Dra-2-01 Liq-11 Ot:Rr:Ctf:Er H024645

HQ H024645

December 1, 2008

DRA-2-01 LIQ-11 OT:RR:CTF:ER H024645

CATEGORY: Drawback

Port Director Customs & Border Protection 2350 N. Sam Houston Parkway East Suite 1000 Houston, Texas 77032-3126 Attn: Christina D. Brooks Waterbury, CT 06705

Re: protest number 5301-07-100312; Huntington Alloys Corp.

Dear Port Director:

This is in response to the application for further review of the subject protest.

FACTS:

Huntington Alloys Corporation (Huntington) is the drawback claimant and protests the liquidation on 4/13/2007, of a drawback claim without drawback allowed. The claim was filed on 7/29/2004, under 19 U.S.C. § 1313(b) pursuant to manufacturing drawback contract 44-06764-000. The claim listed 68 import entries made during the period from 11/15/2002 to 2/17/2004 which were liquidated during the period from 9/26/2003 to 1/3/2005.

On 1/18/2006, U.S. Customs and Border Protection (CBP) requested documentation to support the claim. The Automated Commercial System (ACS) record shows that liquidation of the drawback claim was extended by CBP on 2/21/2006. The file shows that the claimant had requested the extension to file more evidence to show compliance with the drawback laws. The correspondence in the file shows that CBP granted the extension for 15 days. On 3/1/2006 and 4/12/2006 the claimant supplied unspecified information in support of the drawback claim. On 3/20/2007, by letter, CBP advised Huntington that the claim had been liquidated with zero drawback “for failure [to prove compliance] with the requirements of § 1313(b), § 1313(s) and § 1313(v).” Specifically, “same kind and quality [of the imported and substituted merchandise] was not established and the “waste exhibit provided appear[ed] to show more waste occurred, per import, than what was actually designated.” Also, failure “to provide documentation to support the manufacture of the claimed product,” “failure to comply with ruling by filing claims for manufacturing periods of more than one year,” and claiming drawback on exports on which drawback was already claimed, were cited as reasons for denial of drawback. On 4/13/2007, CBP provided notice that it had liquidated the drawback claim without drawback. The instant protest was filed on 7/12/2007 and asserts only that the drawback claim was liquidated as filed by operation of law.

There is no evidence that a written request to liquidate the drawback claim with a waiver of the right to payment or refund under any other law was filed by the claimant, the importer of record on each designated import entry or the respective sureties of the claimant and importers of record.

ISSUE:

Whether the liquidation by CBP of the protested drawback claim on 4/13/2007 was subject to challenge as a result of a prior liquidation by operation of law under 19 USC 1504, as amended by the Act of December 3, 2004 (Pub.L.108-429, 118 Stat 2585)?

LAW AND ANALYSIS:

The refusal to pay a claim for drawback is subject to protest pursuant to 19 U.S.C. § 1514(a)(6). The protest was timely filed on 7/12/2007, within ninety days of the date of liquidation on 4/13/2007. We note that § 2103 of the Miscellaneous Trade and Technical Corrections Act of 2004 (the 2004 Act) amended 19 U.S.C. § 1514 to permit 180 days in which to file a protest but, that amendment is not applicable to this protest. (Public Law 108-429, 108 P.L. 429, 118 Stat. 2434 (2004), 108 enacted H.R. 1047, 12/3/2004.) Section 2108 of subtitle B made the amendment to § 1514 effective for goods entered or withdrawn from warehouse for consumption on or after 12/18/2004. (“The amendments made by this subtitle [B] shall apply to merchandise entered or withdrawn from warehouse for consumption on or after the 15th day after the date of the enactment of this Act.”) The imported merchandise on which drawback was claimed in this instance were all entered before 12/18/2004.

The subject drawback claim was filed under 19 U.S.C. § 1313(b), commonly referred to as the "substitution manufacturing drawback." Section 1313(b) provides, in pertinent part, for the allowance of drawback on exported articles that have been manufactured or produced in the United States with the use of imported duty-paid, duty- free, or domestic merchandise of the same kind and quality. Although the drawback claim was denied on the ground that the protestant failed to provide satisfactory evidence of compliance with 19 USC 1313(b), the sole challenge to the CBP liquidation is that the claim had already been liquidated by operation of law under 19 USC 1504 prior to 4/13/2007. Consequently, only the issue of whether the drawback claim was liquidated by operation of law before the liquidation of 4/13/2007 will be addressed here.

