DRA-1-06-CO:R:C:E 224598 PH
Regional Commissioner of Customs
Southeast Region
RE: Manufacturing Drawback Claims; Same Kind and Quality; Orange
Juice; Protest 5201-92-100530; 19 U.S.C. 1313(b)
Dear Sir:
The above-referenced protest was forwarded to this office
for further review. We have considered the points raised by your
office, the protestant, and the materials in the file (we
understand that materials submitted by the protestant relating to
its alternative proposal are available in your Regional
Regulatory Audit office). Our decision follows.
FACTS:
The protest is of the liquidation of three drawback entries
(or claims) dated January 9, 16, and 30, 1987. The entries
covered by the protest were the subject of a Customs audit
(Report 4-88-FRD-13, discussed in the LAW ANALYSIS portion of
this ruling) and a ruling on an internal advice request (ruling
220902, April 3, 1992, cited by the protestant). Accelerated
payment of drawback was requested and granted for the entries,
resulting in a total accelerated payment of drawback in the
amount of $959,066.23 (the date of the accelerated payment of
drawback for the January 9, 1987, entry was January 30, 1987,
that for the January 16 entry was February 23, and that for the
January 30 entry was March 13). By check dated December 8, 1989,
the protestant returned $34,340.90. The protestant states that
all other drawback received on the entries under consideration
was returned, with interest, on October 22, 1992. On May 22,
1992, the entries under consideration were liquidated with all
drawback denied, and on July 31, 1992, the entries were
reliquidated (the reliquidation was to take into consideration
the protestant's December 8, 1989, tender of monies, according to
notes in the file).
The protestant (the corporate drawback claimant no longer
exists, having been succeeded to by a managing corporation;
references to the protestant include the original corporate
drawback claimant and the succeeding managing corporation, as
well as their representative in this matter) held a manufacturing
drawback contract (T.D. 83-124 (Y)) under 19 U.S.C. 1313(b)
(according to the audit report referred to below, the protestant
went out of the orange juice processing and canning business on
August 1, 1986). That contract provided for drawback in the
manufacture of orange juice from concentrate (reconstituted
juice), frozen concentrated orange juice, and bulk concentrated
orange juice from 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 or a drawback product and which was to be
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 used to
produce the exported article" and that its "records [would]
indicate the kind and quality of the material used to produce the
exported article."
The audit report (referred to above) recommended denial of
all drawback in the audited entries because the auditors found
that the protestant did not maintain manufacturing records to
show that the product used in manufacture was of the same kind
and quality as the designated product. Also, according to the
audit report, daily manufacturing records did not show the
quantity used in manufacture or the quantity produced in
comparable units of measure. Further, in regard to bulk
concentrated orange juice ($497,274.04 of the total drawback
claimed), the records did not show that a manufacturing process
took place. (Other deficiencies regarding the production date of
single strength juice sent to Arab countries and non-
exportations, duplications in the claims, and the identity (e.g.,
grapefruit instead of orange juice) of the product shipped were
found in the audit, but are understood to have been resolved.)
The ruling issued in response to the internal advice request
in this case (referred to above) held that the records in the
case did not establish that the duty-free or domestic merchandise
used to manufacture or produce the exported articles was of the
same kind and quality as the designated imported merchandise. In
the ruling, we also commented on the question of whether the
records established that the exported COJM had been manufactured
or produced. We stated that we could find no records
establishing the use of essential oils, flavoring components,
water, or fresh juice in the production of the COJM for export.
On August 17, 1992, the protestant filed the protest of the
May 22, 1992, liquidation and the July 31, 1992, reliquidation of
the drawback entries under consideration. The specific arguments
made by the protestant are addressed in the LAW AND ANALYSIS
portion of this ruling.
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 duty-free or domestic merchandise 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 the
articles manufactured or produced from the duty-free or domestic
merchandise are exported, 99 percent of the duties on the
imported duty-paid merchandise shall be refunded as drawback,
even if none of the imported merchandise was actually used in the
manufacture or production of the exported 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 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 these requirements
(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. 83-124-(Y), 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)).
The protestant contends in its protest that the records
maintained by the protestant, supplemented by records and advice
received from the USDA (considered in ruling 220902, referred to
above) establish that the merchandise used to produce the
exported articles was of the same kind and quality as the
imported merchandise designated for drawback. The protestant
also contends that a process of manufacture, the addition of oils
and essences, did take place and that if tangerine/hybrid juices
were used, the quantity used was within permissible limits. To
require more, according to the protestant, is to require "batch
records", which it states the drawback contract (or "rate")
covering the entries under consideration was framed to avoid.
The above contentions, as well as the evidence cited, were
thoroughly considered in ruling 220902 (referred to above, copy
enclosed, and incorporated by reference into this ruling). That
ruling considered all of the evidence then available in the light
of the requirements of the law and the Customs Regulations and
what the protestant agreed to in its drawback contract. As
stated above, in that ruling we held that the records in this
case do not establish that the merchandise used to manufacture
the exported articles was of the same kind and quality as the
designated merchandise, which is an absolute requirement under
the law and the Customs Regulations, and which the protestant
agreed in its drawback contract to maintain records to establish.
After again considering this matter and the evidence in the file,
we have come to the same conclusion; i.e., the protest is denied
in this regard (however, the new evidence submitted by the
protestant is considered below).
The protestant also cites two other drawback entries in
which it states that the same record-keeping methodology was used
and in which drawback was granted (the dates of these drawback
entries are January 10, 1985 and January 8, 1986, and the
liquidation dates are July 7, 1986, and October 24, 1986,
respectively). According to the protestant, it believed that it
was keeping such records as were necessary and appropriate (the
protestant notes that the former Customs employee who had
prepared the protestant's application for its drawback contract
reviewed each entry before submission to Customs) and "Customs'
apparent acquiescence [by liquidating these entries with
drawback] caused [the protestant] to rely on the efficacy of its
record[-]keeping methodology to its detriment."
