DRA-4-CO:R:C:E 224325 PH
Mr. J. W. Brown
Gulf Coast Drawback Services, Inc.
10122 Long Point, Suite 107
Houston, Texas 77043
RE: Same Condition Drawback; Who May Claim Drawback; General
Notice published in 26 Cust. Bull. & Dec. 43 (October 21,
1992); Central Soya v. United States; B.F. Goodrich Co. v.
United States; 19 CFR 191.141; 19 U.S.C. 1313(j)
Dear Mr. Brown:
In your letter of November 24, 1992, you request a ruling on
the applicability of certain instructions on the implementation
of the recent Court decisions in the cases of Central Soya Co.,
Inc. v. United States, 761 F. Supp. 133 (CIT 1991), affirmed, 953
F.2d 630 (Fed. Cir. 1992), and B. F. Goodrich Co. v. United
States, 794 F. Supp. 1148 (CIT 1992). Our ruling follows.
FACTS:
In a General Notice published in the Customs Bulletin &
Decisions on October 21, 1992 (Vol. 26, No. 43, page 7), Customs
issued instructions "for the implementation of court decisions
[i.e., the Central Soya and B.F. Goodrich cases, supra]
concerning substitution same condition drawback, 19 U.S.C.
1313(j)(2)." The inquirer requests a ruling as to whether these
instructions may be extended to "direct identity same condition
drawback" under 19 U.S.C. 1313(j)(1).
ISSUE:
May the instructions on the implementation of the Central
Soya and B.F. Goodrich cases, supra, concerning drawback under 19
U.S.C. 1313(j)(2), published as a General Notice in the Customs
Bulletin & Decisions (October 21, 1992) be extended to drawback
under 19 U.S.C. 1313(j)(1)?
LAW AND ANALYSIS:
Under section 19 U.S.C. 1313(j)(1), "[i]f imported
merchandise, on which was paid any duty, tax, or fee imposed
under Federal law because of its importation-- (A) is, before the
close of the three-year period beginning on the date of
importation-- (i) exported in the same condition as when
imported, or (ii) destroyed under Customs supervision; and (B) is
not used within the United States before such exportation or
destruction; then upon such exportation or destruction 99 per
centum of each such duty, tax, and fee so paid shall be refunded
as drawback." This provision was enacted by the Act of December
28, 1980, Pub. L. 96-609, Title II, section 201, 94 Stat. 3560.
Under 19 U.S.C. 1313(j)(2), "[i]f there is, with respect to
imported merchandise on which was paid any duty, tax, or fee
imposed under Federal law because of its importation, any other
merchandise (whether imported or domestic) that-- (A) is fungible
with such imported merchandise; (B) is, before the close of the
three-year period beginning on the date of importation of the
imported merchandise, either exported or destroyed under Customs
supervision; (C) before such exportation or destruction-- (i) is
not used within the United States, and (ii) is in the possession
of the party claiming drawback under this paragraph; and (D) is
in the same condition at the time of exportation or destruction
as was the imported merchandise at the time of its importation;
then upon the exportation or destruction of such other
merchandise the amount of each such duty, tax, and fee paid
regarding the imported merchandise shall be refunded as drawback,
but in no case may the total drawback on the imported merchandise
... exceed 99 percent of that duty, tax or fee." This provision
was enacted by the Act of October 30, 1984, Pub. L. 98-573, Title
II, section 202, 98 Stat. 2973.
The Customs Regulations pertaining to drawback are found in
Part 191 of the Customs Regulations (19 CFR Part 191). Formerly
these regulations were in Part 22 of the Customs Regulations, but
in 1983, that Part was revised into a new Part 191. Before this
revision was promulgated, notice was published in the Federal
Register (47 F.R. 37563, August 26, 1982), and the public was
invited to submit comments on the proposed revision. Customs
received over 150 comments on the proposed revision and, after
analyzing these comments and adopting many of the suggestions
made in the comments, a Final Rule promulgating the revision was
published in the Federal Register (48 F.R. 46740, October 14,
1983) as Treasury Decision (T.D.) 83-212.
Before promulgation of the revision of the drawback
regulations, no regulations had been issued on same condition
drawback (19 U.S.C. 1313(j)). The notice proposing the revision
(i.e., the 1982 Federal Register notice, supra) proposed the
incorporation of a new subpart N to contain the regulations on
same condition drawback (provisions on drawback for merchandise
not conforming to sample or specifications under 19 U.S.C.
1313(c) were also proposed in this new subpart N). As proposed,
this new subpart made it clear that only an "exporter-claimant"
could obtain drawback under the subpart (see proposed section
191.141 - 191.146 and the description of these proposed sections
(47 F.R. 37583-37584 and 47 F.R. 37567). Customs thoroughly
analyzed the comments received on the proposed revision,
including those on the proposed new subpart N. Many of the
suggestions in these comments were adopted (see pp. 496-501 of
the 1983 bound edition of the Customs Bulletin). The Customs
Regulations on same condition drawback were promulgated as a new
section 191.141 (the proposed sections 191.141 - 191.147 were
consolidated into section 191.141), which has remained unchanged
since except for the addition of paragraph (h) (to be discussed
below). None of the comments received on the proposed revision
opposed the position that only an "exporter-claimant" could
obtain drawback under the subpart, and newly promulgated section
191.141 made it clear that that was the case (see paragraphs
(b)(1), (b)(2)(ii), (b)(3)(i), (b)(3)(ii), (c), (d), and (f)(1)
of section 191.141).
