DRA-1-06/DRA-2-02-CO:R:C:E 224501 PH
Regional Commissioner of Customs
Southeast Region
RE: Manufacturing Drawback Claims; Same Kind and Quality;
Records, Affidavit in Absence thereof; Orange Juice; Aurea
Jewelry Creations, Inc., v. United States, 13 CIT 712, 932
F.2d 943; Protest 1801-93-100013; 19 U.S.C. 1313(b)
Dear Sir:
The above-referenced protest was forwarded to this office
for further review. Our decision follows.
FACTS:
The protest is of the liquidation of four drawback entries
(or claims) respectively dated June 7 and October 9, 1984, and
May 8, 1985 (two entries, one for $54,184.98 and the other for
$385,458.38). Accelerated payment of drawback was requested and
granted for the entries, resulting in a total accelerated payment
of drawback in the amount of $845,784 (the date of the accelerat-
ed payment for the June 7, 1984, entry was June 22, 1984).
Southern Gold Citrus Products, Inc., was the drawback
claimant in the drawback entries under consideration. In 1982,
Southern Gold Citrus Products, Inc., was purchased by another
company. The company is now no longer in the orange juice
processing business and, we understand, is being, or has been,
liquidated. The term "protestant" in this ruling includes the
drawback claimant, its purchaser corporation, and the attorney
who filed the protest on behalf of Southern Gold Citrus Products,
Inc.
At the time under consideration in this matter, the
protestant had an approved drawback contract (see Treasury
Decision (T.D.) 84-2-(V), which revoked without prejudice to
outstanding claims T.D. 72-55-(B), as amended by T.D.'s 72-218-
(I), 75-245-(N), and 76-300-(P)) for substitution manufacturing
drawback under 19 U.S.C. 1313(b). The contract (the description
of the drawback contract below refers to the contract abstracted
in T.D. 84-2-(V); the predecessor contract contained similar
provisions) provided for drawback in the manufacture of orange
juice from concentrate, frozen concentrated orange juice, bulk
concentrated orange juice, and (orange) juice base with the use
of concentrated orange juice for manufacturing (COJM). The
contract permitted the substitution of duty-paid, duty-free, or
domestic COJM for COJM of the same kind and quality which was
imported and designated as the basis for drawback on the exported
products. In the contract, the specifications for the designated
imported COJM and the substituted COJM are listed as:
CONCENTRATED ORANGE JUICE FOR MANUFACTURING (OF
NOT LESS THAN 55o BRIX) AS DEFINED IN THE
STANDARD OF IDENTITY OF THE FOOD AND DRUG
ADMINISTRATION (21 CFR 146.153) AND MEETS THE
GRADE A STANDARD OF THE U.S. DEPARTMENT OF
AGRICULTURE (7 CFR 2852.2221-2231).
In its drawback contract, the protestant agreed to maintain
records to establish "[t]he quantity of merchandise of the same
kind and quality as the designated merchandise [the protestant]
used to produce the exported article." With specific regard to
the production of the exported articles, the protestant agreed
that its production records would reflect "[w]hat was produced
and [the] date or period of production", "[w]hat was used to
produce the exported article" and "... the kind and quality of
the material used to produce the exported article."
INITIAL AUDITS OF DRAWBACK CLAIMS
The entries were the subject of Customs audits (Reports 33-
88-DRO-001; 3-88-DRO-002; 3-88-DRO-003; and 3-88-DRO-004,
respectively, each dated October 23, 1987). The audit reports
are summarized below.
In the case of the June 7, 1984, entry, the audit found that
the protestant received the designated imported merchandise
between October 5 and 15, 1982 (according to the audit report,
the designated imported merchandise was imported under a single
consumption entry dated October 1, 1982). In the case of the
October 9, 1984, entry, the audit found that the protestant
received the designated imported merchandise between August 29
and September 27, 1982 (according to the audit report, the first
import on the claim was on August 29, 1982). In the case of the
May 8, 1985, entry ($54,845 claimed), the audit found that the
protestant received the designated imported merchandise between
September 13 and October 5, 1982 (according to the audit report,
the first import on the claim was on September 13, 1982). In the
case of the May 8, 1985, entry ($385,458 claimed), the audit
found that the protestant received the designated imported
merchandise between September 10 and October 5, 1982 (according
to the audit report, the first import on the claim was on
September 10, 1982).
