HQ 224346 - Ruling request concerning same condition drawback and substitution same condition drawback eligibility of importer/claimant after sale to exporter; 19 U.S.C. 1313(j)(1) and (2). - United States International Trade Commision Rulings

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HQ 224346

DRA-4 CO:R:C:E 224346 TLS

CATEGORY: ENTRY

Mr. Arthur W. Bodek
Siegel, Mandell & Davidson, P.C.
One Astor Plaza
1515 Broadway 43rd Floor
New York, New York 10036

RE: Ruling request concerning same condition drawback and substitution same condition drawback eligibility of importer/claimant after sale to exporter; 19 U.S.C. 1313(j)(1) and (2).

Dear Mr. Bodek:

This office has received the above-referenced request for a ruling as provided for under Customs regulations. We have considered the request and made the following decision.

FACTS:

The importer imports women's sportswear and dresses which are generally sold or distributed in the U.S. Occasionally, the importer will import and take possession of the merchandise and sell it in the same condition as imported to satisfy their own accounts overseas. The imported merchandise is exported by the domestic purchasers within 3 years of the importation of the goods.

The importer wishes to claim a refund of the duties, taxes, and fees imposed, which it paid upon the importation of such goods.

ISSUES:

Whether the importer must also be the exporter of the subject merchandise to successfully claim direct identification drawback under 19 U.S.C. 1313(j)(1).

Whether the importer is entitled to substitution same condition drawback under the facts submitted.

LAW AND ANALYSIS:

Section 1313(j)(1) of the United States Code (19 U.S.C. 1313(j)(1)) provides:

(1) If imported merchandise, on which was paid any duty, tax, or fee imported under Federal law because of its importation-
(A) is, before the close of the three-year period beginning on the date of importation- (i) exported in the same condition as when imported, or
(ii) destroyed under Customs supervision; and
(B) is not used within the United States before such exportation or destruction;
then upon such exportation or destruction 99 per centum of the amount of each such duty, tax, and fee so paid shall be refunded as drawback.

This provision was enacted by the Act of December 28, 1980, Pub. L. 96-609, Title II, Section 201, 94 Stat. 3560.

Section 1313(j)(2) of Title 19 of the United States Code (19 U.S.C. 1313(j)(2) provides:

(2) If there is, with respect to imported merchandise on which was paid any duty, tax, or fee imposed under the Federal law because of its importation, any other merchandise (whether imported or domestic) that-

(A) is fungible with such imported merchandise;
(B) is, before, the close of the three-year period beginning on the date of importation of the imported merchandise, either exported or destroyed under Customs supervision;
(C) before such exportation or destruction- (i) is not used within the United
States, and
(ii) is in the possession of the party claiming drawback under this paragraph; and
(D) is in the same condition at the time of exportation or destruction as was the imported merchandise at the time of its importation;
then upon the exportation or destruction of such other merchandise the amount of each such duty, tax, and fee paid, regarding the imported merchandise [not to exceed 99 percent] shall be refunded as drawback. (Emphasis added.)

Your submission compares the position of the importer to that of Central Soya in the case of Central Soya v. United States, 761 F. Supp. 133 (CIT 1991), aff'd, 953 F.2d 630 (Fed. Cir. 1992). In that case, "A" imported and possessed duty-paid merchandise and also possessed substituted merchandise which was fungible with the imported duty-paid merchandise. "A" consumed the imported duty-paid merchandise and sold and delivered the substituted merchandise to "B". Under its contract with a foreign buyer, "B" exported the substituted merchandise. "B" waived its right to claim the exportation for drawback to "A". Since "A" possessed both imported duty-paid and substituted fungible merchandise during the three-year time limitation of the law (19 U.S.C. 1313(j)(2)), and "B" waived its right to claim drawback, the Court held that "A" was entitled to claim drawback.

In this case, the imported merchandise is also sold to another party, which presumably exports fungible merchandise within the three-year period as required under statute. You claim that since the importer is no longer required to be the exporter of the substituted merchandise, the importer needs to have only possessed the fungible merchandise at some point after importation and before the three-year period has run its course. Central Soya, supra. The importer states that such is the case here, having imported the fungible merchandise and then sold it to a second party, who then exported it (or its substitute) within the three-year period. Thus, you claim that the possession requirement will be satisfied under the given scenario.

In B.F. Goodrich v. United States, 794 F. Supp. 1148 (CIT 1992), the court held that Customs improperly promulgated 19 CFR 191.141(h), which required that a drawback claimant must have possessed the imported duty-paid merchandise. The court concluded that the underlying statute (19 U.S.C. 1313(j)(2)) does not require and that Congress did not intend such. The court held that the claimant is only required to possess the substituted merchandise during the three-year limitation and have paid the duty, tax, or fee for the privilege of importing the goods.

