DRA-4-CO:R:C:E 222431 PH
Regional Commissioner
1 World Trade Center, Suite 705
Long Beach, California 90831-0700
RE: Application for Further Review of Protest Nos. 2704-89-
003611 through 2704-89-003620; Evidence Required for Same
Condition Drawback; 19 U.S.C. 1313(j); 19 CFR 191.141
Dear Sir:
The above-referenced protests were forwarded to this office
for further review. We have considered the points raised by your
office and the protestant. Our decision follows.
FACTS:
These protests concern claims for same condition drawback
under 19 U.S.C. 1313(j) for certain jewelry. According to the
materials in the file, the protestant manufactures jewelry in
Hong Kong. Pieces of jewelry are shipped to the United States
and shown by sales representatives of the protestant to potential
customers at the premises of the latter or at trade shows.
Unsold pieces of jewelry are shipped back to the protestant in
Hong Kong. Drawback, under 19 U.S.C. 1313(j), is claimed on
these unsold pieces of jewelry.
Listed below for each of the protests under consideration,
are the date of importation for the jewelry, the date of filing
of the drawback entry, whether or not examination of the jewelry
was waived by Customs, and the date of exportation of the
jewelry.
Protest # Import D-back Filing Exam. Export
Date Date Waived? Date
003611 01/09/89 02/17/89 Yes 02/17/90
003612 05/05/88 08/18/88 Yes 08/24/88
003613 01/25/88 02/10/88 Yes 02/22/88
003614 07/23/87 08/04/87 No 08/06/87
003615 01/06/87 02/07/87 No 02/18/87
003616 01/23/89 02/17/89 Yes 02/17/89
003617 01/06/89 02/17/89 Yes 02/17/89
003618 12/19/88 02/17/89 Yes 02/17/89
003619 07/23/87 08/07/87 No 08/12/87
003620 07/01/88 08/18/88 Yes 08/24/88
All of the drawback entries were liquidated on August 18, 1989,
except for that protested by protest 003616 which was liquidated
on October 6, 1989. Protests, with applications for further
review, were filed for each of the entries on November 15, 1989.
These and other drawback claims made by the protestant were
audited by Customs. Among the findings listed as results of the
audit in a report by the Pacific Region Regulatory Audit Division
dated June 12, 1989, were: (1) an inability to trace the drawback
merchandise from importation through the United States and then
exportation by record-keeping or to verify custody of the
drawback merchandise while in the United States because of the
unavailability of records; (2) an inability to review for same
condition at the time of exportation since some of the
merchandise was not examined at the time of exportation nor were
records available to make such a determination; and (3) an
inability to verify that drawback merchandise was exported
because in numerous instances the drawback merchandise was not
physically examined by Customs for the quantities and quality of
the drawback merchandise. The audit report concluded that the
auditors had been unable to verify custody of the drawback
merchandise while in the United States, that the exported
merchandise was the same as that imported, and that the drawback
merchandise was actually exported.
On October 18, 1989, the Pacific Region Regulatory Audit
Division confirmed an earlier telephone request for copies of
certain documents in connection with the audit of the protestant.
The documents requested were, with regard to the drawback claims
protested by protests 003612, 003617, and 003620: (1) copies of
all invoices in connection with the import entries; (2) copies of
all invoices showing lined out items (sales); (3) copies of
inventory records showing the withdrawal and return of jewelry;
(4) copies of sales journals showing the sale of jewelry; (5)
copies of related controlling ledgers tying into the sales
journals; (6) copies of related financial summary reports (such
as income statements and balance sheets) tying into the
controlling ledgers; and (7) copies of legible invoices (showing
the purchaser's name, address, and telephone number) of jewelry
sales. In addition, copies of all United States tax statements
showing all income from jewelry sales in connection with all 10
drawback claims were requested, as well as copies of schedules,
adding machine tapes, and any other supporting documentation
showing how totals on the United States tax statements were
derived.
By letters of December 11, 1989, the protestant provided
some of the documents requested. The documents provided were,
with regard to the drawback claims protested by protests 003612,
003617, and 003620: (1) copies of import entry documents
including import invoices; (2) copies of drawback entry
documents, including invoices showing lined out items (United
States sales) and including signed air waybills issued by air
carriers for "gold jewelry" and referencing the appropriate
drawback entries; and (3) copies of sales invoices. Also
provided, with regard to the drawback claims protested by
protests 003612 and 003620, were: (1) lists of stock sold in the
United States with sales invoice references; (2) lists of sales
invoices located with sales voucher references; (3) lists of
invoices not located; (4) lists of stock which carry no sales
invoice references; (5) copies of relating sales vouchers; and
(6) copies of relating general ledgers. Also provided, with
regard to the drawback claim protested by protest 003617, were:
(1) a list of stock sold in the United States with sales
invoice/sales voucher appendix references; and (2) copies of
sales voucher and relating general ledger.
