H277463

HQ H277463 September 27, 2024 OT:RR:CTF:EPDR H277463 ND CATEGORY: Entry Center Director Agriculture & Prepared Products Center of Excellence and Expertise U.S. Customs & Border Protection 555 Battery Street, Room 319 San Francisco, CA 94111 Attn: Pauline Guan, Drawback Specialist Re: Application for Further Review of Protest Number 2809-16-100293; Unused Merchandise Drawback; Substitution Drawback; 19 U.S.C. § 1313(j)(2); Distilled Spirits; Excise Tax; 19 C.F.R. § 191.38; 19 C.F.R. § 191.2(t); 19 C.F.R. § 191.72 Dear Center Director: The purpose of this decision is to address the application for further review (“AFR”) of protest number 2809-16-100293, filed by Brown-Forman Corporation (“Brown-Forman”) on May 20, 2016, regarding the denial of its four drawback claims. This protest is designated as the lead protest and addresses the identical facts and issues presented in protest numbers 2809-16-100339, 2809-16-100340, 2809-16-100341, 2809-16-100342, 2809-19-101145, 2809-19-101146, 2809-20-102088, 2809-20-102089, 2809-20-102113, and 2809-20-102114. FACTS: Brown-Forman entered two entries, numbers XXX-XXXX102-4 and XXX-XXXX103-2, of grain neutral spirits (“GNS”) from Canada on May 15, 2014, and May 20, 2014, respectively. The imported GNS was classified under subheading 2207.10.3000, Harmonized Tariff Schedule of the United States (Annotated) (“HTSUSA”). GNS imports under subheading 2207.10.3000, HTSUSA, from Canada in May of 2014 could enter free of duty pursuant to the North American Free Trade Agreement (“NAFTA”). Although the imported GNS was not subject to duties at the time of entry, it was subject to the federal excise tax assessed on all imported and domestically produced distilled spirits pursuant to the Internal Revenue Code (“IRC”) as enumerated in 26 U.S.C. § 5001 (“excise tax”). Rather than paying the excise tax to U.S. Customs and Border Protection (“CBP”) at the time of entry, Brown-Forman elected to defer the tax payments and transferred the imported GNS directly to the company’s Alcohol and Tobacco Tax and Trade Bureau (“TTB”) bonded distilled spirits plant (“DSP”). Upon admission to the TTB-bonded DSP, the imported GNS was used in the production of finished goods. On August 27, 2015, Brown-Forman filed four drawback claims, numbers XXX-XXXX024-8, XXX-XXXX025-5, XXX-XXXX026-3, and XXX-XXXX023-0. On December 4, 2015, the drawback office liquidated all four claims without drawback. According to the drawback office, CBP could not refund drawback of excise tax for distilled spirits paid to TTB. The drawback office relied on Headquarters Ruling Letters (“HQ”) 227916 (Jan. 6, 1999) and HQ 229320 (July 29, 2002) as the basis for the denial of Brown-Forman’s drawback claims. Brown-Forman filed protest number 2809-16-100293 on May 20, 2016, challenging the liquidations without drawback and CBP’s determination that excise taxes paid to TTB owed on imported distilled spirits that are deferred upon importation are not eligible for drawback under 19 U.S.C. § 1313(j)(2). Brown-Forman makes two primary arguments. First, statutory amendments enacted in 2004 changed the plain language of 19 U.S.C. § 1313(j)(2) to demonstrate Congress’ intent that no other law may abridge Brown-Forman’s right to drawback of excise tax under § 1313(j)(2). Accordingly, Brown-Forman argued that as a result of the 2004 legislative change, § 1313(j)(2) allows for drawback of any tax imposed on imports under Federal law notwithstanding any other provision of law. Second, Brown-Forman argued that the 2004 legislative amendments made Congress’ intent clear that § 1313(j)(2) drawback is not precluded by the excise tax drawback provision under the IRC Title 26 drawback provision as was held by certain HQ Ruling Letters issued prior to 2004, upon which the drawback office relied. To substantiate its drawback claims, Brown-Forman provided two Excise Tax Returns (TTB Form 5000.24) to demonstrate the amount of tax on distilled spirits owed to TTB during the designated periods, a portion of which is attributed to entry numbers XXX-XXXX102-4 and XXX-XXXX103-2. The first Excise Tax Return is identified by serial number 2014-12 (Amended), covers the period between June 16, 2014, and June 30, 2014 (“Excise Tax Return 2014-12”), and concerns drawback claims XXX-XXXX025-5, XXX-XXXX024-8, and XXX-XXXX026-3. The second Excise Tax Return, identified by serial number 2014-13 (Amended), covers the period between July 1, 2014, and July 15, 2014 (“Excise Tax Return 2014-13”), and concerns drawback claim XXX-XXXX023-0. The tax returns identify the total amount of excise tax calculated for distilled spirits withdrawn from Brown-Forman’s DSP during the enumerated period, namely June 16, 2014, through July 15, 2014. Furthermore, the tax returns note that a designated portion of the total excise tax owed is attributable to imported proof gallons of GNS transferred to its DSP and there used in the production of a finished product that was withdrawn during