In the case of the June 7 and October 9, 1984, entries,
there is no comment in the audit reports, nor are there any
materials in the files relating to the audit reports, on whether
the designated imported merchandise met the same-kind-and-quality
criteria in the protestant's drawback contract. In the case of
the two May 8, 1985, entries, according to materials in the files
relating to the audit reports, the audits found that the
designated imported merchandise met the same-kind-and-quality
criteria in the protestant's drawback contract.
In the case of each of the entries, the drum numbers on the
protestant's 1982 and 1983 receiving and production records were
different and there were no records to trace the conversion of
the drum numbers (i.e., records to show the transfer of drums
from the receiving department to the production department).
Therefore, although importation of the designated import could be
established, use in manufacture was found not to have been
established. In the case of each of the entries, according to
materials in the files relating to the audit reports, the
protestant did not have its 1984 production score sheets, which
would show the quantity, grade, and quality of the merchandise
used in the production of the exported articles, and therefore
same-kind-and-quality of the substituted merchandise was found
not to have been established. Because of the absence of
production records and inventory records, compliance with the
requirement that the merchandise used in the production of the
exported articles must be used in production during the same 3-
year period in which the designated imported merchandise was used
in production was found not to have been established. The
exportation data was verified but, because of the absence of
production and inventory records, it could not be established
that the exported articles were manufactured or produced from the
imported or substituted merchandise (in the case of the October
9, 1984, entry, the audit report noted that in attachment 1 to
the drawback entry, pounds solid and single-strength gallons are
overstated (34,718.43 and 33,740, respectively, instead of 20,660
pounds solid and 20,078 single-strength gallons), resulting in an
over-payment of drawback of $4,782).
The audit findings were discussed with the Treasurer of the
protestant and he stated that the protestant intended to submit
alternative records. On August 3, 1987, the Treasurer of the
protestant submitted 1984 USDA Daily Inspection Reports to
substantiate the missing 1984 production reports. However, these
records were found not to be satisfactory alternatives because
they did not identify drum numbers.
SUBPOENA OF PROTESTANT'S RECORDS
By letter of October 22, 1987, the U.S. Attorney for the
Middle District of Florida subpoenaed certain records of the
protestant from January 1, 1983, to the time of the letter. The
records subpoenaed were those pertaining to, among other things,
the claiming of and receiving of drawback and related records
including records relating to the manufacture of pulpwash, USDA
score sheets, and many other records on drawback. According to
the protestant, 48 boxes of records which were thought to contain
records covered by the subpoena were retrieved from the storage
facility in which the protestant's records were maintained.
After examination of these boxes, "approximately 24 of the 48
boxes were sent to the U.S. Attorney ...." According to the
protestant, "[o]rdinarily copies would have been made, but time
was short [the subpoena required delivery of the documents by
December 1, 1987] and Customs agents assured that all records
would be returned promptly."
According to the protestant, after an approximately 2 and
1/2 year investigation, and after "delays by Customs and many
requests by [the protestant], a portion of the records were
finally returned in 14 boxes ...." Also according to the
protestant, it was evident that fewer records were returned than
were sent, but the protestant could not ascertain which records
were not returned. The protestant states that it (i.e., the
protestant) "... assumed, correctly, that there was nothing amiss
in [the protestant's] records, and those records [were] returned
to the ... retention facility ...."
FOLLOW-UP AUDIT OF ENTRIES
According to the protestant, when it learned that the
entries concerned were to be liquidated without drawback, the
Customs office which had performed the initial audits was
requested to again audit the protestant's records. The Customs
office agreed to do so. This follow-up audit was performed in
June of 1991 (Report 321-91-FRO-003, dated June 9, 1992). The
findings of the follow-up audit are summarized below.
Although the difficulty in tracing the designated imported
merchandise from the receiving to the production records
remained, the audit concluded that the designated imported
merchandise was used in production as claimed, on the basis of
its review of drums used in production during more than one month
of the time under consideration. There is no comment in this
audit report, nor are there any materials in the file relating to
the audit report, on whether the designated imported merchandise
met the same-kind-and-quality criteria in the protestant's
drawback contract. Therefore, we assume that the problem with
establishing that the designated imported merchandise met the
same-kind-and-quality criteria (referred to in regard to two of
the entries in the initial audit reports) was resolved in this
audit.
