HQ 224420

April 11, 1997

DRA-2-01-RR:IT:EC 224420

CATEGORY: DRAWBACK

Port Director of Customs

U.S. Customs Service

1 East Bay Street

Savannah GA 31401

RE: Production by agent for principal; 19 U.S.C. 1313(b);

Evidence of ownership by principal before production;

Identification of goods to sales contract; Sufficiency of

evidence; HQ 221914; HQ 223431; Protest 1703-92-100120.

Dear Sir:

The above protest was forwarded for further review. There are

two other protests at your port which involve the same issue. Our

decision here should be applied to those protests.

FACTS:

There were 40 drawback claims filed which were liquidated

without drawback on May 8, 1992. This protest was filed on August

6, 1992, 90 days after the liquidation. The protest would be

timely within the requirement of 19 U.S.C. 1514(c). Under

19 U.S.C. 1514(a)(6), a protest may be filed against a refusal to

pay a claim for drawback.

The protestant, Savannah Foods & Industries, Inc. (Savannah),

asserts that it employed an agent, Michigan Sugar Company

(Michigan), to produce the refined sugar that was exported so

that it, Savannah, could claim (l) that it was the sole

manufacturer for drawback purposes. Savannah submitted evidence

to show it actually and legally used the imported, designated

raw sugar at its sugar refinery in Georgia to make refined

sugar.Savannah is identified as the manufacturer on the

manufacturer\'s statement under 19 CFR 191.21 - 191.34 and T.D.

83-59. Michigan identified itself as an occasional agent of

Savannah on its manufacturer\'s statement.

The dispute centers on whether the evidence supports

Savannah\'s assertion that the exported refined sugar was made

from Savannah\'s raw sugar or whether the evidence shows that

Savannah merely bought refined sugar from Michigan. If Savannah

cannot show that the refined sugar that it exported was produced

from raw sugar that it owned before processing was begun by

Michigan as its agent, Savannah cannot meet the requirements of

19 U.S.C. 1313(b).

Although these claims were the subject of two earlier

decisions; HQ 221914 and HQ 223431, further review was requested

on the grounds that new evidence was available that had not been

considered in the prior decisions and that new legal issues were

raised that were not considered in the prior decisions. Further

review appears warranted on those grounds. Evidence has been

furnished on the records of the agent which were not previously

considered by Headquarters.

Two distinct formulas are involved. The mass balance formula

determines the amount of raw beet sugar that results in the

production of refined sugar. The agency formula separates the

respective ownership of that sugar between Savannah and Michigan.

That is, with respect to the refined sugar that can be attributed

by the mass balance formula to raw sugar, the agency formula

allocates 100 pounds of refined sugar to Savannah for every 110

pounds of Savannah\'s raw sugar that Michigan refined as

Savannah\'s agent.

As discussed below, the mass balance formula separates the

starting materials in terms of the finished refined sugar.

Savannah and Michigan found that when 100 pounds of refined

sugar is made, about 64 pounds of that refined sugar is

attributable to raw beet sugar, the remainder being refined

sugar that is produced from thick juice that itself is produced

directly from sugar beets without going to the raw sugar step.

The agency formula further separates the refined sugar

between the principal, Savannah, and its agent, Michigan.

If 100 pounds of refined sugar was produced, 64 pounds of that

refined sugar was attributable to raw beet sugar. If all the

raw sugar belonged to Savannah, then as a result of the agreement

between Savannah and Michigan, Michigan would have had to use

70 pounds of Savannah\'s raw sugar(64 x 1.1 = 70) to make those 64

pounds.

SEGREGATION OF SAVANNAH AND MICHIGAN\'S RAW SUGAR

Savannah asserts that it purchased the raw sugar in advance

of the creation of that raw sugar by Michigan. Savannah asserts

that the processing of that raw sugar by Michigan should be

attributed to production by Savannah to meet the statutory

criterion of 19 U.S.C. 1313(b) that one manufacturer use both the

designated imported merchandise and the merchandise that is the

source of the export articles.

Savannah asserts that all of the refined sugar carried on

Michigan\'s inventory records for export was produced from

Savannah\'s raw sugar. Savannah and Michigan assert that if

Michigan is processing beets into refined sugar all of refined

sugar that is made from raw sugar, produced up to the amount of

Savannah\'s advance payment, is produced for Savannah. Refined

beet sugar is manufactured from raw sugar juice, which contains

raw beet sugar. A \"mass balance formula\" is used to calculate the

quantity of raw sugar used to make the refined sugar.

The mass balance formula is asserted by Savannah to show the

amount of raw sugar owned by Savannah. Savannah asserts that as a

result of the formula\'s application to daily production, the

production records show that about 64 percent of the end product

comes from raw sugar belonging to Savannah.

The explanation of the mass balance formula is contained in

Exhibit T to counsel\'s letter of November 29, 1993 and Exhibit 4

to counsel\'s letter of September 21, 1995. Savannah asserts, in

its counsel\'s letter of November 29, 1993, that the results of

application of the mass balance formula are recorded, for the

protested claims, in Michigan\'s perpetual inventory for fiscal

years 1985 through 1988. The Michigan perpetual inventory records

are based on the daily production records from each of Michigan\'s

plants.

The payment records indicate that Savannah bought 20 million

pounds of future raw sugar from Michigan by virtue of sales

documents dated October 31, 1984. Savannah\'s inventory records

run from October 1 of one year to September 30 of the following

year. The payment records indicate that Savannah also bought 25

million pounds of future raw sugar from Michigan on January 2,

1985\. The total shown by those records would be 45 million pounds

of raw sugar. The Michigan inventory is carried in refined

pounds. The conversion ratio used by Savannah and Michigan is

that 110 raw pounds would make 100 refined pounds. In addition,

Savannah and Michigan assert that Savannah\'s ownership in the

refined pounds can be calculated by applying the mass balance

formula of 64 percent to the amount of total refined pounds made

during a period.

Ownership by Savannah of Raw Sugar

Savannah asserts that its payments in advance of the

production by Michigan, shows that Savannah owned the raw sugar

before that sugar was refined. Customs has taken the position

that the raw sugar from beets is susceptible of being owned for

drawback purposes. The evidence offered in support of Savannah\'s

assertion are: (1) an agency contract between Savannah and

Michigan, (2) purchase contracts for future delivery between

Savannah and Michigan of raw sugar,(3) records of checks issued

by Savannah to Michigan,(4) the inventory allocation on

Michigan\'s perpetual inventory records of refined sugar available

for export, and (5) the records which are said to show Michigan\'s

credits of exported sugar against Savannah\'s raw sugar advance

payments.

In addition, Savannah in its counsel\'s letter of March 24,

1995 asserts an alternative theory: Savannah did not need

Michigan, as an agent in order to show that the production at

Michigan\'s plants was production by Savannah. That is, Savannah

asserts that its total ownership of Michigan\'s stock and its

method of consolidated finances among its wholly-owned

subsidiaries show an equivalency in identity between Savannah and

Michigan. However, that argument was not further developed and

has not been considered.

The agency contract between Savannah and Michigan is in Exhibit

V to counsel\'s letter of November 29, 1993.

The agency contract is dated September 28, 1984 and is signed

by both Savannah and Michigan. The contract provides for an

effective date of September 30, 1984.

The contract provides for Savannah to buy raw sugar from

Michigan and for Michigan to refine 100 pounds of refined sugar

from each 110 pounds of raw sugar owned by Savannah. Any

residuals or byproducts belonged to Michigan.

There is a memorandum dated October 31, 1984 recording the

sale of 20 million pounds of future raw sugar from Michigan to

Savannah. The terms are \$21.50 for the raw sugar plus a tolling

charge that would be the difference between the average gross

sales price of refined product and the \$21.50 price. Exhibit V

to counsel\'s letter of November 29, 1993 contains invoices and

memoranda said to show the purchase of future raw sugar by

Savannah from Michigan.

Mich. to Savannah invoice 10/31/84 No. Illegible 20 mill.\$21.60/100

(\$4,300,000)

Michigan memorandum 01/3/85 25 million \$20.67/100

Michigan to Savannah invoice 01/2/85 25 million \$20.67/100

(\$5,167,500)

Savannah confirmation 10/1/85

38 million \$18.23/100

Michigan to Savannah invoice 10/01/85 1001 38 million \$18.23/100

(\$6,927,400)

Savannah memorandum 09/30/86 60 million \$20.88/100

Michigan memorandum 09/26/86 60 million \$20.88/100

Michigan to Savannah invoice 09/26/86 1001 60 million \$20.88/100

(\$12,900,000)

Michigan to Savannah invoice 09/29/87 1001 60 million \$21.50/100

Savannah confirmation 09/30/87 60 million \$21.50/100

Savannah letter and memorandum 10/06/87 30 million \$21.50/100

Michigan letter 12/09/87 30 million

Savannah memorandum 12/11/87 (\$6,450,000)

Michigan to Savannah invoice 10/05/87 1002 30 million \$21.50/100

(\$6,450,000)

Michigan to Savannah invoice 09/29/88 1001 80 million \$21.77/100

(\$17,406.000)

Savannah memorandum 09/19/88 80 million \$21.77/100

Exhibit W to counsel\'s letter of November 29, 1993 contains

canceled checks said to represent payment for the future raw

sugar.

Invoice No.

Illegible

Check 45675 Nov. 12, 1984 \$4,300,000

Check 49241 Jan. 14, 1985 \$5,167,500 1107

Check 586 Oct. 9, 1985 \$6,927,400 1001

Check 32630 Oct. 3, 1986 \$12,528,000 1001

Check 71520 Oct. 16, 1987 \$12,900,000 1001

Check illegible Nov. 11, 1988 \$18,504,500 1001

By letter dated April 12, 1996, counsel asserted that

evidence of Savannah\'s ownership of raw sugar at Michigan

was set forth in certain listed pages to Savannah\'s submission

of November 29, 1993. The information on those pages relative

to Savannah are listed above except the following:

Page 03781 and 03785 are duplicates of the Michigan to Savannah

invoice 1001 of 9/24/87.

Page 03773, 03774, 03780, 03783 and 03787 contain material

involving Great Lakes Sugar Company which is claimed to have been

bought by Savannah and be part of Michigan. There is no apparent

basis for considering that material in connection with these

drawback claims.

Savannah also asserts that all of Savannah\'s accounting records

were available for reexamination during the audit.

By its counsel\'s letter of July 18, 1995, Savannah asserts

that the October 31, 1984 date for the memorandum of sale and the

Michigan invoice in Exhibit V to its letter of November 29, 1993

is not indicative of the date of the sale of sugar in 1984.

Savannah asserts that the sale actually occurred before the date

shown on that evidence submitted. Savannah characterizes the

evidence as a memorializing of a prior act.