In this regard, we note that any drawback claim is subject
to verification by Customs (see 19 CFR 191.10). The liquidation
of the cited entries was based on earlier audits of the
protestant performed when the protestant was operating under a
different drawback contract (see discussion of this issue in
ruling 220902, referred to above). We fail to see how the
protestant could have relied on the liquidations on July 7 and
October 24, 1986 (note that the liquidations would not have been
final until 90 days later; 19 U.S.C. 1501), of the cited entries
in the entries under consideration when the dates of the imports
for the entries under consideration were from March of 1984
through January of 1986, the imports must have been used before
August 1, 1986 (when the protestant went out of the orange juice
processing and canning business), the substituted merchandise
must have been used to produce the exported articles before
August 1, 1986, and the exportations for which drawback was
claimed occurred between December of 1984 and July of 1986 (see
page 1 of audit report; see also the chronological summary of
exports filed by the protestant for the January 9, 1987, drawback
entry, according to which only 36,691.88 gallons of 11.8 degrees
brix (single strength) orange juice, out of a claimed total
739,957.32 gallons of 11.8 degrees brix orange juice, no 42
degrees brix frozen orange concentrate, and no 65 degrees brix
frozen orange concentrate, were exported after the earlier of the
liquidations of the cited drawback entries (on July 7, 1986)).
Thus, even if detrimental reliance were available if a party
could show that it relied on the liquidation of a drawback claim
in filing a subsequent claim (which we do not believe to be the
case; see 19 CFR 177.9(d)), the protestant clearly has failed to
establish such reliance (i.e., because the protestant would be
arguing that it was relying on an event (liquidation) before the
event occurred).
Alternatively, if drawback is not allowed in full on the
basis of the above arguments, the protestant contends that there
is no basis to deny the claims in their entirety. The protestant
provides additional records, an affidavit as to the manufacturing
issue, and other materials. Compliance, on the basis of this
additional evidence, with the drawback requirements is reviewed
below.
(1) Was imported duty-paid merchandise meeting the
specifications in the protestant's drawback contract used by the
protestant within 3 years of receipt?
The merchandise designated for drawback in this case
consisted of frozen COJM (65 degrees brix) imported from Brazil.
According to the audit report, all designated merchandise was
imported between March 1984 and January 1986. In the January 9,
1987, entry, according to the import documents 107,184.29,
gallons of COJM (stated to be the equivalent of 750,290.83
gallons reconstituted) were withdrawn from warehouse on September
12, 1984, 53.80 gallons of COJM (stated to be the equivalent of
376.57 gallons reconstituted) were withdrawn from warehouse on
September 27, 1984 (the date of the warehouse entry for both of
these withdrawals was March 15, 1984), and 159,670.5 gallons of
COJM (stated to be the equivalent of 1,117,693 gallons
reconstituted) were entered for consumption on July 25, 1984
(i.e., total designated merchandise for this entry: 266,908.59
COJM, stated to be the equivalent of 1,868,360.5 gallons
reconstituted, upon which duty in the amount of $653,926.04 was
paid). The audit found that the protestant imported the COJM and
paid the duty. The audit found that the COJM was received at the
plant and used in production of domestic and export products.
According to the audit report, the protestant went out of the
orange juice processing and canning business on August 1, 1986.
According to ruling 220902 (referred to above), there are records
to establish that the imported COJM was USDA Grade A COJM. Based
on the above, we conclude that the designated imported COJM met
the same-kind-and-quality specifications in the protestant's
contract and was used within 3 years of receipt by the protestant
in the manufacture or production of articles.
(In regard to the emphasized clause in the preceding
sentence, we note that the imported designated merchandise is
required to be used within 3 years of receipt by the manufacturer
or producer, not within 5 years of importation (see page 8 of
audit report). We note also in this regard, for your
information, that use of the designated imported merchandise
within 3 years of receipt by the manufacturer or producer is an
explicit statutory requirement and the Customs Regulations
require the records of the manufacturer or producer to establish
this (see 19 CFR 191.32(a)(3)), and the protestant agreed to
maintain records establishing this. An assumption that
designated merchandise "would have had to have been used" (see
page 8 of audit report) may not substitute for these record-
keeping requirements (we note, in this regard, that Customs has
approved the use of first-in-first-out (FIFO) inventory turnover
records to establish this (see C.S.D. 79-301)).)
(2) Was merchandise of the same kind and quality as the
imported duty-paid merchandise used by the protestant within 3
years of receipt to manufacture the articles upon which drawback
was claimed and were those articles exported within 5 years of
the importation of the imported duty-paid merchandise?
Exports. As stated above, the protestant used the
exporter's summary procedure. According to the audit report, the
imports designated in these entries were imported between March
of 1984 and January of 1986 (page 8) and the exports were between
December of 1984 and July of 1986 (page 1). According to the
audit report (page 14 and Exhibit D), there were a number of
deficiencies regarding exportation (primarily non-exports because
the claimed exports were to a U.S. possession (see 19 CFR
191.13)), but all related to exports of single-strength products.
These are the only deficiencies regarding exports cited in the
audit report. The additional evidence presented with the protest
relates only to concentrated products (65 and 41.8 degrees brix)
and no alternative claim is made in regard to single-strength
products. In view of the above and the additional evidence
presented (in this regard, invoices for all exports claimed), we
are satisfied that the exportations which serve as a basis for
drawback on the basis of the additional evidence presented were
exportations, for drawback purposes, and were within the time
prescribed by the statute (i.e., within 5 years of the
importation of the designated, imported merchandise).