The product score sheets from September 1 through December
31, 1983, and for the entire year of 1984 were missing (note that
in the initial audits, the protestant did not have the score
sheets for the entire year of 1984). Because of the absence of
these records, same-kind-and-quality of the substituted
merchandise could not be established. The daily and weekly
processing reports between October 31 and December 31, 1983, were
missing. Therefore, compliance with the requirement that the
merchandise used in the production of the exported articles must
be used in production during the same 3-year period in which the
designated imported merchandise was used in production could not
be established for the period in which these records were
missing, nor could it be established that the protestant produced
the exported articles for the period in question. The problem of
tracing the exported articles back to the designated imported
merchandise or substituted merchandise (i.e., establishing that
the exported articles contained the imported or substituted
merchandise), found in the initial audits, remained.
In the case of the June 7, 1984, drawback entry, allowance
of some drawback ($17,598 of the $165,662 claimed) was
recommended. The basis for this recommendation was that
production records were available and established production and
score sheets were available (in some instances, the actual dates
of production were at a time when score sheets were not found to
be missing in the initial audit, instead of at the time stated on
the drawback entry when score sheets were found to be missing in
that audit).
The audit findings were presented to the representatives of
the protestant in a meeting on August 27, 1991, at which time the
protestant stated that the missing records could not be located
and asked that Customs consider the use of alternative records.
In response to this request, Customs asked the protestant to
provide the protestant's 1983 and 1984 financial statement
information, general ledger and subsidiary ledger. The
protestant did provide Customs with these records. Customs found
that these alternative records did not contain the information
necessary to establish same-kind-and-quality of the substituted
merchandise or that the protestant produced the exported articles
from the designated imported merchandise or substituted
merchandise in the required time.
On October 9, 1992, the entries were liquidated with denial
of all drawback except $17,598, attributable to the first of the
four entries. On January 4, 1993, the protestant filed the
protest under consideration. The contentions made in the protest
will be addressed in the LAW AND ANALYSIS section of this ruling.
As Exhibit B of the protest, the protestant provides an
affidavit (dated December 22, 1992) by the person who states that
she was in charge of and responsible for the protestant's
drawback operations from 1974 or 1975 until the close of
operations by the protestant in 1984. This person states that
she "prepared all drawback entries for submission to Customs"
during this time. This person states that she prepared and
documented the entries under consideration. "After preparation
of the subject entries and the close of business by [the
protestant], [the affiant states that she] personally packed all
records, including score sheets arranged by month and year in
boxes properly marked as to contents for shipment to a central
records facility [and that] [t]he records which could not be
located by auditors were most assuredly placed in boxes by [the
affiant] personally as [the affiant] kept very orderly records
and exact records." The affiant states that "[she] cannot
explain why the records which auditors could not locate during
the June, 1991, audit were not available, but the claims would
not have been submitted had [she] not personally confirmed the
existence of proper backup records necessary to support each
claim at the time it was submitted." The affiant states that
"[a]lthough the records which [she] had carefully packed and
labelled were in mixed order and disarray at the June, 1991,
audit, [she] [and representatives of the protestant] were able to
trace many of the drums back to the original manifests." The
affiant states that "[s]core sheets, production, and reprocessing
records were always accurately prepared by the Inventory and
Production supervisors - the score sheets were kept by [the then
president of the protestant] and the rest by [the affiant]."
As Exhibit C of the protest, the protestant provides a copy
of a letter dated August 5, 1991, to the protestant from a USDA
official in Winter Haven, Florida, stating that records which the
letter states the protestant was seeking are no longer available
because of the USDA's 5-year retention date for such plant
records. According to the protestant, the records sought were
USDA duplicate score sheets.
ISSUE:
Is there authority to grant the protest of denial of
drawback in this case?
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 note that the refusal to
pay a claim for drawback is a protestable issue (see 19 U.S.C.
1514(a)(6)).
This protest involves drawback under 19 U.S.C. 1313(b).
Basically, section 1313(b), often called the substitution
manufacturing drawback law, 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 by the manufacturer or
producer of the articles and articles manufactured or produced
from either the imported duty-paid merchandise or other
merchandise, or any combination thereof, are exported or
destroyed under Customs supervision, 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, even if none of the imported
merchandise was actually used in the manufacture or production of
the exported or destroyed articles. Under section 1313(i), no
drawback may be allowed under section 1313 unless the completed
article is exported within five years after the importation of
the imported merchandise.
