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HQ 227303





January 5, 1998

DRA-2-02-RR:IT:EC 227303 LTO

CATEGORY: DRAWBACK

Port Director
U.S. Customs Service
Drawback Branch
300 South Ferry Street, Room 1098
Terminal Island, California 90731

RE: Protest 2704-96-101538; 19 U.S.C. 1313(b); T.D. 81-300; substitution manufacturing drawback; same kind and quality; general drawback contract; 5.25" cookies; bulk film; floppy diskettes

Dear Port Director:

This is in reference to Protest 2704-96-101538, which concerns the drawback eligibility of certain imported, unrecorded film in bulk rolls. The CF 331s (Manufacturing Drawback Entry and/or Certificate) were filed between June 13, 1990 and July 30, 1991, and the entries were liquidated on February 16, 1996. This protest was timely filed on May 15, 1996.

FACTS:

In 1990 and 1991, Athana imported bulk rolls of unrecorded film, which were identified on entry documents as "61 S 5.75" roll media" (T65-xxxx166-7), "62 S 6" roll media" (T65-xxxx246-7) and simply as "roll media" (T65-xxxx295-4). After importation, the film underwent a cutting process converting it into 5.25" cookies. These cookies, and other finished cookies, were then assembled with other parts, including springs, shell kits and sub-assembly shells, to form computer "floppy" diskettes.

On February 7, 1989, Athana received an acknowledgment from Customs indicating that it could operate under the provisions of T.D. 81-300, dated December 3, 1981 (the general drawback contract for articles manufactured with the use of component parts). We note that the protest file does not contain copies of either Athana's notification to Customs of its intention to comply with T.D. 81-300 or the acknowledgment from Customs.

ISSUE:

Whether the imported, duty-paid, bulk rolls of unrecorded film, and the substituted 5.25" cookies are of the "same kind and quality."

LAW AND ANALYSIS:

19 U.S.C. 1313(b) (substitution manufacturing drawback) provides that if imported duty-paid merchandise and any other merchandise of the same kind and quality are used within three years of the receipt of the imported merchandise in the manufacture or production of articles by the manufacturer or producer of the articles and the articles manufactured or produced from the duty-free or domestic merchandise are exported or destroyed, ninety-nine percent of the duties on the imported duty-paid merchandise shall be refunded as drawback, even if none of the imported merchandise was actually used in the manufacture or production of the exported or destroyed articles. Under 19 U.S.C. 1313(i), no drawback may be allowed under section 1313 unless the completed article is exported within five years after the importation of the imported merchandise.

In this case, the imported merchandise consists of unrecorded film in bulk rolls which was "manufactured" into "floppy" diskettes when cut to form 5.25" cookies and assembled with other parts, including springs, shell kits and sub-assembly shells. See, e.g., C.J. Holt & Co., Inc. v. United States, C.D. 1352 (July 27, 1951) (wherein the U.S. Customs Court stated that a manufacture or production under 19 U.S.C. 1313(a) occurs where a new and different article emerges "having a distinctive name, character or use"). Athana also used finished 5.25" cookies in their manufacturing process. Athana does not contend that these 5.25" cookies are of the "same kind and quality" as the imported film in bulk rolls. Rather, it contends that the substituted 5.25" cookies are of the "same kind and quality" as the imported film following the cutting process in the United States. Athana argues that it is not necessary for the imported duty-paid merchandise to be in the final form, ready to use, and of the "same kind and quality" with the substituted merchandise--the imported and substituted merchandise must only be of the "same kind and quality" at some point in the production process. We disagree.

As stated above, the statute permits substitution of "imported duty-paid merchandise and any other merchandise . . . of the same kind and quality." Thus, the condition of the imported goods at the time of importation form the basis for matching "same kind and quality" against the goods that may be used in substitution for the imported goods.

In this case, the imported and substituted merchandise are not the "same kind and quality," a fact apparently conceded by Athana. The imported merchandise, bulk rolls of unrecorded film, is identified on entry documents as "61 S 5.75" roll media" (T65-xxxx166-7), "62 S 6" roll media" (T65-xxxx246-7) and simply as "roll media" (T65-xxxx295-4). However, the designated merchandise for these entries is listed on the attachment to the CF 331s as 5.25" cookies. The imported merchandise is film in bulk rolls, which is not, at the time of importation, a component part of a finished "floppy" diskette. Until undergoing the cutting process, the film is not restricted or dedicated to a particular use (e.g., the film can be used to manufacture both 5.25", as it was in the present case, and 3.5" diskettes). See, e.g., HQ 952938, dated August 4, 1993 (wherein we stated that, for tariff classification purposes, nonwoven textile material imported on rolls cannot be classified as a "part"). The substituted merchandise, 5.25" cookies, are, on the other hand, component parts ready for assembly into "floppy" diskettes. The imported merchandise cannot be used interchangeably in manufacturing the exported articles without an additional step in the manufacturing process. Accordingly, Athana is not entitled to drawback under 19 U.S.C. 1313(b).

On February 7, 1989, Athana received an acknowledgment from Customs indicating that it could operate under the provisions of T.D. 81-300. T.D. 81-300 states that "[a]ny person who can comply with the conditions of this contract may adhere to it by notifying a Regional Commissioner of Customs in writing of its intentions to do so . . . ." Although identified by individual part numbers, the imported bulk rolls of unrecorded film are not component parts of finished "floppy" diskettes. As Athana did not adhere to the conditions set forth in T.D. 81-300, it is not, therefore, relevant to the case at hand.

HOLDING:

With regard to the claim under 19 U.S.C. 1313(b), the protest should be DENIED

In accordance with section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision, together with the Customs Form 19, should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to the mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,
John Durant, Director
Commercial Rulings Division

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