Manufacture of exported articles from merchandise of the
same kind and quality as the designated imported duty-paid
merchandise. The protestant attempts to establish its compliance
with this requirement by the submission of additional records for
concentrated products (i.e., 65 degrees brix COJM and 41.8
degrees brix frozen orange juice concentrate). The evidence
submitted for each is reviewed separately below.
COJM (65 degrees brix). The protestant provides copies of
invoices for each claimed export. With each invoice is a drum
manifest, which lists the drums by number and the date of
production, degrees brix, net weight, ratio (sugar (in degrees
brix) to acid), pounds solid, and product description for each
drum. Also related to each invoice and drum manifest there is a
weekly "Production Drum Proof" report (in some cases, a "Daily
Transaction Proof"), on which may be found the drum numbers from
the drum manifest. This report lists the date of production,
batch, ratio, acid, degrees brix, N-value (related to color
score), oil, weight, pounds solid, gallons, location, color
score, defects score, flavor score, and total score. Related to
the "Production Drum Proof" report is a "Drum Usage Proof"
report. This report shows the drum usage (stated to include
usage of all drums of orange, reticula, and hybrid products on
the date of production) in orange juice manufacture. This report
lists the drum number, date of production, batch, ratio, acid,
degrees brix, N-value, oil, weight, pounds solid, gallons,
location, color score, defects score, flavor score, total score,
and group of the drums used (with certain exceptions described
below). Also listed is the date of "update" (i.e., the date the
drum was used) and the type (of product produced).
(USDA Certificates of Quality for the exported articles are
also provided (except in the case of two shipments) with the
above-described documents. For the reasons explained in ruling
220902, referred to above, these certificates are unnecessary and
do not establish same-kind-and-quality. I.e., what is required
is that the designated imported merchandise and the substituted
merchandise which is used to produce the exported articles be of
the same kind and quality; not that the designated imported
merchandise and the exported articles be of the same kind and
quality.)
The protestant proposes the use of these records to
establish the production date of the exported articles (i.e., the
exported drums (by drum number, off the drum manifest attached to
the invoice) are traced to the Production Drum Proof report
(listing the same drum numbers and dates of production)). Using
the date of production off the Production Drum Proof report, the
protestant proposes to establish the minimum quantity of
merchandise of the same kind and quality as the imported
designated merchandise which must have been used to produce the
exported articles. This is done by totalling all of the drums of
orange juice products used in production on the date of
production of the exported articles and separating this into
qualifying drums of COJM and non-qualifying drums. Qualifying
COJM is all Grade A COJM meeting the same-kind-and-quality
specifications in the protestant's drawback contract and non-
qualifying drums are all other drums used in production on that
date. It is assumed that all of the non-qualifying drums were
used in the production of the exported articles, so that the
quantity of pounds solid qualifying for drawback is the
difference between pounds solid exported and non-qualifying
pounds solid (if there were sufficient qualifying pounds solid
produced on that date).
On the issue of whether the exported COJM was manufactured
or produced, the protestant provides an affidavit, dated November
3, 1992, by a person who states that he was employed by the
protestant in a supervisory position between 1977 and 1987. The
affiant states that, during this employment, he was personally
responsible for juice extraction and blending and for the
concentrate area, which included the manufacture of orange juice
concentrate for foreign and domestic consumption. The affiant
states that his duties included supervising the addition of oils
and essences during the manufacture of each batch of orange juice
concentrate. The affiant states that "[f]rom [his] personal
knowledge, oils and essences were added to each batch of
concentrate, whether for export or domestic sale, during the
manufacturing process to meet USDA and Florida Department of
Citrus specifications and custom requirements." The affiant
describes the procedures involved and concludes, "[i]n summary,
each batch of concentrate required the addition of oil and
essence as part of the manufacturing process; and to my personal
knowledge, essence and either essence oil or cold press oil, as
described above, were necessarily added to each batch."
To illustrate the protestant's proposal, we are describing
how it works in the case of two export shipments. In the case of
invoice 0077407 (identified as F-877 in the protestant's
submission) 77 drums (identified as numbers 420 through 496) were
shipped to Japan. The pounds solid for these drums are stated to
be 28,403.76. The drums are listed (by number) on the Production
Drum Proof report as having been produced on July 15, 1985, and
the other information described above is provided for each drum.
According to the Drum Usage Proof report, 21,285.03 pounds solid
of qualifying (Grade A) COJM were used on July 15, 1985, and
23,032.21 pounds solid of non-qualifying (less than Grade A)
product were used on July 15, 1985 (note: there is a discrepancy
here with the protestant's figures in that the protestant found
20,156.20 pounds solid of qualifying COJM (apparently because the
protestant omitted drums 4025, 4027, and 94495) but the
discrepancy has no effect on the calculations because it is on
the qualifying side and there is sufficient qualifying COJM in
either case). Since 28,403.76 pounds solid of COJM were exported
and 23,032.21 pounds solid of non-qualifying product are assumed
to have been used to produce the exported COJM, drawback is
claimed on 5,371.55 pounds solid of COJM. As to the
manufacturing issue, we note that according to the Production
Drum Proof and Drum Usage Proof reports, in no case does a drum
which was exported have the same scores (color 38, defects 20,
flavor 37, totalling 95), oil (.0150), and ratio (15.01) as does
any of the drums of product used on the date of production of the
exported articles.
