HQ 223325: Protest No. 2002-8-000471; records sufficient to establishthat merchandise designated for drawback was used in manufactureor production within three years of receipt; 19 U.S.C. 1313(b);19 C.F.R. 191.32(a)(3)

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 223325

                        January 21, 1992

DRA-1-06 CO:R:C:E 223325 C

CATEGORY:  Drawback

District Director of Customs
U.S. Customs Service
423 Canal Street
Suite 244
New Orleans, Louisiana  70130-2341

RE:  Protest No. 2002-8-000471; records sufficient to establish
that merchandise designated for drawback was used in manufacture
or production within three years of receipt; 19 U.S.C. 1313(b);
19 C.F.R. 191.32(a)(3)

Dear Sir/Madam:

     This responds to a January 19, 1989, memorandum from the
Deputy Assistant Regional Commissioner for Commercial Operations,
New Orleans, to the Office of Regulations and Rulings which
attached a protest and application for further review that was
initially filed at the New Orleans district office on March 30,
1988 (DRA-1-C:O:CO:L GS).  The protest/AFR, No. 2002-8-000471,
was submitted by Phifer Wire Products, Inc.  We have reviewed the
record and our decision follows.

FACTS:

     PROTESTANT is a company that manufactures insect screening
and coated and/or coated and colored fiberglass yarn with the use
of imported and domestic fiberglass yarn.  Drawback was
authorized for this production and exportation operation, and
certain drawback claims were filed.  An audit of the company's
plant was conducted in January 1987.  By Audit Report No. 5-88-
DRR-004, Regulatory Audit Division, New Orleans, dated December
9, 1987, Customs concluded that the company's recordkeeping
procedures failed to establish that imported designated
merchandise was used in manufacture or production within three
years of receipt and thus failed to comply with 19 C.F.R
191.32(a)(3).  On the basis of this conclusion, Customs
recommended that drawback claims be denied.  On the basis of this
recommendation, five of PROTESTANT's drawback claims/entries were
denied.  PROTESTANT filed a timely protest/AFR, asserting that
its records and procedures were in compliance with the regulation
and that drawback should be allowed.  The protest/AFR was
submitted to Headquarters for our review and determination.
     PROTESTANT submitted with the protest various documentation
to demonstrate that its recordkeeping procedures are sufficient
to show use of designated merchandise.  This presentation was in
contrast to claims made in the audit report.  By letter of April
8, 1991, we requested additional information from the company. 
By letter of July 2, 1991, the company responded and submitted
additional documentation and argument in support of its protest. 
Under 19 C.F.R. 177.28, which provides that a protesting party
may submit additional argument regarding a protest at any time
prior to the disposition of the protest, we submitted this
additional information to the DARC/Commercial Operations at New
Orleans, recommending that it be reviewed and analyzed by the
appropriate local official and that a recommendation be submitted
to us concerning the disposition of the protest in light of the
additional information.  By memorandum of December 30, 1991 (DRA-
1-V:O:CO:L GNS), from the Regional Director for Commercial
Operations, New Orleans, a decision of the Regional Director of
Regulatory Audit was submitted to us.  The regional director
concluded, on the basis of the additional information, that the
company can demonstrate compliance with 19 C.F.R. 191.32(a)(3). 
Payment of all unliquidated drawback claims filed by the company
was recommended (PRO-1-V:O:RA BAP, dated December 9, 1991).  This
decision was submitted to us for our consideration in our review
of the instant protest.

ISSUE:

     What is required, by way of recordkeeping procedures in a
drawback context, to demonstrate compliance with 19 C.F.R.
191.32(a)(3), which requires that the records of the manufacturer
or producer show that designated merchandise was used in
manufacture or production within three years of its receipt?

LAW AND ANALYSIS:

     Under 19 C.F.R. 191.32, the manufacturer/producer claiming
drawback under 19 U.S.C. 1313(b) must maintain records which
demonstrate the following: 1) the identity and specifications of
the merchandise designated for drawback; 2) the quantity of
merchandise of the same kind and quality as the designated
merchandise used to produce (or appearing in) the exported
articles; 3) that the designated merchandise was used in the
manufacture/production of articles within three years of its
receipt and that the articles exported were so manufactured or
produced within the same period; and 4) that the completed
articles were exported within five years of the importation of
the designated merchandise.  19 C.F.R. 191.32(a)(1)-(4).

