H292054

U.S. Department of Homeland Security Washington, DC 20229 U.S. Customs and Border Protection HQ H292054 September 26, 2022 DRA 4 OT:RR:CTF:ER H292054 KF Jay Charkow International Tariff Management, Inc. 127 Scott Road Waterbury, CT 06705 RE: Eligibility of unsold merchandise, returned by a retailer to the importer, for substitution unused merchandise drawback; 19 U.S.C. § 1313(j)(2). Dear Mr. Charkow: This is in response to your letter, dated November 10, 2017, requesting a ruling on behalf of your client (“the Company”), to determine whether jewelry, transferred on consignment to retailers but never sold, is eligible for substitution unused merchandise drawback pursuant to 19 U.S.C. § 1313(j)(2) if returned to the Company by a retailer. Confidential treatment has been requested for certain information submitted in connection with this ruling request. In consideration of the request and sufficient justification presented pursuant to 19 CFR § 177.2(b)(7), this office will not identify the parties having any connection to the transactions under review nor any of the financial information provided to U.S. Customs and Border Protection (“CBP”). FACTS: International Tariff Management, Inc. (“ITM”) is a customs brokerage that files drawback claims on behalf of its clients, including the Company. ITM seeks a prospective ruling as to whether certain jewelry, imported and exported by the Company, is eligible for substitution unused merchandise drawback pursuant to 19 U.S.C. § 1313(j)(2). The jewelry at issue is imported by the Company for consignment to retailers. Upon importation, the jewelry is shipped to various retail locations in the United States for sale to end customers. The Company asserts that its jewelry is intended to be used by end customers after a sale is completed. Until sold, the Company retains title to the jewelry and the retailers merely hold physical custody over the jewelry in their inventory. Since retailers never hold legal title to the jewelry, they only pay the Company for pieces that are ultimately sold to end customers. End customers acquire title to the jewelry upon purchase. While the jewelry is within a retailer’s inventory, it is displayed to prospective customers and possibly tried on. The Company claims such unsold jewelry constitutes unused merchandise because while within a retailer’s physical custody, being displayed or tried on by prospective customers, the jewelry is permissively utilized for the limited purpose of advertising: “to entice potential buyers” and enable them to decide which piece to purchase. Once any consigned jewelry is sold, retailers inform the Company of an inventory deduction due to a sale, and the Company bills them for all sold pieces. Any jewelry not sold at retail is returned to the Company, then stored in offices which are rented and insured by the Company until the jewelry can be exported. The Company directs all inventory and maintains inventory control records which track the jewelry from importation through consignment to a retailer’s inventory and ultimate sale at retail or return. These records are described as capable of distinguishing sold jewelry pieces from any pieces remaining unsold within a retailer’s inventory, and from any unsold pieces which have been returned to the Company by the retailer. The Company intends to claim substitution unused merchandise drawback, pursuant to 19 U.S.C. § 1313(j)(2), on any unsold jewelry it exports. The Company requests a binding ruling confirming this unsold jewelry, meaning never sold to a retailer or an end customer at retail, is eligible for unused merchandise drawback. Based on this request, our analysis excludes any merchandise that may have possibly been sold at retail and returned to the Company. ISSUES: Is the Company’s unsold jewelry unused for drawback purposes? Is the unsold jewelry within the Company’s possession prior to exportation? LAW AND ANALYSIS: Drawback “means the refund, in whole or in part, of the duties, taxes, and/or fees paid on imported merchandise.” 19 C.F.R. § 190.2. Pursuant to 19 U.S.C. § 1313(j)(2), as amended by the Trade Facilitation and Trade Enforcement Act of 2015 (“TFTEA”), Pub. L. 114-125, 130 Stat. 122 (Feb. 24, 2016), drawback may be claimed on exported merchandise which is substituted for imported and duty-paid merchandise. Among the requirements for claiming drawback under 19 U.S.C. § 1313(j)(2), termed “substitution unused merchandise drawback,” the substituted merchandise must be: (A) [] classifiable under the same 8-digit HTS subheading number as such imported merchandise; (B) [exported or destroyed under customs supervision] before the close of the 5-year period beginning on the date of importation of the imported merchandise and before the drawback claim is filed … ; and (C) before such exportation or destruction— (i) [] not [be] used within the United States, and (ii) [be] in the possession of, including ownership while in bailment, in leased facilities, in