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HQ 228877





July 30, 2002

DRA-4 RR:CR:DR 228877 LLB

Category: DRAWBACK

U.S. Customs Service
Attn: Richard Andrejko
Drawback Branch
300 South Ferry Street, Room 1098
Terminal Island, CA 90731

RE: Protest No. 2704-00-100211; Application for Further Review; The Brunzack Corporation; 19 U.S.C. § 1313(j)(1); 19 C.F.R. § 191.14; First-In-First-Out accounting method; Merck, Sharp & Dohme v. United States, 915 F. Supp. 405, 408(Ct. Int’l Trade 1996); Aurea Jewelry, Inc. v. United States, 720 F. Supp. 189, 191(Ct. Int’l Trade 1989); HQ 228100 (July 24, 2001).

Dear Mr. Andrejko:

The above-referenced protest was forwarded to this office for further review. We have considered the points raised by the protestant, The Brunzack Corporation, and your office. Our decision follows.

FACTS

On June 17, 1999, the protestant sought same condition drawback, pursuant to 19 U.S.C. § 1313(j)(1) on 5,420 pieces of women’s outerwear and accessories. The drawback entry liquidated without benefit of drawback on October 6, 1999. In its protest thereto, the protestant argued that contrary to Customs’ finding, it had correctly applied the First-in, First Out (FIFO) accounting method, pursuant to 19 C.F.R. § 191.14(c)(1), which it used to identify imported merchandise as a basis for drawback. In support of its protest, the protestant has submitted the following documents.

Attachment A

Drawback Entry C27-xxxxx48-7 for 5,240 pieces of women’s apparel—attached thereto:

-Export Bill of Lading dated January 8, 1999, indicating shipment of 5,487 pieces(123 cartons) of ladies apparel to Brunzack Canada., Inc.

-Canadian broker’s invoice dated January 15, 1999 to Brunzack Canada for 123 cartons of women’s woven linen trousers

-Canadian Customs entry dated January 15, 1999

-Drawback Coding Sheet for entry C27-xxxxx48-7

-A chronological summary of exports which indicating that 5,420 pieces of women’s apparel were exported to Canada on January 8, 1999

Attachment B

-Customs Notice of Action dated August 31, 1999 indicating that the drawback was not appropriate direct identification

Attachment C

-Commercial invoice dated January 8, 1999 from the protestant to Brunzack Canada for 5,487 pieces of assorted women’s wear.

-Undated packing list indicating style number, color, size and total pieces/boxes shipped for each style. Grand total 5, 487 pieces.

Atttachment D

-Brunzack Order # CON710 dated January 13, 1998 for 246 long-sleeve printed sheer shirts in Beige and Perle- Style PF C37

-CF 7501 dated March 14, 1998 indicating the entry of, inter alia, 42 dozen women’s blouses from France (entry number W21-xxxxx03-7)

-Invoice dated November 3, 1998, from French manufacturer to Brunzack for, inter alia, 232 pieces of Model no. C37 with long sleeves and buttons

-French manufacturer’s packing list dated March 6, 1998 for, inter alia, 232 pieces of Model no. C37 in Beige and Perle

-Brunzack’s receiving memo dated March 11, 1998, indicating receipt of 232 long-sleeve printed sheer shirts in Beige and Perle-Style PF37.

-Finished Goods Inventory dated October 2, 1998 indicating 147 pieces of Style PFC37 existed on that date

-document title “Cut and Sold Display” dated January 17, 2000, indicating receipt of 112 pieces of Style PFC37 (color beige) and that 44 pieces were ordered and shipped.

-document title “Cut and Sold Display” dated January 17, 2000, indicating receipt of 120 pieces of Style PFC37 (color perle) and that 55 pieces were ordered and shipped.

Attachments E and F contain documents similar to attachment D for tank tops and duster jackets and are described in detail in the analysis portion of this ruling.

ISSUE

Whether the evidence submitted was sufficient to support Protestant’s drawback claim under 19 U.S.C. § 1313(j)(1)

LAW AND ANALYSIS

Initially, we note that the protest was timely filed, i.e. within 90 days from October 22, 1999, denial of drawback, under 19 U.S.C. § 1514(c)(3)(A), and the matter is protestable under § 1514(a)(6).

The statutory requirements for drawback under 19 U.S.C. § 1313(j)(1) are that the merchandise on which drawback is sought be exported or destroyed, under Customs’ supervision within 3 years from the date of importation, that it be exported or destroyed in the same condition as it was when imported, and that it not be used in the United States. Pursuant to 19 C.F.R. § 191.14(a) merchandise may be identified, for the purposes of drawback, by accounting methods set forth in subsection (c). According to the protest, the protestant argues that its drawback claim on its exportations to Canada should be granted pursuant to the FIFO accounting method set forth in 19 C.F.R. § 191.14(c)(1) which provides:

The FIFO method is the method by which fungible merchandise or articles identified by recordkeeping on the basis of the first merchandise or articles received into the inventory. Under this method, withdrawals are from the oldest (first-in) merchandise or articles in inventory at the time of withdrawal.

