HQ 223089: Application for further review of Protest No. 3901-90- 001248 under 19 U.S.C. 1514; voluntary tender of duties; drawback eligibility of voluntarily tendered duties; 19 U.S.C. 1313

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                            HQ 223089

                       September 17, 1991

LIQ-9/DRA-2-02 CO:R:C:E  223089 CB

CATEGORY:  Entry/Protest

Regional Commissioner
U.S. Customs Service
North Central Region
Suite 1501
55 East Monroe Street
Chicago, ILL 60603-5790

RE:  Application for further review of Protest No. 3901-90-
     001248 under 19 U.S.C. 1514; voluntary tender of duties;
     drawback  eligibility of voluntarily tendered duties; 19
     U.S.C. 1313

Dear Sir:

     The above-referenced protest was forwarded to this office
for further review.  We have considered the points raised and our
decision follows.

FACTS:

     According to protestant, the subject claim arises in
connection with the liquidation of four drawback entries
involving the exportation of certain textile fabrics which had
been previously imported from Germany under various consumption
entries.  In 1986, protestant, as importer of record, filed the
subject entries.  The invoice unit values for several shipments
were converted from deutschemarks to U.S. Dollars, at the time of
importation.  Protestant alleges that the broker failed to
realize that the invoice values were already in U.S. Dollars.  As
a result, the duties were underpaid at the time of entry.  A
total of $15,570.74 in duties were deposited at the time of entry
based upon the erroneous calculations.  The correct amount of
duties due was $34,449.13, a difference of $18,878.39.  

     In 1987, some of the merchandise imported under the subject
four consumption entries was designated for drawback.  The
drawback claims were prepared utilizing the correct values, i.e.
the U.S. Dollar amounts reflected on the commercial invoices;
thus, there was an overstatement of the actual duty refunds due
under drawback.  Refunds were issued to protestant under the
accelerated drawback program totaling $7,166.38.  On December 19,
1989, protestant notified U.S. Customs in Chicago of the
erroneous valuations.  During a meeting with a Customs officer,  -2-

protestant made prior disclosure and agreed to voluntarily tender
the outstanding duties within thirty (30) days to resolve the
underpayment on the underlying consumption entries.  Protestant
voluntarily tendered the duties owing on the subject entries in
the amount of $18,878.38 on January 18, 1990.  In 1990, Customs
liquidated the drawback entries claiming additional duties of
$18,475.98.  According to protestant, the additional duty
assessments represent the total amount of duties due on all
merchandise entered under the four consumption entries including
merchandise not designated for drawback.

     Protestant contends that it corrected the discrepancy
between the duty paid against the consumption entries and the
amounts refunded under drawback prior to the liquidation of the
drawback entries.  Thus, at the time of liquidation, all lawful
duties had been paid and there was no longer a discrepancy
between the consumption entries and the drawback claims. 
Moreover, that failure to cancel the demand for additional duties
will result in the duplicate payment of these duties:  once
against the consumption entries and a second time against the
drawback entries.  Alternatively, that if the claim for
additional duties is not cancelled in full, the amount demanded
should be substantially reduced.

     It is the district office's position that withheld duties
are voluntary tenders of monies after the liquidation of an
import entry becomes final.  Withheld duties are not regular
duties and are therefore not subject to liquidation.  In support
of its position the district cites a Headquarters' ruling which
states that withheld duties are not a subject of drawback
allowance.

ISSUE:

     1)  Whether voluntarily tendered duties are subject to
drawback allowance?

     2)  If not, whether the amount demanded in the subject
protest should be substantially reduced?

LAW AND ANALYSIS:

Issue #1

     Drawback is the reimbursement of duties paid on goods
imported into the United States and then used in the manufacture
or production of articles which are subsequently exported. 
Nicholas & Co. v. United States, 7 Ct. Cust. App. 97 (1916),
aff'd, 249 U.S. 34 (1919).  Customs Regulations define drawback
as:
                               -3-


     ...a refund or remission, in whole or in part, of a customs
     duty, internal revenue tax, or fee lawfully assessed or
     collected because of a particular use made of the
     merchandise on which the duty, tax, or fee was assessed or
     collected.

