Customs Ruling HQ 230805 - Application for Further Review of Protest No. 2809-04-100534; 19 U.S.C. § 1313(b); substitution manufacturing drawback; sufficiency of procedures for establishing exportation that are not specifically enumerated in 19 C.F.R. § 191.72; business records maintained by the buyer and the seller

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HQ 230805
Mar 10, 2006

Type : • HTSUS :
Related: 228736; 229941; 229566

LIQ-9-01
RR:CR:DR 230805 EMS

U.S. Customs and Border Protection
Port Director, San Francisco Service Port
555 Battery Street
San Francisco, CA 94111
ATTN: Thomas Valenzuela

Re: Application for Further Review of Protest No. 2809-04-100534; 19 U.S.C. § 1313(b); substitution manufacturing drawback; sufficiency of procedures for establishing exportation that are not specifically enumerated in 19 C.F.R. § 191.72; business records maintained by the buyer and the seller

Dear Mr. Valenzuela: This is in response to your correspondence dated October 14, 2004, requesting further review of Protest No. 2809-04-100534. AEI Drawback Services, Inc. filed this protest on behalf the drawback claimant, Harvey Titanium Ltd.

U.S. Customs and Border Protection (CBP) liquidated the claimant’s entry and disallowed drawback because the claimant failed to fully establish the fact of exportation. The claimant protests the disallowance of drawback on this basis, alleging that the documentation submitted to the San Francisco Service Port (the port) establishes that the subject merchandise was exported for purposes of 19 C.F.R. § 191.72. Our decision follows.

FACTS:

The claimant filed the subject entry on August 1, 2001, under 19 U.S.C. § 1313(b), as authorized by a specific manufacturing drawback application, for the manufacture of certain articles of titanium bar, billet, rectangle, etc. Attached to the entry was an undated waiver signed by the Assistant Traffic Manager of Israel Aircraft Industries (IAI), which assigns drawback rights to the claimant for merchandise that it provides to IAI. The only proof of exportation submitted by the claimant when it filed the subject entry on August 1, 2001 was a Chronological Summary of Exports, as authorized by 19 C.F.R. § 191.73. The Chronological Summary of Exports identified eighteen dates of exportation between August 31, 1998 and September 30, 1999. Pursuant to a statistical review of the subject entry, the port requested additional documentary evidence for six of the exportations, allegedly made between June 4, 1999 and September 30, 1999. In response, the claimant submitted the following documents for the subject exportations: commercial invoices, routing/inspection traveler invoices, and the claimant’s computer records of proof of payment. The claimant also submitted a list that identifies the month and year in which the purchaser received the eighteen exportations and a printout of a screen allegedly maintained as part of the purchaser’s business records. All of the aforementioned documents are described below.

The claimant’s commercial invoices identify IAI, located in Israel, as the purchaser of the subject merchandise. Five of the invoices identify the shipping address as IAI c/o certain shipping companies located in New York. The sixth invoice identifies the shipping address as IAI c/o an airport in Israel. The invoices contain the following statement: “These commodities are licensed by the U.S. for final destination Israel. Any re-export must be authorized by the U.S. Government. Diversion is prohibited.” Each invoice shows an invoice date and a shipping date and, on each, the invoice date is the same as the shipping date. Each invoice also shows an order number, which can be cross-referenced to a routing/ inspection traveler form. These traveler forms show what appears to be a series of operational reviews conducted for the subject merchandise, all of which are stamped by the claimant and dated prior to the shipping date shown on the corresponding invoices.

The proof of payment submitted for each invoice is a copy of a computer screen printout that is alleged to be a document kept in the ordinary course of business by the claimant. There is nothing on the printout to show ownership of the document. The printout identifies the customer as IAI and shows an “Option R” which identifies an airport in Israel. The printout identifies the claimant’s commercial invoice number, the date of issuance, and the amount charged. Directly underneath this information is what appears to be the date and amount of payment, which is always subsequent to the date of issuance, occurring between two and eight months thereafter. The amount of payment is consistent with the amount assessed for each invoice.

