• HQ 228317
• Dec 05, 2000

• Type : Drawback • HTSUS :
•  Related:   223109; 228199; 219606; 206209; 226473; 226929   

DRA-1-06-DRA-4-RR:CR:DR
228317 IOR

Port Director
U.S. Customs Service
C/o Chief, Residual Liquidation
And Protest Branch
6 World Trade Center
Room 761
New York, NY 10048-0945

RE: Application for Further Review, Protest No. 1001-98-102976; 19 U.S.C. 1313(j); drawback; apportionment; partial exportation; evidence of exportation

Dear Sir:

The above-referenced protest was forwarded to this office for further review. We have considered the facts and issues raised and our decision follows. The protestant had originally requested a meeting with Customs but that request was withdrawn by counsel for protestant in a telephone conversation on April 12, 2000.

FACTS:

The subject of this protest is the denial of drawback claimed on the basis of the exportation of rugs. Merchandise was imported under entry no. DP4-xxxx6641, dated February 5, 1997. According to the CF 7501, the protestant imported 4,260 cartons of “CARP/MAN_MADE TEXTILE,OTHER” classified in subheading 5702.92.0090, HTSUS. The exporting country is identified as China, and the export date is December 12, 1996. Subheading 5702.92.0090, HTSUS, provides for:

Carpets and other textile floor coverings, woven, not tufted or flocked, whether or not made up, …other…of man-made textile materials…other.

The unit of quantity for the merchandise in the subheading is square meters and kilograms. The duty rate at the time of entry was 4.50% ad valorem. On the CF 7501, the gross weight is identified as 66,030 kilograms and the net quantity in T.S.U.S.A. units is 43325 square meters and 62,729 kilograms. The merchandise is also identified as “STC braided rugs” on the CF 7501.

The invoice to the protestant is dated December 12, 1996, and describes the merchandise as 12,780 sets of “braided rugs”. The invoice includes a unit price per set, of $19.20, as well as a total price. The invoice references a number of purchase orders. The purchase orders were requested from the protestant. In a fax from protestant’s counsel, dated May 3, 2000, it was stated that the purchase orders were in storage but would be provided to Customs. As of the date of this decision, those purchase orders have not been provided to Customs. There is a handwritten note on the invoice stating “3 pc sets”. There is also a bill of lading for the imported merchandise. The bill of lading refers to the same purchase orders as the invoice, describes the merchandise as ten containers of 4260 cartons of “braided rugs”.

Drawback entry no. DP4-xxxx8049 was filed on September 16, 1997, for same condition merchandise. The imported merchandise was stated to consist of 4,260 cartons of 12,780 sets of braided rugs, and the exported merchandise was stated to consist of 2,812 cartons of 11,244 pieces of braided rugs. The designated import entry is the one described above. The drawback entry indicates that a Customs examination is required. The file contains a copy of the drawback entry which contains a signature by an examining Customs officer certifying that the merchandise was examined and found to be the same merchandise described on the drawback entry, and the merchandise was in the same condition as imported, or changed in condition as allowed by law. A handwritten note indicates that the examination took place in Brooklyn. According to the drawback unit, the signature and certification were not made on the original entry, but on a copy of the entry.

Documentation of the export consists of an invoice, listing the number of pieces and cartons in 7 different containers, and relates each group of pieces to a particular purchase order number. The purchase order numbers are the same as those referenced on the import invoice and packing list. The consignee is a company in China, and the sailing date of the vessel is October 6, 1997. At the top of the invoice is the following statement:

This merchandise consists of 54’ x 90” [braid] rugs and is being returned to China to be reworked into 30” x 50” [braid] rugs. We are requesting a drawback of duty-paid for these rugs when they were originally imported.

There is also a packing list with the same information and statement as on the invoice. There is a bill of lading dated October 6, 1997, for the shipment of 2812 cartons of “rugs - return goods – product of China exported under drawback #DP4-xxxx8049” destined for Hong Kong. The bill of lading indicates the container numbers identified on the invoice and packing list, and the number of cartons in each container. The bill of lading indicates the merchandise was laden on board on October 6, 1997. The file contains a copy of an unsigned bill of lading.

