HQ 229322

December 19, 2001

DRA-4, 5 RR:CR:DR 229322 LLB

Category: Drawback

Port Director of Customs

10 Causeway Street

Boston, MA 02222

Re: Internal Advice; Protest No. 0401-01-100209; drawback of Internal
Revenue taxes; 19 U.S.C. § 1313(j)(1)&(2); 19 U.S.C. § 1313(c); 26
U.S.C. § 5062(c); 19 C.F.R. § 161.161.

Dear Sir or Madam::

The above-referenced protest has been forwarded to this office for
further review. As explained below, because the requirements for further
review have not been met, we are treating the application as a request
for internal advice per 19 C.F.R. § 177.11. We have considered the
points raised by the protestant and your office. Our decision follows.

**FACTS**

This protest concerns a claim for drawback, pursuant to the provisions
of 19 U.S.C. §§ 1313(c) and 1313(j)(2), of Internal Revenue taxes
(hereinafter IR taxes) for the destruction of beer that was allegedly
unmerchantable. According to the CF 29 in the record, drawback was
denied because the information provided by the protestant was
"insufficient to support direct identification of the merchandise with
consumption entries." Further, "the merchandise was sold to various
distributors, and retailers, and was out of direct control of the
claimant." The case record contained the following pertinent evidence.

> CF 7551 dated October 4, 2000; entry type 43 (rejected merchandise-19
> U.S.C. § 1313(c); drawback provision "19 C.F.R. 191.61-68"; intent to
> destroy indicated; liquidated no change
>
> CF 7553 indicating destruction of merchandise on August 2, 2000, in
> the presence of Customs at Parallel Products, Inc. Drawback to be
> filed under 26 U.S.C. § 5062(c). Attachment indicating cases of beer
> (cans and bottles) to be destroyed by product brand name, SKU number,
> brew date, and amount.
>
> Protestant's computer-generated spreadsheets marked "Duty Drawback
> Management System". Information therein includes: entry number, import
> date, product description, product code, and whether the product was
> destroyed or export.
>
> October 11, 2000, letter from the port to the protestant requesting
> information regarding whether protestant sent the beer to the retailer
> and the retailer returned the unmerchantable beer to the protestant
>
> February 21, 2001, letter describing the protestant's product flow

**ISSUE**

Whether the protestant may receive drawback of IR taxes

**LAW AND ANALYSIS**

Initially, we note that the matter under protest, denial of drawback, is
protestable under 19 U.S.C. § 1514(a)(6) and the protest was timely
filed inasmuch as it was filed within 90 days from the May 25, 2001,
denial of drawback. [See]{.underline} 19 U.S.C. § 1514(a); 19 C.F.R. §
174.12(e)(1).

We also note that the protestant's request for further review does not
meet the requirements set forth in 19 C.F.R. § 174.24 which provides:

> Further review of a protest which would otherwise by denied by the
> port director shall be accorded a party filing an application for
> further review which meets the requirements of § 174.25 when the
> decision against which the protest was filed:
>
> \(a\) Is alleged to be inconsistent with a ruling of the Commissioner
> of Customs or his designee, or with a decision made at any port with
> respect to the same or substantially similar merchandise;
>
> \(b\) 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;
>
> \(c\) Involves matters previously ruled upon by the Commissioner of
> Customs or his designee or by the Customs courts but facts are alleged
> or legal arguments presented which were not considered at the time of
> the original ruling; or
>
> \(d\) is alleged to involve questions which the Headquarters Office,
> United States Customs Service, refused to consider in the form of a
> request for internal advice pursuant to § 177.11(b)(5) of this
> chapter.

Therefore, further review will be accorded to the party filing an
application for further review which meets the requirements of § 174.25
and at least one of the criterion in § 174.24. In the subject protest,
although the port approved the AFR, it did not offer any explanation as
to why the AFR was approved. Although the protestant argues that it is
filing the application pursuant to § 174.25(a), the protestant does not
cite to or reference the ruling, which it alleges is inconsistent with
the port's decision.

Consequently, the criteria for further review have not been met and
therefore, we are treating protestant's application as a request for
internal advice.

**Rejected Merchandise Drawback**

The protestant argues that drawback should have been granted pursuant to
the provisions of 19 U.S.C. § 1313(c) which provide for drawback of
merchandise not conforming to sample or specifications:

> Upon the exportation, or destruction under the supervision of the
> Customs Service, of merchandise---
>
> \(1\) not conforming to sample or specifications, shipped without
> consent of the consignee, or determined to be defective at the time of
> importation . . .
>
> the full amount of *duties* paid upon such merchandise, less one
> percent, shall be refunded as drawback.

(emphasis added). Based on the plain language of the statute, drawback
is limited to Customs duties paid. The regulations promulgated by §
1313(c) further indicate that IR taxes are not payable under 1313(c) and
provide, in pertinent part:

> \[Section 1313(c)\] provides for drawback upon the exportation or
> destruction under Customs supervision of imported merchandise which
> has been entered, or withdrawn from warehouse, for consumption,
> duty-paid; and which does not conform to sample or specifications . .
> . (*see subpart P for drawback of internal-revenue taxes for
> unmerchantable or nonconforming distilled spirits, wines, or beer*).

[See]{.underline} 19 C.F.R. § 191.41 (emphasis added). Based on the
plain language of the statute and the regulations, IR taxes are not
payable under 1313(c) and 19 C.F.R. § 191.41.

