HQ 224815

April 11, 1994

DRA-2-02-CO:R:C:E 224815 PH

CATEGORY: Drawback

Assistant District Director

Commercial Operations

Houston, Texas 77052

RE: Protest 5301-3-100053; Manufacturing Drawback; Amendment of

Drawback Claims; C.S.D. 81-146; 19 U.S.C. 1313(b); 19 U.S.C.

1313(r); Public Law 103-182, Section 632

Dear Sir:

The above-referenced protest was forwarded to this office

for further review. Our decision follows.

FACTS:

The protest is of the liquidation of a drawback entry (or

claim) filed on November 24, 1986. Accelerated payment of

drawback was requested and granted, on December 15, 1986, in the

amount of \$235,897.67. According to the November 24, 1986,

drawback claim (identified as \"claim 13\" in the file), the

imported merchandise designated as the basis of drawback for the

claim was imported on June 17, 21, and 22, 1985 (the actual date

of importation for the June 21, 1985, importation was June 9,

1985; June 21, 1985, is the date of withdrawal from warehouse

(C.S.D. 79-19)), and the exportations upon which the claim was

based were between May 7 and August 12, 1986.

According to the protest, after a reorganization of the

protestant, the drawback claim was reviewed and it was found that

two of the three duty-paid importations of methanol designated as

the basis for the drawback claim were incorrect. The protestant

states that it \"immediately\" contacted the appropriate regional

Customs official. \"In accordance with the instructions\" received

from that Customs official, an official of the protestant wrote

to Customs on August 25, 1989, requesting that Customs deny the

drawback claim as initially filed and accept an amended claim

which designated another importation for the two incorrectly

designated importations. We understand that the date of filing

for the amended claim (identified as \"claim 14\" in the file) was

August 30, 1989. The amended claim designated a May 6, 1985, im-

portation in the place of the June 17 and 22, 1985,

importations, and decreased the quantity of methanol designated

in the June 9, 1985, importation from 14,942,749 pounds to

13,748,603 pounds of methanol. The amended or corrected claim

was based on the same exportations upon which the November 24,

1986, claim was based (although based on the same exportations,

the quantity of methanol claimed for the exportations differs

because the factors used to calculate the quantity of methanol

differ; .373 for claims 13 and 14A (see below), and .3924 for

claim 14 (the different factors are provided for in the schedules

for different drawback contracts of the claimant; see T.D.\'s 88-

76-(I) and 89-61-(R) and T.D. 85-1-(F)), cited below). The

amended or corrected claim reduced the drawback claimed to

\$223,547.57.

There is a second amended claim in the file, identified as

claim 14A. We understand that this claim was filed on July 17,

1990\. The importations designated in this claim were the May 6,

1985, importation (quantity designated increased to 28,832,379

pounds) included in the first amended claim (claim 14) and two

importations not designated in either the initial November 17,

1986, claim or the first amended claim. These latter two

importations were dated May 2, 1985, and June 9, 1985. The

second amended claim was based on the same exportations as the

November 24, 1986, claim and the first amended claim.

At the time under consideration in this matter and since,

the protestant has had a number of approved drawback contracts

(see Treasury Decision (T.D.) 85-1-(F), T.D. 86-125-(G), 88-76-

(I), and 89-61-(R)) for substitution manufacturing drawback under

19 U.S.C. 1313(b) and part 191 of the Customs Regulations. Each

of these drawback contracts provided for drawback in the

manufacture of, among other articles, vinyl acetate (the article

claimed to have been exported in the protested claim), with the

use of methanol. The contracts permitted the substitution of

duty-paid, duty-free, or domestic methanol for methanol of the

same kind and quality (i.e., meeting specifications stated in the

contracts) which was imported (or a drawback product) and

designated as the basis for drawback on the exported articles.

In the drawback contracts, the protestant agreed to maintain

records to establish \"\[t\]he identity and specifications of the

merchandise we designate\", \"\[t\]he quantity of merchandise of the

same kind and quality as the designated merchandise we used to

produce the exported article\", and \"\[t\]hat within 3 years after

receiving it at our factory, we used the designated merchandise

to produce articles \[and\] \[d\]uring the same three-year period, we

produced the exported articles.\" The protestant agreed to keep

its drawback related records and supporting data for at least 3

years from the date of payment of any drawback claim predicated

in whole or in part on each of the contracts.