Counsel\'s letter of July 18, 1995 also acknowledges that for

the week ending November 3, 1984 at the Croswell plant

application of the mass balance formula for export sugar, which

is asserted to be Savannah\'s sugar, results in more sugar

available than is actually recorded. Counsel asserts that the

quantity in the last week of export production was adjusted

accordingly.

Counsel and Mr. John Yuill of Savannah in a telephone

conference on February 14, 1996 stated that the daily records of

production are accurate as to the amounts processed. They

acknowledge, however, that the 64 percent mass balance figure is

an average, and that the actual daily mass balance calculations

can vary. Attachment 4 to Counsel\'s letter of September 21, 1995

contains a Michigan memorandum dated September 20, 1995 which

showed the variations in raw sugar usage on a daily basis and

showed how a weekly average of 64 percent was calculated. During

the week of November 1 - 7, 1985 the white sugar produced from

raw sugar was 61.96, 72.41, 66.36, 65.28, 68.93, 55.26, and

62.21. Those daily amounts average 64.60 for the week. Attachment

T to Savannah\'s letter of November 29, 1993 contains the

methodology that Michigan uses to calculate the percent of raw

sugar used to make the refined white sugar. In the telephone

conference call of February 14, 1996, Savannah\'s counsel and

Mr. Yuill confirmed that the calculation could not be made from

the daily records alone because the detailed daily 12-page report

from each plant would be needed. Also, in that conference call

Savannah\'s counsel and Mr. Yuill confirmed that there is no

written record between Savannah and Michigan which reflects an

agreement between the parties to use the mass balance formula

which results in a 64 percent average.

Essentially, it is Savannah\'s assertion that all of

Michigan\'s production of refined sugar that was shown by the mass

balance formula to have been made from raw sugar from the date of

Savannah\'s advance purchase until the amount bought was

satisfied. Since, on average, 64 percent of the refined sugar is

asserted to be attributable to the use of raw sugar, then

verification depends on the evidence of purchase, the daily

records used to make the claims, the evidence that the 64 percent

weekly average was used consistently, in recording the Michigan

inventory, and the claimed dates of production for the export

shipments.

The evidence of purchases for the period October 1, 1984 to

September 30, 1985 is as follows:

The Michigan to Savannah invoice dated October 31, 1984

covers the purchase of 20 million pounds of raw sugar. A second

purchase of sugar for that period is covered by a Michigan to

Savannah invoice dated January 2, 1985 on 25 million pounds of

raw sugar. The payment amounts match the invoices.

A summary for the fiscal year ending September 30, 1985

reflects the following: 45 million raw pounds (20 million plus 25

million pounds) divided by the raw-to-refined conversion rate of

1.10 equals 40,909,090 pounds of refined sugar. That summary

which was provided to Customs by Savannah on December 22, 1993

also shows that the amounts were allocated to three Michigan

plants expressed in refined pounds: Caro (9,090,909), Croswell

(29,545,455) and Carrollton (2,272,727 pounds).

The Michigan inventory records show the following: export

production occurred during the weeks of:

Caro

October 28, 1984 to November 3, 1984 4,120,128

November 4, 1984 to November 10, 1984 425,328

January 6, 1985 to January 12, 1985 3,305.472

January 13, 1985 to January 19, 1985 1,239,983

9,090,909

Croswell export production occurred during the weeks of:

October 28, 1984 to November 3, 1984 1,401,189

November 4, 1984 to November 10, 1984 1,446,131

November 11, 1984 to November 17, 1984 2,726,080

November 18, 1984 to November 24, 1984 1,888,320

November 25, 1984 to December 1, 1984 2,391,680

December 2, 1984 to December 8, 1984 1,984,000

December 9, 1984 to December 15, 1984 2,168,000

December 16, 1984 to December 22, 1984 1,951,040

December 23, 1984 to December 29, 1984 2,077,760

December 30, 1984 to January 5, 1985 1,940,800

January 6, 1985 to January 12, 1985 1,612,800

January 13, 1985 to January 19, 1985 2,048,000

January 20, 1985 to January 26, 1985 1,484,600

January 27, 1985 to February 2, 1985 2,048,653

February 3, 1985 to February 9, 1985 1,561,613

February 10, 1985 to February 16, 1985 814,609

29,545,455

Carrollton export production records were furnished February 14,

1996 by Savannah and show that export production occurred during

the week of:

December 30, 1984 to January 5, 1985 2,272,727

The 20 million pound purchase of raw sugar covered by the invoice

of October 31, 1984 would equal 18,181,818 refined pounds

(20,000,000 divided by 1.10). The export production at Caro for

the period October 28, 1984 to November 10, 1984 is 4,545,456.

The export production at Croswell for the period October 28, 1984

to December 29, 1984 is 18,034,200. There also was export

production at Croswell during the week of December 30, 1984 to

January 5, 1985 of 1,940,800 pounds. Savannah asserts that the

total of export production that was shipped prior to January 2,

1985 was 1,710,000 pounds.

Savannah asserts that the perpetual records it prepared

showing weeks of export production were prepared solely for the

customs audit of its claims and were not the records it used to

make its drawback claims. Instead, Savannah asserts that the

claims were based on its daily records of production.

Consequently, Savannah asserts that its daily production records

for the corrected production dates should be used by Customs to

evaluate the validity of the claims covered by this protest.

Savannah relies on the daily production records for the

corrected production dates to show compliance with 19 USC

1313(b). For those corrected dates, Savannah asserts that the

application of the mass balance formula average of 64 percent

will show use of Savannah\'s raw sugar by Savannah\'s agent,

Michigan, as the source of the exports of refined sugar.

The daily records for fiscal year 1986 (October 1, 1985 to

September 30, 1986) show the following:

Caro

October 6, 1985 741,500

7 636,700

8 766,000

9 677,200

10 764,400

11 742,600

12 700,000

5,028,400

October 13 848,900

14 705,600

15 744,000

16 849,000

17 839,300

18 864,300

19 840,000

5,691,100

October 20 673,900

21 850,500

22 783,200

23 831,600

24 904,600

25 810,800

26 862,700

5,717,300

October 27 733,100

28 731,800

29 777,900

30 852,200

31 831,400

Nov. 01 823,000

02 896,500

5,645,900

Croswell

September 29, 1985 n/a

30 n/a

October 1 n/a

3 n/a

4 None

5 None

6 None

7 None

8 None

9 None

10 None

11 None

12 None

October 13, 1985 None

14 None

15 198,000

16 213,000

17 323,600

18 405,600

19 345.000

1,485,200

October 20, 1985 403,800

21 448,300

22 380,400

23 304,800

24 313,200

25 420,100

26 420,000

2,690,600

October 27, 1985 313,500

28 385,600

29 435,300

30 369,700

31 394,500

Nov. 01 459,900

02 459,900

2,818,400

Nov. 03, 1985 460,800

04 466,100

05 449,100

06 559,100

07 420,900

08 440,500

09 372,000

3,168,500

Nov. 10, 1985 510,000

11 414,000

12 470,300

13 480,000

14 432,900

15 428,000

16 168,000

2,903,200

Nov. 17, 1985 416,300

18 465,000

19 555,000

20 462,100

21 440,000

22 437,100

23 483,000

3,258,500

Nov. 24, 1985 402,000

25 363,000

26 468,400

27 480,000

28 500,600

29 484,700

30 541,000

3,239,700

December 1, 1985 510,000

2 470,000

3 450,000

4 360,000

5 361,000

6 419,000

7 350,000

2,920,000

Dec. 8, 1985 315,000

9 420,000

10 485,000

11 376,000

12 510,000

13 400,200

14 412,000

2,918,200

Carrollton

Oct.6, 1985 532,000

7 583,200

8 660,900

9 661,200

10 614,100

11 645,000

12 673,800

4,370,200

Oct. 13, 1985 630,600

14 643,200

15 690,900

16 636,000

17 630,000

18 664,000

19 691,200

4,585,900

Sebewaing

Oct. 6, 1985 602,500

7 515,000

8 603,200

9 934,800

10 910,700

11 895,500

12 769,600

5,231,300

The Caro daily records for the period October 28, 1984 to

November 3, 1984 show the following:

October 28, 1984 943,900

29 901,100

30 914,300

31 992,900

Nov. 1 761,300

2 947,700

3 974,00Q

6,435,200

Nov. 4, 1984 960,000

5 855,500

6 938,300

7 826,400

8 908,200

9 813,500

10 688,200

5,990,100

Jan. 6, 1985 769,300

7 745,100

8 811,000

9 735,100

10 789,000

11 721,000

12 568,200

5,138,700

January 13, 1985 492,000

14 725,300

15 756,000

16 705,400

17 773,300

18 818,100

19 742,200

5,012,300

The Croswell daily records for the period October 28, 1984 to

February 16, 1985 show the following:

October 28, 1984 495,000

29 420,000

30 510,000

31 480,000

November 1, 1984 479,600

2 407,500

3 480,00Q

3,272,100

November 4, 1984 495,000

5 397,500

6 457,500

7 482,500

8 487,000

9 420,000

10 512,500

3,252,000

November 11, 1984 489,000

12 468,500

13 455,500

14 487,000

15 534,500

16 507,500

17 483,000

3,425,000

November 18, 1984 510,000

19 472,500

20 443,000

21 502,000

22 497,000

23 485,500

24 427,500

3,337,500

November 25, 1984 390,000

26 477,500

27 477,500

28 480,000

29 472,500

30 440,000

December 01 413,000

3,150,500

December 2, 1984 372,000

3 423,500

4 474,000

5 505,000

6 465,000

7 519,000

8 473,500

3,232,000

December 9, 1984 471,500

10 516,000

11 480,000

12 462,500

13 452,000

14 383,000

15 369,000

3,134,000

December 16, 1984 456,000

17 480,000

18 457,000

19 451,500

20 444,000

21 450,500

22 444,500

3,183,500

December 23, 1984 450,000

24 482,500

25 480,000

26 495,000

27 435,000

28 487,500

29 425,000

3,255,000

December 30, 1984 440,000

31 425,000

January 01, 1985 480,000

02 340,000

03 440,000

04 369,000

05 451,000

2,945,000

January 6, 1985 380,000

7 432,000

8 448,000

9 480,000

10 500,000

11 460,000

12 440,000

3,140,000

January 13, 1985 400,000

14 500,000

15 420,000

16 412,500

17 367,500

18 412,500

19 352,500

2,865,000

January 19, 1985 352,500

20 420,000

21 355,000

22 427,500

23 417,500

24 395,000

25 331,000

26 369,000

3,067,500

January 27, 1985 460,000

28 387,500

29 413,500

30 389,700

31 393,300

February 1, 1985 377,500

2 436,500

2,858,000

February 3, 1985 420,000

4 423,000

5 310,500

6 360,000

7 270,000

8 33,100

9 24,000

1,840,600

February 10, 1985 0

11 0

12 0

13 0 (final)

14 not produced

15 not produced

16 not produced

The Carrollton daily records for the period of December 30,

1984 to January 5, 1985 show the following:

December 30, 1984 676,500

31 714,000

January 1, 1985 694,500

2 696,900

3 744,300

4 714,300

5 700,500

4,941,000

PRODUCTION DATE DISCREPANCY

The 11 sample claims listed dates of production for export

shipments that were produced when no export production was

recorded as having occurred in Michigan\'s perpetual inventory

records. If the production dates listed on the drawback claims

were accurate, then Savannah\'s basis for asserting ownership of

that raw sugar would be faulty since Savannah\'s basic assertion

is that the export production was produced solely with raw sugar

that Savannah had bought from Michigan before it was made into

refined sugar.