19 C.F.R. 191.2(a) (1990).  Procedures for completion, payment,
and liquidation of drawback claims are set forth in the Customs
Regulations.  19 C.F.R. 191.61 to .73 (1990).  Duties which are
subject to drawback are only marking and ordinary customs duties. 
19 C.F.R. 191.3 (1990).  

     Under 19 U.S.C. 1592(c)(4), a prior disclosure is made if
the person concerned discloses the circumstances of a violation,
and makes a tender of any actual loss of duties.  A prior
disclosure is one that discloses the circumstances of a violation
by the person concerned in the violation within the time frame
specified by the statute.  The statute provides that if a
disclosure is made with respect to a 1592(a) violation,
merchandise shall not be seized and any monetary penalty to be
assessed shall not exceed 

     "(A)  if the violation resulted from fraud--

          (i) an amount equal to 100 percent of the lawful duties
          of which the United States is or may be deprived, so
          long as such person tenders the unpaid amount of the
          lawful duties at the time of disclosure or within
          thirty days..., or

      (B)  if such violation resulted from negligence or gross
      negligence, the interest (computed from the date of        
      liquidation...) on the amount of lawful duties of which the
      United States is or may be deprived...."

     Protestant's counsel asserts that voluntarily tendered
duties are subject to drawback.  Counsel points to the language
of the statute in support of its assertion.  Specifically, that
the statute provides that penalties will be limited only if the
importer "tenders the unpaid amount of lawful duties at the time
of disclosure...."  19 U.S.C. 1592(c)(A)(i).  The district based
its denial of the subject protest on ORR Ruling 76-0028 dated
June 18, 1975 which held that "withheld duties paid on imported
merchandise are not a subject of drawback allowance...but that
they come within the phrase "fees, charges, or exactions other
than duties,...."  We concur in the district's conclusion. 
Lawful duties for the purpose of drawback are duties for which
Customs can sue.  The Customs Service cannot institute a legal  -4-


action pursuant to 19 U.S.C. 1592(c) to collect duties owed if an
importer fails to deposit voluntarily tendered duties subsequent
to a prior disclosure.  The only remedy available to Customs is a
19 U.S.C. 1592(d) action.

     However, a distinction must be made with respect to duties
which are voluntarily tendered prior to liquidation of the
underlying consumption entry.  Liquidation of an entry of
merchandise constitutes the final computation by Customs of all
duties accruing on that entry.  See generally, Ambassador
Division of Florsheim Shoes v. United States, 748 F. 2d 1560,
1562 (Fed. Cir. 1984).  Thus, when additional duties are tendered
prior to liquidation of the consumption entry, they become part
of that final computation by Customs of all duties accruing on
that entry and are subject to drawback.  

Issue #2

     Protestant's alternate claim is that if drawback is denied,
then recovery should be limited to the amount of drawback paid. 
According to protestant, the only amount paid to it in connection
with the erroneous consumption entries under the four drawback
entries was $7,166.38.  However, because the underpayment of
duties attributable to the merchandise designated for drawback on
the four consumption entries was $2,981.56, Customs can only
demand additional duties totalling $2,981.56 upon the liquidation
of the drawback entries.  

     We agree with protestant's conclusions.  Customs demand of
an additional $18,475.98 is incorrect because it relates back to
the undervaluation of the original consumption entries.  The
voluntary tender of the withheld duties corrected the
undervaluation on the original consumption entries.  Therefore,
Customs is limited to seeking a repayment of the drawback paid on
that portion of the merchandise designated for drawback which had
been undervalued at the time of entry.  

HOLDING:

     1)  Voluntarily tendered duties paid pursuant to 19 
U.S.C 1592(c)(4) are not duties properly the subject of drawback
if paid subsequent to liquidation of the consumption entry. 
Therefore, you should deny this portion of the protest.

     2)  Liquidation of a drawback entry cannot be used as the
vehicle to reliquidate an underlying consumption entry. 
Therefore, you should approve this portion of the protest.
                               -5-



     A copy of this decision should be attached to the CF 19
Notice of Action to satisfy the notice requirement of section
174.30(a), Customs Regulations.


                                   Sincerely,





                                   John A. Durant, Director
                                   Commercial Rulings Division