However, IR taxes paid for unmerchantable or nonconforming distilled
spirits, beer and wine, exported or destroyed under Customs supervision,
and which are returned to Customs' custody, may be refunded under 19
C.F.R § 191.161.[^1] In order to qualify for drawback under this
section, the importer must claim drawback pursuant to § 191.163(a) on a
CF 7551 which "shall be accompanied by a certificate of the importer
setting forth in detail the facts which cause the merchandise to be
unmerchantable and any additional evidence that the drawback office
requires to establish that the merchandise is unmerchantable." 19 C.F.R.
§ 191.163(b). The protestant has not met the requirements of § 191.163.
According to the CF 7551, the protestant filed its drawback claim
pursuant to "19 C.F.R. 191.61-68" which apparently is a typographical
error insofar as the foregoing section relates to verification of
drawback claims and is not a drawback provision. Nevertheless, the
protestant has not provided a certificate setting forth in detail facts
which caused the merchandise to be unmerchantable. Without this
certification, we cannot determine whether the protestant has met the
criteria under 26 U.S.C. § 5062(c) and 19 C.F.R. § 191.161.

**Unused Merchandise Drawback**

Alternatively, the protestant argues that drawback of its IR taxes
should be granted pursuant to § 1313(j)(2). The port decided to deny
drawback because the evidence was "insufficient to support direct
identification of the merchandise with consumption entries"and that "the
merchandise was sold to various distributors, and retailers, and was out
of direct control of the claimant." Based on the foregoing statements,
it is apparent that the port determined whether drawback was available
under § 1313(j)(1) rather than 1313(j)(2). Nevertheless, drawback of IR
taxes is not permissible under either statute.

In HQ 227347(April 18, 1997) & 227916, we determined that IR tax on
tobacco products was not refundable under § 1313(j) inasmuch as the tax
on tobacco products and drawback thereof is specifically provided for in
the Internal Revenue Code. Likewise, in the present case drawback for
unmerchantable beer is established under the Internal Revenue Code.
[See]{.underline} 26 U.S.C. § 5062(c); 19 C.F.R. § 191.161. [^2]

In addition, even if this office were to consider protestant's claim
under § 1313 (j)(2), it would fail for lack of evidentiary support.
Pursuant to 19 C.F.R. § 191.32 (c) the evaluation factors to be
considered in determination of commercial interchangeability "include,
but are not limited to, Governmental and recognized industrial
standards, part numbers, tariff classification and value." Underlying
purchase and sales contracts, purchase invoices, purchase orders, and
inventory records show whether a claimant has followed a particular
recognized industry standard or governmental standard, or any
combination of the two, relative values of the imported and exported
merchandise, and whether a claimant uses part numbers to buy, sell, and
inventory the merchandise in issue. [See]{.underline} HQ 227473(March 3,
1998)(determining whether imported and exported merchandise met
government and industry standards and relative values using contracts
and purchase orders); HQ 227106 (September 3, 1997)(determining use of
part numbers, using purchase orders, sales documents and invoices, and
warehouse receipts). Although the protestant addresses each of these
factors, no evidence has been provided to support any of the factors.
The CIT has ruled that mere assertions by a complainant without
supporting evidence will not be regarded as sufficient to overturn a
Customs official's decision. [Bar Bea Truck Leasing Co., Inc. V. United
States]{.underline}, 5 CIT 124, 126 (1983).

In conclusion, the protestant may not obtain drawback of its IR taxes
pursuant to 19 U.S.C. § 1313(c) insofar as drawback under that statute
is limited to Customs duties paid. Although Customs regulations provide
for drawback of IR taxes for unmerchantable beer, the protestant has not
provided sufficient evidence, as described herein, to show that it meets
the requirements of the regulations. [See]{.underline} 19 C.F.R. §§
191.161-168, [supra]{.underline}. Further, protestant may not receive
drawback of its IR taxes pursuant to 19 U.S.C. §§ 1313(j)(1) or (j)(2),
because the beer taxes imposed by 26 U.S.C. § 5051(a) and drawback
thereto is established by 26 U.S.C. § 5062(c).

**HOLDING**

1\. The protestant may not receive drawback of its IR taxes under 19
U.S.C. § 1313(c) insofar as drawback under that statute is limited to
Customs duties paid. The protest should be DENIED regarding this claim.

2\. The protestant may not receive drawback of its IR taxes pursuant to
19 U.S.C. §§ 1313(j)(1) or (j)(2), because the beer taxes are imposed by
26 U.S.C. § 5051(a) and drawback thereto is established by 26 U.S.C. §
5062(c). The protest should be DENIED regarding this claim.

3\. The protestant is not entitled to drawback under 26 U.S.C. § 5062(c)
as implemented by 191.163(b) for failure to comply with that provision.
The protest should be DENIED regarding this claim.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065,
dated August 4, 1993, Subject: Revised Protest Directive, you are to
mail this decision, together with the Customs Form 19, to the protestant
no later than 60 days from the date of this letter. Any reliquidation of
the entry or entries in accordance with the decision must be
accomplished prior to mailing 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.ustreas.gov, by means of the Freedom of Information Act, and
other methods of public distribution.

Sincerely,

John Durant, Director

Commercial Rulings Division

[^1]: Section 191.161 was promulgated under the authority of 26 U.S.C. §
    5062(c). We note that the protestant indicated on the CF 7553 that
    drawback would be filed under § 5062(c).

[^2]: Although Customs enforces the provisions of 26 U.S.C. § 5062(c),
    the pertinent issue before us is whether drawback is allowed under
    19 U.S.C. § 1313(j) or 26 U.S.C. § 5062(c).