the enumerated period. To further substantiate its drawback claims, Brown-Forman provided documentation including import commercial invoices, Notice of Intent to Export, Destroy or Return Merchandise for Purposes of Drawback (CBP Form 7553), Drawback Entry (CBP Form 7551), export commercial invoices, export packing lists, export bills of lading, Transportation Entry and Manifest of Goods Subject to Customs Inspection and Permit (CBP Form 7512), and Withdrawal of Spirits, Specially Denatured Spirits, or Wines for Exportation (TTB Form 5100.11). Brown-Forman asserted that, collectively, the documentation shows the withdrawal of GNS from its DSP in Kentucky, transportation of the spirits by rail to Norfolk, VA, for exportation to Finland. The documentation identifies the quantity exported, unique identifiers for the tankers containing the exported spirits, associated entry numbers for the drawback claims, and export vessel information. Brown-Forman has also certified that it has not and will not claim a refund from TTB with respect to the protested drawback claims. In reviewing the documentation, CBP flagged several discrepancies. For example, the export date identified on CBP Form 7551, with respect to drawback claim XXX-XXXX026-3, predates the purported withdrawal of the exported spirits from Brown-Forman’s DSP. Additionally, both TTB Form 5100.11 and the packing lists associated with the exported tankers were dated in advance of the entry dates of entry numbers XXX-XXXX102-4 and XXX-XXXX103-2. According to Brown-Forman, these discrepancies were clerical errors as demonstrated by the other accompanying documents that identify consistent dates and data. Subsequently, the drawback office denied Brown-Forman’s protest, reiterating that it could not grant drawback of excise taxes paid to TTB, and determining that the documentation provided by Brown-Forman did not substantiate its drawback claims. For purposes of the AFR and at the request of CBP Headquarters, Brown-Forman provided additional documentation with respect to drawback claim XXX-XXXX026-3, including SAP Data Services (“SAP”) documentation evidencing the admission of imported proof gallons of GNS into Brown-Forman’s DSP, and the association of these imports to entry number XXX-XXXX102-4. For purposes of maintaining controls relevant to the production of a consumer product, Brown-Forman is able to tie back any product containing imported GNS to one or more import batches. In Brown-Forman’s internal accounting systems, imported proof gallons are assigned a batch number, allowing Brown-Forman to track the usage of each proof gallon from the point of admission into the DSP through the bottling of the spirits into finished goods. Brown-Forman also provided SAP documentation evidencing the amount of excise tax owed to TTB, as identified on Excise Tax Return 2014-12 for the period of June 16, 2014, through June 30, 2014. One such SAP documentation shows the portion of GNS that was segregated from the to

It is the opinion of your office that this protest meets the criteria for further review. We agree and are of the opinion that this protest involves questions of law and fact, upon which we have not previously ruled, namely whether entries of distilled spirits are eligible for drawback under 19 U.S.C. § 1313(j)(2). See 19 C.F.R. § 174.24(b). The refusal to pay a claim for drawback is protestable pursuant to 19 U.S.C. § 1514(a)(6). The instant protest was timely filed, within 180 days from the date of liquidation of the drawback entries. See 19 U.S.C. § 1514(c)(3)(A). CBP denied Brown-Forman’s drawback claims on December 4, 2015, when it liquidated the subject drawback entries without drawback. This protest was filed on May 20, 2016, within 180 days of that liquidation.Generally, federal excise taxes are imposed on the manufacture and distribution of certain consumer goods, including upon the importation of distilled spirits, wines, beer, tobacco products, and certain imported taxable fuel and petroleum products. Title 26 of the Internal Revenue Code of 1986, as amended, is the main body of domestic statutory tax law of the United States and includes laws covering federal excise taxes. A system of bonded warehouses under the supervision of TTB ensures compliance with these excise tax obligations to the extent that they are unpaid upon importation. See 27 C.F.R. Part 27. To understand what is at issue in this case, it is necessary to understand the statutory regime under which the dispute arises. The IRC includes its own drawback provision for distilled spirits, which provides for the refund and drawback of excise taxes paid on domestic and imported merchandise when that merchandise is exported. See 26 U.S.C. § 5062(b)-(c). For example, under 26 U.S.C. § 5062(b), TTB allows drawback on excise taxes paid for domestic merchandise that is exported. Under 26 U.S.C. § 5062(c), TTB allows drawback on excise taxes paid for imported merchandise that is exported (provided that