DRA-4/DRA-2-02-RR:IT:EC 227026 PH
Port Director
U.S. Customs Service
610 South Canal Street
Chicago, Illinois 60607-4523
ATTN: Protest Section
RE: Protest 3901-96-100877; Unused Merchandise Drawback;
Destruction in Lieu of Exportation; 19 U.S.C. 1313(j)
Dear Madame or Sir:
The above-referenced protest was forwarded to this office for
further review. Our decision on the protest follows.
FACTS:
The protest is of the liquidation of a drawback entry (or claim)
(No. 23...5062) in which the amount of drawback claimed was
$727.41. No accelerated drawback was requested or granted. The
drawback entry was liquidated on March 1, 1996, with no (zero)
drawback.
According to documents in the file, the imported merchandise upon
which drawback is claimed was 40 kilograms of the pharmaceutical
"Captopril". The consumption entry for the imported merchandise
was liquidated on December 23, 1994, with duty in the amount of
$734.75 on the merchandise upon which drawback is claimed.
According to the protest, the imported merchandise was found,
after importation, not to meet specification, in that impurities
were too high. As stated above, a drawback entry on Customs Form
(CF 7439), dated December 19, 1994, was filed for the
merchandise. In block 31 of the CF 7539, it is stated:
The subject merchandise will be destroyed under Customs
supervision at PCI of INDIANA INC. EAST CHICAGO, IN.
Block 44 of the CF 7539 ("Customs has decided not to examine the
merchandise and it may now be exported") is checked. Block 53
("Signature of Examining Officer and Date") is signed and dated
(1/30/95).
In the file there is a CF 3499 (Application and Approval to
Manipulate, Examine, Sample or Transfer Goods) for one drum of
Captopril, citing the consumption entry designated in the
drawback entry, and stating the location of the goods to be PCI
OF INDIANA in East Chicago, Indiana. On this form there is the
notation: "Please Destroy: Chemical must be disposed at above
location because it does not meet state and federal regulations
for safety purposes." In the "APPROVED" section of the CF 3499,
blocks 13 (date) and 14 (signature and title of approving Customs
officer) are completed, with the date indicated to be January 27,
1995, and the signature of the Customs officer appearing to be
the same as that in Block 53 of the CF 7539 (see above).
In the file there is a January 27, 1995, memorandum from a
Customs broker to Customs referencing the protested drawback
entry. According to this memorandum:
The item for destruction to claim same condition [now unused
merchandise] drawback had to be sent to a special hazardous
material company for disposal.
We are told by that company that they accept the hazardous
material or in this case a pharmaceutical, Captopril, and
record it on a hazardous waste manifest so that it can no
longer be used for human consumption. It is then
com[m]ingled with other waste and sent to another facility
for destruction.
Can you please contact them in order to set up an
appointment to supervise or allow destruction.
In the file there is a February 17, 1995, "Certificate of
Material Recycling" under the letterhead of PCI (Pollution
Control Industries), of East Chicago, Indiana, stating that "This
is to certify that the hazardous waste manifested to Pollution
Control Industries of Indiana on manifest # NJA 1990719 was
recycled in accordance with 40 CFR 226 as of 2/95." The
protestant/drawback claimant is listed as the "generator."
There is a January 16, 1996, letter on the letterhead of PCI of
East Chicago, Indiana, stated to be in regard to the
protestant/drawback claimant, purporting to be "... a brief
description of [PCI's] function as a hazardous waste management
company." According to this letter, "PCI's main function at
[the] [facility] in Indiana is to prepare waste ... as a
secondary energy source for cement kilns." The procedures for
such preparation are described as including sampling and testing
of shipments received, blending of liquids, shredding of sludges
and solids, and commingling. The resultant material is fed into
a kiln and burned or, for waste streams not meeting the criteria
for fuel blending, incinerated. According to a handwritten
notation on this letter, citing as source for the information a
sales coordinator for the protestant/drawback claimant, "the
chemicals are burned & this burning/fire is used as fuel for
P.C.I.'s cement kilns. After kilns are heated they have ash left
which is buried."