The drawback law was substantively amended by section 632,
title VI - Customs Modernization, Public law 103-182, the North
American Free Trade Agreement Implementation Act (107 Stat.
2057), enacted December 8, 1993. Title VI of Public Law 103-182
took effect on the date of the enactment of the Act (section 692
of the Act). 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 Customs Regulations pertaining to drawback, promulgated
under the authority of section 1313(l), are found in 19 CFR Part
191. These regulations require the manufacturer or producer of
articles for which drawback is claimed under section 1313(b) to
maintain records establishing compliance with the requirements
for drawback (see 19 CFR 191.32). The regulations provide for
examination of these records and verification of drawback claims
by Customs (19 CFR 191.2(o) and 191.10) and that all records
required to be kept by the manufacturer or producer with respect
to drawback claims must be retained for at least three years
after payment of such claims (19 CFR 191.5). The claimant, in
its drawback contract (T.D. 84-2-(V), referred to above),
specifically agreed to comply with all of these requirements.
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] instead with an exemption from
duty, a statutory privilege due only when the enumerated
conditions are met" (emphasis added)).
Basically, the problem in this case is that the protestant
has not established that the exported articles were manufactured
by the protestant from the designated imported merchandise,
merchandise of the same kind and quality as the designated
imported merchandise, or any combination thereof within 3 years
of receipt of the designated imported merchandise. The records
which would establish this are score sheets and production
records (daily and weekly processing reports). According to both
the initial audits and the follow-up audit, score sheets were
unavailable for the entire year of 1984 and according to the
follow-up audit, score sheets were also unavailable for the
period from September 1 through December 31, 1983. According to
the initial audits, production and inventory records were
unavailable for all claims and according to the follow-up audit,
the production records for the period between October 31 and
December 31, 1983, were unavailable.
In order to establish that the exported articles were
manufactured from the designated imported merchandise or
merchandise of the same kind and quality (which, as is noted
above, is required by law and the Customs Regulations and was
agreed to as a condition of drawback by the protestant in its
drawback contract), the protestant must establish that the
merchandise used to manufacture the exported articles was COJM of
not less than 55 degrees Brix as defined in the standards of the
FDA and met the grade A standard of the USDA. The protestant
could establish this with production score sheets for merchandise
which it shows (by use of production records) was used to
manufacture the exported articles. In fact, the protestant did
establish this for some of the articles for which drawback is
claimed (see the four paragraphs immediately following this
paragraph for a demonstration of how drawback could have been
obtained in this operation) and, according to the protestant and
protestant's affiant, has in the past "gained millions of dollars
in drawback" by doing so. However, in this case these records
(i.e., score sheets and production records) were not available
(the score sheets for all of 1984 and for September 1 through
December 31, 1983, and the production records for October 31
through December 31, 1983). Even for the period in which daily
and weekly processing reports were available, same-kind-and-
quality of the merchandise used to produce the exported products
could not be established in the absence of score sheets for the
merchandise so used (contrary to the protestant's allegation
about daily and weekly processing records, see page 7 of protest
attachment) (i.e., because there is no evidence of the USDA Grade
of the merchandise so used).
For purposes of illustration, we are describing how the
protestant could, and did in the case of some of the drawback
claimed in the June 7, 1984, entry, satisfy the requirements for
drawback. For the imported designated merchandise, it must be
established that a sufficient quantity of merchandise was
imported, that it met the same-kind-and-quality criteria set
forth in the drawback contract, and that it was used in
manufacture or production by the claimant within 3 years of
receipt. Import documents and records of receipt by the
protestant, specifying the merchandise designated (e.g., by drum
or batch number or other identifying data), with score sheets
showing that the specified merchandise was COJM of not less than
55 degrees brix meeting the USDA Grade A standards could be used
to satisfy the first two of these requirements. The requirement
for use in manufacture or production could be satisfied by actual
use records (showing use in manufacture or production of the
specified merchandise) or by inventory turnover records (see
C.S.D. 79-301, approving the use of first-in-first-out (FIFO) for
this purpose). As stated above, the audits found that the
drawback requirements concerning the imported designated
merchandise were met.
