported article,
the amount of the duties paid on, or attributable to the qualified article shall be refunded as drawback to the drawback claimant. The “notwithstanding” clause was included in order to overcome the requirements in 19 U.S.C. §§1313(a) and (b) that the export article made by the petroleum refiner be the article that is actually exported, and that it be commercially interchangeable for purposes of §1313(j).
For purposes of this subsection a "qualified article" means an article described in
heading 2710, HTSUS (among other headings), which is imported and duty-paid. An exported article is of the "same kind and quality" as the qualified article for which it is substituted under this subsection if it is a product that is commercially interchangeable with or merchandise referred to under the same eight-digit classification of the HTSUS as the qualified article.
The requirements in section 1313(p)(2), compliance with which is a condition precedent to drawback under section 1313(p), are that the exporter must have: (1) manufactured the imported qualified article; or (2) purchased/exchanged the same from the manufacturer; or (3) imported a qualified article; or (4) purchased/exchanged an imported qualified article from the importer; and the exportation occurs within 180 days after the date of entry of the imported qualified merchandise or during the manufacturing period or within 180 days after the close of such period.
In this case, the merchandise at issue is petroleum. The merchandise in both import entries is classified under subheading 2710.00.1008, HTSUS. In regard to the exported merchandise, as discussed above in the first issue, we were unable to locate the Schedule B commodity number on the export declaration in the obsolete or current Schedule B. Therefore, “same kind & quality” for purposes of 19 U.S.C. 1313(p) cannot
be established by reference to the classification of the merchandise in entry 231-6 to the exported merchandise by the 8-digit classification of the HTSUS. However, while the tariff classification criterion was not met for purposes of commercial interchangeability, we found based on an analysis of the four criteria, the imported merchandise in entry 231-6 and the exported merchandise was commercially interchangeable, see above. Therefore the merchandise is a “qualified article” based on the commercial interchangeability of the merchandise. See, 19 U.S.C. 1313(p)(3)(B). Second, the Protestant is the importer and the exporter of the qualified article. A total of 140,229 bbls of petroleum product was exported, but only 79,392 bbls are attributed to entry 231-6. Line item 1 of entry 231-6 states that 221,020 bbls of petroleum product were imported in that entry. Therefore, the drawback claimed does not exceed the amount that may be attributed to the entry. Finally, entry 231-6 was entered November 20, 1996, and the export upon which the drawback claim is made occurred on December 25, 1996. Therefore, the exported product, which is the subject of the drawback claim, was imported within 180 days of the claimed export. Protestant has satisfied the drawback requirements for a claim pursuant to 19 U.S.C. 1313(p). The protest should be granted for the drawback attributable to a 19 U.S.C. 1313(p) claim.
HOLDINGS:
1. Taking into account that part numbers are inapplicable, tariff numbers are neutral, and that industry standards and relative values criteria are favorable, we find the merchandise in entry 716-8 and entry 231-6 to be commercially interchangeable with the exported gasoil. The protest should be granted for this portion of the drawback claim.
2. Protestant has satisfied the drawback requirements for a claim pursuant to 19 U.S.C. 1313(p). The protest should be granted for the drawback attributable to a 19 U.S.C. 1313(p) claim.
The protest is granted. 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.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles Harmon, Acting Director
Commercial Rulings Division