There is a drawback worksheet prepared by the freight forwarded indicating that 12,780 sets of three braided rugs, valued at $19.20 per set were imported and that 11,244 pieces of braided rugs, valued at $15.60 each were exported. On the worksheet is a calculation showing that each imported set of rugs consisted of two 20” x 30” rugs and one 54” x 90” rug, and that the value of each 20” x 30” rug was $1.80, and the value of each 54” x 90” rug was $15.60. In support of the value calculation and drawback claim, the freight forwarder has submitted a letter dated February 10, 1998, an April 1, 1996 invoice for an unrelated importation which shows the prices for individual rugs, and an advertisement for the sale of sets of three braided rugs (two 20” x 30” rugs and one 54” x 90” rug).

The February 10, 1998 letter states that each “set” consists of two 20” x 30” rugs and one 54” x 90” rug, consisting of 6060 total square inches. The letter calculates that the cost of the set is $19.20, thus the cost per square inch of rug is $.0032. Using this factor the protestant calculates that the value of each 20” x 30” rug is $1.80, and the value of the 54” x 90” rug is $15.60. The April 1, 1996 invoice shows a $1.80/ piece price for 20” x 30” (solid color pack 6) rugs, a $5.25/ piece price for 30” x 50” (solid color pack 3) rugs, and a $5.15/ piece price for 30” x 50” (assorted pack 6) rugs. The invoice describes the merchandise as “rugs”. The purchase order numbers are different than those on the December 12, 1996 invoice. The advertisement is for sets of braid rugs, consisting of two 20” x 30” rugs and one 54” x 90” rug. The advertisement does not provide any price information.

There is a Customs request to the protestant for additional information, dated November 16, 1997, requesting proof of export. There is a Notice of Action, CF 29, dated February 18, 1998, to the protestant, proposing that “drawback estimated at $7814 will be denied for failure to export the merchandise (rugs) as imported (in sets). The drawback claim was liquidated with no drawback on May 15, 1998.

The subject protest was filed on August 10, 1998. The protestant takes the position that based on Customs precedent, drawback on the rugs should be permitted as they were simply repackaged and exported in different units than imported. According to the protestant the carpets as imported were not classified as sets, but as carpets and therefore the fact that they were imported in groups of three is immaterial. The protestant argues that according to the HTSUS, the units of quantity are square meters and kgs., therefore for purposes of valuation and classification the merchandise was imported in units of gross weight.

ISSUE:

Whether the protestant is entitled to drawback under 19 U.S.C. §1313(j)(1) for the exportation of individual rugs which were imported in sets of rugs of different sizes.

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 C.F.R. Part 174). We note that the refusal to pay a claim for drawback is a protestable issue under 19 U.S.C. §1514(a)(6). This protest involves the denial of drawback under 19 U.S.C. §1313(j)(1).

Section 313(j)(1) of the Tariff Act of 1930, as amended (19 U.S.C. §1313(j)(1)), provides for a refund of duties on imported merchandise, exported or destroyed under Customs’ supervision, within three years from the date of importation, and not used within the U.S. before such exportation or destruction. Prior to the amendment of the drawback statute by section 632, title VI  Customs Modernization, Pub. L. No. 103182, the North American Free Trade Agreement Implementation (“NAFTA”) Act (107 Stat. 2057), enacted December 8, 1993, an additional requirement under section 1313(j) was that the merchandise be in the same condition as when it was imported.

In support of the protest, the protestant cites to prior Customs Headquarters decisions in which same condition drawback was permitted for merchandise exported in different quantities than in which it was imported. For example drawback was permitted in the following cases:

C.S.D. 83-2 – candy imported in 220 pound containers and exported in 14 and 16 gram containers;

C.S.D. 81-219 – textiles imported in a roll and exported in 2 to 3 smaller rolls.