2 Section 1504, Title 19 of the United States Code, was amended by the Miscellaneous Trade and Technical Corrections Act of 2004 (the 2004 Act) (Public Law 108-429, 108 P.L. 429, 118 Stat. 2434 (2004). Public Law 108- 429 enacted H.R. 1047, 12/3/2004) to provide for deemed liquidation of drawback claims. Section 1563, Subtitle B of the 2004 Act amended § 1504 (a) (2) to read in pertinent part:

(A)In general. Except as provided in subparagraph (B) or (C), unless an entry or claim for drawback is extended under subsection (b) or suspended as required by statute or court order, an entry or claim for drawback not liquidated within 1 year from the date of entry or claim shall be deemed liquidated at the drawback amount asserted by the claimant at the time of entry or claim. . . . .

(B) Unliquidated imports.--An entry or claim for drawback whose designated or identified import entries have not been liquidated and become final within the 1-year period described in subparagraph (A) or within the one-year period described in subparagraph (C), shall be deemed liquidated upon the deposit of estimated duties on the unliquidated imported merchandise, and upon the filing with the Customs Service of a written request for the liquidation of the drawback entry or claim. Such a request must include a waiver of any right to payment or refund under other provisions of law. . . .

(C) Exception. An entry or claim for drawback filed before the date of the enactment of this paragraph, the liquidation of which is not final as of the date of the enactment of this paragraph, shall be deemed liquidated on the date that is 1 year after the date of the enactment of this paragraph at the drawback amount asserted by the claimant at the time of the entry or claim.

The issue involves the interpretation of the statute. Paragraph (a)(2) sets two separate time periods for drawback claims that were filed before and on or after the effective date. The paragraph also addresses the situation in which a drawback claim filed in either time period is based on one or more import entries on which the liquidation has not become final. Paragraph (a)(2)(A) sets the general rule that applies to drawback claims that are filed on or after the effective date of the amendment and provides that such a claim , absent suspension or extension, becomes liquidated by operation of law unless liquidated by CBP within one year after the claim is filed. Paragraph (a)(2)(C) sets an exception to that general rule. Under paragraph (a)(2)(C), the one-year period begins on the date of enactment for un-liquidated drawback claims that were filed before the amendment became law. This provision prevents retroactive application which could occur had the one-year period for CBP to liquidate started on the date that the claim was filed. That is, before the amendment, the liquidation of drawback claims were not covered by 19 USC 1504 and a claim filed more than a year prior to the date of enactment would be deemed liquidated by the literal application of subparagraph (A).

3 See International Light Metals v. U.S., 24 F.Supp. 2d. 281, 291-292 (CIT 1998), rev. on other grounds, 194 F.3d.1355,1360, footnote 6 (Fed.Cir. 1999).

Subparagraph (a)(2)(B) applies where a claim covered by either subparagraph (A) or(C) is based on one or more import entries whose liquidation did not become final within the applicable period. Subparagraph (a)(2)(B) sets up a procedure under which persons who may be eligible to claim a refund may receive one,despite the fact that the import entries on which the claim is based are not final. In such circumstances, the claim for refund is limited to the estimated duties deposited and must be accompanied by a waiver of the right to claim the refund under any other law.

The protestant argues that subparagraph (C) is to be read in isolation without reference to subparagraph (B) and that the claim in this case liquidated by operation of law at the amount asserted by the claimant. We disagree. Protestant’s argument disregards the explicit reference in subparagraph (a)(2)(B) to both subparagraphs (A) and (C). Thus, the rule in subparagraph (a)(2)(C) is subject to the terms of subparagraph (B). The clear intent of subparagraph (B) is to prevent a double refund of duties paid on an import entry or to avoid placing the Government into the position of choosing between two potentially eligible claimants for the same refund. This will be illustrated by the following discussion of the operation of the drawback and other laws that govern duty refunds.

Subparagraph (B) requires persons who may be eligible to claim a refund to limit the claim to the estimated duties deposited and to waive the potential right to claim the refund under any other law. Specifically, the subparagraph provides:

An entry or claim for drawback whose designated or identified import entries have not been liquidated and become final … shall be deemed liquidated upon the deposit of estimated duties on the unliquidated imported merchandise and upon the filing with the Customs Service [ now U.S. Customs and Border Protection] of a written request for the liquidation of the drawback claim or entry. Such a request must include a waiver of any right to payment or refund under any other provision of law.