The protested claim (identified as \"claim 13\"), along with a

number of other claims, was the subject of a Customs audit (Audit

Report 611-90-FRO-001, September 1991) and an Internal Advice

request and ruling (Ruling 222857, September 24, 1991). The

opening conference for the audit was held on January 25, 1990,

and there is no evidence available documenting the initiation of

the audit at any earlier date. The Internal Advice ruling held

that an accounting system (described as \"an internally generated

priority system, based on \[protestant\'s\] assignment of origin to

the drawback merchandise\") did not establish timely use in

manufacture or production for drawback purposes and that there

was insufficient evidence to establish \"same-kind-and-quality\" of

the designated imported merchandise and the substituted duty-

paid, duty-free, or domestic merchandise. In the Internal Advice

ruling, the Regional Commissioner was authorized to give the

protestant 30 days from the date that the ruling was provided to

the protestant to provide evidence as to the validity of the

claims considered in the ruling, provided that the drawback en-

tries and documents necessary to complete the claims (as opposed

to documents necessary to verify the claims) were timely filed.

By letter of November 4, 1991, the protestant wrote to

Customs about the evidence it intended to provide within the 30-

day period described above. In this letter, the protestant

stated that records relating to the two earliest claims covered

by the Internal Advice ruling (including the protested claim)

\"were inadvertently destroyed during a general purge of old

records caused by a shifting of personnel and offices.\" Because

it had agreed in its drawback contract to keep its drawback

related records and supporting data for at least 3 years, because

the Customs Regulations provide such a record retention

requirement (see 19 CFR 191.5), and on the basis of C.S.D. 81-

146, the protestant contended \"it would be pointless for Customs

to do anything other than liquidate the 2 entries in question and

\[allow\] the drawback payments \....\" The protestant reiterates

this contention in the protest.

On January 8, 1993, the protested claim was liquidated with

denial of all drawback, on the basis that the same exportations

were claimed in another drawback claim (the amended claim filed

on August 30, 1989, which has not yet been liquidated) and that

the \"\[c\]laimant requested liquidation with 0 allowance.\" On

March 3, 1993, the protestant filed the protest under

consideration.

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(b).

Basically, section 1313(b), often called the substitution

manufacturing drawback law, provides that if imported duty-paid

merchandise and any other merchandise (whether imported or

domestic) of the same kind and quality are used within three

years of the receipt of the imported merchandise in the

manufacture or production of articles by the manufacturer or

producer of the articles and articles manufactured or produced

from either the imported duty-paid merchandise or other

merchandise, or any combination thereof, are exported or

destroyed under Customs supervision, 99 percent of the duties on

the imported duty-paid merchandise shall be refunded as drawback,

provided that none of the articles were used prior to the

exportation or destruction, even if none of the imported

merchandise was actually used in the manufacture or production of

the exported or destroyed articles. Under section 1313(i), no

drawback may be allowed under section 1313 unless the completed

article is exported within five years after the importation of

the imported merchandise.

The drawback law was substantively amended by section 632,

title VI - Customs Modernization, Public law 103-182, the North

American Free Trade Agreement Implementation Act (107 Stat.

2057), enacted December 8, 1993. Title VI of Public Law 103-182

took effect on the date of the enactment of the Act (section 692

of the Act). According to the applicable legislative history,

the amendments to the drawback law (19 U.S.C. 1313) are

applicable to any drawback entry made on or after the date of

enactment as well as to any drawback entry made before the date

of enactment if the liquidation of the entry is not final on the

date of enactment (H. Report 103-361, 103d Cong., 1st Sess., 132

(1993); see also provisions in the predecessors to title VI of

the Act; H.R. 700, 103d Cong., 1st Sess., section 202(b); S. 106,

103d Cong., 1st Sess., section 202(b); and H.R. 5100, 102d Cong.,

2d Sess., section 232(b)).

Compliance with the Customs Regulations on drawback is

mandatory and a condition of payment of drawback (United States

v\. Hardesty Co., Inc., 36 CCPA 47, C.A.D. 396 (1949); Lansing

Co., Inc. v. United States, 77 Cust. Ct. 92, C.D. 4675; see also,

Guess? Inc. v. United States, 944 F.2d 855, 858 (1991) \"We are

dealing \[in discussing drawback\] with an exemption from duty, a

statutory privilege due only when the enumerated conditions are

met\" (emphasis added)).