Additionally, the protestant provided with its December 11,
1989, letter a sworn affidavit of an employee of the protestant
describing the protestant's operation. In this affidavit the
employee stated that she was involved with the importation and
exportation of all merchandise which is the subject of the
drawback claims under consideration. She stated that under the
protestant's inventory control system, devised for business
reasons "totally unrelated to U.S. Customs concerns[,]" each
article of jewelry is assigned a specific inventory control
number which is appended to the article by means of a paper tag.
When an article is moved from one location to another, a
"transfer voucher" is prepared which identifies the inventory
control number of the article being moved, the location and or
the custodian of the article. When the affiant makes a trip to
the United States she selects articles which she believes would
be saleable in the United States. A "transfer voucher" and
invoice are prepared for the articles and they are shipped to the
United States where the affiant takes possession of them. The
affiant and her sales force travel to various cities in the
United States and visit with potential customers. The articles
accompany the affiant and her sales force throughout their tour.
When a sale is consummated in the United States, the affiant
prepares a handwritten invoice to the customer listing the
articles being purchased and the purchase price. The affiant
retains a copy of the sales invoice and strikes the article from
the invoice prepared for entry purposes. Articles which are not
sold in the United States are repacked for exportation to the
protestant in Hong Kong. When the articles are ready for export,
the protestant's Customs Broker prepares a drawback entry and
files it with Customs. The articles are made available for
inspection by Customs prior to exportation. When Customs
inspection is completed, the articles are exported with a request
for drawback of duties paid on entry. Upon receipt of the
shipment in Hong Kong, "transfer vouchers" are prepared by the
protestant recording receipt of each specific article and tags
bearing inventory control numbers are checked against the invoice
to be certain that all articles which were not sold in the United
States are returned to the protestant.
In a report of the results of its review of the documents
provided by the protestant, the Pacific Region Regulatory Audit
Division noted that some of the documents requested were not
provided; i.e., inventory records showing the withdrawal and
return of unsold jewelry ("transfer vouchers" were stated not to
have been kept by the protestant and not to be available for the
audit period in 1987-1989 although being kept now), financial
summary reports, and United States tax statements with support
documents. With regard to the affidavit of the employee of the
protestant, the report stated that the system described in the
affidavit "sounds good" but cannot be attested to because no
items were traced through the system. The report stated that
most jewelry sales sampled were traced to a sales invoice and
related journal ledger and that in no case was it found that
drawback was claimed on merchandise which was sold, although some
sales could not be traced due to insufficient data. The report
concluded that, based on the data reviewed, the sales appear to
have been genuine but, without summary accounting records, no
opinion could be offered relative to the credibility of the
records and documents provided by the protestant. The report
recommended denial of the drawback claims in the absence of the
requested documents.
Essentially, the documentation in the file upon which the
drawback claims are based consists of: (1) the entry of the
jewelry with an invoice, listing each item by separate number,
when it entered the United States; (2) the drawback entry for the
jewelry with the same invoice, with a line drawn through each
item which is stated to have been sold in the United States and
for which drawback is not claimed; (3) signed air waybills issued
by air carriers for the transportation from Los Angeles to Hong
Kong of "gold jewelry," referencing the appropriate drawback
entries; (4) invoices and related financial records for the
jewelry sold in the United States; and (5) a sworn affidavit of
an employee of the protestant which describes the protestant's
inventory control system. The essential elements of this
inventory control system are assignment of a control number for
each piece of jewelry, use of a "transfer voucher" for each piece
of jewelry when it is moved, preparation of an invoice for the
jewelry which is sent to the United States, preparation of a
sales invoice for each sale of jewelry articles, striking of the
invoice for the jewelry articles as they are sold, and
preparation of "transfer vouchers" for unsold articles of jewelry
when they are returned to the protestant in Hong Kong. Although
requested by Customs, the protestant did not provide records
(i.e., the "transfer vouchers") showing the withdrawal and return
of the jewelry (these documents are stated not to have been kept
by the protestant) and documentation as to the credibility of the
documents provided (i.e., United States tax statements with
supporting documents and financial summary reports). The
exporter's summary procedure (see 19 CFR 191.53) was not used to
prove exportation and no Customs Form 7511, certified or
uncertified, has been filed.
ISSUES:
1. Is the evidence in this case sufficient for recovery of
same condition drawback under 19 U.S.C. 1313(j)?
2. May drawback be denied in this case on the basis of the
absence of the records requested by the regional Regulatory Audit
Division?
LAW AND ANALYSIS:
The statutory requirements for drawback under 19 U.S.C.
