Protest number 4601-08-100585

HQ H050681 December 19, 2011 DRA-3 DRA-2-02 OT:RR:CTF:ER H050681 GGK Port Director U.S. Customs and Border Protection New York/Newark Service Port 1100 Raymond Boulevard Newark, NJ 07102 Attn: Jennifer Tagliaferro RE: Protest number 4601-08-100585 Dear Port Director: This is a further review of Protest number 4601-08-100585, filed by the Protestant, Stepan Company (“Stepan”), on March 13, 2008. FACTS: On April 15, 2005, Stepan filed an application with Customs and Border Protection (“CBP”) for a specific manufacturing drawback ruling pursuant to 19 U.S.C. § 1313(d) (“drawback ruling”), drawback of internal revenue taxes upon the exportation of flavoring extracts manufactured or produced in the United States using domestic alcohol. The application in the “Agreements” section includes the following: “Issue instructions to insure proper compliance with title 19, United States Code, section 1313, part 191 of the CBP Regulations and this application and letter of approval.” The application also included the following statement: “We realize that to obtain drawback the claimant must establish that the completed articles were exported within 5 years after the tax has been paid on the domestic alcohol.” Finally, the application contained the Declaration of Official: “I declare that I have read this application for a specific manufacturing drawback ruling; that I know the averments and agreements contained herein are true and correct; and that my signature on this 15th day of April 2005, makes this application binding” and is signed by James Butterwick, Director of Food and Health Specialties. CBP approved Stepan’s application on May 12, 2005, and issued Ruling number 46-00020-000. Stepan filed seven drawback claims based on Ruling number 46-00020-000 on April 30, 2007, with the New York Drawback Office. According to the supporting documents, the export dates for the drawback products ranged from July 16, 2002, to March 31, 2004. By Notice of Action dated January 2, 2008, CBP advised Stepan that these seven claims were liquidated on January 18, 2008, with no drawback for lack of compliance with 19 U.S.C. § 1313(r)(1) and 19 C.F.R. § 191.102(e). Specifically, the drawback office determined that the drawback claims were not filed within three years after the date of export. Stepan filed Protest 4601-08-100585 (“Protest”) with an application for further review (“AFR”) on March 13, 2008. The Protest and AFR were denied on July 18, 2008. On August 19, 2008, Stepan filed a request to set aside the denial of AFR pursuant to 19 U.S.C. § 1515(c), which was granted on October 17, 2008. The Protest and all supporting documents were forwarded to this office on February 3, 2009, for further review. According to the Protest, Stepan asserts that CBP is responsible for the company’s late filing of its drawback claims because CBP’s ruling was confusing. Therefore, it asserts that an extension of the filing deadline under 19 U.S.C. § 1313(r)(1) is warranted. In contrast, the New York Drawback Office argues that Stepan missed the filing deadline under 19 U.S.C. § 1313(r)(1) because the company’s employees failed to consult all relevant drawback laws and regulations. Thus, Stepan is responsible for the missed filing deadline, and the claim should be denied. ISSUE: Whether CBP is responsible for Stepan’s untimely filing of its drawback claims, thereby, warranting an extension of the filing deadline pursuant to 19 U.S.C. § 1313(r)(1). LAW AND ANALYSIS: As a preliminary matter, we note that this office granted Stepan’s 19 U.S.C. § 1515(c) request to set aside the denial of AFR on August 19, 2008, because we found that there was a question of law that neither the courts nor CBP has ruled upon. Therefore, further review was deemed proper pursuant to 19 C.F.R. § 174.24(b). The refusal by CBP to pay a claim for drawback is a protestable decision pursuant to 19 U.S.C. § 1514(a)(6). Stepan timely filed this protest and AFR on March 13, 2008, within 180 days of liquidation on January 18, 2008. In contesting CBP’s denial of its seven drawback claims, Stepan first concedes that its drawback claims were filed more than three years after exportation of the designated exports. Specifically, the articles on which drawback is claimed were exported between July 16, 2002, and March 31, 2004. The drawback claims, however, were filed on April 30, 2007, which is more than three years from the exportation dates. See, e.g., HQ 222987 (Feb. 14, 1996) (holding that the drawback claims under consideration must be denied because they were filed more than three years after the date of exportation of the articles). Stepan, however, argues that ruling number 46-00020-000 included misleading language that resulted in the missed