DRA-1-06 OT:RR:CTF:ER H058337 RFA
Port Director (Drawback Office)
U.S. Customs and Border Protection
Houston Service Port
2350 N. Sam Houston Parkway East, Suite 1000
Houston, TX 77032-3126
Re: AFR Protest No. 5301-09-100129; 19 U.S.C. §1313(j)(1); failure to file notice of intent to export; 19 CFR §191.35; 19 CFR §191.36; 19 CFR §191.91
Dear Port Director:
The following is our decision in response to the above-referenced protest which was forwarded to this office for further review. We have considered the facts and issues raised and our decision follows.
FACTS:
The protest is against the denial of one drawback entry, filed under 19 U.S.C. §1313(j)(1) on behalf of Nationwide of Chicago Food Brokers dba Rahal Foods (“Rahal Foods”), under Importer Number 36-43xx77600, for unused direct identification drawback on white grape juice concentrate, alleged to have been exported from October 12, 2007 through March 31, 2008. According to the information in the file, Rahal Foods alleges that it imported white grape juice concentrate between July 15, 2007, and January 25, 2008. The protestant filed the drawback claim on July 31, 2008, claiming that it exported white grape juice concentrate in the same condition as it was imported. Along with the Customs & Border Protection (“CBP”) Form 7551, the protestant filed an Application for One-Time Waiver of Prior Notice of Intent to Export in accordance with section 191.36 of the CBP Regulations [19 CFR §191.36]. The reason given for its failure to notify CBP was that the company was ignorant of the requirement to file a Notice of Intent “due to changes in company personnel and use of Customhouse Brokers”.
On August 7, 2008, CBP notified the broker that CBP denied the claim for drawback because the claimant failed to provide notice of intent to export in accordance with 19 CFR §191.35. According to CBP records, CBP had previously granted in December 2002, to Rahal Foods, under Importer Number 36-43xx77600, accelerated
payment of unused merchandise drawback claims and a waiver from the requirement of prior notice of intent to export unused drawback merchandise for frozen strawberry concentrate in accordance with CBP Regulations, 19 CFR §§ 191.36 and 191.92.
On August 11, 2008, the broker on behalf of Rahal Foods withdrew the one-time waiver of prior notice of intent to export. On August 29, 2008, CBP denied the claim for drawback because the claimant failed to file CBP Form 7553 [Notice of Intent to Export] as required under 19 CFR § 191.35 and did not have the requisite waiver of notice of intent to export privileges. Counsel, on behalf of protestant, timely filed the protest and its request for further review on February 25, 2009.
ISSUE:
Whether protestant has demonstrated “good cause” to grant its request for a second waiver on its failure to file a notice of intent to export merchandise for purposes of drawback under 19 CFR §191.36(a)(2)?
LAW AND ANALYSIS:
Initially, we note that the protest was timely filed within 180 days of liquidation of the drawback entry on August 29, 2008, under the statutory provisions for protests (Miscellaneous Trade and Technical Corrections Act of 2004, Pub.L. 108-429, §2103(2)(B)(ii), (iii) (codified as amended at 19 U.S.C. § 1514(c)(3) (2006)). 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 CBP’s supervision, within three years from the date of importation, and not used within the United States before such exportation or destruction.
Further review of the protest is warranted pursuant to 19 CFR §§174.24(b) and 174.25 as the protest is alleged to involve questions of law or fact which have not been ruled upon by the Commissioner of Customs or his designee or by the Customs courts. Specifically, protestant cites to 19 CFR §191.36(a)(2), stating “good cause” exists to grant protestant a second waiver of the prior notice requirement. As the regulation does not define “good cause” other than with the example of “successorship”, further review is warranted in this case.
It is well established that drawback laws confer a privilege, not a right. Swan & Finch Company v. United States, 190 U.S. 143, 23 Sup. Ct. 702 (1903). When merchandise is imported and a drawback statute may potentially be applicable, an accruing or inchoate right may be said to arise. However, the right to recover drawback ripens only when all provisions of the statute and applicable regulations prescribed under its authority have been met. Guess? Incorporated v. United States, 944 F.2d 855 (Fed. Cir. 1991); Romar Trading Co., Inc. v. United States, 27 Cust. Ct. 34 (1951); General Motors Corporation v. United States, 32 Cust. Ct. 94 (1954). Drawback claimants must strictly adhere to the requirements set forth in the statutes and the applicable regulations. United States v. W. C. Hardesty Co, Inc., 36 CCPA 47, C.A.D. 396 (1949); Spencer, Kellogg & Sons (Inc.) v. United States, 13 CCPA 612 (1926). The regulations requiring notice of intent to export are mandatory, and compliance with the regulations is a condition precedent to the right to recover drawback. See id., and W.R. Grace & Co. v. United States, 15 Cust. Ct. 105, C.D. 953 (1937).
The failure to file the proper notice deprives the Government of the ability to verify the identity of the merchandise being exported, and the condition of the merchandise (i.e. that it has not been used), for purposes of the drawback statute. See United States v. Lockheed Petroleum Services, 709 F.2d 1472, 1474 (Fed. Cir.1983). In the present case, the protestant failed to provide the proper notice which deprived CBP of the ability to verify that the imported goods were in fact exported in the same condition as claimed. Thus, CBP is unable to determine whether the merchandise is eligible for drawback under 19 U.S.C. §1313(j) and that it is exempt from NAFTA drawback.