1313(j) are that the merchandise on which drawback is sought be
exported or destroyed under Customs supervision within 3 years
from the date of importation, that it be exported or destroyed in
the same condition as it was when imported, and that it not be
used in the United States. The Customs Regulations issued under
the authority of this provision are found in 19 CFR 191.141.
Under paragraph (b) of 19 CFR 191.141, an exporter who
desires to export merchandise with drawback under 19 U.S.C.
1313(j) is required to file a completed Customs Form 7539
(Drawback Entry Covering Same Condition Merchandise) at least 5
working days prior to the date of intended exportation unless a
shorter filing period is approved. The exporter-claimant may
request, in writing, waiver of this advance notice. Customs may
grant such a waiver or, in certain circumstances, is required to
grant it. Within 3 working days after the Customs Form 7539 is
filed, Customs is required to notify the exporter-claimant
whether the merchandise will be examined. If the exporter-
claimant is not so notified, he or she is required to export the
merchandise without delay. Under paragraph (c) of 19 CFR
191.141, within 3 years after exportation of merchandise under 19
CFR 191.141(b), an exporter-claimant is required to complete his
or her drawback claim by filing with the same Customs official
who received the Customs Form 7539 evidence of exportation under
the procedures described in 19 CFR 191.52 or 191.54. Under
paragraph (e) of 19 CFR 191.141, the provisions relating to
direct identification drawback apply to claims for same condition
drawback, insofar as applicable and not inconsistent with 19 CFR
191.141-191.142.
One of the provisions relating to direct identification
drawback is that a drawback claim shall be subject to
verification by the appropriate regional Regulatory Audit
Division (19 CFR 191.10(a)). Such verification means "the
examination of any and all records ... maintained by the claimant
... which are required by the regulatory auditor to render a
meaningful recommendation concerning the drawback claimant's
conformity to the law and regulations and the determination of
supportability, correctness, and validity of the specific claim
or groups of claims being verified" (19 CFR 191.2(o)). It is
specifically provided that verification includes "an examination
of ... all the accounting and financial records relating to the
transaction(s)" (see 19 CFR 191.10(c)).
Under 191.51, exportation of articles for drawback purposes
shall be established by one of the procedures listed in that
section, one of which is 19 CFR 191.52 which, as noted above, is
explicitly made applicable to same condition drawback. Under
section 191.52, a drawback claimant may support the drawback
claim with a notice of exportation on Customs Form 7511 which is
required to show the information listed in paragraph (b) of
section 191.52. Under paragraph (c) of section 191.52, the
notice of exportation may be certified or uncertified. If
uncertified, it must be supported by documentary evidence of
exportation, such as "the bill of lading, air waybill, freight
waybill, Canadian Customs manifest, cargo manifest, or certified
copies thereof, issued by the exporting carrier."
Customs has previously considered the question which is
raised in this case, whether drawback may be denied whenever
records requested by Customs are not provided by a drawback
claimant. In Customs Service Decision (C.S.D. 82-38), this
question was very thoroughly considered. In that case a drawback
claimant refused access to financial records connected with
drawback exportation. We held that:
Absent a cogent reason, an auditor does not have
an absolute right to demand the financial records
of a drawback claimant who has made available
records which prima facie show importation,
manufacture, and exportation for purposes of the
drawback law.
In C.S.D. 82-38, we explained that in such cases Customs "...
would require that [a] reasonable basis for the request [for
financial records] be present at the time the request is made."
C.S.D. 82-38 concerned manufacturing drawback. As noted
above, the provisions relating to direct identification drawback
apply to claims for same condition drawback insofar as applicable
and not inconsistent with 19 CFR 191.141-191.142. We see no
reason why C.S.D. 82-38 should not be applicable to same
condition drawback, although modified to hold that, absent a
cogent reason, a claimant need not make available financial
records when the claimant has made available records which prima
facie show, with regard to the merchandise upon which same
condition drawback is sought, importation, exportation or
destruction in the same condition as imported within 3 years from
importation, and non-use in the United States.
Prima facie evidence to show importation may consist of an
entry or entry summary, with detailed invoice, for the
merchandise. Prima facie evidence to show that the merchandise
was in the same condition as imported may consist of the
completed Customs Form 7539, marked and signed by the appropriate
Customs officer to indicate that either "Customs has decided not
to examine the merchandise and that it may now be exported" or,
if the form is checked to indicate that "Customs examination is
required", that "[Customs has] examined the merchandise and found
it to be the same merchandise described above, in the same
condition as imported, or changed in condition as allowed by
law." (Note: when, as is true in some of the entries under
consideration, the Customs Form 7539 is filed late and the form
is not marked to indicate that "Prior notice of intent to export
is hereby waived" but Customs waives examination or examines the
merchandise and finds it to be the same merchandise in the same
condition as imported or changed in condition as allowed by law,
the failure to timely give notice of intent to export or to
request waiver of such notice may not be raised against the
claimant (see C.S.D. 88-14).)