It also must be established that the exported articles
claimed as the basis for drawback were actually exported within
five years of the date of the import of the designated imported
merchandise, that those exported articles were manufactured or
produced from the designated imported merchandise or merchandise
which was substituted for the designated imported merchandise,
that the substituted merchandise was of the same kind and quality
as the designated imported merchandise, and that the manufacture
or production of the exported articles occurred within 3 years of
receipt of the designated imported merchandise.
Compliance with the export requirements may be established
under one of the procedures authorized in 19 CFR 191.51. We note
that the protestant used the exporter's summary procedure
(provided for in 19 CFR 191.53) and that the audits verified the
exportations (with the exception of an over-claim of drawback in
the October 9, 1984, entry). Production of the exported articles
from the designated imported merchandise or substituted
merchandise could be established by tracing the specifying data
(e.g., drum numbers from a drum manifest or cases with
identifying data from the invoice) of the exported articles back
to the particular drums or batches (specified by number) used to
produce those articles on the date of production. If records
establishing the actual drums or batches from which the exported
articles were produced were unavailable, records establishing the
date of production would be acceptable under the conditions
described below. To establish the same kind and quality of the
substituted merchandise, score sheets (showing that the criteria
in the drawback contract were met) specifying the merchandise
used (if on an actual drum or batch basis, specifying the drums
or batches by number) could be used. These score sheets must
show that the substituted merchandise was COJM of at least 55
degrees brix meeting each of the USDA Grade A scoring criteria
(i.e., color (36 - 40 points), defects (18 - 20 points), and
flavor (36 - 40 points)). The auditor states that he observed
such score sheets in the case of the drawback granted (i.e., in
the case of part of the June 7, 1984, claim).
Alternatively, if records establishing the actual tank or
batch from which the exported articles were produced were
unavailable, same-kind-and-quality could be established on the
basis of the date of production (see C.S.D.'s 82-30 and 83-7).
This could be done by providing records showing the date's
production and all of the product which could have been used in
that date's production to produce the exported articles. Any of
the product which could have been so used in that date's
production not established to be same-kind-and-quality (COJM of
at least 55 degrees brix meeting each of the USDA Grade A scoring
criteria) would be assumed to have been used in the production of
the exported articles. (E.g., if 50 drums of product containing
17,500 pounds solid were used on the date of production and 4 of
the drums (containing 1,400 pounds solid) could not be
established to be same-kind-and-quality (because there were no
score sheets, or they were less than Grade A, etc.), the 1,400
pounds solid would be deducted from the available qualifying
merchandise and, if there were exports containing 8,000 pounds
solid, drawback could be granted for the remainder (6,600 pounds
solid), assuming compliance with all other requirements.)
The protestant contends that the missing records do not
preclude drawback. The protestant states that fewer records were
returned from the Government than had been provided to the
Government in response to the subpoena, although the protestant
states it could not ascertain which records were not returned and
that those records returned were in disarray. According to the
protest, "[the protestant] assumed, correctly, that there was
nothing amiss in [the protestant's] records, and sent those
records returned to [its] retention facility ...."
The problem with this argument is that it ignores (as does
the entire protest) the fact that audits were performed of the
protestant in regard to the entries protested before the issuance
of the subpoena and Customs met with the protestant to discuss
the findings of those audits (including the absence of 1984 score
sheets) before the issuance of the subpoena. Also before the
issuance of the subpoena, the protestant submitted records with
which it attempted to overcome the absence of the missing
records. Therefore, we cannot understand why the protestant
assumed that there was nothing amiss with its records (as stated
in the above quotation from the protest). (Similarly, we
question the statement in the protest that "[i]t is surprising
that the same kind and quality issue is now raised by the Customs
Service [since] [none] of the parties involved ... ever mentioned
that same kind and quality was an issue" (page 6 of attachment to
protest). In view of the initial audits of these entries, as
well as Exhibit 3 of the protest (a letter responding to the July
31, 1991 (i.e., before the meeting at which the final audit
findings were presented to the protestant and before the date of
the audit report), letter from the protestant seeking same-kind-
and-quality evidence), this statement appears to be patently
false.)
The protestant argues that same-kind-and-quality is
established on the basis of the quality of the articles produced
and exported, contending that the protestant's overseas customers
would not have accepted a less-than Grade A product. Basically,
this argument is that since the final manufactured product was
USDA Grade A, the substituted merchandise used to produce it must
also have been USDA Grade A.