In the case of invoice 0085433 (identified as G-518 in the
protestant's submission) 82 drums (identified as numbers 136300
through 136331, 136336 through 136338, 136341, 136342, 136344,
136676 through 136709, and 136950 through 136959) were shipped to
Japan. The pounds solid for these drums are stated to be
30,255.00. The drums are listed (by number) on the Production
Drum Proof report as having been produced on March 10, 1986 (the
above listed drums through 136344) and March 11, 1986 (the above
listed drums 136676 through 136709 and 136950 through 136959),
and the other information described above is provided for each
drum. According to the Drum Usage Proof report, on March 10,
1986, 57,322.39 pounds solid of qualifying (Grade A) COJM were
used (note: there is a minor discrepancy here with the
protestant's figures in that the protestant found 57,323.39
pounds solid of qualifying COJM (probably explained by the
difficulty in reading some of the numbers on the Drum Usage Proof
report) but the discrepancy has no effect on the calculations
because it is on the qualifying side and there is sufficient
qualifying COJM in either case) and no pounds solid of non-
qualifying product were used. On March 11, 1986, 74,575.88
pounds solid of qualifying (Grade A) COJM were used and 3,148.71
pounds solid of non-qualifying (less than Grade A or ungraded)
product were used (note: there is a minor discrepancy here with
the protestant's figures in that the protestant found 74,762.89
pounds solid of qualifying COJM (probably explained as above) but
the discrepancy has no effect on the calculations because it is
on the qualifying side and there is sufficient qualifying COJM in
either case). Since 30,255.00 pounds solid of COJM were exported
and 3,148.71 pounds solid of non-qualifying product are assumed
to have been used to produce the exported COJM, drawback is
claimed on 27,106.29.
(Note: The production on March 10, 1986, was also claimed
in the following shipments: invoice 0085429 (G-516) (8,962.27
pounds solid); invoice 0085428 (G-515) (22,315.01 pounds solid);
invoice 0085427 (G-514) (7,430.30 pounds solid); and invoice
0085334 (G-512) (2,964.17 pounds solid). Thus, a total of
55,654.24 pounds solid of COJM produced on March 10, 1986, were
claimed as exports, on the basis of a total of 57,322.39 pounds
solid qualifying COJM used on that date. Since no non-qualifying
product was used on that date, drawback is claimed on the entire
total of 55,654.24 pounds solid.)
As to the manufacturing issue, we note that according to the
Production Drum Proof and Drum Usage Proof reports, in no case
does a drum which was exported have the same scores (color 36,
defects 20, flavor 37, totalling 93), oil (.0120, .0100, .0060,
or .0080), and ratio (17.65, 17.66, or 17.76) as does any of the
drums of product used on the dates of production of the exported
articles.
We have ruled that a drawback claimant may reconstruct lost
records or provide proof of records by alternate means or records
(see C.S.D. 82-30; see also Aurea Jewelry Creations, Inc., v.
United States, 13 CIT 712, 720 F. Supp. 189 (1989), aff'd 932
F.2d 943 (Fed. Cir. 1991)). In this case, except as noted below,
the protestant has provided evidence (i.e., the additional
evidence submitted with the protest and described above) in
regard to the export shipments of 65 degrees brix COJM covered in
the additional evidence that the shipments were manufactured or
processed (i.e., from the records showing the differences in the
specifications of the exported COJM and the product used to
produce the exported COJM, supplemented by the affidavit by the
responsible employee of the protestant (see C.S.D. 80-162)) from
merchandise of the same kind and quality as the imported
designated merchandise (i.e., the records tracing the exported
drums back to the date of production, used to show that on the
date of production Grade A COJM, for which there are records
establishing same-kind-and-quality, must have been used to
produce the exported COJM by treating all non-qualifying product
used on that date as used in the production of the exported
articles and reducing the available drawback accordingly).
Therefore, on the basis of the above and because the other
requirements have been met (as described above), drawback may be
granted to the extent described on the exportations of the 65
degrees brix COJM, except as noted below.
One exception to the above is the export shipments produced
on dates when Brazilian COJM was used. In invoice 0076259 (F-
884), for the COJM produced on May 15, 1985, 15,719.46 pounds
solid of Grade A COJM were used and 8,351.18 pounds solid of
Brazilian COJM were used. 5,228.64 pounds solid of COJM produced
on May 15, 1985, were exported and both the Grade A and Brazilian
COJM are treated as qualifying, so drawback is claimed on the
full 5,228.64 pounds solid of COJM. The Drum Usage Proof reports
(which are used to establish same-kind-and-quality of the
merchandise used to produce the exported articles) for the
Brazilian COJM do not list scores or oil content. Although it is
true that imported, duty-paid merchandise may be used to
manufacture exported articles for which drawback is claimed under
19 U.S.C. 1313(b) (see T.D. 84-95), the imported, duty-paid
merchandise must still be of the same kind and quality as the
designated merchandise.
The protestant attempts to establish that the Brazilian COJM
was of the same kind and quality as the designated merchandise by
the use of supplemental evidence (i.e., instead of Drum Usage
Proof reports with scores). This evidence consists of an
invoice, dated January 2, 1985, listing the bill of lading date
as December 19, 1984, for the sale and shipment of 1,500 drums
containing 65 degrees brix frozen concentrated orange juice from
Brazil to the protestant; a record of drums purchased, said to be
prepared by the protestant's clerk, showing the purchase of 1,500
drums (containing 137,039 gallons) of Brazilian orange juice on
January 4, 1985, and listing Fruitropic S.A. as the "inventory"
source; a report on the specifications of 1,500 drums of frozen
orange juice concentrate, in batches of 60 drums per batch (the
batches identified by number, e.g., "4.956"), on the letterhead
of Fruitropic S.A. listing, among other things, the degrees brix,
acid, ratio, defects score, color score, flavor score, oil, and
pulp, and totalling 137,039.91 gallons; and a list of drum
numbers said to be in each of the above-referenced batches. In
the report on the specifications of the batches of 60 drums of
frozen orange juice concentrate, the scores are those for USDA
Grade A COJM and the measurements of degrees brix vary no more
than .13 from 65 degrees brix.