What is prima facie evidence to show non-use of merchandise
in the United States depends on the merchandise and circumstances
under consideration. When, as is true in this case, the
merchandise under consideration is imported for display and sale
(not considered a "use" in the United States for purposes of the
same condition drawback law), in the absence of any affirmative
evidence of use in the United States, only minimal evidence, if
any, is required in addition to the Customs Form 7539 signed and
marked as described above. To illustrate this point, we note
that none of the evidence requested by the regional Regulatory
Audit Division in this case would have been any more likely to
establish non-use of the merchandise in the United States than
the evidence which is prima facie evidence of exportation in the
same condition as imported (see above).
Prima facie evidence to show exportation consists of the
evidence described in 19 CFR 191.52 or 191.54 (or 19 CFR
191.53(e), if the exporter's summary procedure is used). When,
as is true in this case, neither the exporter's summary procedure
nor the exportation by mail procedure is used and no certified
Customs Form 7511 has been filed, the evidence described in 19
CFR 191.52(c)(2) is such prima facie evidence. That evidence is,
as stated above, an uncertified Customs Form 7511 supported by
documentary evidence of exportation such as, among other things,
an air waybill issued by the exporting carrier.
In this case there is no demonstrated cogent reason for
requesting the financial records of the claimant. In fact, the
regional Regulatory Audit Division concluded that drawback was
not claimed on any of the merchandise which was sold in the
United States and that, based on the data provided, the sales
appear to be bona fide. Accordingly, if prima facie evidence to
show importation, exportation or destruction in the same
condition as imported within 3 years from importation, and non-
use in the United States exists in this case, drawback may not be
denied on the basis of the absent records.
In this case there is prima facie evidence of importation
(i.e., entry summaries and detailed invoices) and that the
merchandise was in the same condition as imported when it was
exported (i.e., completed Customs Forms 7539, marked and signed
by a Customs officer to indicate that Customs waives examination
and that the merchandise may be exported (with regard to 7 of the
10 entries) or that Customs has examined the merchandise and
found it to be the described merchandise in the same condition as
imported or changed in condition as allowed by law (with regard
to the other 3 entries)). In view of the particular merchandise
under consideration and the circumstances regarding its
importation, there is prima facie evidence that the merchandise
was not used in the United States (i.e., completed Customs Forms
7539, marked and signed as described above and the affidavit of
the protestant's employee describing its operation, which
description is not inconsistent with any of the documents in the
file (in this regard, we note that testimonial evidence may be
used to supplement documentary evidence in drawback claims; see
Lansing Co., Inc., v. United States, 424 F. Supp. 112, 77 Cust.
Ct. 92, C.D. 4675 (1976), and cases discussed therein)).
All of the evidence required to establish exportation has
not been submitted in this case. There are air waybills issued
and signed by air carriers for the transportation from Los
Angeles to Hong Kong of "gold jewelry," referencing the
appropriate drawback entries. However, there are no Customs
Forms 7511. As the Courts have repeatedly held, compliance with
drawback regulations is a mandatory condition precedent to
securing drawback (see United States v. Lockheed Petroleum
Services, Ltd., 1 Fed. Cir. (T) 63, 709 F. 2d 1472 (1983), and
cases cited therein).
The substantive evidence of exportation of the merchandise
for which drawback is claimed in this case is the air waybill
(see Treasury Decision 83-212, page 486 of 1983 Treasury Decision
Volume). In view of the fact that the substantive evidence
required to establish exportation has been submitted in this
case, and in view of the fact that a claimant for same condition
drawback has 3 years after exportation of merchandise to complete
his or her drawback claim (see 19 CFR 191.141(c)), we conclude
that the claimant should be given a reasonable time to submit
uncertified Customs Forms 7511 for the entries under
consideration (see C.S.D. 82-30, in which similar action was
taken). If such forms are submitted, there will be prima facie
evidence of exportation of the merchandise for which drawback is
sought in this case.
HOLDINGS:
1. The evidence in this case is sufficient for recovery of
same condition drawback under 19 U.S.C. 1313(j); provided that
uncertified Customs Forms 7511 are submitted for the entries
within a reasonable time.
2. Provided that uncertified Customs Forms 7511 are
submitted for the entries within a reasonable time, drawback may
not be denied in this case on the basis of the absence of the
records requested by the regional Regulatory Audit Division
because there is no demonstrated cogent reason for requesting the
records and the drawback claimant has made available records
which prima facie show importation, exportation or destruction in
the same condition as imported within 3 years from importation,
and non-use in the United States (see C.S.D. 82-38).
The protests are GRANTED, provided that uncertified Customs
Forms 7511 are submitted for the entries within a reasonable
time.
Sincerely,
John Durant, Director