An explanation of drawback and other laws that enable a person to obtain a refund of duty illustrates how the amendment language applies.

Drawback is a refund of duty paid on one or more import entries. An importer sells the imported merchandise to another person and certifies delivery of that merchandise to that person, and the importer’s surety, may challenge the amount of duty paid on the imported merchandise by filing a protest against the liquidation of the import entry. The person who receives the imported merchandise with a certificate of delivery upon compliance with the applicable drawback laws and exportation of that merchandise has the right to claim drawback. Thus, it is possible for a refund of the duty on the same merchandise to be paid twice if the protest of an importer or importer’s surety is granted and the claimant on a drawback claim is paid. Moreover, if an

4 importer, or its surety, files a protest against the liquidation of a claim and CBP also has before it a drawback claim on the same merchandise, CBP, if it were aware of the competing claims for the same money, would be put in the position of choosing between the importer or its surety and the drawback claimant. A liquidation by operation of law means that upon the expiration of the relevant time period and other requirements, a drawback claim will be liquidated as filed. Once liquidated by operation of law, CBP has no option but to liquidate at the rate asserted by the claimant. See Koyo Corp. v. U.S., 497 F.3d. 1231, 1237 (Fed. Cir. 2007): “Thus, when 19 U.S.C. 1504(d) is triggered, Customs can only assess the duty rate that it assessed on the entries at the time of entry”. The amendment made the rationale expressed by the Koyo court applicable to drawback claims.

As noted above, subparagraph (a)(2)(B) addresses those situations. That provision covers the situation when a drawback claim is filed on which the liquidation of one or more designated import entries has not become final within the period in which the drawback claim would have been liquidated by operation of law, but for the lack of finality of liquidation of one or more designated import entry or entries. Unless each of the import entries on which the drawback claim is based have been liquidated and those liquidations have become final, multiple refunds of the same duty is possible and the Government would be placed in a position of choosing between two parties who have rights to a refund under different laws. The provision provides an alternative procedure for a claim to be liquidated as filed by the drawback claimant notwithstanding the existence of designated import entries whose liquidation has not become final by limiting the drawback refund to the estimated duty deposited and requiring a written waiver of the right to make a claim for the deposited estimated duty under any other law from each relevant party to be filed.

If a final determination of the duty determined to be due on an import entry has not been made, the Government would possess, and therefore, only be able to refund only the money it received at that point in time: the estimated duties deposited. See 19 CFR 159.1 (liquidation means the final computation of the duties accruing on an import entry). The final amount of duty owed can vary from the estimated duty that was deposited on the entry pursuant to 19 USC 1505(a), either by an increase or a decrease determined on liquidation. Under 19 USC 1500(c), CBP is required to determine the amount of duty due. Under 19 USC 1501, CBP has authority to re-liquidate a liquidated import entry. Once liquidation occurs, 19 USC 1514 provides for the liquidation to become final unless the liquidated import entry is re-liquidated under 19 USC 1501 or a protest against that liquidation is filed. Since subparagraph (a)(2)(B) applies whenever a drawback claim is based on one or more import entries whose liquidation have not become final, within the applicable time period, it is necessary to determine the meaning of finality with respect to the liquidation of the import entries in this case.

5 Finality of liquidation is set by section 1514 (19 USC 1514) which, in pertinent part, provides:

Except as provided in …, section 1501 of this title (relating to voluntary re- liquidations), …, and section 1520 of this title (relating to refunds and errors), decisions of the Customs Service [ now Customs and Border Protection (CBP)], including the legality of all orders and findings entering into the same, as to – (5) the liquidation or re-liquidation of an entry, …, shall be final and conclusive upon all persons(including the United States and any officer thereof) unless a protest is filed in accordance with this section,… .

As noted above, the time for filing a protest and for correcting an error was amended by Pubic Law 108-429. Prior to that amendment, an importer had 90 days from notice of liquidation in which to file a protest, thereby preventing the liquidation from becoming final. This law also repealed section 1520(c) (1) of Title 19, United States Code. Former section 1520(c) (1) had provided that an importer could request re-liquidation within one year after the liquidation. However, the effective date provision, section 2108 of the 2004 Act, provided:

The amendments provided by this subtitle [ subtitle B, which included section 2103 which amended 19 USC 1514, and section 2105, which repealed 19 USC 1520 (c)(1)] shall apply to merchandise entered, or withdrawn from warehouse for consumption, on or after the 15th day after the date of enactment of this Act.