Pursuant to § 191.14(b)(2), “[t]he person using the identification method must be able to establish through inventory records (for example, material control records), prepared and used in the ordinary course of business, account for lots of merchandise or articles to be identified as being received into and withdrawn from the same inventory. “Unless otherwise provided in this section or specifically approved by Customs (by binding ruling under 177 of this chapter), all receipts (or in-puts) into and all withdrawals from the inventory must be recorded in the accounting record.” See § 191.14(b)(3).

In support of its use of the FIFO identification method, protestant has provided several inventory sheets representing each sample transaction. Each style, PFC37, PNT73, and PNC55, has two inventory sheets. The first inventory sheet is a finished goods inventory and the second inventory sheet represents goods ordered and sold or “cut and sold”. Each of the finished goods inventory sheets do not show receipt into inventory, rather, it shows the total amount available on October 2, 1998. Although the “cut and sold” inventory sheets indicate receipt into inventory, they do not reflect the date the merchandise was received into inventory. Further, although the “cut and sold” inventory sheets indicate the amount of merchandise sold and shipped, the inventory sheet does not reflect the date the merchandise was shipped nor does it identify domestic (non-export) or export withdrawals. In a letter dated April 3, 2000, counsel for the protestant stated that “[w]e have been advised by our client, . . . that their computer system does not generate running totals of their inventory.” Based on the foregoing, the inventory sheets do not support the protestant’s use of the FIFO identification method.

However,“Customs’ statutes and regulations do not require an importer to prove its case by submitting specific documentation.” Merck, Sharp & Dohme v. United States, 915 F. Supp. 405, 408(Ct. Int’l Trade 1996)(holding that plaintiff’s failure to provide source documentation to support its appraisement did not necessarily preclude the plaintiff from providing other evidence); see Aurea Jewelry, Inc. v. United States, 720 F. Supp. 189, 191(Ct. Int’l Trade 1989)(stating that although documentation is required to establish a drawback claim, “Customs may not establish such a strict standard of compliance as to make drawback recovery prohibitive.”). Although protestant does not keep a running inventory record of its merchandise, other documents such as purchase and sale documents (invoices, contracts, etc.) from domestic and foreign vendors and customers, would assist in demonstrating the movement of merchandise in and out of inventory. HQ 228100 (July 24, 2001). The protestant’s counsel asserts in its April 3, 2000, letter that “Brunzack has receiving (receipts) in one file, shipping (withdrawals) in another file and inventory in a separate file.” Therefore, it is from these documents, which the protestant has attached to its protest, we will determine whether the protestant is properly using the FIFO identification method.

Style #PFC37 (Protestant’s Exhibits A, C, and D)

On January 13, 1998, the protestant ordered 246 sheer, long-sleeved shirts from a manufacturer in France. The sales invoice indicates the same French manufacturer sold 504 pieces of apparel, which included 232 pieces of model C37 (112 beige/120 perle), to Brunzack and the packing list indicates that the same was packed for shipment on March 6, 1998. The CF 7501 shows that the protestant entered 504 women’s blouses from the same French manufacturer on March 17, 1998 and that the entered value was $32.62 per blouse. However, the protestant’s receiving memo indicates that 232 pieces of model PFC37 was received on March 11, 1998. No explanation has been provided as to why the protestant’s receiving memo pre-dates the March 15, 1998 importation date and it also raises whether this document was kept in the ordinary course of business. See § 191.14(b)(2), supra. Further, no explanation has been provided as to why the export price, indicated on the commercial invoice, is less than half of the import price.

Assuming for argument’s sake that 232 pieces of model PFC37 was received in inventory in March 1998, the finished goods inventory indicates that as of October 2, 1998, 147 units of style # PFC37 existed in inventory. Although the protestant’s commercial invoice dated January 8, 1999, indicates that it sold 138 pieces of style number PFC37 to Brunzack Canada and the “cut and sold” inventory indicates that 18 pieces were returned to the manufacturer, the evidence submitted does not account for 67 pieces, e.g. there is no other evidence indicating export or domestic sale of these pieces. Moreover, even though the protestant’s commercial invoice indicates a sale of 138 pieces to Brunzack Canada, the “cut and sold” inventory sheet, which was run on January 17, 2000, for both colors in style number PFC37, shows that only 99 pieces were ordered and shipped and that 18 were returned.