The Brazilian COJM listed on the Drum Usage Proof report for
May 15, 1985, is shown in drums with drum numbers appearing on
the list of drum numbers referred to in the preceding paragraph.
The protestant's basis for linking the batches (the score sheets
are for each batch) to the groups of 60 drums is that the ratio
and degrees brix are the same in the score sheet of a particular
batch and for the 60 drums stated to be included within that
batch (e.g., batch 4.956 has a ratio of 15.94 and degrees brix of
65.07 and drums 60164P through 60223P have the exact same ratio
and degrees brix).
We are unable to accept this evidence as establishing that
the Brazilian COJM listed on the Drum Usage Proof report, the
drum numbers of which appear in the list of drum numbers, is
identified as the Brazilian COJM, identified by batch number, for
which specifications (including, among other things, the degrees
brix, acid ratio, defects score, color score, flavor score, oil,
and pulp) are listed. Such identification is necessary to
establish that the Brazilian COJM used in the production of the
exported articles meets the same-kind-and-quality requirement.
The basis for this conclusion is that in the case of at least one
batch (4.966, having a degrees brix of 65.05 and a ratio of
16.02), there is no matching group of 60 drums with the same
specifications. Additionally, we note that batches 4.961 and
4.972 have the same ratios and degrees brix, as do batches 4.968
and 4.988 and, thus, their identities in the drums cannot be
conclusively identified in the manner proposed by the protestant
(i.e., drums with the same ratios and degrees brix could be from
either of batch 4.961 or 4.972 and the same is true of batches
4.968 and 4.988). The protestant attempts to explain the above
discrepancy (i.e., that in batch 4.966 there is no matching group
of 60 drums) by speculating that it may have been due to computer
error. However, as noted above, the drawback law, the applicable
regulations, and the protestant's drawback contract require that
same-kind-and-quality be established, and the foregoing raises
doubts that the Brazilian COJM used in the May 15, 1985,
production was the same as that graded by batch (see discussion
above on the mandatory nature of compliance with the Customs
Regulations on drawback).
Accordingly, we are unable to conclude that the evidence
submitted by the protestant establishes that the Brazilian COJM
used to produce the COJM on May 15, 1985, was of the same kind
and quality as the designated imported COJM. Direct
identification drawback, under 19 U.S.C. 1313(a) is not available
because the records necessary for such drawback are not made
available (i.e., records tracing the imported merchandise to the
exported articles). Therefore, the Brazilian COJM must be
treated as non-qualifying and, since there is then more non-
qualifying product used on the date of production than exported
COJM, no drawback may be granted on the basis of the 5,228.64
pounds solid produced on may 15, 1985.
Similarly, the 53,547.31 pounds solid of Brazilian COJM used
in production on June 6, 1985 (see invoices 0076057 (F-849) and
0076064 (F-851)), and the 55,448.09 pounds solid of Brazilian
COJM used in production on June 5, 1985 (see invoices 0076063 (F-
852) and 0076107 (F-853)), must be treated as non-qualifying.
Since there were a total of 56,621.95 pounds solid of COJM
exported from the COJM produced on June 6, 1985, and no other
non-qualifying product, 3,074.64 pounds solid of COJM are
available for drawback from the June 6, 1985, production (i.e.,
the 53,547.31 pounds solid non-qualifying Brazilian COJM are
treated as having been used in the exported COJM). In the case
of the June 5, 1985, production, 56,451.78 pounds solid of COJM
were exported and there is no other non-qualifying product, so
1,003.69 pounds solid of COJM are available for drawback from the
June 5, 1985, production (i.e., the 55,448.09 pounds solid non-
qualifying Brazilian COJM are treated as having been used in the
exported COJM). The 3,074.64 pounds solid of COJM may be
attributed to either invoice 0076057 or 0076064 and the 1,003.69
pounds solid of COJM may be attributed to either invoice 0076063
or 0076107.
In addition to the exception for the non-qualifying
Brazilian COJM, in the cases of invoices 85335 and 0085860 (G-
511 and G-582, respectively), we found, respectively, 1,485.62
and 761.25 pounds solid in the Drum Usage Reports for the dates
of production (February 10, 1986, and March 22, 1986,
respectively) with less than 55 degrees brix. According to the
specifications in the protestant's drawback contract, the COJM
used to produce the exported articles must be of not less than 55
degrees brix, in addition to meeting the USDA Grade A standard.
Therefore, this COJM is non-qualifying and is assumed to have
been used in the production of the exported articles. The
qualifying pounds solid for each date must be reduced (i.e., the
qualifying pounds solid of the February 10, 1986, production is
reduced from 16,997.08 to 15,511.46, attributable (with the
February 28, 1986, production) to invoice 85335; and the
qualifying pounds solid of the March 22, 1986, production is
reduced from 26,553.70 to 25,792.45, attributable to invoice
0085860) and the drawback granted for articles produced on these
dates and attributable to these invoices must be reduced
accordingly.