The discrepancy is illustrated by Drawback entry 86-xxx 0401.

The first export shipment on that entry occurred on April 30,

1986\. The refined sugar exported is listed on the entry itself

and on the export shipment documents as having been produced on

November 14, 1985 at Michigan\'s Caro refinery. Michigan\'s

perpetual inventory records show that export production ceased at

Caro on the week ending November 2, 1985.

Thus, if as Savannah asserts, the recordation of export

production on Michigan\'s perpetual inventory shows the use of

Savannah\'s raw sugar, any production after the November 2, 1985

period could not have been with use of Savannah\'s raw sugar.

Savannah acknowledged the above and asserted that the dates

of production shown on the drawback entry and the export

documents were erroneous. Savannah submitted a new list of

production dates asserting that the date shown on the drawback

entry and the export shipping documents was the date that the

refined sugar was removed from bulk storage in preparation for

shipment and not the actual date of production. The new evidence

was supplied on August 25, 1995. The new evidence uses the

customer order number that is listed next to each export shipment

on the drawback entries and on each of the respective export

shipping documents associated with the drawback entries and

purports to show the actual date of production. Savannah asserts

that it assigned the production amounts by export customer order

in a chronological sequence. Thus, on Drawback entry 86-xxx-040-1, the
adjusted production date for the first export shipment is

October 25, 1985. Because Savannah is relying on an accounting

method of attribution rather than records that would actually

identify and trace the use of Savannah\'s sugar, the only

acceptable method of verification is to determine if there was

export production recorded on the amended date in an amount

sufficient to account for the shipped amount. Because of the

potential for double payments for the same refined sugar,

Savannah also compiled a list purporting to be a list of all

exports that were claimed for drawback based on the amended

dates, by customer order, invoice, amount and date.

ISSUES:

\(1\) Whether the submission of additional information to add

the certificate of manufacture and abstract numbers to each claim

to show use of the duty-paid, imported raw sugar was a

permissible amendment of the drawback claim?

\(2\) Whether the submission of more information on the export

shipments of refined sugar that were listed on the claims was a

permissible amendment of the drawback claim?

\(3\) Whether the manufacturing records of the claimant and its

agent show that the exported sugar on which drawback was claimed

was made from raw sugar that belonged to the claimant before the

claimant\'s agent began to process that raw sugar into refined

sugar so that requirement of 19 U.S.C. 1313(b) of manufacture by

one entity was satisfied?

LAW AND ANALYSIS:

Paragraph (r) of 19 U.S.C. 1313, as amended by the Act of

December 8, 1993 (107 Stat. 2057, Pub. L. 103-182) pertinently

provides that a drawback claim be completed within 3 years after

the date of exportation. The text follows 19 CFR 191.61

(4-1-84 to 4-1-96 ed.). Under 19 CFR 191.64(4-1-84 to 4-1-96 ed),

a drawback claim or entry may be amended or corrected.

Paragraph (b) of 19 U.S.C. 1313 requires that one

manufacturer use both the imported, duty-paid merchandise that is

designated as the basis for the refund and the merchandise that

actually is used to make the articles that are exported for which

drawback is claimed. Under 19 CFR 191.34(4-1-84 to 4-1-96 ed.),

the requirement that one manufacturer use both the designated and

the substituted merchandise can be met if both the designated

merchandise and the merchandise actually used to make the

exported articles are owned by one entity and the actual

processing is done by an agent on behalf of that entity.

There were several amendments of the protested claims.

In each of the sample drawback claims, the claimant stated

in block 28 of CF 331 (Quantity/Description of Merchandise used)

for the New York Certificate of Manufacturing Number \"N/A\". In

each of the sample drawback claims covered by this protest in

block 24 of the CF 331 (CM/CD Number) the protestant wrote \"N/A\".

Despite these patent deficiencies, Customs accepted the claims.

The CM/CD number is required under paragraph 14 of T.D. 83-59,

the general manufacturer\'s drawback contract for raw sugar. The

requirement provides a quick verification of dates, amounts, and

ownership of the raw sugar involved. It is particularly important

where the manufacturer employs an agent to meet the requirements

of 19 U.S.C. 1313(b) or where the manufacturer is an agent for

another person who will be enabled to claim drawback by the

manufacturer\'s processing. The importance of requiring that

information was illustrated in this protest. The protestant

provided certificate numbers that could not possibly cover the

raw sugar involved because of discrepancies between the dates of

processing shown on the claim and the dates shown on the

certificates and the factory location shown on the claim and the

factory location shown on the certificates. The protestant

subsequently resubmitted correct certificate numbers. Also, a

comparison between the corrected certificate numbers with the

same certificate numbers that were used to support another

company\'s drawback claim enabled Customs to determine that there

was no duplication with respect to the same lots of raw sugar on

the two different entities respective drawback claims.

For each of the sample claims, the production dates for the

designated raw sugar were compared to the ownership, quantity,

and dates shown in the corrected certificates of manufacture and

corresponding abstract number. To illustrate, drawback claim 86-xxx
040-1 designated the raw sugar imported on import entry 83-xxx 912-2,
which, on the drawback claim was stated to be the

protestant\'s sugar imported on May 3, 1983 and used during the

period from May 5, 1983 to July 7, 1983. The corrected cert-

ificate certificate and abstract numbers were 28099, 28098, and

28336 and 478, 479, and 480, respectively. Certificate 28099

(abstract 478) listed the relevant import entry number, 83-xxx

912-2, showed the same import date as on the claim, and showed

that 30,339,046 pounds of raw sugar were melted during the period

from May 5, 1983 to May 18, 1983. Certificate 28098 (abstract

479\) also listed the designated import entry and recorded that

4,069,812 pounds of raw sugar was processed during the period

from June 30, 1983 to July 1, 1983. Certificate 28336 (abstract

480\) also listed the designated import entry and recorded that

176,940 pounds of raw sugar was processed on July 7, 1983. The

records filed with Customs on November 7, 1983, account for the

sugar imported as shown on the import entry which was verified by

this office. Those records show, years before these drawback

claims were filed, that duty-paid raw sugar was imported and used

by the protestant in an amount sufficient to meet the terms of

the statute. A similar analysis was done for each entry on each

of the drawback claims in the sample.

The protestant also submitted amendments for the production

dates of the refined sugar that was exported. The protestant did

not attempt, nor would such a request have been approved, to

amend or change the export shipments themselves. The discrepancy

in the export shipments was that the export sugar processing was

done by a company other than the protestant during periods when

no export production was recorded. Consequently, the protestant

had to show that the refined sugar exported belonged to the

protestant before any processing began. Otherwise, the protestant

could not meet the requirement of 19 U.S.C. 1313(b) that the

substituted merchandise from which the exported shipments were

processed was used in manufacture or production by the

protestant. If records showed that the protestant simply bought

refined sugar from another person and then exported that refined

sugar, it would not be able to designate its earlier imports of

raw sugar on a claim under 19 U.S.C. 1313(b), because it could

not assert that it used in manufacture or production both the

imported, duty-paid raw sugar and the raw sugar that was used to

make the exported refined sugar.

The shipment of April 30, 1986 that was listed in drawback

claim 86-xxx 040-1 illustrates the discrepancy. The export

shipping documents consisting of a CF 7512, a Canadian Customs

duty form, and a commercial bill of lading show that 45,000

pounds of granulated sugar were shipped, to a Canadian buyer on

April 30, 1986 from Michigan\'s sugar refinery at Croswell,

Michigan. On the drawback claim the protestant asserted that the

sugar in that shipment was produced on January 28, 1986. The

production records for the Michigan Sugar refinery at Croswell,

Michigan showed that export production ceased during the week

beginning on December 14, 1985 and did not begin again until

September 25, 1986.

To meet this deficiency, the protestant provided a written

acknowledgment from the Vice President of Operations stating that

the date asserted on the claims and shipment documents as the

date of production was actually the date that the refined sugar

was withdrawn from the bulk storage facility rather than the date

that it was refined. The protestant also submitted a concordance

which collated each of the claimed export shipments by the export

customer\'s purchase order number, the claimed, but admitted

erroneous, date of production, and corrected date of production,

based on the existing production records. Those production

attributions are based on the companies\' asserted mass balance

formula which was discussed under \"Facts\" dealing with the

ownership of the sugar.

Also, as described under \"Facts\", the protestant changed the

methodology in order to show that the processing performed by

Michigan to make the export sugar was done with the use of raw

sugar owned by the protestant before Michigan started to process

that raw sugar.

1\. AMENDMENT OF CLAIMS

The first legal issue is whether any of these changes is

permissible. Under 19 CFR 191.64, Customs permits a claimant to

amend or correct a drawback entry. However, previously by

regulation, 19 CFR 191.61, Customs required a claimant to

complete its drawback claim within three years from the date of

export. The substance of that regulation was adopted by

Congress and by the Act of December 8, 1993 (107 Stat. 2057,

Pub. L. 103-182) enacted as 19 U.S.C. 1313(r). The relevant

legislative history states that the provision sets a period of

three years from the date of exportation to file a complete

claim. H. Rpt. 103-361, Part 1, 130 (November 15, 1993). In that

report Congress acknowledged that Customs would not be able to

verify every claim or every aspect of each claim. Op. Cit.,

pp. 131-132. Because of that fact Customs can not permit a

claimant to substitute new import entries or export shipments

outside the three-year period set by 19 U.S.C. 1313(r).

In this protest, the additional information submitted on the

import entries supplemented the material on those entries. No

attempt was made to substitute new import entries. The entries,

the dates of importation, dates of use, and the identity of the

importer and manufacturer(the protestant here) remained the same.

The additional information was needed by Customs to verify that

the same imports were not the subject of other drawback claims.

Accordingly, the additional information is within 19 CFR 191.64

and does not violate 19 U.S.C. 1313(r).

Likewise, the submission of additional information on the

export shipments listed in the claims does not violate 19 U.S.C.

1313(r). There was no attempt to substitute different shipments.

Instead, the information submitted was given to bolster the

protestant\'s claim that those shipments were of refined sugar

produced from raw sugar that belonged to the protestant before

the protestant\'s agent started to process that raw sugar.