filing deadline. Consequently, Stepan believes an extension of the three-year filing deadline is warranted under 19 U.S.C. § 1313(r)(1). Contrary to Stepan’s assertions, we find that CBP was not responsible for the company’s untimely filing of its drawback claims; thus, no extensions are warranted. Tax on distilled spirits is imposed by 26 U.S.C. § 5001. Drawback of internal-revenue tax paid on domestic alcohol used to make flavoring extracts may be available when those flavoring extracts are exported per 19 U.S.C. § 1313(d). The Internal Revenue Service regulations require drawback claims to be filed according to CBP regulations when claiming drawback under 19 U.S.C. § 1313(d). Specifically, 27 C.F.R. § 17.181 provides in pertinent part: Medicinal preparations and flavoring extracts, approved for drawback under the provisions of this part, may be exported subject to 19 U.S.C. 1313(d), which authorizes export drawback equal to the entire amount of internal revenue tax found to have been paid on the domestic alcohol used in the manufacture of such products. . . . . Claims for such export drawback shall be filed in accordance with the applicable regulations of the U.S. Customs Service. . . To receive drawback on taxes paid on domestic alcohol, the relevant statute requires claims to comply with the three-year filing deadline stipulated in 19 U.S.C. § 1313(r)(1): A drawback entry and all documents necessary to complete a drawback claim, including those issued by the Customs Service, shall be filed or applied for, as applicable, within 3 years after the date of exportation or destruction of the articles on which drawback is claimed . . . Claims not completed within the 3-year period shall be considered abandoned. No extension will be granted unless it is established that the Customs Service was responsible for the untimely filing. 19 U.S.C. § 1313(r)(1). See also 19 C.F.R. § 191.102(e). Accordingly, only if CBP is responsible for the late filing may an extension be granted. The case Delphi Petroleum, Inc. v. United States, 662 F. Supp. 2d 1348 (Ct. Int’l Trade 2009), provides an example of what would constitute CBP’s responsibility for untimely filing and pertains to an affirmative statement by CBP on which the claimant relied. In Delphi Petroleum, a supervisory CBP official erroneously advised Delphi not to file its drawback claim until certain events transpired. 662 F. Supp. 2d at 1355. When Delphi filed its claim following the supervisory CBP official’s advice, the claim was outside the three-year filing period and, thus, untimely. Id. at 1354. As supporting evidence, Delphi submitted correspondence with CBP that demonstrated the company’s willingness and ability to timely file a claim but was told not to do so by the supervisory CBP official. Id. at 1355. Based on these facts, the Court of International Trade (“CIT”) concluded, “But for the advice of the supervisory Customs official, Delphi did not need to wait for liquidation to file its claim.” Id. at 1354. That is not the case here with Stepan’s claims. Unlike the plaintiff in Delphi Petroleum, there is no affirmative action taken by CBP instructing Stepan that it may file its claim beyond the three year statutory deadline. Rather, Stepan only asserts that the following language in its drawback ruling caused Stepan’s employees to misunderstand the filing time requirements: “We realize that to obtain drawback the claimant must establish that the completed articles were exported within 5 years after the tax has been paid on the domestic alcohol.” Stepan asserts that its employees “filing the drawback claims understood this language to mean that they had five years from payment of the tax . . . within which to establish that the completed articles had been exported, in other words, to file the claims.” (Emphasis in original). Stepan notes that § 1313(d) and § 191.102(e) do not contain the five-year time limitation and argues it is the inclusion of this timeframe led its employees to believe they had five years after the tax was paid to file the claims. Stepan further states that its employees responsible for filing the claims were “unaware of the origins of the five-year requirement” and that this language contained in the drawback ruling is “inconsistent with CBP regulations.” According to Stepan, since there is no requirement for goods to be exported within five years after payment of the taxes and CBP failed to require removal of the language from the drawback ruling, “CBP contributed to Stepan’s misunderstanding” of the filing deadline. Finally, Stepan states that “[d]uring a long period of time between drawback filings at Stepan, there were several personnel changes within the company that resulted in a loss of institutional memory with