DRA-4-CO:R:C:E 224867 PH
Regional Director
Commercial Operations
New Orleans, Louisiana 70130
RE: Protest 1901 93 100018; Substitution Unused Merchandise
Drawback; Possession of Exported Merchandise; 19 U.S.C.
1313(j)(2); Public Law 103-182, Section 632
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 a drawback entry (or
claim) filed on November 9, 1990. According to the file, the
imported merchandise designated as the basis of drawback for the
claim was imported on February 2, 1990, and the exportation upon
which the claim is based was on October 20, 1990.
According to documents in the file, the protestant was the
importer of the designated imported merchandise (265,255 barrels
of No. 2 fuel oil) and paid the duty on that merchandise
($27,851.81). The protestant, by its Treasurer in an affidavit
dated May 24, 1991, stated, among other things, that "[w]e do not
issue a certificate of delivery covering the designated
merchandise nor a certificate of manufacture and delivery
covering articles manufactured or produced therefrom." In a
certificate, dated December 16, 1992, the Treasurer of the
protestant stated that "[the protestant] was the exporter of the
product and the only claimant for duty drawback on the imported
product." In each statement, the Treasurer stated that the
protestant maintained records in support of the affidavits. The
file contains copies of the contract of purchase with
specifications provided, invoice, and reports of analysis for the
imported merchandise.
According to the Customs Form 7511 (Notice of Exportation of
Articles with Benefit of Drawback) for this claim, the exported
merchandise upon which drawback was claimed was 249,971.18
barrels of No. 2 fuel oil exported from LL&E Dock (Q169) at
Mobile, Alabama, on the BT NAUTILUS, ultimately destined for
Pakistan.
In the file there is a copy of a September 25, 1990 (time:
1104 hours, EDT), telex stated to confirm a September 20, 1990,
"exchange agreement" between party No. 1 (LL&E Petroleum
Marketing, Inc.) and party No. 2 (the protestant). Under the
telex the protestant agrees to deliver to party No. 1
approximately 250,000 barrels of No. 2 fuel oil, with delivery
"into Colonial pipeline or book transfer during September 1990
basis Pasadena, Tx." Party No. 1 agrees to deliver to the
protestant either of two stated quantities and qualities (the
alternative actually used, Alternative B, is described) of No. 2
fuel oil. Under Alternative B in the telex, 225,000 plus or
minus 10% (buyers option) of No. 2 fuel oil, meeting stated
specifications, is to be delivered "into vessel during ...
October 11-22, 1990." An exchange differential is provided for,
"said differential [to] be paid by check promptly after delivery
against presentation of invoice." The telex provides that the
agreement is exclusive of any and all state or federal taxes
(other than income taxes) or U.S. Customs duties and fees
applicable to importation of cargoes. Each party is to satisfy
the credit requirements of the other party prior to movement of
the merchandise. The protestant requests that party No. 1
promptly advise if it is not in agreement with any of the
provisions, otherwise "the terms and conditions indicated herein
shall be considered binding on both parties."
In the file there is also a copy of a September 20, 1990
(time: 1624 EDT), telex stated to confirm a September 14, 1990,
agreement between the seller (the protestant) and the buyer
(Sintra Oil Pte. Ltd. (Intraco)). This telex states that the
product is 225,000 barrels (plus/minus 10% at the buyer's option)
No. 2 fuel oil meeting provided specifications to be delivered
"F.O.B. into buyer's designated vessel ... during October 15-25,
1990, basis US Gulf Coast." The telex provides for an
irrevocable letter of credit, if sufficient credit is not
established. The telex provides for payment two calendar days
after the receipt of invoice and other documents relating to
loading of the oil (there is an October 22, 1990, telex from the
protestant to the buyer referencing the invoice and stating that
payment is due on October 23, 1990, via wire transfer of Federal
funds). The protestant requests that the buyer promptly advise
if it is not in agreement with any of the provisions, otherwise
"the terms and conditions indicated herein shall be considered
binding on both parties."
There are copies of reports of inspection in the file.
