HQ 224417

February 16, 1995

DRA-1-02-CO:R:C:E 224417 CB/WGR

CATEGORY: Drawback

Director

Commercial Operations

Southeast Region

U.S. Customs Service

909 S.E. 1st Avenue

Miami, FL 33131

RE: Protest and Application for Further Review No. 1703-92-100113;
Correction of Invalid Certificates of Waiver;

perfection of Drawback Claim

Dear Sir/Madam:

The above-referenced protest and application for further

review was forwarded to this office. We have considered the

points raised and our decision follows.

FACTS:

Protestant has an approved drawback contract, under T.D. 83-

59, which provides for the manufacture of hard refined sugar with

the use of raw cane sugar. It is our understanding that

protestant\'s Customs bonded warehouse is part of its factory

premises.

During 1988 and 1989, the Customs Service\'s Office of

Regulatory Audit conducted an audit of protestant\'s drawback

program. During the course of this audit, it was determined that

protestant had filed six drawback claims totaling \$2,433,776,

which contain invalid assignments of drawback rights by the

exporter. Various individuals, other than those authorized by

section 191.6 of the Customs Regulations (CR), had endorsed the

assignment of drawback rights on the six drawback claims.

Additionally, three of those claims had been filed under 19

U.S.C. §1313(a), which governs direct identification drawback,

rather than 19 U.S.C. §1313(b), which governs substitution

drawback. protestant claims that this error was inadvertent

because, in fact, protestant does not have any §1313(a) drawback

contracts. Finally, during a review of the subject claims, this

office has discovered other insufficiencies regarding these

claims with respect to the certificates of manufacture.

ISSUES:

1\) Whether protestant should be permitted to amend and

perfect its claims by filing corrected waivers, as it has done.

2\) Whether the fact that protestant checked the wrong box on

the drawback form should defeat the drawback claims.

3\) Whether the protestant has filed a completed claim.

LAW AND ANALYSIS:

Initially, we note that the protest, with application for

further review, was timely filed under the statutory and

regulatory provisions for protests (see 19 U.S.C. §1514 and 19

CFR Part 174).

Under section 313, Tariff Act of 1930, as amended (19 U.S.C.

§1313), allowance of the privileges provided in 19 U.S.C. §1313

shall be subject to compliance with rules and regulations

prescribed by the Secretary of the Treasury. The Supreme Court

held in Swan & Finch Co. v. United States, 190 U.S. 143 (1903)

that the right to drawback is a privilege granted by the

government. Compliance with the regulations is a prerequisite to

securing the allowance of drawback where the regulations are

authorized and reasonable. See Lockheed Petroleum Services, Ltd.

v, United States, 4 CIT 25, 557 F. Supp. 583 (1982). The Customs

Regulations pertaining to drawback are found in 19 CFR Part 191.

The Customs Service found several errors on the six drawback

claims involved in this protest. The protestant asserts that

since liquidation is not final, having filed a timely protest

against the denial of drawback, it can correct the errors in the

six claims.

The relevant drawback regulations are 19 CFR §191.61 and

§191.64. The former requires that a claim be filed within three

years after export and defines filing to include application to

Customs for a Customs-issued document. The latter permits a

claimant to file a correction with the permission of the

appropriate regional commissioner. The Regional Commissioner

referred the protest to the Director, Office of Regulations and

Rulings, as provided by 19 CFR §174.26(b), T.D. 69-126, as

amended, and 19 U.S.C. §1515(a). Under 19 CFR 174.28, a

protesting party may submit alternative grounds for protest

claims that had been timely made. The Director, Office of

Regulations and Rulings, permitted the protestant to supplement

its protest against the denial of drawback on this six drawback

claims.

Under 19 CFR §191.6 (a) and (b), drawback entries and

supporting documentation must be signed by an officer of a

corporation or any person with a power of attorney.

Regarding the subject drawback entries, the audit disclosed

that improperly executed notices of waiver had been filed to

support the six drawback entries. Protestant claims that it

should be permitted to amend and perfect its claims by filing

corrected certificates. Under 19 CFR §191.61 a drawback entry

must be completed within 3 years after the date of exportation of

the articles on which drawback is claimed. In the instant case,

the filing of properly executed waivers verifies or corrects a

deficiency in the claims. It is not a completion of or amendment

to the existing claims. The verification of a claim is

permissible beyond the three year limitation found in 19 CFR

§191.61.