transit to, or in any other manner under the operational control of, the party claiming drawback under this paragraph, if that party— (I) is the importer of the imported merchandise, or (II) received the imported merchandise, other merchandise classifiable under the same 8-digit HTS subheading number as such imported merchandise, or any combination of such imported merchandise and such other merchandise, directly or indirectly from the person who imported and paid any duties, taxes, and fees imposed under Federal law upon importation or entry and due on the imported merchandise (and any such transferred merchandise, regardless of its origin, will be treated as the imported merchandise and any retained merchandise will be treated as domestic merchandise). To determine whether the unsold jewelry at issue is eligible for unused merchandise drawback in accordance with the above statutory requirements, we must therefore consider whether the jewelry remains unused despite being displayed to and possibly tried on by customers, and whether it is within the Company’s possession prior to exportation. Is the Company’s unsold jewelry unused for drawback purposes? Merchandise is unused for drawback purposes if “either no operations have been performed [upon it] or … any operation or combination of operations has been performed (including, but not limited to, testing, cleaning, repacking, inspecting, sorting, refurbishing, freezing, blending, repairing, reworking, cutting, slitting, adjusting, replacing components, relabeling, disassembling, and unpacking) … which do[] not amount to a manufacture or production.” 19 C.F.R. § 190.2. By contrast, merchandise is deemed used if it has been employed for its intended purpose, meaning the purpose for which it was manufactured and designed. See C.S.D. 81-222 (May 27, 1981) (internal citations omitted). Consequently, merchandise remains unused if subjected to any operation(s) not amounting to a manufacture or production, and if utilized in a manner other than the purpose for which it was intended. The intended use, or purpose for which merchandise is manufactured and designed, is a fact-specific determination hinging on the nature of the merchandise under consideration. The merchandise at issue in this ruling is jewelry, which the Company states is intended to be worn by end customers upon purchase. Jewelry is commonly defined as “ornamental pieces (such as rings, necklaces, earrings, and bracelets) … worn for personal adornment.” Merriam-Webster.com, Dictionary (last accessed Aug. 23, 2022). This common language definition accords with how jewelry is defined for classification purposes in the Harmonized Tariff Schedule of the United States (“HTSUS”): “small objects of personal adornment (for example, rings, bracelets, necklaces, brooches, earrings, …).” Note 9, Chapter 71. Prior CBP rulings have additionally held that manufactured jewelry is “complete for its intended use” when the finished pieces are ready for marketin

Drawback “means the refund, in whole or in part, of the duties, taxes, and/or fees paid on imported merchandise.” 19 C.F.R. § 190.2. Pursuant to 19 U.S.C. § 1313(j)(2), as amended by the Trade Facilitation and Trade Enforcement Act of 2015 (“TFTEA”), Pub. L. 114-125, 130 Stat. 122 (Feb. 24, 2016), drawback may be claimed on exported merchandise which is substituted for imported and duty-paid merchandise. Among the requirements for claiming drawback under 19 U.S.C. § 1313(j)(2), termed “substitution unused merchandise drawback,” the substituted merchandise must be:(A) [] classifiable under the same 8-digit HTS subheading number as such imported merchandise;(B) [exported or destroyed under customs supervision] before the close of the 5-year period beginning on the date of importation of the imported merchandise and before the drawback claim is filed … ; and(C) before such exportation or destruction—(i) [] not [be] used within the United States, and(ii) [be] in the possession of, including ownership while in bailment, in leased facilities, in transit to, or in any other manner under the operational control of, the party claiming drawback under this paragraph, if that party—(I) is the importer of the imported merchandise, or(II) received the imported merchandise, other merchandise classifiable under the same 8-digit HTS subheading number as such imported merchandise, or any combination of such imported merchandise and such other merchandise, directly or indirectly from the person who imported and paid any duties, taxes, and fees imposed under Federal law upon importation or entry and due on the imported merchandise (and any such transferred merchandise, regardless of its origin, will be treated as the imported merchandise and any retained merchandise will be treated as domestic merchandise).To determine whether the unsold jewelry at issue is eligible for unused merchandise drawback in accordance with the above statutory requirements, we must therefore consider whether t