The list of the dates of receipt of the exportations of the subject merchandise consists of a single page divided into columns showing the claimant’s invoice number, the date of that invoice, and the month and year that IAI received the merchandise identified on the invoice at its location in Israel. The claimant states that “the signed listings of export is not a document kept in the ordinary course of business,” and there is a declaration that reads as follows: “We, Israel Aircraft, doing business in Lod, Israel, do hereby declare that we received goods as indicated below. These goods were sold to us by Harvey Titanium, doing business…[in the United States of America].” The list includes all of the invoices identified on the Chronological Summary of Exports and the alleged dates of receipt are within the same month or the month following the date of issuance of the invoice. At the bottom of the page, there is a certification of the truthfulness and correctness of the information contained therein. The certification is dated May 9, 2004 and signed by both the Deputy Director of Purchasing and Logistics for IAI and the Deputy Director for Subcontracting for IAI.

Accompanying this list is a one-page printout of a computer screen. According to the claimant, this document is a record maintained in the ordinary course of business by IAI and “it is the only screen print [that the claimant] could obtain concerning the list of exports.” There is nothing on the printout to show ownership of the document. Among the information provided on the printout is the following: the purchase order number, the house airway bill number, the master airway bill, the invoice number, the location from which the merchandise was shipped, the date of shipping, and the exact date of receipt. The printout identifies IAI as the purchaser and the claimant as the seller. The printout does not identify the location to which the merchandise covered by the invoice was shipped.

Based on the foregoing documentation, the port liquidated the entry on August 13, 2004 and disallowed drawback because the claimant failed to fully establish the fact of exportation. The claimant filed a Protest (CBP Form 19) on October 13, 2004. In its attachment to the Protest, the claimant stated that IAI was the exporter of the subject merchandise and that it declined to provide the claimant with ordinary documentation of exportation. It is the claimant’s position that the documentation submitted to the port was nonetheless sufficient evidence of exportation.

ISSUE:

Whether the documentation provided by the claimant constitutes sufficient proof of exportation pursuant to 19 C.F.R. § 191.72?

LAW AND ANALYSIS:

Initially, we note that the refusal to pay a claim for drawback is a protestable issue under 19 U.S.C. § 1514(a)(6). The port denied drawback when it liquidated the subject entry on August 13, 2004. The protest was timely filed on October 13, 2004, which is within the 90-day filing deadline set forth under 19 U.S.C. § 1514(3) (1999). The alleged basis for further review is that the denial of drawback is inconsistent with certain decisions of CBP, per 19 C.F.R. § 174.24(a). The request for further review is granted, and these decisions are addressed in the analysis below.

Substitution manufacturing drawback, per 19 U.S.C. § 1313(b), provides that if imported duty-paid merchandise and any other merchandise (whether imported or domestic) of the same kind and quality are used within three years of the receipt of the imported merchandise in the manufacture or production of articles and the articles manufactured or produced are exported or destroyed under CBP supervision, then 99 percent of the duties on the imported duty-paid merchandise shall be refunded as drawback, provided that none of the articles were used prior to the exportation or destruction, and even if none of the imported merchandise was actually used in the manufacture or production of the exported or destroyed articles. The controversy in this case involves the exportation requirement of 19 U.S.C. § 1313(b). In general, proof of exportation requires evidence of an intent for the merchandise at issue to unite with the mass of things belonging to that of another country, and evidence that the merchandise left the United States. 19 C.F.R. § 101.1. The methods of establishing compliance with the exportation requirement are set forth in Part 191 of the CBP regulations, which was promulgated under the authority of 19 U.S.C. § 1313(l). Specifically, 19 C.F.R. § 191.72 requires that “[s]upporting documentary evidence shall establish fully the date and fact of exportation and the identity of the exporter.”

With respect to the subject entry, the applicable procedures for establishing exportation, which are enumerated under 19 C.F.R. § 191.72, include actual evidence of exportation and the Chronological Summary of Exports. Actual evidence of exportation is the primary proof of exportation for drawback purposes, per 19 C.F.R. § 191.73(c), and consists of “documentary evidence, such as an originally signed bill of lading, air waybill, freight waybill, Canadian Customs manifest, and/or cargo manifest, or certified copies thereof, issued by the exporting carrier.” 19 C.F.R. § 191.72(a). In this case, the claimant’s position is that IAI, the alleged exporter of the subject merchandise, declined to provide actual evidence of exportation to the claimant. Instead, the claimant submitted its entry with a Chronological Summary of Exports, which is a table of specific data that “may be submitted in lieu of actual documentary evidence of exportation,” per 19 C.F.R. § 191.73(a).