According to an "Inspector's report on the Export 'BT Nautilus'",
a "shore quantit[y]" of 249,971.18 barrels of No. 2 fuel oil was
delivered from LL&E, Mobile, Alabama, and a "vessel quantit[y]
received" of 249,367.94 barrels of No. 2 fuel oil was received
into the BT NAUTILUS. According to a "Time Log", loading of the
oil from shore tanks 205, 207, 906 and 907 into the BT NAUTILUS
commenced at 0200 hours on October 19, 1990, and was completed at
0925 hours on October 20, 1990. There are laboratory reports
("Certificates of Quality"), with specifications of samples,
stated to have been taken from shore tanks 205, 207, 906 and 907
prior to loading on the vessel. According to a "Tanker Bill of
Lading", on October 20, 1990, 249,971.18 barrels of No. 2 fuel
oil were shipped on board by the protestant into the BT NAUTILUS.
The consignee is stated to be Sintra Oil Pte., Ltd., and shipment
is stated to be carried under and pursuant to the terms of a
charter "as per C/P [charter party or agreement]." No copy of
such a charter party is provided.
As stated above, on November 9, 1990, the protestant filed a
claim for drawback on the 249,971.18 barrels of gas oil. By
letter of August 16, 1991, Customs advised the protestant that it
was suspending the claim, pending resolution of the B.F. Goodrich
Co. v. United States (794 F. Supp. 1148 (CIT 1992)) case. By
letter of December 18, 1992, the protestant requested
reactivation of the drawback claim. With this letter, the
protestant provided certifications relating to the claim, in
accordance with Customs General Notice published in the Customs
Bulletin & Decisions on October 21, 1992 (Vol. 26, No. 43, page
7). Customs Regional Laboratory was requested to review the
merchandise in the claim for fungibility and found that the
imported merchandise and the exported merchandise were fungible.
In letter dated February 19, 1993, Customs advised the protestant
that although the imported and exported merchandise were found to
be fungible, drawback was being denied because Customs was unable
to establish compliance with the requirement for possession of
the exported product. In this letter, Customs referred to ruling
224103, dated October 19, 1992. The protested drawback claim was
liquidated, without drawback allowed, on February 19, 1993.
The protested drawback claim was liquidated, without
drawback allowed, on March 19, 1993. The protestant filed the
protest under consideration on May 5, 1993, and by letter of May
18, 1993, filed with Customs an amended protest form with the box
for further review checked (we assume that Customs received this
amended protest within the 90 days for filing or amending a
protest; otherwise the application for further review should have
been denied and the protest processed at the district level (19
CFR 174.14, 174.23; Customs Directive 099 3550-065 dated August
4, 1993, page 23, section (1)(a))).
In a submission accompanying the protest, the protestant
stated that in this case it had purchased eight shipments of six
different purchase contracts with delivery to the protestant
between September 28, 1990 and October 7, 1990. Rather than
accumulating the product in storage over two to three weeks and
then moving it to Mobile, the protestant states that it entered
the Exchange Agreement (described above) with LL&E. Under this
arrangement, according to the submission, the protestant
delivered the eight small purchases into the Colonial Pipeline
where it had been under contract to take delivery and LL&E agreed
to give the protestant an identical product and quantity in
Mobile where the protestant's customer required delivery to its
vessel. The protestant contends that, effectively, it delivered
to its customer's vessel product of which it had possession in
Texas.
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)).
The law described in the LAW AND ANALYSIS portion of our
ruling 224868, on protest 1901 93 100021 by the same party, is
the same as that which is applicable in this case. We are
incorporating into this case by reference the description of the
applicable law in that case, rather than repeating it in this
case. As in ruling 224868, the issue to be resolved in this case
is whether the possession requirement has been met, assuming, as
appears to be the case, that the other requirements for drawback
under 19 U.S.C. 1313(j)(2) have been met.