We disagree with the above argument (see, in this regard,
ruling 220902, dated April 3, 1992). The drawback law requires
the designated imported merchandise and the substituted
merchandise to be of the same kind and quality and the Customs
Regulations require a drawback claimant to keep records to
establish that the designated imported merchandise is the same
kind and quality as the substituted merchandise. The protestant
specifically agreed to keep records to establish this. The
protestant has clearly failed to comply with the statutory and
regulatory requirements, as well as with what it agreed to do in
its drawback contract (as described above) in this regard (see
discussion above on the mandatory nature of compliance with
Customs Regulations on drawback).
Similarly, the protestant contends that the same-kind-and-
quality of the substituted merchandise may be established because
"[e]very shipment of concentrate purchased domestically and all
imported concentrates were graded on site in the USDA laboratory
[and] [i]f any concentrate or juice ever tested lower than Grade
A it was 'flagged' by the USDA 'Not to be used in FOJC' pursuant
to Florida's Code" (page 6 of attachment to protest). We
considered a similar contention in ruling 220902 (referred to
above). We held that this was unacceptable to establish same-
kind-and-quality because the restriction to which the protestant
refers is actually that "bulk" products blended or used to
produce FCOJ must be of Grade A quality with regard to flavor
only, as a prerequisite to assignment of Grade A to the final
product (see Chapter 20-64 of the Official Rules Affecting the
Florida Citrus Industry). Since the flavor criterion used for
USDA grading of COJM is one of three criteria (color, defects,
and flavor) and, relatively speaking, is no more important than
color, we were unable to accept that evidence which may indicate
that COJM was of Grade A flavor necessarily meant that the COJM
was Grade A in all three criteria (as stated above, in order to
qualify as Grade A, the COJM must meet the Grade A criterion for
each of color (36 - 40 points), defects (18 - 20 points), and
flavor (36 - 40 points)). We are unable to accept the
protestant's argument in this regard.
We also disagree with the protestant's argument that, "the
records provided to [Customs] and all records provided for
previous claims are in order" (attachment to protest, page 8)
and, therefore, the absence of the required records in this case
should not preclude drawback. I.e., we disagree because the
protestant has clearly failed, in the case of these entries, to
comply with the statutory and regulatory requirements, as well as
with what it agreed to do in its drawback contract.
The protestant contends that the absence of the required
records can be overcome by the affidavit provided with the
protest, citing Aurea Jewelry Creations, Inc., v. United States,
13 CIT 712, 720 F. Supp. 189 (1989), aff'd 932 F.2d 943 (Fed.
Cir. 1991). The Aurea case involved drawback under the direct
identification manufacturing drawback statute (19 U.S.C.
1313(a)). Customs had denied drawback because the documents
submitted by the drawback claimant were found insufficient to
trace the merchandise from the importer to its subsidiary (which
was the manufacturer) and to establish the date of manufacture
for one of the three lots of gold jewelry involved. The Court of
International Trade held that testimony at trial by the
responsible individuals of the claimant and its subsidiary that
the records had been created but could not be produced satisfied
the requirements for drawback. The Court of Appeals for the
Federal Circuit affirmed, stating:
Compliance with the drawback regulations is mandatory and
a condition precedent to the right of recovery of
drawback. See, e.g., United States v. Lockheed Petroleum
Servs., Ltd., 709 F.2d 1472, 1 Fed. Cir. (T) (1983). The
Court of International Trade's conclusion that testimony
may establish the existence of required records is not
inconsistent with the mandatory nature of the requirement
to maintain certain documentation.
The drawback provisions involved here are both
detailed and specific in outlining the required
documentation. Testimony could be used to establish that
the necessary records, no longer available for reasons
shown to be excusable, were in fact maintained as
required. Further testimony could then be used to
establish the contents of those unavailable records, and
to establish that those contents would have satisfied the
substance of the drawback provisions. A claimant's
testimonial evidence thus could be used to satisfy a two-
pronged inquiry - 1) whether appropriate documentation
was maintained as required; and 2) whether the contents
of that documentation adequately established claimant's
right to the drawback. [932 F.2d at 946.]