The signatures on the waivers become important if both

parties file claims on the same material. In this case, there is

no evidence that situation has occurred with respect to the

waivers at issue. Consequently, the amendment is permissible.

Additionally, a review of the six subject claims also

disclosed that for claim no. C17-xxxxx24-2 the second of the

import entries (\"84xxx43-4) shown on this claim is a warehouse

entry. The actual warehouse withdrawal dates are much later than

the \"received at factory\" date shown in the drawback claim. The

entry number is short one digit and elsewhere in the claim it is

referred to as warehouse entry no. 84XXX434-0 which covered a

shipment of raw sugar imported by the protestant from Costa Rica.

Copies of that warehouse entry, together with permit withdrawals

are present in the drawback claim. In actuality, the two correct

consumption entries cover raw sugar from Australia. Counsel for

the protestant provided copies of the correct entries. A review

of the data listed on the CF 331 as to the date of import, date

of liquidation, port of entry, receipt at factory dates and use

in manufacture dates match the corresponding data on the entry

documents.

Issue #2

In three of the six drawback claims, the protestant asserted

that the claim was being made pursuant to 19 U.S.C. §1313(a) even

though the text of the claim showed that the exported refined

sugar was not made from the imported, duty-paid raw sugar. Under

19 U.S.C. §1313(r)(2), as amended by the Act of December 8, 1993

(107 Stat. 2057, Pub. L. 103-182), a drawback claim filed

pursuant to any subsection of section 1313 is deemed filed

pursuant to any other subsection if it is determined that

drawback is not allowable under the claim as originally filed but

would be allowable under the other subsection. The purpose of

this section was to allow a claimant who was denied drawback

under one provision to show that it did, in fact, comply with the

requirements of another provision of 19 U.S.C. §1313. H. Rept.

103-361, Part 1, 131 (1993). By virtue of the legislative history

with respect to section 632 of the Act of December 8, 1993, the

Customs Service is applying the provisions of that law to the

claims under protest. See page 132 of H. Rept. 103-361. By this

protest, the protestant asserted that the three claims that were

erroneously filed under 19 U.S.C. §1313(a) met each of the

requirements of 19 U.S.C. §1313(b).

In each of the six claims, the protestant either failed to

list a certificate of manufacture number that covered the use of

the designated raw sugar or listed the certificate of manufacture

appropriate to the raw sugar that was refined and then exported

as the basis for drawback. Item 24 on the CF 331, which requires

a CM/CD number, was left blank. Of the six claims, the protestant

left that required information blank on three claims. On the

remaining three claims, the protestant listed the Certificate of

Manufacture number applicable to the raw sugar that was actually

used to make the exported articles for both the designated raw

sugar and the substituted raw sugar. Not surprisingly, the

numbers failed to support the protestant\'s claims. Protestant\'s

counsel supplied the correct certificates of manufacture. A

comparison of the entry numbers, import dates, vessel names,

factory receipt dates and factory use dates on the CF 331 matched

the dates shown on the protestant\'s certificates that had been

filed with the regional Commissioner at New York under the

procedure required by item (14) of T.D. 83-59. Consequently, it

is clear that the protestant\'s amendment would do no more than

correct the claim that was filed originally. It is obvious that

the amendment would not impermissibly substitute new import

entries or new exports on the existing claims.

It is clear that the protestant\'s erroneous designation of

direct identification manufacturing drawback (19 U.S.C. §1313(a))

instead of substitution manufacturing drawback (19 U.S.C.

§1313(b)) on three of the claims can be corrected under 19 U.S.C.

§1313(r). The relevant evidence shows that the protestant owned

both the designated raw sugar and the raw sugar that was actually

used to make the exported refined sugar. A comparison of the

relevant data (i.e., dates, amounts, origin and vessels) matches

the corresponding data on the correct certificates of

manufacture. There would be compliance with 19 U.S.C. §1313(b)

even though there would not be compliance with 19 U.S.C.

§1313(a).

Issue #3

The requirements for drawback under 19 U.S.C. §1313(b) (and

under the applicable Customs Regulations as well as all drawback

contracts issued under that statute) are:

For the designated imported merchandise it must be

established.

\(1\) that a sufficient quantity of merchandise was imported,

\(2\) that it met the same-kind-and-quality criteria set forth

in the drawback contract, and

\(3\) that it was used in manufacture or production by the

claimant within 3 years of receipt.