To implement the Central Soya and B.F. Goodrich decisions, the Customs Service issued the General Notice published in the Customs Bulletin and Decisions on October 21, 1992. By its terms, the General Notice is made applicable to substitution same condition drawback only. Furthermore, we have recently ruled that the General Notice is not applicable to direct identification same condition drawback under 19 U.S.C. 1313(j)(1). Customs ruling HQ 224325 (February 16, 1993).

More directly, the Central Soya decision was considered only in the substitution same condition context; drawback under 19 U.S.C. 1313(j)(1) was not at issue. As noted in HQ 224325, "[t]he respective provisions (sections 1313(j(1) and 1313(j)(2) are separate statutes separately enacted at different times with different requirements." It is incorrect to infer from the court's holding in Central Soya that its effect should extend to cases where 1313(j)(1) is at issue. Consequently, those cases ruling that a claimant under 1313(j)(1) must be the exporter of the subject merchandise still stand as good precedent. Therefore, we do not find 19 U.S.C. 1313(j)(1) to be applicable to the facts of this case.

We do believe, however, that your client might be able to claim drawback under 19 U.S.C. 1313(j)(2). In order to implement that provision to comply with what we believe were the orders of the Central Soya and B.F. Goodrich courts, we announced that we would honor any drawback claim which met the terms of the General Notice.

The General Notice implements the following requirements, including those already noted herein:

1) The drawback claimant is responsible for insuring that all applicable documentation is filed in accordance with section 191.141(a)-(g) of the Customs Regulations, including the notice of intent to export, where applicable.

2) the claimant must certify that it paid the duty and the amount applicable to the quantity of designated imported merchandise claimed for drawback, and that it will keep evidence in support of that certification to be made available to Customs after reasonable notice. The claimant must also show that it possessed the exported or destroyed merchandise at some time after importation of the imported merchandise and before its exportation or destruction, and must otherwise comply wit all Customs laws and regulations for the filing of a drawback claim under section 1313(j)(2). (Emphasis added.)

3) The claimant must provide evidence that: (a) the exporter or destroyer of the merchandise did not and will not authorize any entity (including itself) other than claimant to claim the exportation or destruction for drawback;
(b) the exporter or destroyer of the merchandise did not use the substituted merchandise while in its possession;
(c) the merchandise exported or destroyed was the identical merchandise received from the claimant and;
(d) the merchandise was in the same condition upon exportation or destruction as was the imported merchandise upon importation.

Both 1313(j)(1) and (2) are conditioned by the requirement that in no case may the total drawback on the imported merchandise, whether available under this paragraph or any other provision of law exceed 99 percent of the duty paid. In order to implement that provision, the Customs Service promulgated 19 CFR 191.141(a)-(g). Those provisions were addressed by the Central Soya or B.F. Goodrich courts. If A is the claimant, the questions become by what evidence will A show that B did not use merchandise and that the merchandise was in the same condition at the time of exportation by B as it was when imported by A. With respect to the implementation of 1313(j)(2), the B.F. Goodrich court stated that the claimant had to be the person who paid the duty. Under the stated facts, A would be the person who paid the duty and would meet the requirement. A could truthfully certify that it paid the duty, thereby meeting the first paragraph of item 3 of the General Notice.

In this case, the importer has stated that the exporter will export the substituted merchandise in the same condition as the imported merchandise within the three-year limitation. You state that the merchandise will be substituted between the different shipments that will be imported and exported. It is also stated that the exporters will waive any claim to drawback. To the extent that the importer complies with all other requirements outlined in the General Notice, we find the only requirement at issue to be whether the exported merchandise is fungible with the imported duty-paid merchandise.

We have recently ruled in a similar case regarding similar merchandise. In Customs ruling HQ 224287, we held that where imported duty-paid women's wearing apparel and the substituted counterpart "perfectly conform [with each other] with respect to type of garment, style number, color, and size", the fungibility requirement is satisfied. HQ 224287 (April 16, 1993). Thus, if the same standards are adhered to in this case, we will find the imported duty-paid merchandise fungible with the exported merchandise.

HOLDING:

The situation described above does not fall under 19 U.S.C. 1313(j)(1) because the claimant in this case is not the exporter of the subject merchandise.

The situation described above would fall under 19 U.S.C. 1313(j)(2) if the General Notice requirements are met and the imported duty-paid merchandise is fungible with the exported merchandise. Fungibility would only be found if the imported merchandise and exported merchandise perfectly conformed with each other with respect to type of garment, style number, color, and size.

Sincerely,

John Durant, Director

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