Under 19 U.S.C. 1313(r), as added by section 232 of Public

Law 103-182 (and effective as to this protest, see above):

A drawback entry and all documents necessary to complete a

drawback claim, including those issued by the Customs

Service, shall be filed or applied for, as applicable,

within 3 years after the date of exportation or destruction

of the articles on which drawback is claimed \.... Claims

not completed within the 3-year period shall be considered

abandoned. No extension will be granted unless it is

established that the Customs Service was responsible for the

untimely filing.

Thus, the provision now in the Customs Regulations (19 CFR

191.61) was enacted into law by Public Law 103-182 (with the

addition of the conforming provision for destruction). House

Report 103-361 (supra, at p. 130) explains this provision as

\"set\[ting\] a period of 3 years from the date of exportation or

destruction in which to file a complete claim.\"

In our interpretation of 19 CFR 191.61, we have taken the

position that for a drawback claim to be \"complete,\" the

designated imports and the exports upon which the drawback claim

is based must be included in the drawback claim. We have ruled

that the provision in 19 CFR 191.64, under which a claimant may

amend or correct a drawback claim or file a timely supplemental

claim with the permission of the regional commissioner, is

governed by the 3-year time limit for completion of a claim. We

have ruled that corrections which only perfect a drawback claim

may be permitted after the 3-year period, but a claim may not be

amended by expanding the scope of the claim after the expiration

of the 3-year period. Adding different consumption entries

designating different imported merchandise would be such an

expansion of the scope of a drawback claim, as would the

designation of additional merchandise from a consumption entry

already designated in the claim. (See, in regard to the

foregoing, ruling 224107, dated February 23, 1993, and letter of

June 26, 1992 (File: DRA-1-CO:R:C:E PH), setting forth Customs

position on this issue in regard to H.R. 5100, 102d Cong., 2d

Sess., a predecessor to title VI of Public Law 103-182.)

In the protested claim (identified as \"claim 13\"), the

exportations were between May 7 and August 12, 1986. The date of

filing of the first proposed amendment (claim 14) to the

protested claim was August 30, 1989, and the date of filing of

the second proposed amendment (claim 14A) was July 17, 1990.

Under both the Customs Regulations in effect at the time (19 CFR

191.5) and the law now effective as to this protest (see above),

Customs has no authority to permit the amendment of a drawback

claim (by the addition of different imports than those originally

claimed or additional merchandise from one of the consumption

entries in the original claim) after the expiration of the 3-

year period after exportation, unless it is established that

Customs was responsible for the untimely filing.

We fail to see how Customs could have been responsible for

the untimely filing of the amended or corrected claims. The time

for amendment or correction of the protested claim was up to 3

years after the exportations upon which the claim was based

(i.e., 3 years after May 7 to August 12, 1986). According to the

protestant\'s own submission, the protestant discovered that it

had incorrectly designated two of the three imports designated in

the protested claim and \"immediately\" contacted a Customs

official about this. Based on the advice the protestant states

it received from Customs, it wrote to Customs on August 29, 1989

(i.e., more than 3 years after the last of the exports upon which

the claim was based) to ask Customs to liquidate the protested

claim without drawback and substitute for it a claim sent with

the letter. There is no allegation by the protestant, nor is

there any evidence in the file, that Customs caused any delay in

the action of the protestant between the time of discovery

(unspecified by the protestant) of the incorrectly designated

imports and the date of the August 29, 1989, letter. There is no

such evidence or allegation that Customs was responsible for the

protestant\'s incorrect designation of the two imports or for the

delay by the protestant in discovering this problem. Nor can the

audit (initiated more than 3 years after the exportations) or the

internal advice request (requested and issued more than 3 years

after the exportations) have been responsible for the protes-

tant\'s failure to amend the claim within the 3-year period after

the exportations. In regard to the internal advice request, we

note that the 30-day period which the ruling authorized to give

the protestant the opportunity to provide evidence as to the

validity of the claims considered in the ruling was specifically

limited to timely-filed and completed claims.

Accordingly, Customs has no authority to permit the

amendment or correction of the protested claim as proposed (i.e.,

by the addition of different imports than originally claimed and

additional merchandise from one of the consumption entries in the

original claim). The protest is DENIED in this regard. We

understand that the amended or corrected claims (identified as

claims 14 and 14A in the file) have not yet been liquidated. The

amended claims should be liquidated with denial of all drawback,

on the basis of the foregoing.