There is a CF 29 (Notice of Action) in the file, referencing the
protested drawback entry and stating that "the drawback claim
listed above has been liquidated at $0.00 due to the fact that
this merchandise has been recycled (used by P.C.I. to fuel their
cement kilns) rather than destroyed as required by 19 CFR
191.141."
As stated above, the drawback entry under consideration was
liquidated on March 1, 1996, with no drawback. The drawback
claimant filed the protest under consideration on April 10, 1996.
In the protest, the protestant contends that the merchandise was
destroyed in accordance with Customs Regulations and, therefore,
that drawback should have been granted. The protestant states
that the importer (the protestant/drawback claimant) did not gain
anything from the disposition of the merchandise and that the
company which disposed of the merchandise (PCI of East Chicago,
Indiana) did not pay the importer.
Further review was requested and granted.
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(j).
Basically, under 19 U.S.C. 1313(j)(1), drawback is authorized if
imported merchandise on which was paid any duty, tax, or fee
imposed under Federal law because of its importation is, within 3
years of the date of importation, exported or destroyed under
Customs supervision and was not used in the United States before
such exportation or destruction. Substitution of commercially
interchangeable merchandise, subject to certain conditions, is
authorized under 19 U.S.C. 1313(j)(2) (substitution, under
section 1313(j)(2), is not involved in this case).
In interpreting the term destruction, as used in the drawback law
when merchandise or articles are alleged to be destroyed in lieu
of exportation, Customs has followed the Customs Court case
American Gas Accumulator Co. v. United States, Treasury Decision
(T.D.) 43642 (Cust. Ct., 3rd Div. 1929) (see also H.A. Johnson
Co. v. United States, 21 Cust. Ct. 56, 61, C.D. 1127 (1948),
following the American Gas Accumulator case and stating that it
is in line with Lawder v. Stone, 187 U.S. 281, 23 S. Ct. 79
(1902), United States v. Pastene, 3 Ct. Cust. App. 164, T.D.
32458, (1912), and Poole Co. v. United States, 9 Ct. Cust. App.
271, T.D. 38216 (1919)). In American Gas Accumulator, involving
the applicability of a temporary importation under bond (T.I.B.)
provision (now in chapter 98, subchapter XIII, Harmonized Tariff
Schedule of the United States (HTSUS)) of certain cylindrical
tubular tanks which were imported for testing after which the
drums were sold as scrap or salvaged, the Court defined
destruction as follows:
Destruction in this connection means destruction as an
article of commerce. In other words, if articles were
destroyed to such an extent that they were only valuable in
commerce as old scrap they still would be articles of
commerce to which duty attached upon importation, and
therefore could not be said to have been destroyed. [56 T.D.
368, 370]
In ruling HQ 222975, September 4, 1991, following American Gas
Accumulator, supra, we held that an operation consisting of
striking machine parts with a heavy, solid metal ball and then
dismantling the parts for scrap iron, did not amount to a
destruction for purposes of drawback under 19 U.S.C. 1313(j)
because "... destruction means destruction as an article of
commerce, and valuable scrap iron is an article of commerce."
In ruling HQ 222742, December 11, 1991, we considered the
applicability of drawback under 19 U.S.C. 1313(j) to the
destruction of beer and malt liquor. The destruction left a
residue of crushed cardboard containers, crushed bottles, and
salvaged alcohol content. State law was said to proscribe the
disposition of liquid wastes without a permit from the state, and
the protestant in that case stated it was unaware of any landfill
in the state that was allowed to accept such waste. The salvaged
alcohol was sold as scrap rather than dumped as waste. The value
of the residue was less than the cost of salvaging the residue.
On the basis of "an economic infeasability claim as delineated in
C.S.D. 79-419", the ruling held that drawback could be allowed
"because the merchandise has been destroyed as required under
statute and existing law."
Customs Service Decision (C.S.D.) 79-419, cited in ruling HQ
222742, supra, held that scrap metal so buried in a public
landfill that its recovery would be economically infeasible was
considered destroyed, for purposes of the provision in 19 U.S.C.
1557(c) providing for the destruction under Customs supervision,
in lieu of exportation, of merchandise entered under bond (the
merchandise had been entered under a Temporary Importation under
Bond provision (item 864.30, Tariff Schedules of the United
States (TSUS); predecessor to subheading 9813.00.30, HTSUS)).