Style #PNC55 (Protestant’s Exhibits A, C, and E)

On January 13, 1998, the protestant ordered 151 sleeveless button front dusters (Style # PNC55) in colors Mocha and Wheat from a manufacturer in France. The sales invoice dated February 27, 1998, indicates the same French manufacturer sold 1,083 pieces of apparel, which included 133 pieces of model PNC55 to the protestant. Although the colors of the apparel are not indicated on the invoice, the packing list indicates that 105 pieces in café (coffee) and 28 pieces in framboise (raspberry) were packed for shipment. The receiving memo indicates that the protestant received 133 pieces of style number PNC55; however, there is a discrepancy as to the colors received. The packing list indicates that the colors coffee and raspberry were sent and the receiving memo indicates that the colors mocha and wheat were received. Arguably, mocha and coffee are the same color, i.e. brown; however, raspberry, more than likely a red color, is probably not the same color as wheat, a dark beige color.

Assuming for argument’s sake that 133 pieces of model PNC55 were received in inventory in March 1998, the finished goods inventory indicates that as of October 2, 1998, 78 units of style # PNC55 existed in inventory. However, protestant’s commercial invoice dated January 8, 1999, indicates it sold 79 pieces of style number PNC55 to Brunzack Canada. Further, the “cut and sold” inventory report which was run on January 17, 2000, for both colors, shows that only 68 pieces were ordered and shipped. Notwithstanding the discrepancies in the amount that was actually ordered and shipped, the evidence submitted does not account for 12 pieces,

This figure was calculated by subtracting the highest amount alleged to have been sold, 79, from the total alleged to have been received, 133, and then subtracting the 9 pieces that were alleged to have been returned. e.g. there is no other evidence indicating export or domestic sale of these pieces. In addition, no explanation has been provided as to why the import value of the dusters, as indicated on the CF 7501, Import entry number W21-xxxxx75-4 is also the same import entry number for Style #PNT73, infra. $ 50.94 per duster, was 3 times more than the export sales price.

Style #PNT73 (Protestant’s Exhibits A, C, and F)

On January 13, 1998, the protestant ordered 114, V-Neck Tank Tops (Style # PNT73) in colors Mocha and Wheat from a manufacturer in France. The sales invoice dated February 27, 1998, indicates the same French manufacturer sold 1,083 pieces of apparel, which included 114 pieces of model PNT73 to the protestant. Although the colors of the apparel are not indicated on the invoice, the packing list indicates that 94 pieces in marron (chestnut) and 20 pieces in framboise (raspberry) were packed for shipment. The receiving memo indicates that the protestant received 114 pieces of style number PNT73; however, there is a discrepancy as to the colors received. The packing list indicates that the colors chestnut and raspberry were sent and the receiving memo indicates that the colors mocha and wheat were received. Arguably, chestnut and coffee are the same color, i.e. brown; however, raspberry, more than likely a red color, is probably not the same color as wheat, a dark beige color.

Assuming for argument’s sake that 114 pieces of model PNT73 was received in inventory in March 1998, the finished goods inventory indicates that as of October 2, 1998, 78 units of style # PNT73 existed in inventory. Although the protestant’s commercial invoice dated January 8, 1999, indicates it sold 78 pieces of style number PNT73 to Brunzack Canada and the “cut and sold” inventory indicates that 8 pieces were returned to the manufacturer, the evidence submitted does not account for 28 pieces, e.g. there is no other evidence indicating export or domestic sale of these pieces. Moreover, even though the protestant’s commercial invoice indicates a sale of 78 pieces to Brunzack Canada, the “cut and sold” inventory sheet, which was run on January 17, 2000, for both colors in style number PNT73, shows that only 47 pieces were ordered and shipped and that 8 were returned. Further, no explanation has been provided by the protestant as to why the export sales price is seven dollars less than the import price.

Based on our review of the documents presented, the protestant has not shown the movement of the merchandise in and out of inventory. As noted above, there are several discrepancies between the import and export documentation and the inventory sheets and the import and export documentation does not account for all of the merchandise. Compliance with the Customs Regulations on drawback is mandatory and a condition of payment of drawback. See Chrysler Motors Corp. v. United States, 14 CIT 807, 816, 755 F. Supp. 388, aff'd, 945 F.2d 1187 (Fed. Cir. 1991) citing Swan & Finch Co. v. United States, 190 U.S. 143, 146 (1903)(holding that “the allowance of drawback is a privilege and compliance with the regulations is a prerequisite to securing it where the regulations are authorized and reasonable.”) See also, United States v. Hardesty Co., Inc., 36 CCPA 47, C.A.D. 396 (1949); Lansing Co., Inc. v. United States, 77 Cust. Ct. 92, C.D. 4675 (1976); Guess? Inc. v. United States, 944 F.2d 855, 858 (1991) ("We are dealing [in discussing drawback] instead with an exemption from duty, a statutory privilege due only when the enumerated conditions are met"). Insofar as the protestant has failed to show correct application of the FIFO accounting method pursuant to the requirements of § 191.14(c)(1), his drawback claim as well as his protest should be denied.

HOLDING

The protestant’s drawback claim is denied insofar as the protestant has failed to present evidence showing the proper use of the FIFO accounting method under 19 C.F.R. § 191.14(c)(1).

In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to mailing the decision.

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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