2\. AMENDED EXPORT SHIPMENT INFORMATION

The next issue is whether that additional information on the

export shipments is satisfactory to show that they were produced

with the use of protestant\'s raw sugar so as to permit the

protestant to satisfy 19 U.S.C. 1313(b), albeit under the agency

concept in 19 CFR 191.34.

As stated in the \"Facts\" the protestant provided different

dates and asserts that, by use of the mass balance formula, it

will be able to show that on the corrected dates of production

there was sufficient use of raw sugar in total production of

refined sugar to account for use of raw sugar owned by it.

Based on the submission of information by the protestant,

Customs scientists determined that the protestant\'s assertion

that the average production value of 64% of the total white sugar

production is correct. However, to protect the revenue, the

Customs Service has not permitted the use of an average.

Since the actual values are known or can be computed, either

those actual values for each day must be used or the least

possible conversion factor could be used.

The protestant contends that its agent accounts for the use

the Protestant\'s raw sugar by applying the mass balance formula

average of 64% to the quantity of refined sugar produced. The

protestant\'s counsel stated, that while it is possible to compute

the actual amount of raw sugar processed, the parties, protestant

and Michigan, simply do random verifications and use the average

figure to segregate their respective ownership interests. There

is no contrary evidence.

This is a separation of property interests on the merchandise

used rather than an attempt by a drawback claimant to claim on

average output. That is, by application of the formula, Michigan

is obligated to the protestant for that raw sugar usage.

Consequently, the 64 per cent average, between the parties, is

asserted to be the refined sugar made by Michigan from the

Protestant\'s raw sugar. As such, the use of that formula is

distinguishable from the situation in C.S.D. 89-20 (in which a

\"weighted average value method\" was held unacceptable as a means

of calculating drawback).

3\. PURCHASES OF RAW SUGAR

The next issue is whether the evidence shows that the

protestant bought raw sugar from Michigan. That is, whether there

is sufficient evidence of a sale of raw sugar from Michigan to

the protestant before any processing into the exported refined

sugar began or whether the protestant bought refined sugar from

Michigan.

As outlined under Facts\", the Michigan sales invoices to the

protestant generally were issued before Michigan began to use the

raw sugar. The protestant issued checks to Michigan as listed

under \"Facts\" in payment of those invoices, and those checks were

negotiated. The first paragraph of the Protestant\'s agency

contract with Michigan states that protestant will from time to

time purchase raw sugar manufactured by Michigan. The second

paragraph of that contract provides that the protestant would

receive 100 pounds of refined sugar for each 110 pounds of its

raw sugar.

The protestant provided a mass balance formula, asserted to

be standard in the sugar beet refining industry, in which they

show that during the manufacture of their refined sugar from

beets they also produce raw sugar. The raw sugar is re-introduced

in their process and converted to refined sugar. In the stated

process, the amount of refined sugar from a given quantity of

raw sugar averaged 64 per cent. That is, if 100 pounds of refined

sugar was produced, 64 pounds of refined sugar would be

attributable to raw beet sugar. Customs laboratory scientists

reported that, based on the refining records provided by the

protestant, the formula appeared to be valid and resulted in a 64

per cent average as asserted by the protestant.

The protestant had access to the production records of

Michigan. In fact, the protestant provided copies of those

records as noted under \"Facts\".

The protestant also provided Michigan accounting records that

involved the protested claims, but those records did not relate

to the sample claims. Those records relate to the September, 1986

transaction listed under \"Facts\". They show a purchase of 60

million pounds of raw sugar for \$12,528,000. The above Michigan

accounting records show at page 0558 of the Michigan General

Ledger for the period from October, 1985 to September, 1986,

records for account 495-00 \"Raw Sugar Sales\" a credit of

\$12,528,000.00, posted on September 28, 1986. Interestingly,

there are sales recorded against that credit which appear to have

been posted before the credit. Since the period was not involved

in the sample claims, no verification was made against the sales

invoices. Further, Michigan sales invoices 50919 and 50920, which

were the first two export shipments in protestant\'s drawback

claim 86-XXX040-1, do not reflect a credit against a prior

purchase of raw sugar. The protestant admits that such failures

occurred. Export invoice 147068, which is said to be involved in

the protest, but is not involved in the sample claims reviewed,

does show a credit of \$10,335.60 against a sale of \$12,037.50 for

the protestant. While inconclusive as to the sample claims

reviewed, and there is a question as to the shipments that

reduced the credit, the records tend to show that Michigan did

record the transactions as advance payments for raw sugar.

In HQ 221914, based on the evidence presented, Customs

determined that Michigan did not sell raw beet sugar to the

protestant so that the production of refined sugar at Michigan\'s

refineries could not be claimed by the protestant as its own

processing to satisfy 19 USC 1313(b). The key points of the

decision turned on the lack of evidence to show \"delivery\" to the

protestant so as to identify the protestant\'s raw sugar and

whether there was consideration passing from the protestant to

Michigan to support the sale.

The protestant requested a reconsideration asserting that

critical evidence was missing. In HQ 223431 Customs reconsidered

the sale issue and reached the same conclusion. That is, based on

the evidence presented, there was no sale of raw sugar from

Michigan to the protestant to enable the protestant to claim

Michigan\'s processing as its own processing to satisfy 19 U.S.C.

1313(b).

A sub-issue in HQ 221914 was whether the raw sugar asserted

to have been sold to Savannah by its agent, Michigan, could be

identified as belonging to Savannah before that raw sugar was

refined. If Savannah merely bought refined sugar from Michigan,

it could not designate its earlier imports against the exported

refined sugar because that processing would not have met the

requirements of 19 USC 1313(b).

The use of the mass balance formula to show what per cent of

raw sugar was used to make refined sugar, and the application of

that formula on the daily records of production are set forth in

the \"Facts\". Before analyzing the export shipments against the

corrected production dates, the legal basis of identification

needs review.

On the issue of the legal basis for identification, the

protestant relies on:

Martin Marrietta Corp, v, N.J.\~ Natl Bank; 612 F.2d.745, 749

(3rd Cir. 1979)

K.L. Rewes v. Pillsbury Co., 229 Kan. 423, 625 P.2d 440,

445 (1981)

Harney v. Spellman, 113 Ill. App. 2d 463, 251 N.E. 2d. 265

\(1969\)

Bowman v. American Home Assur. CO,, 190 Neb. 810, 213 N.W.

2d.446 (1973)

Goodpasture Inc. v. M/V Pollux, 688 F.2d 1003 (5th Cir.

1982\)

Cone Mills Corp. v. A.G. Estes Inc., 377 F. Supp. 222 (N.D.

Ga. 1974)

Great Western Sugar Co. v. Pennart Products, 748 P.2d. 1359

(Co. Ct. App. 1987)

Henry Heide. Inc. v. Atlantic Nat. Inc. Co., 80 Misc. 2d.

485, 363 NYS 2d. 515 (Sup. Ct. 1975)

U.S v. Amalgamated Sugar Co., 72 F. 2d 755 (10th Cir, 1934)

In Martin Marietta Corp. v. N.J. Nat\'l Bank, there was a

dispute over the ownership of sand. Plaintiff bought about

140,000 tons of sand from a company whose inventory was subject

to the defendant bank\'s security interest. Plaintiff took

delivery on about half of the sand and left the other half with

the company which had given the defendant bank a security

interest on its inventory. That company defaulted on repayment of

the bank\'s loan to it. The defendant bank took over that

company\'s inventory, which included sand left with that company

by the plaintiff. The plaintiff had placed signs on some of the

piles of sand which stated that the sand was the property of the

plaintiff. The court decided that there was sufficient

identification and remanded back to the district court. On

remand, Martin Marietta Corp. v. N.J. Nat\'l Bank, 505 F. Supp.

946, 949 (N.J. 1981), the district court noted that the record

was unclear as to when the identification occurred. The appellate

court had considered the factors of an oral contract between the

plaintiff and the seller, the plaintiff\'s sign demarcations and

the seller\'s written confirmation of inventory. There also was a

record of the seller\'s acknowledgment in the business records of

the seller. In the present case no similar piles of raw sugar

existed at Michigan. Because of a difference in significant

facts, it is unclear how the Martin Marietta case helps the

protestant.

In Reeves v. Pillsbury Co., the dispute concerned wheat

belonging to plaintiff that was stored in Pillsbury\'s grain

elevator. Pillsbury on accepting the grain, issued checks to

Brownsville grain company on the belief that the grain was the

grain involved in a sale by Reeves to Brownsville. The court

found that the wheat was not identified to the Reeves-Brownsville

sale. The court found that Reeves had more than the quantity to

satisfy the Reeves-Brownsville contract at another location. The

court found that when Reeves delivered the grain to Pillsbury,

Reeves did not notify Brownsville of the delivery or present the

elevator receipt to Brownsville for payment. The contract between

Reeves and Brownsville required Brownsville to make trucks

available for Reeves tender of delivery. The court found there

was no evidence in support of that event. There were five

delivery tickets. Four were not marked for \"storage\" by defendant

Pillsbury\'s elevator employees. Pillsbury argued that title

vested in Brownsville when the contract was executed. There was

no dispute that the wheat existed when the contract was executed.

There was a dispute that the contract identified the 5,000

bushels involved in the contract with the 20,000 bushels Reeves

had when the contract was executed. The court found no

identification to the contract because the contract failed to

refer to the wheat involved within the 20,000 existing bushels.

There was no shipment to Brownsville, nor was the shipped wheat

marked or designated by Reeves as belonging to Brownsville.

Again, unlike the situation in Reeves, there are no identified

piles of raw sugar at Michigan. In view of the significant

factual differences, the Reeves decision is not persuasive.

Harney v. Spellman involved a suit between a landlord asserting

a rent lien against a kitchen appliance company that sold various

appliances to the landlords tenant. The seller delivered the

appliances to the tenant but failed to perfect its security

interest provided under a conditional sales contract. Inasmuch as

the issue here involves goods not in existence, goods asserted to

be fungible, and goods asserted to be left in the possession of

the asserted agent, the protestant\'s reliance on Harney v.

Spellman is not persuasive.

Bowman v. American Home Assur. Co, involved a suit between an

insured and an insurance company on a damage policy for an

aircraft. The insurance company denied liability for damage to

the aircraft because the insured did not have title to the

aircraft. The court agreed that there was evidence to show that

the aircraft remained in possession of the insured and that the

insured and the aircraft\'s buyer had contracted to pass title

only when the Government\'s transfer requirements were met and the

full purchase price was paid. Again, there is a disparity between

the relevant facts here and in the court case, since seller who

retained possession was held to be the owner, the goods existed

when the contract was executed, and the protestant\'s position

that a transfer of ownership occurred despite Michigan\'s

possession of the raw sugar when it came into existence after the

erstwhile contract was executed, the protestant\'s reliance on the

case appears to be misplaced.