As to the protested claim (claim 13) itself, it was

liquidated with no drawback on the basis of the protestant\'s

request to so liquidate the claim and on the basis that the

exportations upon which the claim was based were also used in the

amended or corrected claim. As stated above, the amended or

corrected claims were untimely and should be denied. The

protestant\'s request to liquidate the protested claim without

drawback was made with its request to substitute the amended or

corrected claim (which designated one of the same imports and all

of the same exportations as the protested claim) for the

protested claim. Since the reasons given for liquidating the

protested claim without drawback no longer exist, we are

considering the protested claim as of the time it was required to

be complete (3 years after the exportations, see above).

As stated above, \$235,897.67 in drawback was claimed in the

protested claim (without amendments or corrections). Accelerated

payment of drawback in that amount was granted on December 15,

1986\. The earliest date which can be established by documentary

evidence as the date of initiation of the audit performed on this

and certain other claims is January 25, 1990. The protestant

stated in its November 4, 1991, letter that it did keep adequate

records to support all its claims but that the records relating

to the claim under consideration were \"inadvertently destroyed

during a general purge of old records caused by a shifting of

personnel and offices.\"

C.S.D. 81-146, cited by the protestant, dealt with a similar

situation. In that case, a claimant-protestant claimed that it

kept adequate records to support its claims but that during the

period of delay after payment of accelerated \"the records were

inadvertently destroyed when a building where the records were

stored was razed.\" An audit, which recommended denial of

drawback because of the lack of necessary records, was performed

more than 3 years after accelerated payment of the drawback

claims. The protest of the denial of drawback on the claims

meeting the above description was granted \"because the drawback

claimant was not required to retain verifying records beyond

three years after payment.\"

Therefore, on the basis of C.S.D. 81-146, drawback may be

granted in regard only to the June 9, 1985, importation (in

regard to the claim by the protestant that it did keep adequate

records to support its claims, we note that Customs records on

the other claims by this protestant audited in the September 1991

audit (see above) show that some of the audited claims were

finally liquidated with a considerable amount of drawback (i.e.,

the protestant must have kept adequate records to support at

least some of its claims subject to this audit)). The protest is

GRANTED in regard to the June 9, 1985, importation designated in

the claim, to the extent the merchandise entered, as finally

liquidated, in that importation is sufficient in quantity to

\"cover\" the quantity designated, and provided that the importa-

tion is not designated for drawback in another drawback claim.

This does not mean that the protested claim should be

\"deemed\" liquidated as entered (compare to 19 U.S.C. 1504; there

is no \"deemed\" liquidation for drawback claims (19 CFR

159.11(b))). Instead, drawback should be granted to the extent

allowed under law, without regard to the results of the audit.

The law applicable in this case (19 U.S.C. 1313(b), see above)

contains a specific prohibition against granting more than 99% of

the duty paid on \"such imported merchandise\" (i.e., designated

imported merchandise which is timely used in the manufacture or

production of articles and otherwise meets the requirements of

the statute). In this case, the protestant informed Customs that

two of the importations (the June 17 and 22, 1985, importations)

were incorrectly designated. Although the protestant provides no

evidence as to why it determined that the importations were

incorrectly designated, we understand that the merchandise may

not have been received at the protestant\'s factory. In any case,

according to the evidence available to Customs when the claim was

liquidated, these importations (i.e., the June 17 and 22, 1985,

importations) did not qualify for drawback. The protestant has

provided no evidence since, in the protest or otherwise, that

these importations did qualify for drawback (this protest would

have been the proper forum to seek relief in this regard).

Accordingly, the protest is DENIED in regard to the June 17 and

22, 1985, importations designated in the claim.

HOLDING:

The protest is denied as to drawback claimed in the amended

drawback claim filed on August 30, 1989, and the second amended

drawback claim filed on July 17, 1990. These claims should be

liquidated without drawback. The protested claim is denied in

part (as to the June 17 and 22, 1985, importations) and granted

in part (as to the June 9, 1985, importation), to the extent the

merchandise entered, as finally liquidated, in that importation

is sufficient in quantity to \"cover\" the quantity designated, and

provided that the importation is not designated for drawback in

another drawback claim.

The protest is GRANTED in part and DENIED in part. 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, Lexis,

Freedom of Information Act, and other public access channels.

Sincerely,

John Durant, Director

Commercial Rulings Division