Thus, in summary, the Aurea case stands for the proposition
that testimony may be used to establish that: "records, no longer
available for reasons shown to be excusable, were in fact
maintained as required" and that "the contents of those
unavailable records ... would have satisfied the substance of the
drawback provisions." As the Court of Appeals clearly stated,
this does not mean that testimony may be used instead of records
which were not created. It means that testimony may be used, in
the conditions described, when records which were created are,
for reasons shown to be excusable, no longer available.
As the protestant states, we have noted in a past ruling
(223235, June 19, 1992) that "[a]n affidavit is not the
equivalent of testimony at trial because an affidavit is not
subject to cross-examination and, therefore, not entitled to the
same weight as testimony in court" (citing Andy Mohan, Inc. v.
United States, 74 Cust. Ct. 105, C.D. 4593 (1975), aff'd 63 CCPA
104, C.A.D. 1173, 537 F.2d 516 (1976)). In the CCPA decision,
the Court noted that the affidavits in question "... are entitled
to little weight, being incomplete and based on unproduced
records, and having been executed years after the transactions to
which they attest" (63 CCPA 107). In this regard, we note the
statement of the CIT in Central Soya Co., Inc. v. United States,
15 CIT 35, 40 (1991) (cited by the protestant), that "... all
relevant evidence is admissible, provided that it is not deemed
inadmissible by the Constitution or by statute" but this "... is
no indication of the credit or probative value of [affidavits]."
In this case then, under the Aurea case, the protestant
would have to establish that the score sheets and production
records were in fact maintained, that they would have established
the protestant's right to drawback, and that they were no longer
available for reasons shown to be excusable. The only reason
given for the unavailability of the records is the subpoena of
the protestant's records and the delayed return of those records
in disarray with (implicitly) some of the records missing. As
stated above, however, the 1984 score sheets and the production
and inventory records for the pertinent time were found to be
unavailable in the initial audits. These initial audits were
performed before the issuance of the subpoena, and Customs
officials met with the protestant to discuss the results of the
audits before the issuance of the subpoena. Therefore, the
subpoena cannot be used as an excuse for the unavailability of
the records found to be unavailable before issuance of the
subpoena.
As to the other two requirements given in the Aurea case, we
note that the affidavit in this case is similar to those
described in the Andy Mohan case (i.e., the affidavit is
"incomplete" in that the affiant does not state what the scores
on the score sheets were and what the production and inventory
records under question would have shown (compare to the
specificity of the testimony in Aurea); the affidavit is "based
on unproduced records"; and the affidavit was "executed years
after the transactions to which [it] attest[s]" (in this case, 5
years after the initial audits and at least 8 years after the
time the records were stated to have been maintained)). See
also, in regard to the last point, United States v. Baar &
Beards, Inc., 46 CCPA 92, C.A.D. 705 (1959), in which an
affidavit more than 2 years after the event to which it related
which was not supported by any records was found insufficient to
overcome the valuation affixed by the appraiser.
The follow-up audit found that score sheets were unavailable
for all of 1984 and for the period between September 1 through
December 31, 1983. Since there is no reference in the initial
audits to the unavailability of score sheets for the latter
period, it could be argued that the score sheets for this period
(September 1 through December 31, 1983) are unavailable for an
excusable reason. Even if that were so and even if score sheets
establishing the same-kind-and-quality of the merchandise claimed
to have been used during the period to produce the exported
articles were found to have been maintained on the basis of the
affidavit, production and inventory records were found to be
unavailable in the initial audits for all claims and in the
follow-up audit between October 31 and December 31, 1983.
Therefore, even if the affidavit were accepted as evidence to the
greatest degree possible, the only claims which could be affected
would be those in which the date of manufacture was before
October 31, 1983. According to the entries under consideration
and any other available information in the file, drawback has
already been granted (in the June 7, 1984, entry) to the extent
possible for claims in which the date of manufacture was before
October 31, 1983.
HOLDING:
There is no authority to grant the protest of the denial of
drawback in this case.
The protest is DENIED. In accordance with Section 3A(11)(b)
of Customs Directive 099 3550-065, dated August 4, 1993, Subject:
Revised Protest Directive, this decision should be mailed, with
the Customs Form 19, by your office 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 take
steps to make the decision available to Customs personnel via the
Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Lexis, Freedom of Information Act, and
other public access channels.
Sincerely,
John Durant, Director
Commercial Rulings Division