     An audit of a company's records and manufacturing operation
must show compliance with 19 C.F.R. 191.32.  In demonstrating
compliance with 19 C.F.R. 191.32(a)(3), a company must show, to
the satisfaction of the auditor, that designated merchandise is
actually being used in production within the specified time
period.  How a given company demonstrates this is within its
discretion, as is the choice of recordkeeping procedures
generally.  Guidance is provided under 19 C.F.R. 162.1a(a) which
defines "records" for Customs purposes:

          (a) Records. "Records" means:

           (1) Statements, declarations, books, papers,
          correspondence, accounts, technical data,
          automated record storage devices (e.g.
          magnetic discs and tapes), computer programs
          necessary to retrieve information in a usable
          form, and other documents which:

            (i) Pertain to any importation, or to the
          information contained in the documents
          required by law or regulation under the
          Tariff Act of 1930, as amended, in connection
          with the entry of merchandise;

            (ii) Are of the type normally kept in the
          ordinary course of business; and

            (iii) Are sufficiently detailed:
            (A) To establish the right to make entry,
            (B) To establish the correctness of any
          entry,
            (C) To determine the liability of any
          person for duties and taxes due, or which may
          be due, the United States,
            (D) To determine the liability of any
          person for fines, penalties, and forfeitures,
          and
            (E) To determine whether the person has
          complied with the laws and regulations
          administered by the Customs Service; and

           (2) Any other documents required under laws
          or regulations administered by the Customs
          Service.

     The foregoing sets forth the kinds of records that may be
kept and the purposes for keeping them.  Any that can be
described as of a type normally kept in the ordinary course of
business are sufficient, so long as they are sufficiently
detailed to establish what is necessary to establish under
subsection (a)(1)(iii) of section 162.1a.  The breadth of the
definition is expanded under section 162.1a(a)(2) which includes
any other documents required under the Customs laws and
regulations.  For the purposes of demonstrating drawback
compliance, particularly compliance with 19 C.F.R. 191.32(a)(3),
the key question is this: To what degree must records demonstrate
the use of merchandise in production?  There is no absolute
answer, and the auditor is called upon to make a determination in
view of the records reviewed and all other factors observed
during the audit, including the physical manner the merchandise
is stored and moved about.  Our October 18, 1991, memorandum to
the DARC, which submitted the company's additional documentation
for local review, stated the following:

          [T]he issue is whether or not records and
          documents sufficiently demonstrate that
          designated merchandise was used in
          production. Records and documents should not
          be viewed in a vacuum, but should be viewed
          in the context of, indeed in either the light
          or darkness of, what is observed on site
          during the audit. The records, together with
          the auditor's observation of procedures and
          the production process, will be the basis of
          the auditor's conclusion. It is not a legal
          requirement, nor, do we believe, a
          requirement under auditing principles, that
          use of designated merchandise in a drawback
          context must be proven to the absolute
          maximum degree. Something less is sufficient,
          so long as records, taken in context with the
          particular procedures and production process
          audited, lead to the conclusion that
          merchandise is used in production as
          required.

     As stated, local review of the additional documentation
submitted by PROTESTANT led to a reversal of the audit report's
conclusion.  The regional director, with the benefit of the
additional documentation, concluded, in his discretion, that the
company's recordkeeping procedures are sufficient to demonstrate
compliance with 19 C.F.R. 191.32(a)(3).  In view of the fact that
this is, to a significant degree, a judgment call, there is no
absolute rule to espouse as the regulations are applied to the
facts of this case.  Let it be sufficient to assert that the
burden is on the party claiming drawback to demonstrate
compliance with the law and regulations.

HOLDING:

     This protest can be decided on the facts.  Upon review of
additional documentation and argument submitted by PROTESTANT (in
accordance with 19 C.F.R. 174.28) after the protest and
application for further review was forwarded to Customs
Headquarters, it was decided by Customs at the local level that
the company's recordkeeping procedures are in compliance with 19
C.F.R. 191.32(a)(3).  It was recommended that all unliquidated
drawback claims be paid.  We endorse this recommendation, but
herein expand upon it.  In view of the fact that it has now been
established that PROTESTANT's recordkeeping procedures are in
compliance with the regulations - and we concur with this
conclusion - and since we find that PROTESTANT's procedures were
the same before the audit as they were viewed to be by the
regional director after the audit, we see no reason to exclude
from the regional director's recommendation the five liquidated
entries that are the subject of this protest.  Therefore, in
approving this protest, we authorize the reliquidation of said
entries in accordance with 19 C.F.R. 173.2(d).

     You are instructed to approve the protest and notify the
PROTESTANT of our decision in accordance with 19 C.F.R. 174.29. 
Please forward a copy of this decision to PROTESTANT.

                               Sincerely,




                               John Durant, Director
                               Commercial Rulings Division