For the substituted exported merchandise it must be

established\--

\(1\) that the exported or destroyed articles claimed as the

basis for drawback were actually exported or destroyed

within five years of the date of import of the designated

imported merchandise,

\(2\) that those exported or destroyed articles were

manufactured or produced from the designated imported

merchandise or the substituted merchandise,

\(3\) that the substitute merchandise was of the same-kind-and-quality
as the designated imported merchandise, and

\(4\) that the use in manufacture or production of the

substituted merchandise to produce the exported or destroyed

articles occurred within 3 years of receipt of the

designated imported merchandise.

Therefore, under general drawback law, a claimant must

provide proof of use of the designated imported merchandise.

Protestant has an approved drawback contract which provides that

it will comply with the general drawback contract for sugar,

published as T.D. 83-59. Item (14), in said Treasury Decision,

provides that abstracts of a manufacturer\'s records shall be

filed when drawback is to be claimed on any part of refined sugar

manufactured during such period. Item (19), in the same T.D.,

provides that the drawback entry shall indicate the abstract

numbers, for both the designated and substituted sugars, which

prove use in manufacture during the stated period. A review of

the six claims subject to this protest show that protestant

failed to provide this information.

Customs Form (CF) 331, Manufacturing Drawback Entry and/or

Certificate, sets forth the information a claimant must provide.

Item no. 24, entitled \"CM/CD Number\" requires that the claimant

provide the certificate of manufacture and/or delivery (CM&D)

number to enable Customs to determine ownership of the designated

merchandise. Item no. 28, entitled \"Quantity/description of

merchandise used\", provides Customs with the description and

quantity of merchandise actually used to manufacture the exported

article. See Customs Directive No. 3740-03, issued January 14,

1986\. Prior to 1986, drawback claims were filed on a CF 7575-B

which also required that certificate of manufacture or delivery

numbers be provided for the designated sugar.

As noted in Issue #2, the protestant had either failed to

fill in .any information in item no. 24 (or its equivalent in CF

7575-B) or had listed the same abstract numbers for both item

nos. 24 and 28. A review of these abstracts show that one

abstract could not possibly prove use of both the designated and

substituted merchandise because, in some instances, there was a

two year gap between the import entry and the time the

substituted merchandise was exported. Therefore, protestant had

failed to provide proof of use of the designated merchandise.

However, protestant has cured this defect in its claims by

providing the correct abstract and certificate of manufacture and

delivery numbers.

A claim by claim analysis of the subject protest discloses

the following:

Claim No. 86XXXX29-2 is based on 17,340,061 refined pounds

shipped to Iskenderun, Turkey on the M/V Dalaman on October 25,

1985\. The designated, duty-paid sugar was shown as 2,667,291

pounds imported on September 20, 1982 by entry 82-XXXX78-5 and

14,672,770 pounds imported on October 7, 1982 by entry 83-XXXX00-9.
Import entry 82-XXXX78-5 matches a Warehouse Withdrawal

bearing the same entry number and dated March 28, 1983.

Protestant correctly asserts that abstracts 502, 503, 505, and

506 with CMs 38502, 38503, 39497, and 3949 support its production

of 17,340,061 pounds of exported refined sugar. Finally,

abstracts 471, 472, 477 and 428 with the corresponding CM numbers

22896, 22897, 27857, and 28099 support the production of sugar

from the designated import entries.

Claim No. 86XXXX66-1 is based on 30,238,955 refined pounds

shipped to Jordan and Turkey on December 30, 1985 and October 25,

1985 respectively. The designated, duty-paid sugar was shown as

21,343,394 pounds imported on May 3, 1983 by entry 83-XXXX12-2

and 8,895,561 pounds imported on October 26, 1982 by entry 83-XXXX01-2.
Protestant correctly asserts that abstracts 507 and 508

and CM 39933 and 39934 support its claim of production of

30,238,955 pounds of exported refined sugar. Abstracts 478, 479,

480 and CM numbers 28098, 28099, and 28336 support the production

of sugar from the designated import entries.

Claim No. 86XXXX47-8 is based on 642,637 refined pounds

shipped to Canada and Jordan between December 19, 1985 and

December 31, 1985. The designated, duty-paid sugar was shown as

624,271 pounds imported on December 8, 1983 by entry 84-XXXX09-4.

Protestant correctly asserts that abstract number 509 and CM

42285 support its claim of production of 642,637 pounds of

exported refined sugar. Abstracts 486, 487, and 488 and CM

numbers 29732, 30015, and 31349 support the production of refined

sugar from the designated import entries.