The Customs Regulations issued on substitution same
condition drawback (under 19 U.S.C. 1313(j)(2)) are found in
paragraph (h) of section 191.141 of the Customs Regulations (19
CFR 191.141(h)). This provision was promulgated, without prior
Federal Register notice and without the public being given an
opportunity to comment, in T.D. 85-123 (published in the Federal
Register on July 23, 1985 (50 F.R. 29949)). According to the
Final Rule published in the Federal Register which promulgated
this provision, this provision was one of a number of changes
which "merely conform[ed] the regulations to existing law or
practice [and] are nonsubstantive and essentially ...
procedural." The description of the provision in the Final Rule
is limited to a brief description of the statutory provision
providing for substitution same condition drawback in which it is
stated that "[the legislation] establish[ed] a new type of
drawback called 'same condition substitution drawback.'"
Under 19 CFR 191.141(h), as promulgated by T.D. 85-123,
drawback was to be granted if "legal person X" possessed imported
merchandise (the designated merchandise) and other merchandise
(the substituted merchandise) fungible with the designated
merchandise during the period beginning when "X" received the
merchandise and ending 3 years after importation of the
merchandise, if certain requirements, set forth in the provision,
were met.
In the Central Soya case, an importer of certain crude
degummed soybean oil delivered domestic crude degummed soybean
oil to another corporation and the latter corporation exported
the domestic soybean oil. The importer sought substitution same
condition drawback, under 19 U.S.C. 1313(j)(2), for the exported
domestic soybean oil. Customs denied the drawback on the ground
that the importer was not the exporter of the substituted
domestic soybean oil. As part of its claim for drawback, the
importer submitted a statement by the exporter of the domestic
soybean oil in favor of the importer, disclaiming any right to
drawback for the exported soybean oil. The Court of
International Trade concluded that "in enacting section
1313(j)(2), Congress did not intend to require that a claimant of
substitution same condition drawback must be the exporter of the
substituted merchandise." (761 F. Supp. at 141) In its
decision, the Court quoted and considered the applicability of 19
CFR 191.141(h) to the case before it (see 761 CIT at 140), but
the Court did not comment on the legality of that provision.
In the B.F. Goodrich case, the plaintiff exported (from
Canada) PVC resins made in Canada to customers in the United
States and exported (from the United States) PVC resins the
plaintiff manufactured. The plaintiff sought substitution same
condition drawback, under 19 U.S.C. 1313(j)(2), for the PVC
resins it had manufactured and exported. Customs denied the
drawback on the ground that the plaintiff did not have possession
of the imported PVC resins (i.e., the PVC resins made in Canada
and exported from that country to the plaintiff's customers in
the United States) while those goods were in the United States.
The Court of International Trade concluded that "Customs
improperly required that Goodrich demonstrate that it possessed
the imported merchandise from which Goodrich's drawback claim
arose: 19 U.S.C. 1313(j)(2) contains no such requirement [nor
did Congress] intend otherwise. 19 CFR 191.141(h) was an
improperly promulgated substantive rule, with no justification in
either the statute or the legislative history [and] must have no
force or effect." (794 F. Supp. 1154-1155)
In reaching its conclusion with regard to the possession
requirement, the Court stated, "... it is clear that the
possession requirement attaches only to the exported goods, not
to the imported goods. The operative portion of section
1313(j)(2) with regard to imported goods mentions only that a
duty, tax or fee was paid because of their importation.
Therefore, section 1313(j)(2) requires only that a drawback
claimant have paid the duty, tax, or fee for the privilege of
importing the goods." (794 F. Supp. at 1150; emphasis in
original)
In reaching its conclusion with regard to the propriety of
the promulgation of 19 CFR 191.141(h), the Court noted that in
promulgating T.D. 85-123, the changes effected therein, including
the addition of section 191.141(h), were "nonsubstantive and
essentially ... procedural." The Court stated that in section
191.141(h), "Customs established a substantive new requirement
that does not exist in the statute ... for which a notice and
comment period, among other things, is required." (794 F. Supp.
at 1154)
To implement the Central Soya and B.F. Goodrich cases, the
Customs Service issued the General Notice published in the
Customs Bulletin and Decisions on October 21, 1992. By its
terms, this General Notice is made applicable to substitution
same condition drawback (19 U.S.C. 1313(j)(2)).
We conclude that the General Notice is not applicable to
drawback under 19 U.S.C. 1313(j)(1). The Court decisions
implemented by the General Notice considered and are applicable
to only 19 U.S.C. 1313(j)(2), not section 1313(j)(1). The
respective statutory provisions (sections 1313(j)(1) and
1313(j)(2)) are separate statutes separately enacted at different
times with different requirements. For example, section
1313(j)(1) does not even have a possession requirement, the
interpretation of which was the issue in the B.F. Goodrich case.
The regulatory history of the provisions issued under the
respective provisions are substantially different. A notice was
published in the Federal Register for the regulations issued
under section 1313(j)(1) and the public was given the opportunity
to comment, and did comment, on the proposal, whereas that was
not true with regard to the regulations issued under section
1313(j)(2) (see reference to Court's discussion of this failing
in the B.F. Goodrich case, cited above, at 794 F. Supp. 1154).
We conclude that the provisions in 19 CFR 191.141(a) through (g)
continue to be applicable to drawback under 19 U.S.C. 1313(j)(1).
HOLDING:
The instructions on the implementation of the Central Soya
and B.F. Goodrich cases, supra, concerning drawback under 19
U.S.C. 1313(j)(2), published as a General Notice in the Customs
Bulletin & Decisions (October 21, 1992), are not extended to
drawback under 19 U.S.C. 1313(j)(1). The provisions in 19 CFR
191.141(a) through (g) continue to be applicable to drawback
under 19 U.S.C. 1313(j)(1).
Sincerely,
John Durant, Director