The protestant also cited to HQ 223109, dated August 26, 1991, pertaining to coffee, however in that decision the issue was fungibility of imported and substituted coffee, and we do not find that decision to be applicable in this case.

It is protestant’s position that there is no statutory requirement that the complete duty paid item (in this case, a set of three rugs) be exported in order to qualify for unused merchandise drawback. The issue was addressed in HQ 228199, dated March 26, 1999. In 228199, the imported merchandise consisted of complete lamps, and the exported merchandise consisted of defective lamp arms. Drawback under 19 U.S.C. §1313(j)(1) was claimed on the lamp arms. In 228199, the protestant relied on two rulings HQ 219606, dated August 24, 1987 (which in turn relied on C.S.D. 85-49) and HQ 206209, dated May 18, 1976 in support of its position. HQ 206209 held that there is no requirement “. . .[in 19 U.S.C. §1313(c)] that an entire shipment must be exported in order for an importer to receive a drawback of duties on that portion of the merchandise which is rejected as not conforming to sample or specifications or, shipped without the consent of the consignee.” In HQ 206209, two packages of diamonds were covered by one mail entry. The exporter invoiced the diamonds separately, one invoice covered a large number of stones and the other covered four stones totaling 6.25 carats. The four stones covered by the second invoice were the subject of the drawback claim. The value of the exported merchandise was readily ascertainable because of the separate invoicing. Additionally, as stated in that decision, “[i]t is . . . incumbent upon the importer to establish his claim in all particulars and, clearly, he must establish that the merchandise exported is in fact the merchandise that is the subject of the import entry at issue.” In that particular instance, there was no difficulty in establishing that the exported merchandise was the imported merchandise. Diamonds were imported and diamonds were exported. The same reasoning holds true for HQ 219606 and C.S.D. 85-49. In HQ 219606 a company imported four fully equipped prototype subway cars. The importer sought to strip the imported and domestic parts from the nonconforming cars and destroy the rejected shells under Customs supervision. Customs held that drawback was allowed on the stripped car shells provided the Customs officer could verify from the entry documents the amount of duty paid on the car shell. It must also be pointed out that, in that particular instance, the assembled cars were imported under item 807, TSUS (currently 9802, HTSUS), because they contained U.S. articles which were incorporated into the subway cars abroad. Thus, upon entry into the United States of the subway cars the importer would have had to provide an itemization of the merchandise and exclude the U.S. parts which were incorporated into the imported subway cars. This decision was based on HQ 206209 and C.S.D. 85-48. In C.S.D. 85-48 we held that if non-reusable containers have value, that value can be deducted from the total value of the imported merchandise before computing drawback. Thus, in both instances, the determining factor was that the value of the designated merchandise could be determined from the entry papers. See former sections 10.17 - 10.19 and 10.24, Customs Regulations (1984 ed.) for the valuation procedures and documentary requirements applicable to imported goods assembled with U.S. components for which an exemption was claimed. In HQ 228199, we stated that there is no support in the language of the statute (or legislative history) to support a conclusion that an imported article may be disassembled and drawback claimed on only certain parts of the article which are exported, based on an apportionment of the duties paid on the imported article. A basic tenet of statutory interpretation is that “the starting point for interpreting a statute is the language of the statute itself.” See Consumer Prod. Safety Comm’n v. GTE Sylvania, Inc., 447 U.S. 102, 108 (1980). The statute at issue in this case, 19 U.S.C. §1313(j)(1), states that: (1) If imported merchandise, on which was paid any duty, . . . (A) is, before the close of the 3-year period beginning on the date of importation– (i) exported, or . . . . Thus, the plain language of the statute requires that drawback be paid upon the exportation of the imported merchandise. There is no provision, in 19 U.S.C. §1313(j)(1), for apportioning the duties paid on the imported merchandise (a rug set) to the exported merchandise (individual rugs). As stated by the Court of International Trade, in 718 Fifth Avenue, Corp. v. United States, 741 F. Supp. 1577, 14 CIT 403 (1990), “[t]he legislative history [to 19 U.S.C. §1313(j)] indicates, as does the resultant enactment itself, that the condition of the merchandise upon exportation and the three-year period were the primary focus of Congress.” (Emphasis added.) The fact situation subject to HQ 228199 was said to be similar to the fact situation in HQ 226473, issued March 19, 1996. In HQ 226473, we held that a pistol which is imported with a magazine and exported without a magazine is not eligible for drawback pursuant to 19 U.S.C. §1313(j)(1). This conclusion was based on the reasoning that because the imported pistol (with a magazine) is not the same merchandise as the exported pistol (without a magazine), based upon the language of the statute, the exported pistol was not eligible for drawback. Likewise, in HQ 228199, the imported complete lamp was not the same merchandise as the exported lamp arm.

