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HQ 223715


May 28, 1992

WAR-3-03 CO:R:C:E 223715 C

CATEGORY: ENTRY LIQUIDATION

Stan Langham
JAMES A. GREEN JR & CO.
1311 Minnesota AVenue
Kansas City, Kansas 66102

RE: Theoretical transfer from one bonded smelting and refining warehouse to another; withdrawal for exportation credited to another bonded smelting and refining warehouse; 19 U.S.C. 1312(b)(1); 19 U.S.C. 1312(b)(5); 19 C.F.R. 19.23; and 19 C.F.R. 19.24

Dear Mr. Langham:

This responds to your letter of February 7, 1992, concerning generally the withdrawal and exportation of bonded materials from a smelting and/or refining warehouse. We have reviewed your submission and our response follows.

FACTS:

We understand the facts as follows: Company XYZ, which operates a bonded smelting and/or refining warehouse, or class 7 warehouse, wishes to purchase domestic smelted material from another warehouse that is not a class 7 warehouse and (to) have that domestic smelted material shipped to the west coast for exportation to a foreign buyer. That domestic smelted material will be placed on the bonded premises of the steamship company or the port authority, whichever is applicable, located on the west coast at the port of exportation. (Transportation costs from the non-bonded warehouse are considerably less than would be required for shipment from Company XYZ to the west coast.) Meanwhile, Company XYZ proposes to file a CF 7512 for withdrawal for transportation at the local Customs office, thereby effecting a theoretical transfer from its class 7 facility to the bonded premises of the steamship company. The domestic material shipped there from the non-bonded warehouse will be the domestic material in like form on hand to satisfy the transferred bond charge. The withdrawal for transportation will be canceled by the filing of a CF 7512 for exportation at the port of exportation. In this way, bonded material in the class 7 warehouse is transferred to the west coast for export, and shipment of the non-bonded domestic material from the non-bonded warehouse to the west coast is accomplished at less cost to Company XYZ. Also, bonded material at Company XYZ's class 7 warehouse that was theoretically transferred to the west coast becomes unbonded material; thus, when it is withdrawn from the warehouse for domestic sale, no duties need be paid.

You set forth the foregoing scenario as a proposal. You identify as an impediment to this proposed transaction Customs interpretation of section 19.24 of the Customs Regulations, 19 C.F.R. 19.24, which is, fundamentally, that merchandise theoretically transferred from a class 7 warehouse must be transferred to another class 7 warehouse. Contrarily, you state that the regulation should be interpreted to allow a transfer to any bonded facility where there is a sufficient quantity of like material on hand to satisfy the transferred bond charge. You point out that the regulation refers to transfers to other ports or plants and does not specify that transfer to a bonded class 7 warehouse is required.

ISSUE:

Does Customs Regulation 19.24, 19 C.F.R. 19.24, permit the theoretical transfer from a bonded smelting and/or refining warehouse to a bonded facility that is not a smelting and/or refining warehouse?

LAW AND ANALYSIS:

Under 19 U.S.C. 1312(a), metal-bearing materials may be admitted, duty-free, into a smelting and/or refining bonded warehouse, there to be smelted, refined or both. Upon admission of such metal-bearing materials into the class 7 warehouse, the bond is charged with a sum equal in amount to the duties that would be payable if such materials were entered for consumption.

Under 19 U.S.C. 1312(b), charges made against the bond in accordance with section 1312(a) can be cancelled. Under section 1312(b)(5), bond charges can be cancelled upon the transfer of bond charges, without the physical transfer of material, from one class 7 warehouse to another class 7 warehouse. This is the "theoretical transfer." The bond charge is transferred, not the material. The statute is explicit:

(b) The several charges against such bond may be canceled in whole or in part -

(5) upon the transfer to another bonded smelting or refining warehouse without physical shipment of metal of bond charges representing a quantity of dutiable metal contained in imported metal-bearing materials less wastage . . . provided there is on hand at the warehouse to which the transfer is made sufficient like metal in any form to satisfy the transferred bond charges.
(Emphasis added.)