respect to drawback matters. As a consequence, those who filed the new application had only the old contract for guidance.” Stepan offers no legal support for its assertion that misunderstanding of language in a drawback ruling warrants extension of the filing deadline per § 1313(r). An employee’s misunderstanding of Stepan’s drawback ruling does not obviate statutory and regulatory obligations. As consistently held by the courts, drawback is a statutory privilege expressly conditioned upon full compliance with customs rules and regulations. See, e.g., United States v. Lockheed Petroleum Services, Ltd., 709 F.2d 1472, 1474 (Fed. Cir. 1983) (citation omitted); United States v. W. C. Hardesty Co., 36 C.C.P.A. 47, 52 (1949) (citation omitted). As noted above, the language Stepan asserts was misread by its employees is: “We realize that to obtain drawback the claimant must establish that the completed articles were exported within 5 years after the tax has been paid on the domestic alcohol.” This language does not reference the filing of a drawback claim. Rather, it refers to when the articles must be exported in relation to the payment of domestic taxes. Since nothing in Stepan’s drawback ruling contradicted or even referenced the three-year filing deadline contained in 19 U.S.C. § 1313(r)(1), Stepan cannot plausibly argue that but for CBP’s approval of the drawback ruling Stepan’s employee’s would have timely filed the drawback claims. Moreover, Stepan’s assertion that its employees misunderstood the language in its drawback ruling is contrary to the “Declaration” signed by its representative James Butterwick, Director of Food and Health Specialties. The declaration states that Mr. Butterwick both read the application and knew of the obligations to which Stepan had agreed. Further, Stepan agreed to “issue instructions to insure proper compliance with title 19, United States Code, section 1313, part 191 of the CBP Regulations and this application and letter of approval.” A drawback ruling binds both CBP and the claimant to its provisions. Per 19 C.F.R. § 177.9(b)(1): [I]f the transaction described in the ruling letter and the actual transaction are the same, and any and all conditions set forth in the ruling letter have been satisfied, the ruling will be applied to the transaction. In HQ 226177 (May 1, 1997), CBP held that an approved drawback contract is binding and that CBP must pay drawback on a claim consistent with that contract even if the original contract was based on facts that should have caused the contract to be denied. Furthermore, HQ 226177 stated that drawback contracts were ruling letters and thus subject to 19 C.F.R. Part 177. To argue, after the binding ruling was issued and, by Stepan’s own admission, used to claim drawback, that it didn’t understand its obligations and that its employees were confused is irreconcilable with the purpose and nature of a drawback ruling. The explanation provided by Stepan in its protest and AFR demonstrates that the late filing resulted from errors made by Stepan’s own employees. An employee’s ignorance of the law or failure to consult governing statutes and regulations does not excuse noncompliance with a regulatory deadline. See Pacific Customs Brokerage Co. v. United States, 28 Cust. Ct. 385, 388 (1952) (holding that anyone dealing with the United States customs authority is presumed to have full knowledge of all applicable laws and regulations; a failure to comply with applicable laws may result in penalties or exactions); Kahrs Int’l, Inc. v. United States, 31 I.T.R.D. (BNA) 2096 (Ct. Int’l Trade 2009) (finding that ignorance of customs laws does not serve as an excuse for a failure to comply with the requirements thereof) (citation omitted). Moreover, Stepan does not point to any direction by CBP that contradicts the statutory deadline in 19 U.S.C. § 1313(r)(1). Thus, Stepan has not established CBP’s responsibility for the untimely filing of these drawback claims pursuant to 19 U.S.C. § 1313(r)(1). Therefore, no extension of the three-year filing deadline is warranted and the claims should be denied as untimely. HOLDING: CBP is not responsible for Stepan’s untimely filing of its drawback claims pursuant to 19 U.S.C. § 1313(r)(1). Upon further review, Protest number 4601-08-100585 is DENIED IN FULL for the reasons set forth above. In accordance with Sections IV and VI of the CBP Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), 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. Sixty days from the date of the decision, the Office International Trade, Regulations and Rulings, 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 methods of public distribution. Sincerely, Myles B. Harmon, Director Commercial and Trade Facilitation Division