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HQ 228746





August 20, 2002

DRA- 2-01; 2-02 RR:CR:DR 228746 LLB

Category: DRAWBACK

U.S. Customs Service
423 Canal Street
New Orleans, LA 70130
Attn: Glenn Seale

RE: Internal Advice; manufacturing drawback; 19 U.S.C. § 1313(b); HQ 227276 (April 7, 1997); HQ 226898 (February 10, 1997); steel drums; filling material

Dear Mr. Seale:

This letter is in response to your February 25, 2000, initiated pursuant to 19 C.F.R. § 177.11, by Windhorst, Gaudry, Ranson, et al., on behalf of their client, Evans Harvey, Inc. Our decision follows.

FACTS

Evans Harvey Corp, L.L.C. and its related entities/agents, Evans Cushing, Inc. and Evans Harvey, Inc. (all hereinafter collectively referred to as “Evans”), assert the following. Evans is hired by their customers to manufacture steel drums to customer specifications and to fill the drums with various materials. Evans’ customers place orders for filled drums; it is the filled drum which is the product sought by Evans’ customers. Based on the orders it receives, Evans imports steel pursuant to a general manufacturing drawback ruling under 19 U.S.C. § 1313(b) and Evans’ agents manufacture steel drums therefrom. Evans fills the drums with various materials and then seals the drums. Thereafter, the filled drums are exported.

To support its assertion, Evans has provided sample transaction documents which include a purchase order for drums filled with chemicals from Air Products and Chemicals (APC); purchase and sale orders for steel (head and body stock); documents showing shipment and receipt of the steel; Evans’ work orders and invoices for construction, filling and shipment of the drums; Evans’invoice for manufacture of the drums; and exportation documents indicating APC as the exporter. Review of these documents and Evans’ ruling request do not reveal
acquisition, receipt or delivery of the chemicals from APC;

In a June 21, 2002, letter, this office requested the foregoing information. To date, we have not received the requested information. however, in the February 7, 2001, meeting with this office, Evans’ attorney asserted that the drums Evans manufactures are filled with chemicals owned and provided by its customers. Further, we note that the export bills of lading indicate a sale of the filled drums by APC to a foreign customer, to which Evans is not a party.

ISSUE

Whether the filling of the steel drums, as described above, constitute a “use” within the prohibition of 19 U.S.C. § 1313(b) The foregoing issue was addressed in an internal memorandum which Evans Harvey received. HQ 228382 (September 8, 1999). We affirm the analysis and legal principles therein, infra.

LAW and ANALYSIS

In pertinent part, 19 U.S.C. § 1558(a) provides that:

“No remission, abatement, or drawback of estimated or liquidated duty shall be allowed because of the exportation or destruction of any merchandise after its release from the custody of the Government, except in the following cases: . . .

(1) When articles are exported with respect to drawback of duties is expressly provided for by law . . .

Hence, the act of exportation or destruction of merchandise, in and of itself, does not entitle a payor of duties to a refund of those duties. Rather, in order to claim a refund or drawback of duties, the exportation and refund claim must be pursuant to a particular drawback law. Here, Evans Harvey seeks drawback pursuant to 19 U.S.C. § 1313(b) under which it has an approved general manufacturing ruling for steel. See T.D. 81-222-N (June 16, 1981). Pursuant to 19 U.S.C. § 1313(b), in pertinent part:

If imported duty-paid merchandise and any other merchandise (whether imported or domestic) of same kind and quality are used in the manufacture or production of articles within a period not to exceed three years from the receipt of such imported merchandise by the manufacturer or producer of such articles, there shall be allowed upon the exportation, or destruction under customs supervision, of any such articles, notwithstanding the fact that none of the imported merchandise may actually have been used in the manufacture or production of the exported or destroyed articles, an amount of drawback equal to that which would have been allowable had the merchandise used therein been imported, but only if those articles have not been used prior to such exportation or destruction . . .

(emphasis added).

The drawback law was substantively amended by section 632, title VI – Customs Modernization, Public Law 103-182, North American Free Trade Agreement Implementation Act (107 Stat. 2057)(December 8, 1993). While the definition of the term “used” was not provided in the language of the new act, the House Report states that “[w]ith respect to manufacturing drawback, the provisions prohibiting the use of items claimed under drawback are not intended to prevent a manufacturer from testing or other post-production operations. H.R. Rep. No. 103-361, 103d Cong., 1st Sess., at 130(1993). In HQ 227276 (April 7, 1997)(31 Cust. Bull. 19, 23 (May 7, 1997), we discussed the foregoing “use” exception stating that “[w]hile the statute expressly provides that the manufactured articles may not be “used” prior to the exportation or destruction, the legislative history indicates that this prohibition does not extend to certain operations performed by the manufacturer. (emphasis in original). In that ruling, the importer manufactured bottles out of imported plastic resin and provided the manufactured bottles to a filling company where they were filled with locally available liquids, e.g. water, soda, and juice. The filled bottles were then exported by the filling company. Customs held:

The manufacturing process ends when the manufacturer provides the manufactured bottles to the filling company. Once the bottles are so provided, the plastic resin used in their manufacture no longer qualifies for drawback under § 1313(a). The manufactured bottles are containers designed to transport various liquids. The filling of the container for its intended purpose by someone other than the manufacturer constitutes a “use’’ of that container. On the other hand, when a manufacturer fills a container, the manufacturing process continues until the container is filled, and the filling operation is not a “use.” See HQ 226898 . . .(February 10, 1997)(wherein we held that imported glass bottles and related integral parts, such as, caps collars, pumps, and actuators, which were assembled into scent sprayers and filled with perfume by the manufacturer during the assembly process, were eligible for drawback under 19 U.S.C. § 1313(a)).

Here, Evans manufactures the drums, then contracts with the APC, the owner and manufacturer of the liquid, to fill the drum. Once Evans fills the drum, Evans returns the drums to APC, who, in turn, exports the drums. In light of the legislative history and HQ 227276, the foregoing process is not a continuous manufacture. Instead, the manufacture of the drums from the imported steel is the complete manufacture, and the filling of the drums with the liquid that is manufactured by a different entity, is a “use” insofar as the drums are being used for their intended purpose—transportation and exportation.

Evans argues that part of the holding in HQ 227276, which states “ . . . when a manufacturer fills a container, the manufacturing process continues until the container is filled, and the filling operation is not a ‘use’,” specifically supports that its filling process is not a use. Evans reasons that it constructs the drums then fills the drums in a continuous process and as of part of its production process. Evans neglects in its argument, that the foregoing holding cites HQ 226898 (February 10, 1997). In HQ 226898, Customs determined that an assembly operation to create a fragrance sprayer was a manufacture or production for drawback purposes and that upon the exportation of the assembled fragrance product, drawback could be obtained under 1313(a). In that ruling, not only did the manufacturer fill the containers with perfume, but it also owned the perfume that it was filling into those containers. Here, Evans may fill the steel drums, but it does not own the chemicals that it fills into those drums. Therefore, pursuant to HQ 227276 and 226898, Evans filling process constitutes a use of the drums and not a continuous manufacture of the drums.

HOLDING

Although the manufactured steel drums are filled by the manufacturer of the steel drums, they are “used” insofar as they are being filled with a substance that is owned and manufactured by someone other than the manufacturer of the steel drums. Therefore, the steel drums would be ineligible for drawback under 19 U.S.C. § 1313(b).

Sixty days from the date of the decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.ustreas.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Myles Harmon, Acting Director

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