In this case the fact that an exported individual rug was imported as part of a set of rugs alone may not preclude drawback. However, the rugs were not priced individually, but as sets. The value and duty paid on the individual rugs cannot be determined from the entry documents. There are no purchase orders to indicate the price of the 54 x 90 rugs, nor are there any invoices for 54 x 90 imported rugs. The determination of the amount of duty paid for the individual exported rugs can only be approximately determined, by apportionment, and requires reference to other invoices for individual rugs and calculations of square footage.

In support of the value and duty determination, the protestant has submitted the April 1, 1996 invoice. In order for the April 1, 1996 invoice to be probative, it must be established first that the rugs on that invoice were in fact the same types of rugs as on the import invoice, or at least that the 20 x 30 rugs on the import invoice were the same as those on the April invoice. We do not find any evidence that either the type or size of rugs on the April invoice are the same as those on the import invoice. The April invoice does not cover any 54 x 90 rugs. The purchase orders for the imported (and exported) rugs are different from those on the April invoice. The import invoice describes the merchandise as “braided rugs” and the April invoice describes the merchandise as “rugs”.

Even if we did find that the rugs on the April invoice were the same as those on the import invoice, we do not find that the April invoice is a basis upon which to determine the value and duty of the exported rugs. The April invoice shows that the rugs are not valued on the basis of area. One 30 x 50 rug is valued at $5.25, and one 30 x 50 rug is valued at $5.15. If the 30 x 50 rugs are the same but their assortment (solid color pack 6 or solid color pack 3) is different, then the value changes on the basis of assortment type. Also, if the “pack 6” and “pack 3” refers to 6 and 3 rugs respectively, and the piece price covers the 6 or 3 rugs, then the values are more disparate than $5.25 and $5.15, as calculated below.

Calculating the values of the rugs by square inch results in disparate values. If the $1.80 covers one 20 x 30 rug, then the price per square inch is $.003 ($1.80 / 600 = .003). If the $1.80 covered six rugs, the price would be $.0005 per square inch ($1.80/3600 = .0005). If the $5.25 covers one 30 x 50 rug, then the price per square inch is $.0035 ($5.25/1500 = $.0035). If the $5.25 price covers three rugs, then the price per square inch is $.0012 ($5.25/4500 = .00116). If the $5.15 covers one of the second 30 x 50 rugs, then the price per square inch is $.0034 ($5.15/1500 = .0034). If the $5.15 price covers six rugs, the price per square inch is $.0006 ($5.15/9000 = .00057).

Taking these calculations, the price per square inch of the 54 x 90 rug could be anything from $.0005 to $.0035, or a total value of $2.43 or $17.01 respectively.

Although the unit of quantity required to be shown for purposes of the HTSUS may be square meters and kilograms, the duty is based on the value of the merchandise and the value is per set of merchandise and is not based on the square meters or weight of the merchandise. Based on the information provided, we cannot accurately determine the value of the 54 x 90 rugs. Furthermore, as stated above, there is no statutory authority for Customs to conclude that drawback may be paid on duties which have been apportioned.