Also, in invoices 0076057 (F-849) and 0076064 (F-851), the
Drum Usage Proof for June 6, 1985, does not provide the scores
for 36 drums (containing 14,020.80 pounds solid) of concentrate
used on June 6, 1985 and these drums are not listed on the "Daily
Transaction Proof" report submitted with this invoice (this
latter report is used for other drums for this date of production
to establish the scores of the drums on the Drum Usage Proof
report). There is a hand-written notation on the Drum Usage
Proof report above these drums indicating that they were "used in
single strength" production, but there is no evidence
establishing that. In the absence of such evidence, we must
assume that these non-qualifying drums were used in the
production of the exported articles on the date of production and
the pounds solid available for drawback must be reduced
accordingly (i.e., 14,020.80 must be added to the non-qualifying
COJM used on this date; since the Brazilian COJM is also
considered non-qualifying, the non-qualifying COJM exceeds the
exported articles based on this date of production and no
drawback may be granted for the date).
(Note: No 10 percent reduction for the possible use of
tangerine and/or hybrid juice is necessary in the case of the
COJM (as discussed below in regard to the 41.8 degrees brix
frozen orange juice concentrate) because in this case, as
contrasted with the case of the 41.8 degrees brix frozen orange
juice concentrate, the protestant has provided satisfactory
evidence that tangerine and/or hybrid juice was not used in the
production of the exported articles. This evidence consists of a
letter, dated June 10, 1992, from a responsible official of the
USDA in Winter Haven, Florida, stating that "... based on our
Continuous Inspection procedure and the cited WH-MEMO [listing
Florida citrus code designations], our in-plant inspection
personnel would have required a code marking of 'OMT' or 'OMTD'
on any product produced at the referenced establishment [i.e.,
that of the protestant] if it contained any tangerine/hybrid
juices." (Emphasis in original.) In the drum manifests for the
invoices for the exported articles, the product description for
all drums is either "OMD" or "OM" and in the "Daily Transaction
Proof" reports which list the product, the product code is
"OMD".)
Frozen orange juice concentrate (41.8 degrees brix). The
protestant provides copies of invoices for each claimed export
with a shipping order which lists the cases, size, brand,
commodity, product, label, and weight, as well as shipping
information. There is a hand-written notation on the shipping
orders which the protestant states identifies the date of
production (e.g., "21 C-5" is stated to mean March 21, 1985, and
"L-18-5" is stated to mean December 18, 1985 (the alphabetic
notation indicates the month of production)). According to the
protestant, this hand-written notation is made on the shipping
order at the loading dock by the loader, and the initial on the
shipping order (in the stamped block at the indication for
"signature") is of the person who made this notation. Related to
each invoice and shipping order is a weekly inventory report,
which lists, among other things, the weekly production of various
products, including the product listed on the shipping order.
Also related to each invoice and shipping order are "Drum Usage
Proof" reports (see discussion of 65 degrees brix COJM above, for
information listed on these reports). No USDA Certificates of
Quality for the exported articles are included (see our comments
above, as to why such certificates are unnecessary for same-
kind-and-quality purposes).
The protestant proposes the use of these records to
establish the production date of the exported articles (i.e., by
the hand-written notation on the shipping orders, supported by
the weekly inventory report showing that more than the quantity
of articles exported was produced in the week of the date of
production). The protestant converts the quantity of exported
articles (given in cases of cans or other containers, e.g., 308
cases of 12/32 (12 32 ounce containers) to pounds solid (using a
ratio of 4.156 per gallon of frozen concentrate (Note: we
understand that this is the ratio for 42 degrees brix, and that
the ratio for 41.8 degrees brix is actually 4.133; we understand
that the use of the ratio for 42 degrees brix for calculating
pounds solid for this product is consistent with the practice in
this regard). Using the production date developed from the above
information, the protestant proposes to establish the minimum
quantity of merchandise of the same kind and quality as the
imported designated merchandise which must have been used to
produce the exported articles (as was proposed in the case of the
65 degrees brix COJM, as described above). The protestant
proposes to establish manufacture or production by the affidavit
described above. Because the protestant cannot establish that
tangerine and/or hybrid juice was not used in the production of
the frozen concentrate, the protestant proposes to reduce the
above resulting qualifying pounds solid by 10 percent (see C.S.D.
79-409, citing the FDA regulations identifying frozen
concentrated orange juice to permit the addition of not more than
10 percent tangerine juice). Because the protestant cannot
establish that fresh juice was not used as "cutback" (i.e., to
reduce the degrees brix of the COJM from 65 degrees to the 41.8
degrees brix of the frozen orange juice concentrate, in which
case a portion of the pounds solid of the exported articles would
be derived from fresh juice not qualifying for drawback in this
case), the protestant proposes a further reduction of 12.18
percent (see C.S.D. 83-7).
To illustrate the protestant's proposal, we are describing
how it works in the case of invoice 0082618 (G-218). According
to that invoice, 308 cases of 12 containers of 32 ounces of
Bluebird frozen orange concentrate (identified by production code
1601, label 010) were sold to and shipped to Solomon Bros. Ltd.,
care of Tropical-Ships Mail, of Miami, Florida (as stated above,
on the basis of the audit report we are assuming that the
exportation requirements have been met; in particular regard to
this case (see also invoices 0077371 (F-948), 0085860 (G-582),
0086505 (G-632), 0086438 (G-653), 0074719 (F-659), 0083512 (G-
326), and 0088933 (G-845), in which the invoices indicate that
the exporter may be someone other than the protestant), see 19
CFR 191.51 et seq., regarding the evidence required to support
exportation, and 191.73, regarding reservation by the
manufacturer or producer of the right to claim drawback).
According to the notation ("L-18-5") on the shipping order
for this invoice, the date of production was December 18, 1985.