See, in addition to the above cases, Treasury Decision (T.D.)
54899(1); C.S.D. 80-24; C.S.D. 80-67; C.S.D. 81-100; ruling
221571, February 4, 1991; and ruling HQ 224110, March 17, 1993.
In this case, prior to the alleged destruction of the
merchandise, a drawback entry was filed on a CF 7539, upon which
it is stated that the merchandise will be destroyed under Customs
supervision at the PCI facility, and the CF 7539 is checked to
indicate that Customs had decided not to examine the merchandise
and it could be exported. Also prior to this processing of the
merchandise, a CF 3499 was filed for the merchandise. The
Customs officer's signature in the "APPROVED" section of the CF
3499 appears to be the same as the signature appearing in the
"STATEMENT OF EXAMINING OFFICER" section of the CF 7539. In view
of the foregoing, and because the only reason given for denial of
drawback was Customs position that the merchandise was recycled
rather than destroyed (in that it was used as fuel to heat
kilns), we assume that all other requirements for drawback have
been met and that your office is satisfied that the imported
merchandise was actually processed, as described, by CPI in its
East Chicago, Indiana, facility.
The alleged destruction in this case consists of blending,
shredding, and commingling the imported merchandise with other
waste materials and then the use in a kiln of the materials as
fuel for kiln. After burning in the kiln, only ash is left and
the ash is buried. Thus, the end result of the alleged
destruction is that the merchandise is completely destroyed as an
article of commerce (there is only ash left, which is buried).
However, before the merchandise reaches this end result, it is
processed with other waste materials to burn in kilns. The
protestant states that it (the importer/drawback
claimant/protestant) did not gain anything from the disposition
of the merchandise and was not paid for the merchandise by the
company which disposed of the merchandise. (Further, in this
regard, we have been informally advised by Customs technical
office that although any material with organic bonds can burn and
give off BTU's, the value of the merchandise under consideration
as fuel would be de minimis.) In our opinion, rather than being
a recycling operation (see, e.g., ruling 222975, supra), the
processing with other waste materials, the burning in kilns, and
the burying of the residue ash are each steps in the process of
destruction (see ruling 224110, supra, "[d]estruction, however,
need not take place in one step", and C.S.D.'s 80-67 and 81-100
(in the latter C.S.D., it is noted that "... if the destruction
consists of multiple steps, each step should carry forward the
destruction of the articles")).
In the case under consideration, "each step [does] carry forward
the destruction of the articles". Furthermore, there is no
article of commerce after completion of the "multiple steps" of
destruction (compare to American Gas Accumulator, C.S.D. 79-419,
and ruling 222742, supra).
Accordingly, the protest is GRANTED, subject to the following
condition. As stated above, the protestant, in the protest,
states that it (the importer/drawback claimant/protestant) did
not gain anything from the disposition of the merchandise and was
not paid for the merchandise by the company which disposed of the
merchandise. To confirm this, the protestant should provide a
written declaration, signed by a knowledgeable, responsible
official of the protestant, confirming that this is so (i.e.,
that the protestant received no reimbursement or payment for the
merchandise upon which drawback was claimed in the protested
drawback entry). The protestant may be given 45 days to provide
this written declaration, said 45-day period to begin on the date
that you provide written notice that protestant must provide such
a declaration before the protest can be approved. If the
protestant does not provide such a written declaration within
this 45-day period, the protest is DENIED.
HOLDING:
There is authority to grant drawback (in the amount of $727.40
($734.75 X .99)) in the protested drawback claim (because the
merchandise is considered "destroyed", on the basis of the
authorities analyzed in the LAW AND ANALYSIS portion of this
ruling), provided, that within the 45-day period described in the
LAW AND ANALYSIS portion of this ruling the protestant provides a
written declaration, signed by a knowledgeable, responsible
official of the protestant stating that the protestant (the
importer/drawback claimant) did not gain anything from the
disposition of the merchandise and was not paid for the
merchandise by the company which disposed of the merchandise. If
the protestant does not provide such a written declaration within
this 45-day period, the protest is denied.
The protest is GRANTED, subject to the above condition; if the
condition is not met, 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, Freedom of Information
Act, and other public access channels.
Sincerely,
Director, International
Trade Compliance Division