Goodpasture v. M/V Pollux also involved goods that were in

existence at the time of disputed ownership. The plaintiff loaded

wheat aboard the defendant vessel. The vessel asserted a maritime

lien against the wheat. The vessel had a time charter with a

foreign shipping company. The court found that the plaintiff had

not transferred title of the wheat to the buyer. Since title had

not passed to the vessel, the time charterer\'s seizure of the

wheat was an unlawful conversion. Because of the factual

differences in the court case\--the existence of the wheat, the

physical movement without passage of title\--it is far from clear

how this case supports the protestant\'s position regarding

whether there was identification of raw sugar not in existence

purported to be sold by Michigan to Savannah even though it

remained in Michigan\'s custody.

Cone Mills Corp. v. A. G. Estes and Dabbs involved a suit on the

validity of a contract. Defendant Dabbs, a cotton grower, made a

future sale of cotton to defendant Estes. The written price was

at \"twelve cents above loan\". Defendant Dabbs asserted that there

was an oral agreement of one-half cent higher than the written

price. Estes denied the oral agreement\'s existence. The issue

before the court was a motion to dismiss defendant Dabbs counter

claim and cross claim on a suit for specific performance and

other injunctive relief. The plaintiff and defendant Estes also

filed identical motions to dismiss. The court denied both

motions. The court here simply concluded that under Georgia law

there could be a contract for the sale of goods in the future and

that the goods must both exist and be identified before any

interest can pass. The court did not discuss whether

identification occurred. That is a critical issue in this protest

and it is unclear how the court decision resolves that issue in

the protestant\'s favor. At best, it merely holds that such a

showing is possible as a matter of law; a point with which there

is no dispute.

Great Western Sugar Co. v, pennant Prods. concerned contracts

under which the defendant was to purchase refined sugar from

plaintiff\'s inventory. The contract allowed the defendant to

terminate by written notice. After ordering and receiving some

sugar, the defendant made no more orders. The plaintiff, at all

times, retained sugar in its inventory to cover the possible

orders. The defendant never sent any termination notice.

Plaintiff sued for damages. The court found that the existing

sugar was identified because it existed when the contract was

made and contracts called for periodic shipments of sugar at

specified prices. Again, because of the different facts, this

case is not persuasive.

Henry Heide Inc. v. Atlantic Mut. Ins. Co. involved an insurance

contract on bags of sugar that disappeared from the warehouse.

The warehouse was dispossessed and the sugar was found missing.

The insurer refused to honor its contract on the ground that

there was no showing that the sugar ever existed. The court found

that the defendant submitted no evidence to impeach the

plaintiff\'s evidence as to the existence of the sugar in the

warehouse. The insurer argued, but offered no supporting

evidence, that the sugar was not segregated by the warehouse. The

court noted the absence of evidence and held that segregation was

not needed for the plaintiff to collect on its insurance

contract. The court held that the delivery to the third party

warehouse and the issuance of receipts by that warehouse to the

plaintiff provided identification. In the court case there were

findings on the sugar\'s existence when the insurance contract was

issued, and the third party warehouse issued receipts to the

plaintiff to identify the sugar. The protestant\'s situation

differs from those facts in that at the time of the purchase no

raw sugar existed and the sugar did not leave Michigan\'s premises

until after it was refined.

In U.S. v. Amalgamated Sugar Co., the issue was whether a

sale occurred in 1917, as reported by the company, or in 1918, as

asserted by the Internal Revenue Service. The sugar in issue was

bagged and sold. The company was on an accrual tax basis. The

court held that the sale occurred in 1917 even though the sugar

remained in the company\'s warehouse until after the start of the

company\'s new tax year. The court was persuaded by the fact that

the contracts referred to the transaction as a sale, not an

agreement to sell at a future time; the company kept a memorandum

purporting to show, on a daily basis, the amount of sugar

manufactured, the amount sold, and the amount on hand. The latter

included both the amounts sold and delivered and the amounts paid

for but not delivered. The court found the transactions were

recorded as a charge to inventory cost of sugar sold with a

corresponding credit to inventory. The company\'s insurance policy

specified that it covered sugar sold but not delivered which the

court found was a recognition that the company regarded the sold,

but undelivered, sugar as property of another. While there is

some evidence that Michigan recorded some advances made by the

protestant as sales of raw sugar, there has been no consistent

equivalent evidence presented by the protestant on these sample

entries to show consistent application of those procedures,

particularly, with respect to the export shipments covered by

Michigan invoices 50919 and 50920, as noted above. It seems clear

that if there was a consistent recordation of each sale as a sale

of raw sugar and if Michigan set up an inventory account, based

on production, which identified the refined sugar production from

that raw sugar, this dispute might have been avoided.

However, in this case the documentary evidence shows that

Michigan issued invoices for specified pounds of raw sugar, the

protestant issued checks on those invoices which Michigan

negotiated, the agency agreement obligated Michigan to furnish

100 pounds of refined sugar for each 110 pounds of the raw sugar

bought from Michigan, and the amount used in production would be

calculated by application of the mass balance formula, with the

protestant having access to Michigan\'s production records.

The protestant\'s cited court cases do not involve situations

of purchases for future production, other than the possible

exception of Martin Marietta Corp. v. N.J. Nat\'l Bank, and the

sand in issue in that case was in piles some of which had Martin

Marietta\'s declaration of ownership. There are, however, other

decisions involving contracts for future production.

In Riegel Fiber Corp. v. Anderson Gin Co., 512 F. 2d 784,

791 (5th Cir. 1975), the court found that a contract provision

that listed the defendant farmer\'s acreage and projected yields

was sufficient identification for allocation of contract and
non-contract cotton. See also footnote 18.

In the case of In re Quality v. Processing Inc., 9 F. 3d 1360

(8th Cir. 1993), the plaintiff buyers contended that Quality

identified certain beans to their contracts when Quality invoiced

specified quantities, the plaintiff buyers prepaid the invoices

and submitted shipping instructions to Quality and Quality

scheduled buyers contracts for processing. There was conflicting

evidence. The trial court found that the testimony of Quality\'s

operations manager to the effect that Quality did not designate

beans to a particular buyer\'s contract before processing even for

prepaying buyers and that the plaintiff buyers\' contracts were

never designated to be the most convincing. The appellate court,

noting that whether a seller has designated future goods to a

particular contract is a fact-intensive inquiry that turns on the

specific manner in which the seller conducts its business, upheld

the trial court. Here, the parties contend that all of the raw

sugar used from the time it was invoiced until the amount used

met the terms of the purchase was raw sugar that belonged to the

protestant. There is no direct evidence to contradict the

parties\' contention other than there are unexplained reductions

in credit on claims that are not part of the sample selected for

review by the Customs auditor.

The case of Weisz Graphics v. Peck Industries, 403 S.E. 2d

146 (S.C. App. 1991), involved the manufacture of custom decals

by the plaintiff. The court found that there was an industry

practice of the decal manufacturer warehousing the finished

decals for up to a year to await shipping instructions by the

customer. The contracts referred to this practice by such terms

as \"to be billed and shipped as released\", \"order as needed for a

period of 1 year 500 ship as release\", and \"break up into

multiple shipments\". The court in noting that in the case of

goods manufactured to order, identification usually occurs when

the first step of production begins, found that the plaintiff

manufacturer identified the goods to the defendant buyer\'s

contracts even though the goods were not shipped. Here, the

nature of beet sugar refining is consistent with the parties\'

contention that from the time of purchase until the time that the

amount purchased was used up, the raw sugar so used belonged to

the protestant.

On this point, the effective dates for the 1984-1985 year

must be determined. The protestant asserts that the invoice of

October 31, 1984 was a memorializing of an earlier purchase. As

noted in \"Facts\" the memorandum states:

An invoice for the sale of 200,000 cwts. of raw sugar

to Savannah Foods and Industries at a price of \$21.50

on October 31, 1984 has been forwarded to SF & I for

payment. This is an interim sale and will ultimately be

consummated after the tolling charge to SF & I has been

established. It is understood that the tolling charge

for refined sugar (produced from \"raw sugar\" sold to SF

& I) will be established at the date of delivery of

refined sugar to SF & I for subsequent export.

The relevant invoice states:

To Savannah Foods & Industries Inc. Raw sugar to be tolled

into refined sugar for export sales. Weight 200,000 cwt unit

price \$21.50, extension \$4,300,000 Terms Net due 11-12-84.

The invoice date is 10-31-84.

The relevant canceled check has an issue date of November 12,

1984\.

As noted above in the discussion on the agency contract

between the protestant and Michigan, the terms provide that the

protestant will from time to time purchase from Michigan raw

sugar manufactured by Michigan. There is no language in that

contract that specifies a specific purchase.

Based on the prior analysis, there is no evidence in support

of the protestant\'s assertion that it bought raw sugar before

October 31, 1984. Consequently, any production that occurred

before October 31, 1984 cannot involve use of the protestant\'s

raw sugar. In this regard the Michigan General Ledger with

respect to establishing a credit with respect to the September

26, 1986 purchase discussed above was posted on September 28,

1986\. This illustrates that the invoices and payments relating to

the sale and the credit in Michigan\'s books were done together.

Also, the transaction of October 6, 1987, in which there was a

delay in payment agreed to by the parties, was recorded as such.

No similar evidence was presented to contravene the plain

language of the October, 1984 sales documents that the sale

occurred on October 31, 1984. Consequently, any claim based on

production before October 31, 1984, has not been shown to be done

with the protestant\'s raw sugar and is to be denied for failure

to comply with 19 U.S.C. 1313(b).

The 1984-1985 year involved two purchases by the protestant.

The second purchase is evidenced by the Michigan memorandum of

January 3, 1985, Michigan invoice 1107 dated January 2, 1985, and

the protestant\'s check on invoice 1107 issued January 14, 1985.

For the same reason, the raw sugar involved in this sale could

not be used before January 2, 1985 to make any refined sugar that

would satisfy 19 U.S.C. 1313(b).

Finally, if the raw sugar that was purchased in the sale of

October 31, 1984 was accounted for by the mass balance formula

said to be used by the parties in the period from December 13,

1984 to January 2, 1985, any claim based on production that

occurred during that gap, as explained below, should also be

denied for the same reason. The protestant asserts that it bought

20 million pounds of raw sugar represented by the invoice of

October 31, 1984. Using the actual Michigan production records

and applying the mass balance formula which the parties agree

shows the amount of the protestant\'s raw sugar usage in the

refined amounts, that purchase was accounted for prior to the

second purchase of January 2, 1985. The Michigan daily production

records for the 1984-1985 year show that production occurred at

three of Michigan\'s refineries: Caro, Croswell and Carrollton.