The language of the statute, as above, is plain and unequivocal. A theoretical transfer must be made from a class 7 warehouse to a class 7 warehouse. This is made still plainer upon examination of the statute. Subsections 1312(b)(3), (4), and (5) pertain to transfers from one warehouse to another (theoretical and physical). Subsections 1312(b)(3) and (5) explicitly provide for transfer to other smelting or refining warehouses, while subsection 1312(b)(4) explicitly provides for transfers to "a bonded customs warehouse other than a bonded smelting or refining warehouse." The latter quoted language clearly indicates that where the statute is intended to refer to a bonded warehouse other than a class 7 warehouse, it will so state in clear and certain terms. Thus, where the statute specifically refers to a smelting or refining warehouse, it is intended to apply only to such a warehouse. The plain and unequivocal language of the statute is to permit transfers to only smelting or refining warehouses, in some cases, and to other than smelting or refining warehouses in other cases. Theoretical transfers under section 1312(b)(5) are allowed only for transfers from one class 7 warehouse to another class 7 warehouse.

This being the statutory mandate - that theoretical transfers apply only to class 7 warehouses - Customs is without authority to apply it otherwise. Only Congress can amend the law. The regulation promulgated by Customs, 19 C.F.R. 19.24, implements subsection 1312(b)(5) and is applied in a manner consistent with the statutory provision. Although the language of the regulation is not explicit in pertinent respect, the procedure therein described applies only to theoretical transfers from one class 7 warehouse to another class 7 warehouse.

Consequently, your proposal that a theoretical transfer can be accomplished between a class 7 warehouse and some other bonded premises is contrary to law, and Customs is without authority to authorize it. This means that the theoretical transfer you propose from Company XYZ's bonded class 7 warehouse to the bonded premises of the steamship company on the west coast is not permissible under the law. Nor would a theoretical transfer from Company XYZ's class 7 warehouse to the non-bonded warehouse from which the domestic material is shipped to the west coast be permitted.

Examining the provisions of 19 U.S.C. 1312(b), we recognize only three ways to cancel bond charges at a class 7 warehouse: 1) by withdrawal and exportation of bonded material from the warehouse; 2) by payment of duties respecting bonded material in the warehouse; and 3) by the transfers authorized under subsections 1312(b)(3),(4), and (5), the former two being physical transfers of bonded material and the latter one being the theoretical transfer, or the transfer of bond charges without physical transfer. Unfortunately, none of these provisions would be effective to accomplish your client's intentions.

Finally, you proposed that the transaction you described could be accomplished by combining the procedures provided in the regulation pertaining to theoretical transfers with the procedures provided in the regulation pertaining to cross crediting withdrawals for export from a class 7 warehouse at one port to a class 7 warehouse at another port. The foregoing analysis demonstrates sufficiently that the proposed transaction is not possible. However, we wish to note that these regulations cannot be combined in the way you propose, since each one implements a separate and distinct provision of the statute: 19 C.F.R. 19.24 implements 19 U.S.C. 1312(b)(5) and 19 C.F.R. 19.23 implements 19 U.S.C. 1312(b)(1). Since the statutory provisions are separate and distinct, the regulatory provisions are separate and distinct, each applying to different situations. Without combining the statutory provisions through the amendment process, the regulatory provisions cannot be combined. Again, only Congress can amend the law; Customs is without authority to do so.

HOLDING:

Customs Regulation 19.24, 19 C.F.R. 19.24, implements 19 U.S.C. 1312(b)(5) pertaining to theoretical transfer of bond charges from one bonded smelting and/or refining warehouse to another. The statute is explicit in providing that transfer must be from a class 7 warehouse to another class 7 warehouse. Consequently, the regulation must be applied accordingly. It does not permit theoretical transfer to a bonded premises other than a class 7 warehouse.

If you have any further questions regarding this letter or any customs business, please contact this office.

Sincerely,

John Durant, Director

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