As noted above, enactment occurred on December 3, 2004. The 15th day following enactment was December 18, 2004. The entries covered by the drawback claim in this case were made during the period from 11/15/2002 to 2/17/2004. Consequently, 19 USC 1514, prior to the 2004 amendment, controls the finality of liquidation of the import entries that were designated by the drawback claimant in this case. Those import entries were liquidated during the period from 7/3/2003 to 1/3/2005. The period in which to file a protest on those entries was 10/1/2003 to April 3, 2005. The period in which to voluntarily re-liquidate under section 1501 was, and is identical to the 90-day protest period then in effect for those entries. Each importer on those entries had the right to request re-liquidation under former section 1520( c)(1) during the period from 7/3/2004 to 1/3/2006. In addition, under 19 USC 1514, prior to the 2004 amendment, an importer whose request for re-liquidation was denied, had the right to challenge that denial by filing a protest within 90 days after receiving notice of denial. Thus, because of the statutory rights expressly conferred by 19 USC 1514, the earliest date under which the liquidation of the most recent import entry designated on the drawback claim, entry 06-8 made 2/17/2004 and liquidated 1/3/2005, would be final was 1/3/2006, without taking the right to protest a denial of a re-liquidation request under former section 1520 (c) (1).

A drawback claim that is filed before the date of enactment of the 2004 Act, as was the claim here, is governed by subparagraph (a)(2)(C) of section 1504. However, as discussed above, before a liquidation by operation of law can occur, all import

6 entries on which the claim is based must themselves have been liquidated and those liquidations have become final by virtue of subparagraph (a)(2)(B). The court, in the case of U.S. v. UTEX, 857 F. 2d. 1408 (Fed. Cir. 1988), discussed finality of liquidation with respect to the effect of 19 USC 1514 and former 19 USC 1520 (c)(1). At page 1410-1411, the court observed that a liquidation becomes final when it is not challenged by a timely protest or re-liquidation. The court, at page 1411, cited the earlier case of Omni U.S.A. v. U.S., 840 F.2d. 912 (Fed. Cir. 1988) and held:

Since nobody brought the errors to the attention of the appropriate Customs officers within one year of the date of liquidation, the authority to correct them lapsed according to the term of section 1520 ( c)(1)…

Consequently, by virtue of subparagraph (a)(2)(B), the drawback claim did not liquidate by operation of 19 USC 1504 (a)(2)(C) since the liquidation of all of the import entries did not become final within the one-year period after the date of enactment (12/3/2005).

However, as discussed above, a drawback claimant whose claim is based on import entries whose liquidation has not become final has the right to have that claim liquidated as filed by making a written request that limits the claim to the amount of money deposited as estimated duties and waiving the right to seek a refund under any other provision of law. If the claimant is not the importer, or if a surety is involved that could file a protest, the text of 19 USC 1504(a)(2)(B) provides:

Such a request must include a waiver of any right to payment or refund under any other provisions of law.( emphasis supplied)

In those situations, appropriate waivers must be obtained from each party who is in a position to make a claim for the deposited duty to prevent the possibility of multiple payments of the same duties or to require CBP to choose among a drawback claimant, an importer of record, or a surety who secured the performance of either as the recipient of the refund. The protestant did not avail itself of this procedure.

In addition, on 2/16/2006, the claimant here made a written request for an extension of time to provide evidence of compliance with the drawback laws which was granted by CBP. Had the liquidation of each underlying import entry become final on or before within one year after the date of enactment, the relevant language of 19 USC 1504 which prevents liquidation by operation of law if an entry or claim is extended would have to be taken into account. Since the liquidation of the import entries did not become final within the applicable time period, it is unnecessary to consider the legal effect of the request or its grant to prevent liquidation by operation of law here.

7 HOLDING: The protest is to be denied since the only challenge to the liquidation was that the claim liquidated as filed and we find that based on the evidence in the file, the claim did not liquidate by operation of law.

In accordance with the Protest/Petitioning Processing Handbook, January 2002, pp 18 and 21, you are to mail this decision, together with the CBP Form 19, to the protestant no later than 60 days from the date of this letter. Any re-liquidation of the entries in accordance with this decision must be accomplished prior to mailing of this decision. Sixty days from the date of this decision this Office will make the decision available to CBP personnel and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other means of public distribution.

Sincerely,

Myles Harmon, Director Commercial and Trade Facilitation Division