However, production at Carrollton did not begin until

December 30, 1984. At Caro in the period from October 31, 1984 to

November 3, 1984 there was a total of 3,675,900 pounds of refined

sugar produced. Application of the mass balance formula shows

that 2,352,576 pounds of refined sugar was attributable to raw

sugar (3,675,900 x .64 = 2,352,576). Likewise, at Croswell for

that same period 1,847,100 pounds of refined sugar was made, of

which 1,182,144 pounds of refined sugar was attributable to the

use of raw sugar. During the period from November 4-10, 1984 at

Caro, Michigan produced 5,990,100 pounds of refined sugar, of

which 3,833,684 pounds of refined sugar is attributable to raw

sugar. Thereafter, for the raw sugar in issue, production

occurred only at the Croswell refinery. The following table shows

the usage in raw sugar pounds using the mass balance formula:

October 31, 1984 to November 3, 1984 Caro & Croswell 4,619,644

November 4, 1984 to November 10,1984 Caro & Croswell 6,506,438

11,126,082

November 11, 1984 to November 17, 1984 Croswell 2,411,200

13,537,282

November 18, 1984 to November 24, 1984 Croswell 2,349,600

15,886,882

November 25, 1984 to December 1, 1984 Croswell 2,217,952

18,104,834

December 2, 1984 to December 6, 1984 Croswell 1,576,608

19,681,442

December 7, 1984 Croswell 318,558

20,000,000

The actual pounds of refined sugar produced at Croswell on

December 7, 1984 was 519,000 pounds. The formulas would show that

the use of 318,558 pounds of raw sugar would use up Savannah\'s

raw sugar. The 20 million pound purchase of raw sugar(Savannah\'s

purchase of October 31, 1984)would be completely attributed when

only 318,558 pounds was introduced into production on that day.

(December 7, 1984)

Consequently, any production on December 7, 1984 in excess of

the usage of 318,558 pounds (which would equal 289,598 refined

pounds of raw sugar \[318,558 ö 1.1 = 289,598\] must be disallowed

because it could not be made with the use of raw sugar owned by

Savannah. Any production thereafter could not have been with the

use of the protestant\'s raw sugar until the purchase of January

2, 1985.

A similar problem does not exist with respect to the 1985-1986 year
since there was one purchase of 38 million pounds of

raw sugar as shown by the invoice of October 1, 1985 and

corresponding payment check of October 9, 1985. However, the

gross amounts for raw sugar usage in each Michigan plant for each

year must be checked to insure that the production did not exceed

the raw sugar purchased for each year.

The next point of dispute is whether the evidence shows that

the protestant bought and obtained title to raw sugar or refined

sugar. The protestant contends that it and Michigan explicitly

agreed that title would pass when the raw sugar came into

existence. The protestant argues that its explicit agreement is

stated in the protestant\'s agency agreement with Michigan in

which the protestant was to buy raw sugar from time to time from

Michigan and the Michigan invoices that list raw sugar as the

commodity. The protestant has not pointed to any text in which

the words \"title will pass when the raw sugar comes into

existence\" appear. Given this absence, reliance on the case of

Harney v. Spellman, supra, is not persuasive. In that case,

Harney sold a washer, dryer, range, refrigerator and a television

set to a Mr. Hupp, who rented from the defendant, Spellman. The

court found the contract between Harney and Hupp to include the

following language: \"Title to the goods is vested in the Seller

and shall not pass to Buyer. . .until the time balance shall have

been fully paid\". The court, in discussing the language quoted by

protestant observed: \"The contract in question explicitly agreed

that title to the goods was vested in the seller until full

payment was made.\" See pages 265 and 266 of 251 N.E. 2d 265. The

protestant has pointed to no comparable language in the

contractual relationship between it and Michigan with respect to

the sale of the raw sugar.

In HQ 221914 Customs determined that the protestant bought

refined sugar rather than raw sugar from Michigan. Customs

determined that Michigan\'s records of crediting only refined

sugar sales against the earliest advances made by the protestant

indicated a sale of refined rather than raw sugar. Customs also

determined that Michigan did not keep a raw sugar inventory. The

protestant was found not to have recorded the processing as a

cost of sale.

In HQ 223431, HQ 221914 was simply affirmed since no new

evidence was made available.

The protestant attacks the determination by asserting that

Customs erred in finding that title did not pass between Michigan

and the protestant. That, of course, was not the determination.

In HQ 221914, Customs found that the sale consisted of a sale of

refined sugar rather than a sale of raw sugar. See discussion

pages 6-7 of HQ 221914 and discussion pages 7-8 of HQ 223431.

The protestant then contends that the explicit agreement with

respect to title transfer can be ascertained by examination of

the circumstances of the transaction. The protestant relies on

the following court decisions: Kamakazi Music Corp. v. Robbins

Music Corp., 534 F. Supp. 57 (S.D. NY, 1981); Crocker Nat. Bank

v\. Ideco Div. Of Dresser Ind., 660 F. Supp. 186, aff\'d and

remanded, 839 F. 2d 1104 (5th Cir. 1988), 702 F. Supp. 615, rev.

and remd. 889 F. 2d 1452 (5th Cir. 1990), cert. den. 495 US 919.

110A Sup. Ct. 1949 (1990).

The protestant cites Kamakazi Music Corp. v. Robbins Music

Corp.,for the proposition that the explicit agreement need not be

within the parties\' written document but a court could consider

the factors of the parties\' conduct, trade usages, and

circumstances in the case. That case involved an action for

copyright infringement. The language relied on by the protestant

related to a preliminary injunction request. Kamakazi sought to

bar Robbins from selling or printing certain music sheet folios,

unless Robbins made advance royalty payments. The dispute

concerned contract language which set a formula for royalty

payments. The motion for an injunction was denied. Moreover, the

court at pages 66-68 found that, based upon the delivery of

possession to Robbins with full right of disposition, Kamakazi\'s

challenge to the sale based solely on the contract was defeated.

Since the subject matter before the court dealt with property in

existence when the contract was made and there was an actual

delivery from the seller to the buyer, the support that the

protestant derives from this case is unclear.

The protestant\'s citation of Crocker Nat. Bank v. Ideco Div,

Of Dresser Ind., assumes that the 1988 opinion controlled. A

review of the case history in the 1990 Fifth Circuit decision and

the certiorari denial shows that assumption to be incorrect. The

protest cites the 1988 Fifth Circuit opinion for the proposition

that bookkeeping procedures do not negate express agreements on

when title passes. In 1981, T.O.S. Industries agreed to buy 40

drilling rigs from defendant Ideco. In January, 1982, T.O.S. told

Ideco it did not need the rigs. Ideco told T.O.S. that it almost

completed 6 of the 40 and that T.O.S. would have to purchase

those. Ideco recorded the rigs as a sale showing an increase in

accounts receivable and a decrease in inventory. In July, 1987

the parties executed a mutual release, Ideco recorded an increase

in inventory and decrease in accounts receivable. Plaintiff bank

had a security interest in the inventory of T.O.S. Ideco

possessed the rigs. The court held seller\'s security interest

superior to that of plaintiff bank on ground that by retaining

possession, its security interest was perfected. The 1988 opinion

found the seller\'s retention of property critical.

The 1990 decision concerned title to certain engines which

were the subject of a remand in the 1988 appellate decision. The

court determined that the engines had been delivered to a T.O.S.

affiliate, which was covered by the plaintiff bank\'s security

interest on the inventory of T.O.S. Although Ideco delivered the

engines to the T.O.S. affiliate, Ideco was not paid. When T.O.S.

was in financial distress it returned the engines to Ideco. When

the engines were returned from the affiliate to Ideco, T.O.S.

received the credit from Ideco. The 1990 court reversed the

district court and held that the bank had the superior interest

because Ideco had delivered the engines, unlike the situation

with the drilling rigs.

Unlike the situation of the drilling rigs and engines, the

raw sugar did not move from Michigan\'s refineries to Savannah\'s.

The raw sugar never moved from Michigan\'s refineries until after

it was refined. As such, the case is not persuasive to advance

the protestant\'s argument.

There is evidence that tends to show that some raw sugar

credit was given to the protestant on Michigan\'s books of account

and some evidence that the protestant received an offset against

the price when the refined sugar was sent to the protestant\'s

customers.

The evidence with respect to Michigan invoice 147068 shows

that a credit of \$10,335 was offset against the price \$12,037.50

when the granular sugar was exported. The protestant asserts that

the difference between the \$10,335 and \$12,037.50 is the tolling

fee. The problem with respect to the sample claims is that

Michigan invoices 50919 and 50920 which are said to represent the

first two export shipments in drawback claim 88-xxx040-1, do not

show a similar raw sugar credit. Further, unlike the two of the

granular sugar listings for the protestant on page A15745 of the

Michigan A/R Invoice, invoices 147070, 147071, 147072, the

listing for liquid invert and liquid sucrose do not show a raw

sugar credit. The third granular sugar listing for the

protestant, invoice 147067, also does not show a raw sugar

credit.

The review of the export documents showed that many of the

invoices to Savannah from Michigan failed to reflect any credit

for the raw sugar advance payment. The lack of a credit was

particularly evident in the liquid sugar shipments from the Caro

refinery.

The protestant submitted additional evidence on October 30,

1996, December 10, 1996, January 3, 1997, January 30, 1997 and

February 4, 1997.

The protestant asserted that all of the raw sugar which was

bought by Savannah was held under Michigan\'s customer account

19134\. The protestant also asserts that account 495-00 in

Michigan\'s General Ledger was the raw sugar advance payment

credits account. The protestant asserts that if the proper raw

sugar credit was shown on the Michigan to Savannah invoice,

Michigan General Ledger account 495-00 would have reflected that

credit. If, as was the situation with the liquid sugar shipments

from the Caro refinery, the raw sugar credit was not shown on the

Michigan to Savannah invoice, there was a periodic reconciliation

between Michigan and Savannah which applied that credit for each

involved shipment.

The evidence offered in support of these assertions includes

a copy of Michigan customer account 19134, as well as other

customer accounts for Savannah. The account lists five U.S.

shipping points which Michigan asserts were listed in error.

Mr. Yuill, Michigan\'s Senior Tax accountant, stated that the five

U.S. customers of Savannah never received any shipments that were

credited to that account. If any such shipment occurred, the

amount of the raw sugar must be deducted from the amount

available for the drawback and any claim based on that raw sugar

is to be denied.

Also submitted were affidavits of a Joyce Sheredy-Bierlein

and a Barry Brown. Ms. Sheredy-Bierlein stated that she was a

sales clerk for Michigan from 1979 to April, 1986. She stated

that an account was set up for Savannah\'s export shipments. She

also stated that Mr. Brown was her supervisor. Mr. Brown stated

that he was the Michigan vice-president for sales and marketing

since 1982. He stated that Michigan account 19134 was established

solely for shipments of refined sugar to Savannah\'s Canadian

customers. Mr. Brown stated that \"only transactions not other

than exports and drawbacks were to be posted to other Savannah

accounts.\" He also stated that account 19134 was set up beginning

with the 1984/1985 refining season.

Neither affiant referred to the presence of the five U.S.