However, we note that in 19 CFR §191.36, the regulations provide for the failure to file notice of intent to export for purposes of drawback. The regulation requires the claimant that failed to file the requisite notice of intent to apply for eligibility for drawback. In summary, the application must be written and is required to include the following:
(A)Name, address, and Internal Revenue Service (IRS) number (with suffix) of applicant;
(B) Name, address, and Internal Revenue Service (IRS) number(s) (with suffix) of exporter(s), if applicant is not the exporter;
(C) Export period covered by this application;
(D) Commodity/product lines of imported and exported merchandise covered in this application;
(E) The origin of the above merchandise;
(F) Estimated number of export transactions covered in this application;
(G) Estimated number of drawback claims and estimated time of filing those claims to be covered in this application;
(H) The port(s) of exportation;
(I) Estimated dollar value of potential drawback to be covered in this application; and
(J) The relationship between the parties involved in the import and export transactions
The application must also include written declarations regarding:
(A) The reason(s) that Customs was not notified of the intent to export; and
(B) Whether the applicant, to the best of its knowledge, will have future exportations on which unused merchandise drawback might be claimed
Finally, the application must also include a certification that documentation that the requirements of 19 USC §1313(j) specifically and drawback generally have been met will be made available for CBP review upon request. The regulations also provide that this application procedure may be used by a claimant only once, unless good cause is shown (for example, successorship). See 19 CFR §191.36(a)(2). In making its decision to approve or deny the application under this section, CBP will consider factors such as the information provided by the claimant in the written application and the information in the written certifications, and the applicant's prior record with CBP. As the record in the file shows, the protestant has previously made a claim in 2002 under 19 CFR §191.36.
Because of the prior claim, the protestant now argues that it meets the requirements in 19 CFR §191.36(a)(2) of “good cause” which should be treated as an equitable remedy and be construed broadly. Counsel asserts that in considering the claim, CBP should consider the following factors: (1) whether the other party would be prejudiced by allowing the exception; (2) the explanation for why good cause exists; and (3) the amount of money involved. Counsel cites to a portion of Black’s Law Dictionary (Fifth Ed.) as support for its interpretation of “good cause”. The full relevant part is reproduced below [portion cited by counsel in italics]:
Good cause. Substantial reason, one that affords a legal excuse. Legally sufficient ground or reason. Phrase “good cause” depends upon circumstances of individual case, and finding of its existence lies largely in discretion of officer or court to which decision is committed. [case citation omitted] “Good cause” is a relative and highly abstract term, and its meaning must be determined not only by verbal context of statute in which term is employed but also by context of action and procedures involved in type of case presented. [case citation omitted] See also Probable cause
In implementing this regulation, CBP responded to several comments on the meaning “good cause” in T.D. 98-16, 63 Fed. Reg. 10970, 10986 (March 5, 1998):
Comment: It was contended that the restriction, in proposed § 191.36(a)(2), of retroactivity for waivers of prior notice to a "one-time" use by the claimant was unfair and might not be legal.
It was also stated that the one-time restriction should be on a product basis, because, with the diversification of business today, a firm could have several business areas that operated independently and could discover retroactive unused merchandise drawback scenarios at different times. It was further observed that the phrase "unless good cause is shown" afforded Customs too much discretion and could lead to capricious judgments.
Customs Response: The one-time restriction is retained in § 191.36(a)(2). Because this provision may be used for all exports occurring prior to approval by Customs of the application, a reasonably prudent drawback claimant should not be harmed (i.e., once aware of the requirement for prior notice of intent to export or destroy, such notice should be given, and under this procedure past exports may qualify for drawback).
It is Customs position that the phrase "unless good cause is shown" as used in § 191.36(a)(2) gives proper discretion to the Customs officers responsible for administering the provision.
In analyzing the comments, CBP stated that the one-time restriction should be maintained as a reasonably prudent drawback claimant should not be harmed once they are aware of the requirement. The claim being made in the present situation is that the protestant’s personnel have changed as well as its use of brokers. In response to criticism of this provision, CBP rejected the notion that firms which were acting in a reasonable and prudent manner would be harmed by this provision. CBP concluded that once a firm was on notice of the requirement, a second failure to give notice should not be excused. “Equitable powers, even if available, should not be invoked to excuse the performance of a condition by a party that has not acted with reasonable due care and diligence.” Lockheed Petroleum Services, 709 F.2d at 1475. The type of activities alleged by claimant as being “good cause” occur on a regular basis and do not constitute a substantial reason within the meaning of “good cause” as outlined above. To grant a second waiver on these grounds would be prejudicial to CBP as it would create a substantial loophole for claimants to use every time they switched brokers or changed their personnel responsible for their import/export of their merchandise. CBP was also prejudiced by claimant’s action in that CBP was unable to verify the merchandise’s condition prior to exportation. As these regulations have been in effect for over 10 years, CBP finds that the protestant has not demonstrated “good cause”. Therefore, the claim for drawback was properly denied.
HOLDING:
For purposes of 19 U.S.C. §1313(j)(1), the protestant did not meet the requirement for notice of exportation, has not established that any exportation occurred in the same condition as imported, and has not established “good cause” as to why a second waiver on its failure to file a notice of intent to export merchandise for purposes of drawback under 19 CFR §191.36(a)(2) should be granted.
You are instructed to deny the protest in full. In accordance with Sections IV and VI of the CBP Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the CBP Form 19, to the protestant no later than 60 days from the date of this letter.
No later than 60 days from the date of this letter, the Office of International
Trade, Regulations and Rulings, will make the decision available to CBP personnel, and to the public on the CBP homepage on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director Commercial and Trade Facilitation Division