In this case, according to documents submitted by the
protestant, the exported merchandise claimed in the drawback
claim (the 249,971.18 barrels of No. 2 fuel oil loaded on the BT
NAUTILUS) was the subject of an exchange agreement between the
protestant and party No. 1 made on September 20, 1990, confirmed
by a September 25, 1990, telex. In this agreement, the
protestant was to deliver to party No. 1 approximately 250,000
barrels of No. 2 fuel oil, with delivery into the Colonial
pipeline or "book transfer" during September of 1990. In
exchange, party No. 1 was to deliver to the protestant an agreed
upon quantity and quality of No. 2 fuel oil, with delivery "into
vessel" during October 11-22, 1990. The September 25, 1990,
telex, by its terms, was to become binding on the parties unless
party No. 1 "promptly" advised the protestant that it was not in
agreement with any of the provisions. 249,971.18 barrels of No.
2 fuel oil were, in fact, delivered into the BT NAUTILUS on
October 19 and 20, 1991.
Also according to documents submitted by the protestant, the
protestant sold 225,000 (plus/minus 10%) barrels of No. 2 fuel
oil to another company, pursuant to a September 14, 1990,
agreement confirmed by a September 20, 1990, telex. The oil was
to be delivered into the buyer's designated vessel during October
15-25, 1990. The September 25, 1990, telex, by its terms, was to
become binding on the parties unless party No. 1 "promptly"
advised the protestant that it was not in agreement with any of
the provisions. As stated above, the oil was, in fact, delivered
into the vessel on October 19 and 20, 1990. The shipment of oil
was carried pursuant to the terms of a charter "as per [charter
party (agreement)]" but no copy of the charter party is provided.
(We note that the protestant states, in its accompanying
submission, that the vessel was "[its] customer's ship".
According to Lloyd's Register of Ships, 1993-94, the BT NAUTILUS
is not owned by any of the parties referred to in this ruling, so
we assume that the protestant must mean that the vessel was
chartered by the company which purchased the oil, as confirmed in
the September 20, 1990, telex.)
Thus, according to the above, delivery of the 249,971.18
barrels of oil was directly from party No. 1 (the company which
exchanged the oil with the protestant) to the purchaser (from the
protestant) into a vessel chartered by the purchaser of the oil.
In such a situation, we conclude that the protestant did not have
possession of the exported merchandise. At no time, according to
the documents in the file, did the protestant have physical
possession, or possession by bailment, in leased facilities, in
transit, or by operational control, of the oil which was loaded
into the exporting vessel (i.e., because delivery was directly
from party No. 1 to the buyer (from the protestant) into the
buyer's chartered vessel). (See, in this regard, the definition
of "delivery" in Black's Law Dictionary, 5th Ed.: "The act by
which the res or substance thereof is placed within the actual or
constructive possession or control of another.")
As to the protestant's contention that it possessed the oil
which was given in exchange to party No. 1, we note that that oil
is not the oil which was exported. Even if we were to accept the
protestant's argument that, effectively, it delivered to its
customer's vessel the oil which it exchanged in Texas, the
protestant's own submission states that it did not have
possession of this oil before it was exchanged with party No. 1.
I.e., the protestant states that "we delivered our eight small
purchases into the Colonial Pipeline in Texas where we were under
contract to take delivery ...." In other words, the oil was
never delivered to the protestant, it was exchanged to party No.
1 at the time protestant had been scheduled to take delivery.
Further, by the September 20, 1990, exchange agreement, confirmed
by the September 25, 1990, telex, the protestant agreed to the
delivery of the eight small shipments of oil before it (i.e., the
protestant) was to take delivery of these shipments (September 28
through October 7, 1990, according to the protestant's submission
with the protest).
As stated above, the description of the applicable law in
ruling 224868 is incorporated by reference in this case. The
analysis of the applicability of C.S.D.'s 85-52, 87-18, and 89-
108, and the legislative history to Public Law 108-182 (H. Rep.
103-361) in which it is stated that the creation of a "market"
for drawback rights is not intended is also pertinent for this
case.
The protestant cites ruling 224103 and contends that it
meets the possession requirement, as interpreted in that ruling.
For the same reasons given in ruling 224868, and for the reasons
given above as to why the protestant has not established
possession of the oil which it gave in exchange for the oil which
was loaded into the BT NAUTILUS, we conclude that our decision in
this protest is not inconsistent with ruling 224103.
HOLDING:
There is no authority to grant the protest of the denial of
drawback in the protested drawback claims.
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