According to the weekly inventory run on December 23, 1985, 2,867
cases of this product (12/32 frozen orange concentrate-981, 1601-
010 Bluebird) were produced during that week. According to the
protestant, the 308 cases of 12/32 frozen orange concentrate may
be converted to 3,840.14 pounds solid (i.e., 12 32 ounce
containers equals 3 gallons, multiplied by 308, multiplied by
4.156). According to the "Drum Usage Proof" report, 9,266.88
pounds solid of qualifying (Grade A) COJM were used on December
18, 1985 (note: there is a discrepancy here with the protes-
tant's figures in that the protestant found 9,276.88 pounds solid
of qualifying COJM but the discrepancy has no effect on the
calculations because it is on the qualifying side and there is
sufficient qualifying COJM in either case) and 914.41 pounds sol-
id of non-qualifying (ungraded) product were used on that date.
Since 3,840.14 pounds solid were used in the exported articles
and the 914.41 pounds solid of non-qualifying product are assumed
to have been used to produce the exported articles, drawback is
claimed on 2,925.73 pounds solid of COJM, with reductions for the
possible use of tangerine/hybrids (10 percent) and cutback (12.18
percent) (resulting in 2,315.07 pounds solid) (note: rather than
making the reductions from each invoice, the protestant calcu-
lates the reductions on the total pounds solid allowed for the
41.8 degrees brix frozen orange juice concentrate).
As to the manufacturing issue, in the case of the 41.8
degrees brix frozen orange juice concentrate (as contrasted with
the 65 degrees brix COJM exports) there are no Production Drum
Proof reports with which the scores of the merchandise described
in the Drum Usage Proof reports can be compared in order to
establish that the required manufacture or production took place.
Of course, there is a difference in the degrees brix of the mer-
chandise used to produce the exported articles and the exported
articles themselves (i.e., the merchandise was more than 55
degrees brix and the exported articles are 41.8 degrees brix) but
the changing of the degrees brix by itself is not necessarily a
manufacture or production for drawback purposes (see C.S.D. 80-
162).
In the absence of Production Drum Proof reports for the 41.8
degrees brix frozen orange juice concentrate, the protestant has
provided as supplemental evidence USDA sampling reports for 12
out of the 15 dates on which the exported 41.8 degrees brix
frozen orange juice concentrate was produced. These sampling
reports, taken approximately hourly, report, among other things,
the degrees brix, ratio, color score, defects score, flavor
score, total score, N-value, and oil by volume (the N-value and
oil by volume are not reported for each sample, but are reported
at least once for each date's production). The sampling reports
are indicated to be for the production of a particular label
(Bluebird, the same as the label of the exported articles) and a
particular sized container (the same, in each instance, as those
of the exported articles).
Except as specifically described below, in no case is the
oil content greater (since the degrees brix of the COJM is
reduced from 65 degrees brix to 41.8 degrees brix for the frozen
orange juice concentrate, the oil content of the 65 degrees brix
COJM would have to have been decreased if the degrees brix was
merely reduced by adding water; which would not be a manufacture
or production for drawback purposes (see C.S.D. 80-162)), the
ratio the same, and the scores the same for both the sampling
reports and the Drum Usage Proof reports for the dates on which
the exported merchandise was produced. For example, in the case
of invoice 0082618 (G-218), according to the USDA sampling
report, the oil content was .018 percent, the ratio was 16.4,
16.5, or 16.6, and the scores were 36 (color), 20 or 19
(defects), and 38 or 37 (flavor). The COJM used on the date of
production had an oil content of .017 or less, except for four
drums which had an oil content of .021 percent. Those four drums
had a ratio of 17, different from the ratio reported in the USDA
sampling report. On the basis of this evidence, in addition to
the affidavit described above, we conclude that the exports for
which USDA sampling reports were provided were manufactured from
the substituted merchandise (except in the case of the February
5, 1986 production attributed to invoice 0086159 (G-580),
discussed below).
As stated above in regard to the 65 degrees brix COJM, we
have ruled that a drawback claimant may reconstruct lost records
or provide proof of records by alternate means or records. In
this case, except as noted below, the protestant has provided
evidence (i.e., the additional evidence submitted with the
protest and described above) in regard to the export shipments of
41.8 degrees brix frozen orange juice concentrate covered in the
additional evidence that the shipments were manufactured or
produced (see immediately preceding paragraphs) from merchandise
of the same kind and quality as the imported designated
merchandise (i.e., the records tracing the exported articles to
the date of production, used to show that on the date of
production Grade A COJM, for which there are records establishing
same-kind-and-quality, must have been used to produce the
exported 41.8 degrees brix frozen orange juice concentrate by
treating all non-qualifying product used on that date as used in
the production of the exported articles and reducing the
available drawback accordingly). Therefore, on the basis of the
above and because the other requirements have been met (as
described above), drawback may be granted to the extent described
on the exportations of the 41.8 degrees brix frozen orange juice
concentrate, except as noted below.
One exception to the above is that no drawback may be
allowed on the 12,395.88 pounds solid of Brazilian COJM used on
March 21, 1985 (see invoice 0074719 (F-659)), for the reasons
given above (i.e., this COJM must be treated as non-qualifying
because of the lack of same-kind-and-quality evidence and because
there is no evidence supporting direct identification drawback
under 19 U.S.C. 1313(a) for this COJM). The drawback based on
the March 21, 1985, production must be reduced accordingly.
Also, in this invoice, the Drum Usage Proof for March 21, 1985,
does not provide the scores for 22 drums (containing 7,696.98
pounds solid) of concentrate used on March 21, 1985, and these
drums are not listed on the "Update Listing" report submitted
with this invoice (this latter report is used for other drums for
this date of production to establish the scores of the drums on
the Drum Usage Proof report). There is an illegible hand-written
notation on the Drum Usage Proof report beside these drums which
may indicate that they were "used in single strength" production
(see invoices 0076057 (F-849) and 0076064 (F-851), discussed
above), but there is no evidence establishing that. In the
absence of such evidence, we must assume that these non-
qualifying drums were used in the production of the exported
articles on the date of production and the pounds solid available
for drawback must be reduced accordingly (i.e., 7,696.98 pounds
solid must be added to the non-qualifying COJM used on this date;
since the Brazilian COJM is also considered non-qualifying, the
non-qualifying COJM exceeds the exported articles based on this
date of production and no drawback may be granted for the date).