\"ship-to\" locations in the accounts. See items 27/22, 38/17,

50/23, 57/22 and 68/13 listed in account 19134, a copy of which

will be provided. Also; only two of the five locations are

listed in any of the other customer accounts for Savannah. The

location identified as 27/22 in account 19134 is also listed as

item 4/22 in account 19125. The location identified as 50/23 is

also listed as item 50/23 is also listed as item 53/23 in account

19125\. The evidence shows that account 19134 was opened 11-30-84

while account 19125 was opened 10-15-90. Further, account 19125

does list a Canadian location in item 63/61.

The evidence also shows that the export shipments reference

two contracts which are identified as MSC(presumably Michigan

Sugar Company) contract 8889 and 3062. Neither the protestant nor

Michigan was able to provide a copy of either contract. There was

a concern that those contracts were sales contracts between

Michigan and the foreign buyer of the export shipment. In that

situation, the validity of the principal-agency manufacturing

set-up between the protestant and Michigan would be called into

question. Although copies of those contracts were not provided,

alternative evidence was which tends to show that the export

shipments were the result of a sales contract between a foreign

buyer and the protestant appeared on the shipping and Canadian

Customs documents. Moreover, in all of the claims involved in the

sample, that protestant-foreign buyer contract number is listed

on the export shipment listing under the heading titled \"cont.

number.\" The evidence is consistent with the protestant\'s

assertion that the export sale was a sale between the protestant

and the foreign buyer.

The order and contract numbers provide a key to the

protestant\'s production and export records. An amendment of the

correct production dates must reflect the original contract and

order numbers. In the supplemental evidence, the order number was

also referenced as the invoice number on the summary listing of

exports on a drawback claim that was not part of the sample

claims on the protest. However, the difference in terminology has

no substantive importance for drawback verification purposes.

Despite the discrepancies noted above the evidence of the

reconciliation of the raw sugar account identified by customer

number 19134 on the commercial invoice covering each export

shipment is consistent with the protestant\'s assertion that the

export was not a sale of refined product.

To the extent that an export shipment is not barred as a

result of being refined in a period that Michigan could not have

the protestant\'s raw sugar, that is, before October 31, 1984, and

the period between December 7, 1984 and January 2, 1985, or

because the claim exceeds the amount of raw sugar processed on

the daily production records, the claim should be allowed if the

Michigan invoice and accounting records reflect a raw sugar

credit as does invoice 147068. Drawback on an export shipment

should be denied if the invoice fails to record the raw sugar

credit or evidence fails to show that the invoice and order was

the subject of a raw sugar advance reconciliations. The

protestant is to be permitted to furnish that additional evidence

for every export on which the invoice fails to show a credit.

The sample entries in the protest involve shipments of

refined sugar said to be made during the 1985-1986 period. That

is, the refined sugar is said to have been made with the 38

million pounds of raw sugar that was the subject of the sale

evidenced by the protestant\'s confirmation of October 1, 1985,

Michigan\'s invoice to the protestant of that date, and

protestant\'s check 586 dated October 9, 1985.

The evidence indicates that the sale occurred no earlier than

October 1, 1985. The evidence discussed above, with respect to

the transactions for the 1986-1987 period, shows that Michigan

established a credit with respect to the September 26, 1986

transaction for the protestant on September 28, 1986. The

protestant offered that evidence as representative of its raw

sugar purchases from Michigan. If that is accurate, and we have

no evidence to the contrary, the sale would have occurred on

October 1, 1985 when there was a definite offer and acceptance

and the raw sugar was identified by the establishment of a credit

account. Sugar processed on and after that date that is evidenced

by a raw sugar advance payment credit by Michigan would be

eligible for drawback. That eligibility would depend also on the

protestant showing that the total of all such eligible shipments

did not exceed the 38 million pounds purchased in the October 1,

1985 transaction and that there was no export shipment that

exceeded the relevant daily refinery production records.

The relevant daily refinery records were examined against

each of the export shipments in the 11-drawback claim sample. The

dates of production involved in the drawback claims reviewed

began on October 5, 1985 and ended December 8, 1985.

October 5, 1985:

The production for this day involved claim 86-xxx419-3. There

were two shipments of 12,550, and 900 pounds totaling 13,400. The

sugar was refined at Michigan\'s Sebewaing refinery and shipped

from that place. The daily records for that day shows 317,500

pounds of refined sugar was produced. Using the attribution

formula it can be seen that 203,200 pounds of refined sugar are

said to have been Savannah\'s (317,500 x .64 = 203,200) Since the

total shipments of refined sugar produced on October 5, 1985 at

Sebewaing were less than the amount of refined sugar produced

through use of the raw sugar, those shipments would be eligible

so long as the Michigan invoices on those shipments reflect that

they were against the raw sugar purchase documents of October 1,

1985\.

October 6, 1985 is the next date of production involved in

these claims. The amount produced on that date was claimed on

claim 86-xxx 419-3. The shipments were from Michigan\'s Sebewaing

refinery. The shipments total 30,418 pounds. The daily record for

October 6, 1985 for the Sebewaing refinery shows 602,500 pounds.

Use of the mass balance formula shows that 385,600 pounds of

refined sugar was made from raw sugar(602,500 x .64 = 385,600).

That amount exceeds the amount shipped and would be eligible

assuming evidence of a raw sugar credit.

The next day of production involved in these claims is

October 8, 1985. The amounts produced on that date were claimed

on drawback claim 86-xxx 040-1. This shipment was produced and

shipped from Michigan\'s Carrollton refinery. This shipment totals

177,811 pounds. The daily record for October 8, 1985 for the

Carrollton refinery shows 660,900 pounds. Use of the mass balance

formula shows that 422,976 pounds of refined sugar was made from

raw sugar (660,900 x.64 = 422,976). That amount exceeds the

amount shipped. This shipment would be eligible assuming the

Michigan invoices reflect credit for the October 1, 1985 advance.

October 9, 1985 is the next date of production involved in

these claims. The production was claimed in three of the claims:

86-xxx 421-6, 86-xxx 414-8, and 86-xxx 412-2. All of these

shipments were from Carrollton refinery. The daily records for

that date at Carrollton show that 661,200 pounds were produced.

Use of the mass balance formula shows that 423,168 pounds of

refined sugar was made from raw sugar (661,200 x.64 = 423,168).

The total of all shipments from Carrollton attributable to

production on that date is 132,222 pounds and would be consistent

with the protestant\'s assertions.

October 10, 1985 is the next involved production date. This

date was not asserted in the original listing provided as exhibit

II, which did not allocate production that occurred on two

consecutive days. On October 18, 1996 Savannah amended exhibit II

to reflect the amounts produced on each day. Again, that

amendment is permissible for the reasons stated in the discussion

on amendments; it does not attempt to substitute new imports or

export shipments but supplies additional information on the

shipments originally filed as the claim. The production is

relevant to claim xx-xxx 421-6. The shipment total 1,120 pounds.

The shipment was made from Michigan\'s Carrollton refinery. The

daily record for Carrollton on that date shows 614,100 pounds

were produced. Use of the mass balance formula shows that 393,024

pounds of refined sugar were made from raw sugar(614,100 x .64 =

393,024). That amount exceeds the amount shipped and would be

consistent with the protestant\'s assertions.

October 25, 1985 is the next date of production involved in

these claims. That production is relevant to three claims: 86-xxx

040-1, 86-xxx 419-3, and 86-xxx 420-3. All shipments were from

the Caro refinery. The daily records for Caro show 810,800 pounds

were produced. The mass balance formula shows that 518,912 pounds

of refined sugar were made from raw sugar (810,800 x.64 =

518,912). The total shipped in the three claims is 426,657, which

would be consistent with the protestant\'s assertions.

October 26, 1985 is the next involved date of production.

That production is relevant to four claims: 86-xxx 040-1, 86-xxx

419-3, 86-xxx 420-3 and 86-xxx 414-8. All of the shipments in

those claims were from the Caro refinery. The daily records for

Caro show 862,700 pounds were produced. Use of the mass balance

formula shows that 552,128 pounds of refined sugar were made from

Savannah\'s raw sugar (862,700 x.64 = 552,128). The exports

claimed total 522,508 pounds and would be consistent with the

protestant\'s assertions.

October 27, 1985 is the next involved production date. That

production is relevant to three claims: 86-xxx 419-3, 86-xxx 420-

3, and 86-xxx 414-8. All of the shipments were from the Caro

refinery. The daily records show 733,100 pounds were produced at

Caro. Use of the mass balance formula shows that 469,184 pounds

of refined sugar were made from raw sugar (733,100 x.64 =

469,184). The exports attributed to production on October 27,

1986 total 433,493 pounds, and would be consistent with

protestant\'s assertions.

October 28, 1985 is the next relevant production date. That

production is relevant to three claims: 86-xxx 421-6, 86-xxx

419-3, and 86-xxx 412-2. The shipments were from the Caro

refinery. The daily records show 731,800 pounds were produced at

Caro. Use of the mass balance formula shows that 468,352 pounds

of refined sugar were made from raw sugar (731,800 x.64 =

468,352). The export shipments total 396,614 pounds which would

be consistent with protestant\'s assertions.

October 29, 1985 is the next relevant production date. That

production is relevant to six claims: 86-xxx 445-2, 86-xxx 421-6,

86-xxx 419-3, 86-xxx 420-3, and 86-xxx 413-5 and 86-xxx 412-2.

All of the shipments were from the Caro refinery. The daily

records show that 777,900 pounds were produced at Caro. Use of

the mass balance formula shows 497,856 pounds of refined sugar

were made from raw sugar (777,900 x.64 = 497,856). The export

shipments total 445,218 pounds, which would be consistent with

the protestant\'s assertions.

October 30, 1985 is the next involved production date. That

production is relevant to four claims: C17xxxx 313-5, C17-xxxx

312-7, C17-xxxx 311-9, and 86-xxx 445-2. All of the shipments

were from the Caro refinery. The daily records show that 852,200

pounds were produced. Use of the mass balance formula shows

545,408 pounds of refined sugar were made from raw sugar (852,200

x.64 = 545,408). The export shipments total 432,085 pounds, which

would be consistent with the protestant\'s assertions.

October 31, 1985 is the next involved production date. That

production is relevant to two claims: C17-xxxx 313-5 and C17-xxxx

311-9. All of the shipments were from the Caro refinery. The

daily records show that 831,400 pounds were produced. Use of the

mass balance formula shows that 532,096 pounds of refined sugar

were made from raw sugar (831,400 x.64 = 532,096). The export

shipments total 293,154 pounds, which would be consistent with

the protestant\'s assertions.

November 28, 1985 is the next involved production date. That

production is relevant to claim 86-xxx 040-1. The shipment was

from the Croswell refinery. The daily records show that 500,600

pounds were produced at Croswell. Use of the mass balance formula

shows that 320,384 pounds of refined sugar were made from raw

sugar (500,600 x.64 = 320,384). The export shipments total 74,576

pounds, which would be consistent with the protestant\'s

assertions.