There are several judicial decisions which limit the scope of Customs authority under 19 U.S.C. §1313 to the plain language of the statute. In B.F. Goodrich Company v. United States, 794 F. Supp. 1148, 16 CIT 333 (1992), the Court of International Trade concluded that Customs cannot infer a purpose from the design of the drawback statute taken as a whole. In B.F. Goodrich, the court rejected Customs interpretation that the drawback statute, 19 U.S.C. §1313(j)(2), required actual possession of the imported merchandise based on a reading of the clear language of the statute because the statutory text contains no such provision. See also Central Soya Co., Inc. v. United States, 761 F. Supp. 133, 15 CIT 105 (1991) (Customs cannot require that the drawback claimant be the exporter of the substituted merchandise because no such text was present in the statute); and 718 Fifth Avenue v. United States, supra (Customs cannot restrict attempts to claim drawback by a series of importation/exportation cycles because the court found that Customs had stipulated that the good on that last export met every textual requirement of the statute).

Further, with regard to apportionment, in contrast to the text of 19 U.S.C. §1313(j), the text of 19 U.S.C. §1313(a) requires a distribution of drawback where two or more products result from the processing of the imported merchandise. That provision in 19 U.S.C. §1313(a) was made applicable to substitution manufacturing drawback under 19 U.S.C. §1313(b) by the words “. . . there shall be allowed, . . ., an amount of drawback equal to that which would have been allowable had the merchandise used therein been imported ....” There is no similar statutory authority for Customs to apportion drawback based on the exportation of a portion of a single imported item when entered. Although consisting of three rugs, each imported item was a set. The intent of Congress to permit Customs to apportion value must be found in the relevant statutory text. Another illustration of this principle is found in 19 U.S.C. §1563. That statute expressly provides authority for Customs to allow a reduction in duty that are shown to be the result of loss or damage to the imported goods. Samsung Electronics America Inc. v. United States, 35 F. Supp. 2d 942, CIT Slip Op. 99-3 (Jan.6, 1999), affd. 195 F.3d 1367 (Fed. Cir. 1999). By comparison where Customs attempted to assign to one entry the values of merchandise in other entries or the duties owing on them, the court held that there was no support for the Customs action under the relevant statute. Alyeska Pipeline Service Co. v. United States, 643 F. Supp. 1128, 10 CIT 510 (1986); reh.. 683 F. Supp. 817, 11 CIT 931 (1987), vacated as moot on other grounds, unpublished order (May 19, 1998).

There is no language in 19 U.S.C. §1313(j) which permits Customs to apportion drawback when a component of the imported merchandise, rather than the imported merchandise itself, is exported. In neither of the other two cited cases, C.S.D. 83-2 and 81-219, were the units for measuring dutiable value, the duty, or apportionment addressed. The fact that the imported and exported merchandise were classified under the same HTSUS subheading does not in any way resolve or eliminate the apportionment issue. Similarly, the fact that the Customs Officer certified on the drawback entry form that the merchandise exported was in the same condition as imported, cannot be viewed as a legal conclusion as to the eligibility of the merchandise for drawback.

Furthermore, the evidence of exportation is insufficient to support the drawback claim. In HQ 226929, dated June 4, 1997, the requirement of signed bills of lading under the regulations in effect at the time this drawback entry was filed was fully examined. We held that under 19 CFR 191.52(c)(2), in effect at the time the subject drawback entry was filed, “[b]ills of lading which are not original, and have neither perforated, typewritten or other facsimile signatures nor other certification of authenticity, are not sufficient to support an uncertified notice of exportation.” The bill of lading submitted in this case is a copy of an unsigned document. HOLDING:

1) Drawback, under 19 U.S.C. §1313(j)(1), may not be apportioned to non-conforming portions of imported merchandise which are separated from conforming portions and exported.

2) There is insufficient evidence of exportation to support the drawback claim. The protest should be 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 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 make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

John Durant
Director, Commercial
Rulings Division