Also, in the cases of invoices 0083132 and 0088933 (G-260
and G-845, respectively), we found, respectively, 3,837.02 and
8,131.97 pounds solid in the Drum Usage Reports for the dates of
production (January 13, 1986, for invoice 0083132 and May 13,
1986, for invoice 0088933) with less than 55 degrees brix. As
stated above, this COJM is non-qualifying and is assumed to have
been used in the production of the exported articles. Since in
each instance the pounds solid of non-qualifying merchandise
exceeds the pounds solid of the exported articles, no drawback
may be granted for articles produced on these dates.
Another exception to the above is found in invoice 0086159
(G-580). In this case, in the February 5, 1986, production, four
drums (109779 through 109782) containing 1,396.61 pounds solid
have an oil content (.017 percent) greater than that in the USDA
sampling report (.014 percent), the same ratio (16.20), and the
same scores (36 (color), 20 (defects), and 37 (flavor)).
Therefore, these records do not support the claim that the
exported articles were manufactured or produced from these drums.
Because the quantity of pounds solid for which no manufacture or
production is established (as discussed below) must be assumed to
have been exported and since that quantity exceeds the quantity
of pounds solid actually exported from that date's production, no
drawback may be granted for that date (i.e., no drawback may be
granted for the February 5, 1986, production attributed to
invoice 0086159 (523.66 pounds solid).
In the case of the 41.8 degrees brix frozen orange juice
concentrate for which no USDA sampling reports were submitted and
in the case of the drums of COJM for which there can be no
comparison of the specifications as described in the immediately
preceding paragraph, the only evidence of manufacture or
production is the above-described affidavit. In the case of
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
Courts permitted the use, for purposes of drawback under 19
U.S.C. 1313(a), of testimony 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." [932 F.2d at 946; emphasis added.] The
Court of Appeals clearly stated that this does not mean 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 (in regard to the applicability of
the Aurea case to this affidavit, we also note that an affidavit
is not entitled to the same weight as testimony in court (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 this
case, the affidavit does not meet the test set out in the Aurea
case for testimony (i.e., it is not established that records, no
longer available for excusable reasons, were maintained as
required and would have satisfied the substance of the drawback
provisions). Furthermore, as stated in the Andy Mohan case, the
affidavit is "... entitled to little weight, being incomplete and
based on unproduced records, and having been executed years after
the transactions to which [it] attest[s]" (63 CCPA 107).
In the absence of any evidence, other than the described
affidavit, as to the use of the substituted merchandise in the
manufacture or production of the exported 41.8 degrees brix
frozen orange juice concentrate for which no USDA sampling
reports are provided, no drawback may be allowed on the
exportation of these articles. Use of the substituted
merchandise in the manufacture of the exported articles is a
statutory requirement, the Customs Regulations (19 CFR 191.32)
require the manufacturer or producer to keep records establishing
this, and the protestant agreed to keep such records in its
drawback contract. Therefore, no drawback may be granted on the
basis of the May 14, 1986, production attributed to invoices
0087803 (G-761), 0088190 (G-754), and 0090043 (G-931) (no
qualifying pounds solid claimed in any event); the January 7,
1986, production attributed to invoice 0083132 (G-260) (392.74
qualifying pounds solid claimed), and the May 13, 1986,
production attributed to invoice 0088933 (G-845) (3,840.14
qualifying pounds solid claimed).
In the cases of the production for January 13, 1986 (invoice
0083132 (G-260)), February 26, 1986 (invoice 0086159 (G-580)),
and April 1, 1986 (invoice 0086160 (G-585)), the protestant
described (on its worksheet submitted with its supplemental
submission) as non-qualifying COJM which actually meets the same-
kind-and-quality criteria in its drawback contract. We under-
stand that this occurred because during its review of the
documents relating to these invoices the protestant was applying
a standard higher than that of USDA for Grade A (i.e., scores of
at least 36 for flavor and color and at least 18 for defects).
Drawback for the January 13, 1986, production is precluded
because the of the non-qualifying COJM used in production on this
date which failed to meet the same-kind-and-quality criteria in
the protestant's drawback contract due to being of less than 55
degrees brix. However, the qualifying pounds solid for the other
dates and invoices should be increased accordingly (i.e.,
qualifying pounds solid for invoice 0086159 should be the full
quantity exported, 841.59 instead of 731.94 pounds solid; and for
invoice 0086160 the full quantity exported, 16,582.44 instead of
7,403.48 pounds solid (reduced in each case for possible use of
tangerine and/or hybrid juices and cutback, as described above).
HOLDING:
There is authority to grant, in part, the protest of the
denial of drawback in this case. Drawback may be granted on
523,189.33 pounds solid, to be attributed as follows:
01/09/87 Entry 01/16/87 Entry 01/30/87 Entry
163,826.37 323,804.12 35,558.84
lbs. solid lbs. solid lbs. solid
(Note: We are attributing the pounds solid in invoice 0074719
(F-659) to the January 9, 1987, entry and the pounds solid in
invoice 0083512 (G-326) to the January 16, 1987, entry because
the information available to us does not make clear under which
entry these invoices were claimed.)
The protest is GRANTED in part and DENIED in part, as
provided in this ruling. 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 by your
office, 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 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