November 29, 1985 is the next involved production date. The

production is relevant to claim 86-xxx 040-1. All of the

shipments were from the Croswell refinery. The daily records show

that 484,700 pounds were produced at Croswell. Use of the mass

balance formula shows that 310,208 pounds of refined sugar were

made from raw sugar (484,700 x.64 = 310,208). The export

shipments total 305,640 pounds which would be consistent with the

protestant\'s assertions.

November 30, 1985 is the next involved production date. That

production is relevant to claim 86-xxx 040-1. The export

shipments were from the Croswell refinery. The daily records show

that 541,000 pounds were produced at Croswell. Use of the mass

balance formula shows that 346,240 pounds of refined sugar were

made from raw sugar (541,000 x.64 = 346,240). The export

shipments total 204,784 pounds, which would be consistent with

the protestant\'s assertions.

December 1, 1985 is the next involved production date. That

production is relevant to claim 86-xxx 414-8. All of the export

shipments were from the Croswell refinery. The daily records show

that 510,000 pounds were produced at Croswell. Use of the mass

balance formula shows that 326,400 pounds of refined sugar were

made from raw sugar (510,000 x.64 = 326,400). The export

shipments total 90,000 pounds, which is consistent with the

protestant\'s assertions.

December 2, 1985 is the next involved date. That production

is relevant to claim 86-xxx 414-8. All of the export shipments

were from the Croswell refinery. The daily records show that

470,000 pounds were produced at Croswell. Use of the mass balance

formula shows that 300,800 pounds of refined sugar were made from

raw sugar (470,000 x.64 = 300,800). The export shipments total

233,224 pounds, which is consistent with the protestant\'s

assertions.

December 3, 1985 is the next involved production date. That

production is relevant to claim 86-xxx 414-8. All of the export

shipments were from the Croswell refinery. The daily records show

that 450,000 pounds were produced at Croswell. Use of the mass

balance formula shows that 288,000 pounds of refined sugar were

made from raw sugar (450,000 x.64 = 288,000). The export

shipments total 305,552,000 pounds. There is an overclaim of

17,552 pounds. The export shipment of June 2, 1986 (45,000) must

be disallowed to the extent of the 17,552 pounds over claimed.

December 4, 1985 is the next involved production date. That

production is relevant to claim 86-xxx 414-8. All of the export

shipments are from the Croswell refinery. The daily records show

that 360,000 pounds were produced at Croswell. Use of the mass

balance formula shows that 230,400 pounds of refined sugar were

made from raw sugar (360,000 x.64 = 230,400). The export

shipments total 45,000 pounds, which would be consistent with the

protestant\'s assertions.

December 5, 1985 is the next involved production date. That

production is relevant to claim 86-xxx 412-2. All of the export

shipments were from the Croswell refinery. The daily production

records show that 361,000 pounds were produced at Croswell. Use

of the mass balance formula shows that 231,040 pounds of refined

sugar were made from raw sugar(361,000 x.64 = 231,040). The

export shipments total 53,560 pounds, which would be consistent

with the protestant\'s assertions.

December 6, 1985 is the next involved production date. That

production is relevant to claim 86-xxx 412-2. All of the export

shipments were from the Croswell refinery. The daily production

records show that 419,000 pounds were produced at Croswell. The

mass balance formula shows that 268,160 pounds of refined sugar

were made from raw sugar (419,00 x .64 - 268,160). The export

shipments total 37,664 pounds, which would be consistent with the

protestant\'s assertions.

December 7, 1985 is the next involved production date. That

production is relevant to claim 86-xxx 412-2. All of the export

shipments were from the Croswell refinery. The daily records show

that 350,000 pounds were produced at Croswell. Use of the mass

balance formula shows that 224,000 pounds of refined sugar were

made from raw sugar (350,000 x.64 = 224,000). The export

shipments total 190,176 pounds which would be consistent with the

protestant\'s assertions.

December 8, 1985 is the next involved production date. That

production is relevant to two claims: 86-xxx 413-5 and 86-xxx

412-2. All of the export shipments were from Croswell refinery.

The daily production records show that 315,000 pounds were

produced at Croswell. Use of the mass balance formula shows that

201,600 pounds of refined sugar were made from raw sugar (315,000

x .64 = 201,600). The export shipments total 226,248 pounds.

There is an overclaim of 24,648 pounds. The export shipment of

July 3, 1986 (45,000) of claim 86-xxx 413-5 must be disallowed to

the extent of the overclaim of 24,648 pounds.

December 9, 1985 is the next involved production date. That

production is relevant to two claims: 86-xxx 413-5 and 86-xxx

412-2. All of the export shipments were from the Croswell

refinery. The daily records show that 420,000 pounds were

produced at Croswell. Use of the mass balance formula shows that

use of 268,800 pounds of refined sugar were made from raw sugar

(420,000 x.64 = 268,800). The export shipments total 293,352.

There is an overclaim of 24,552 pounds. The last export shipment

involving that production was the shipment (45,000) made on July

10, 1986 covered by order 52882 in claim 86-xxx 413-5. That

shipment must be disallowed to the extent of the overage of

24,552 pounds.

December 10, 1985 is the next involved production date. That

production is relevant to three claims: 86-xxx 421-6, 86-xxx 420-

3, and 86-xxx 413-5. All of the export shipments were from

Croswell. The daily records show that 485,000 pounds were

produced at Croswell. Use of the mass balance formula shows that

310,400 pounds of refined sugar were made from raw sugar (485,000

x.64 = 310,400). The export shipments total 285,848 pounds which

would be consistent with the protestant\'s assertions.

December 11, 1985 is the next involved production date. That

production is relevant to claim 86-xxx 421-6. All of the export

shipments were from the Croswell refinery. The daily records show

that 376,000 pounds were produced at Croswell. Use of the mass

balance formula shows that 240,640 pounds of refined sugar were

made from raw sugar(376,000 x.64 = 240,640). The export

shipments total 153,112 pounds, which would be consistent with

the protestant\'s assertions.

December 12, 1985 is the next involved production date. That

production is relevant to claim 86-xxx 421-6. All of the export

shipments were from the Croswell refinery. The daily records

shows that 510,000 pounds were produced at Croswell. Use of the

mass balance formula shows that 326,400 pounds of refined sugar

were made from raw sugar (510,000 x.64 = 326,400). The export

shipments total 111,264 pounds, which would be consistent with

the protestant\'s assertions.

December 13, 1985 is the next involved production date. That

production is relevant to claim 86-xxx 445-2. The export

shipments were from the Croswell refinery. The daily records show

that 400,200 pounds were produced at Croswell. Use of the mass

balance formula shows that 256,128 pounds of refined sugar were

made from raw sugar (400,200 x.64 = 256,128). The export

shipments total 45,000 pounds, which would be consistent with the

protestant\'s assertions.

December 14, 1985 is the next involved production date. That

production is relevant to two claims: C17-xxxx 313-5 and 86-xxx

445-2. All of the export shipments were from Croswell refinery.

The daily records show that 412,000 pounds were produced at

Croswell. Use of the mass balance formula shows that 263,680

pounds of refined sugar were made from raw sugar (412,000 x.64 =

263,680). The export shipments total 147,472 pounds, which would

be consistent with the protestant\'s assertions.

December 15, 1985 is the next involved production date. The

daily production records for that date were not provided.

However, the records for December 15, 16, and 17, 1985(the next

involved production dates)can be computed from the protestant\'s

daily to perpetual compilations. Since those compilations contain

the records for December 12, 13, and 14, 1985 and the use of the

mass balance figures match with our results, they have been

accepted for the purpose of this analysis. The export shipments

were from the Croswell refinery. That production is relevant to

two claims: C17-xxxx 313-5 and C17-xxxx 312-7. The amount of

refined sugar made from raw sugar at Croswell on December 15,

1985 is 257,920 pounds. The export shipments total 302,136

pounds. There is an overclaim of 44,216 pounds. The export

shipment of August 14, 1986 (45,000) in claim C17-xxxx 312-7 is

the latest export for the production. That shipment must be

disallowed to the extent of the 44,216 pounds overclaimed.

December 16, 1985 is the next involved production date. That

production is relevant to two claims: C17-xxxx 312-7 and C17-xxxx

311-9. As noted above with respect to December 15, 1985 there are

no daily records, but the protestant\'s mass balance calculation

of 268,800 pounds of refined sugar made from raw sugar at

Croswell is accepted for the purpose of this analysis. The export

shipments were made from the Croswell refinery. The export

shipments total 224,584 pounds, which would be consistent with

the protestant\'s assertions.

December 17, 1985 is the next involved production date. That

production is relevant to claim C17-xxxx 311-9. As noted above,

only the mass balance computation for that date was provided, but

it is accepted for this analysis. The export shipments were from

the Croswell refinery. The mass balance compilation shows that

266,880 pounds of refined sugar were made from raw sugar at

Croswell. The export shipments total 229,736 pounds, which would

be consistent with the protestant\'s assertions.

December 18, 1985 is the final involved production date.

That production is relevant to claim C17-xxxx 311-9. As noted

above, only the mass balance computation for that date was

provided, but it is accepted for this analysis. The export

shipments were from the Croswell refinery. The mass balance

computation shows that 221,643 pounds of refined sugar were made

from raw sugar. The export shipments total 61,072 pounds, which

would be consistent with the protestant\'s assertions.

HOLDINGS:

The protestant may provide additional records to support its

entitlement to drawback on the claimed exports and designated

imports.

The protest should be allowed if sufficient refined sugar was

produced for Savannah as noted in this analysis on pages 38

through 55, and the third and fourth paragraphs of these

Holdings, to the extent that no claim is based on export

production which occurred in excess of the usage of 318558

(289,598 refined pounds) pounds of raw sugar on December 7, 1984

until the purchase on January 2, 1985. Any export shipment

attributed to production in that December 7, 1984 to January 2,

1985 period is to be disallowed. Likewise, any export shipment

attributed to production before October 31, 1984 is to be

disallowed.

The protest is to be allowed for other export shipments if

the protestant furnishes copies of the Michigan-to-Savannah

export sales invoices or other records which show that the export

shipment was refined sugar that was credited against the relevant

advance purchase by the protestant. Copies of the relevant

documents which are to be used as a basis of comparison to

implement this holding are enclosed. Since they are business

records they are protected from disclosure.

The protest is to be disallowed to the extent that there has

been an overclaim using the Michigan daily production records for

corrected production dates are not otherwise barred as noted in

the second paragraph of these Holdings. The last export shipment

working backwards is to be disallowed for each production date

until the amount over claimed has been taken into account.

The Office of Regulations and Rulings will take steps to make

this 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 60 days from the date of this decision.

Sincerely,

Stuart P. Seidel

Assistant Commissioner

Office of Regulations and Rulings

Enclosures