We note that a claimant that submits a Chronological Summary of Exports must maintain “additional evidence of exportation required by Customs to establish fully … the fact of exportation.” 19 C.F.R. § 191.73(c)(1). The CBP regulations also provide for examination of these records, 19 C.F.R. § 191.2(o), and verification of drawback claims by CBP, 19 C.F.R. § 191.61. Compliance with the drawback regulations is mandatory and a condition precedent for payment of drawback. Chrysler Motors Corp. v. United States, 14 Ct. Int’l Trade 807, 816 (1990), aff'd, 945 F.2d 1187 (Fed. Cir. 1991). See also United States v. W.C. Hardesty Co., Inc., 36 C.C.P.A. 47, 52 (1949); Guess? Inc. v. United States, 944 F.2d 855, 858 (1991) ("We are dealing [in discussing drawback] instead with an exemption from duty, a statutory privilege due only when the enumerated conditions are met."). The claimant’s submission, which was intended to establish the fact of exportation, did not consist of any actual evidence of exportation. It is the claimant’s position that the supplemental documentation described in 19 C.F.R. § 191.72 as “actual proof of exportation” is not the exclusive procedure for establishing exportation for purposes of claiming drawback. Indeed, the language of the regulation states that the procedures for establishing exportation “include but are not limited to” those which are enumerated in 19 C.F.R. § 191.72. Our determination of whether evidence other than actual proof of exportation establishes fully the fact of exportation is contingent on the reliability of the documentation provided by the claimant, which is the focus of our analysis in this case. We begin with the claimant’s own documents, which consist of commercial invoices, travelers, and proof of payment. Alone, the invoices and the travelers are insufficient proof of exportation. Five of the six commercial invoices show that the shipping address is a location in New York. CBP will not presume that exportation occurred merely because the subject merchandise was inspected and designated for delivery to a shipper in New York. We note that the claimant did not provide proof of shipment to New York. The statement on the invoices which directs that the merchandise is licensed for exportation to Israel manifests, at best, an intent to unite the subject merchandise with the mass of things belonging to that of another country, but it is not evidence that the subject merchandise left the United States.

The claimant contends that proof of payment consistent with the amount assessed on the invoices constitutes proof of exportation, and it relies on C.S.D. 79-42 (May 1, 1979) and C.S.D. 82-38 (Oct. 5, 1981). These CBP decisions evaluated the extent to which the drawback regulations authorized CBP auditors to examine a claimant’s financial records for the verification of drawback claims. The claimant did not provide any analysis of these decisions other than the statement that the decisions demonstrate that “the use of financial records may be used as proof of exportation.” In C.S.D. 79-402, CBP determined that the drawback law does not require a claimant to demonstrate proof of payment for merchandise, but CBP may examine such records for the purpose of “verifying the reliability of the records presented to establish … exportation” when, for instance, the manufacturing or shipping records are insufficient or unavailable. In C.S.D. 82-38, CBP determined that auditors are not entitled to examine a claimant’s financial records when the claimant submitted other records to CBP that were sufficient to establish exportation. CBP’s decisions in these two cases broadly indicate that proof of payment is a tool for verification, under 19 C.F.R. § 191.61, but proof of payment does not create an independent presumption of exportation of the merchandise.

Here, the commercial invoices and travelers are not reliable in establishing that the subject merchandise left the United States, and thus we must determine whether the proof of payment is sufficient to demonstrate that an exportation occurred. We note our previous decision, in HQ 228736 (Feb. 6, 2002), that evidence of payment did not establish exportation because the payment was made prior to the invoice and shipment dates. In that case, CBP evaluated the totality of the documents submitted as proof of exportation and concluded that, at best, proof of payment that was dated prior to the invoice and shipment dates established an intent for the subject merchandise to unite with the mass of things belonging to Costa Rica. Nowhere in its reasoning did CBP suggest that, proof of payment that occurs after the date of issuance of the invoice is de facto proof of exportation.