This claim includes 514,333 pounds of refined sugar which

were refined under a tolling agreement. A review of the tolling

agreement between protestant and the owner of the sugar discloses

that protestant agreed to provide the owner with correct

documentation showing that protestant was holding the raw sugar,

and subsequently the refined sugar, for the account of the owner.

The parties also agreed that all drawback of previously paid U.S.

import fees and duties would be for the account of protestant.

Claim No. C17-XXXXX40-8 is based on 1,519,509 refined pounds

shipped on eight different exportations between September 3, 1986

and September 26, 1986. The designated, duty-paid sugar was shown

as 1,543,771 pounds imported on September 14, 1984 by entry 84-XXXX43-4.
Protestant correctly claims that abstract number 518

and CM 43933 support its claim of production of 1,519,509 pounds

of refined exported sugar. And, abstract 494 and CM number 34139

support the production of refined sugar from the designated

import entry.

Claim No. C17-XXXXX24-2 is based on 5,195,085 refined pounds

shipped on three different exportations between August 17, 1986

and September 9, 1986. The designated, duty-paid sugar was shown

as 4,459,154 pounds imported on September 5, 1984 by entry

84XXXX42-1, and 837,476 pounds imported on September 14, 1984 by

entry 84XXXX43-4. Protestant correctly claims that abstract

number 517 and CM 43789 support its claim of production of

5,195,085 pounds of refined exported sugar. And, abstract number

494 and CM number 34139 support the production of refined sugar

from the designated import entries.

Claim No. C17-XXXXXOl-0 is based on 27,833,846 refined pounds

shipped to Iskenderun, Turkey on the M/V Golden Cross on

September 9, 1986. The designated, duty-paid sugar was shown as

28,245,882 pounds imported on September 5, 1984 by entry

84XXXX42-1. Protestant correctly claims that abstracts 509, 510,

511, 512, 513, and 516 and CMs 42285, 42886, 43157, 43141, 43142,

and 43274 support its claim of production of 27,833,846 pounds of

refined exported sugar. And, abstract 494 and CM number 34139

supports the production of refined sugar from the designated

import entries.

Claims No. C17-XXXXX24-2, C17-XXXXX40-8, and C17-XXXXX01-O,

however, illustrate a potential problem with respect to two

claimants claiming use of the same sugar. In addition to

manufacturing for its own account, the protestant apparently

processed sugar for other refiners who claimed the protestant\'s

processing as their processing under the agency concept set forth

in 19 CFR §191.34. As noted above, the protestant asserted that

the processing of the raw sugar on consumption entries 84-XXXXX42-1 and
84-XXXXX43-4 was shown by its certificate of

manufacture no. 34139 that was abstracted by the Regional

Commissioner at New York as abstract 494. That certificate of

manufacture, with respect to each one of the listed import

entries, shows that the protestant was the importer. A review of

each of the entries showed that the raw sugar was imported by the

protestant, was removed from storage by the protestant, and was

refined by the protestant. Another refiner with whom the

protestant had an agency contract also asserted that sugar

recorded in CM 34139 was its sugar. The sugar purportedly owned

by that other refiner was identified by the name of the importing

vessel. There was no such vessel listed in the certificate of

manufacture. It appears that the protestant erroneously provided

the reference to CM 34139 to the other refiner which enabled that

other refiner to make its claim for drawback. Because drawback

claims can be filed in more than one location, the potential for

double claims on the use of the same merchandise makes it

critical that the certificate of manufacture correctly identify

whose merchandise is being processed. The evidence must show the

ownership of the merchandise if an agency relationship is claimed

so that a toll processor cannot claim processing, for both its

own account and as a toll processor on the same merchandise.

HOLDING:

Protestant has verified its claims by filing properly

endorsed certificates of waiver. Additionally, protestant has

corrected the clerical mistake made in filing the CF 331 with

respect to checking the wrong box and providing correct proof of

use of the designated merchandise. Finally, protestant has also

corrected the typographical error in claim no. C17-xxxxx24-4.

Protestant has satisfied the requirements for drawback.

Therefore, this protest should be GRANTED.

In accordance with Section 3A(ll)(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 this decision

must be accomplished prior to the mailing of the decision.

Sixty days from the date of this 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,

John Durant, Director

Commercial Rulings Division