The proof of payment proffered by the claimant is insufficient evidence that the merchandise left the United States, even though it shows that payment was made after the date of issuance of the invoice. The computer screen printouts, presumably generated in the ordinary course of business, show that IAI, at a location in Israel, was the buyer. However, the fact that these records show payment occurred within two to eight months after the date that the claimant issued invoices to the IAI does not support the presumption that the subject merchandise, designated for delivery to a shipper in New York, subsequently left the United States or was received at IAI’s location in Israel. While the subject merchandise may have been licensed for export to Israel, the claimant did not provided a single commercial or shipping document that shows that the subject merchandise was even shipped to the designated locations in New York, much less any location in Israel. IAI is a transnational corporation, with locations in the United States and numerous countries abroad, and we cannot conclude that proof of purchase by IAI’s location in Israel means that the subject merchandise was shipped to that location. The proof payment, even when cross-referenced with the invoices and travelers, does not verify the reliability of the Chronological Summary of Exports, nor does it establish the exact dates of exportation identified therein.

Given the claimant’s position that IAI declined to provide it with documentation of the dates of exportation, it is puzzling that the claimant had somehow pinpointed those dates in the Chronological Summary of Exports. There is no supporting documentation for the specific dates of exportation. In fact, the claimant relies on a signed list of exportations submitted by IAI in Israel, which shows only the month and year that IAI claims it received the subject merchandise, presumably in Israel. The claimant relies on our decision in HQ 229941 (Oct. 14, 2003), where we advised the identification of the exact date of exportation was unnecessary under the totality of the circumstances. In that case, CBP was able to ascertain that, at the latest, the exported merchandise entered the commerce of Canada on a specific date. This specific date was reflected on a Canadian Customs Coding Form attesting to the release date, and CBP presumed that an exportation had occurred in the absence of actual evidence, as specified under 19 U.S.C. § 191.72. The Canadian broker signed the coding form and CBP added the caveat that the form must also be certified by a U.S. entity.

The signed list of exports submitted to CBP in this case simply does not carry the same evidentiary weight as the coding forms described in HQ 229941. The coding forms were government documents maintained by the broker in the ordinary course of business and were to be certified by a U.S. entity. The signed list of exports is neither an official government document, nor has it been certified by a U.S. entity. Additonally, the signed list of exports is not a document kept in the ordinary course of business and it was not signed by IAI until May 2004, more than four years after the most recent receipt of merchandise that IAI indicated for September 1999. The signed list of exports is, therefore, inadmissible hearsay testimony under Federal Rules of Evidence, HQ 228736, and is insufficient support for a drawback claim, per HQ 229566 (Sept. 17, 2002) (citing United States v. Baar & Beards, Inc., 46 C.C.P.A. 92, 96 (1959) (holding that an affidavit more than two years after the event to which it related, not supported by any records, is insufficient to support the basis for the claim at issue)).

The computer screen printout, which is allegedly from IAI’s business records, references documents that would be considered actual evidence of exportation under 19 C.F.R. § 191.72. This record may even be admissible hearsay under the Federal Rules of Evidence, but there is no affidavit from IAI that demonstrates ownership of the record or attests to the fact that it is maintained by IAI in the ordinary course of business. Additionally, the claimant stated that this record was available for only one of the exportations reviewed by the port and there is no presumption that such documentation exists for the other five exportations.

For all of the aforementioned reasons, the documentation provided by the claimant does not fully establish the fact of exportation because there is insufficient evidence that the subject merchandise left the United States. There is no legal authority to compel a IAI to disclose confidential business information to the assignee of its drawback rights under 19 C.F.R. 191.28, but the claimant is nonetheless responsible for maintaining proof of exportation in accordance with 19 C.F.R. §§ 191.72-73. See 19 C.F.R. § 191.15, which states that, per 19 U.S.C. § 1508(c)(3), a claimant is required to maintain records in support of its drawback claim under 19 U.S.C. § 1313. DECISION:

The protest should be DENIED. The documentation submitted by the claimant does not establish that the merchandise, which was covered by the six exportations subject to the statistical review, left the United States.

In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2002, pp. 18 and 21), 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 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 make the decision available to CBP personnel and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Myles B. Harmon, Director
Commercial and Trade Facilitation Division