International Light Metals v. U.S.

• Decision Date: 24 August 1998
• Docket Number: Slip. Op. 98-122.,No. 95-08-01037.,95-08-01037.
• Citation: 24 F.Supp.2d 281
• Parties: INTERNATIONAL LIGHT METALS, A DIVISION OF MARTIN MARIETTA TECHNOLOGIES, INC., Plaintiff, v. UNITED STATES, Defendant.
• Court: U.S. Court of International Trade

24 F.Supp.2d 281

INTERNATIONAL LIGHT METALS, A DIVISION OF MARTIN MARIETTA TECHNOLOGIES, INC., Plaintiff, v. UNITED STATES, Defendant.

No. 95-08-01037.

Slip. Op. 98-122.

United States Court of International Trade.

August 24, 1998.

Donald F. Beach, Falls Church, VA, for plaintiff.

Frank W. Hunger, Assistant Attorney General of the United States, Joseph I. Liebman, Attorney in Charge, International Trade Field Office, Commercial Litigation Branch, Civil Division, United States Department of Justice (Mikki Graves Walser), Mark G. Nackman, Office of the Assistant Chief Counsel for International Trade Litigation, United States Customs Service, of counsel, for defendant.

OPINION

CARMAN, Chief Judge.

Plaintiff moves for summary judgment pursuant to U.S. CIT R. 56, contending the United States Customs Service (Customs) improperly denied its protests challenging Customs' refusal to pay in full plaintiff's claims for manufacturing substitution duty drawback. Plaintiff contends its manufacturing operations comply with the statutory and regulatory requirements necessary to receive manufacturing substitution duty drawback pursuant to 19 U.S.C. § 1313(b) (1988). Additionally, plaintiff asserts the partial denial of its drawback claims is contrary to Customs' long-standing administrative practice whereby it approved drawback contracts and paid drawback claims of manufacturers with production processes similar to those of the plaintiff. In a third argument, plaintiff contends this Court should invoke its equitable powers and find Customs is estopped from denying plaintiff's drawback claims because plaintiff detrimentally relied upon Customs' approval of drawback contracts submitted by, and payment of drawback duties to, manufacturers with production processes similar to those of the plaintiff. Finally, plaintiff contends Customs improperly denied its drawback claims because the drawback entries became liquidated by operation of law one year after their filing with Customs pursuant to 19 U.S.C. § 1504(a) (1988).

Defendant cross-moves for summary judgment contending Customs properly denied portions of plaintiff's application for duty drawback. Defendant challenges every argument advanced by plaintiff and asserts it is entitled to the entry of summary judgment in its favor.

This Court has jurisdiction to review Customs' denial of plaintiff's protest pursuant to 28 U.S.C. § 1581(a) (1988) and 19 U.S.C § 1515(a) (1988) (establishing procedures for resolving protests of Customs' "refusal to pay a claim for drawback" filed pursuant to 19 U.S.C. § 1514(a)(6)).

BACKGROUND

International Light Metals, a Division of Martin Marietta Technologies, Incorporated (ILM), manufactures titanium alloy shapes such as bars, billets, pipes, tubes, angles, channels, and other structural forms. The alloys produced and utilized by ILM combine precise quantities of titanium with other alloying elements such as aluminum, vanadium, iron, copper, and carbon. The titanium utilized in the alloys is obtained from either: (1) titanium sponge, a virtually pure form of titanium;¹ or (2) titanium alloy scrap, consisting of turnings, chips, and solid pieces from prior production runs.

Depending on whether the alloy is produced utilizing only titanium sponge or with a combination of titanium sponge and titanium alloy scrap, alterations must be made in the manufacturing process. When the titanium is obtained from sponge, or titanium alloy scrap consisting of turnings or chips, the titanium-containing inputs are weighed and combined with an appropriate amount of alloying elements. The elements composing the alloy are then compressed into bricks which are welded automatically into an electrode. After the six-hour welding process is completed, the electrode is heated and formed into ingots which are further manufactured into various shapes. In contrast, because recycled solids cannot be compressed into bricks, titanium alloy produced with solid scrap requires a different welding process. Recycled solids are welded manually into an electrode, a process which requires approximately forty hours to complete. After the welding is completed, the electrode is melted in the same fashion as an electrode assembled from bricks of compressed titanium sponge, chips, or turnings and is formed into ingots which are further manufactured into the various shapes.

At issue in this matter is whether ILM is eligible to receive duty drawback on merchandise manufactured with titanium alloy scrap and subsequently exported from the United States.² Drawback is the refund of duties paid upon goods previously imported into the United States which are used in the manufacture or production of articles which subsequently are exported. See Kenneth Wolf, Customs Law & Administration § 17.1 (3rd ed.1998); see also Nicholas & Co. v. United States, 7 U.S.Cust.App. 97, 110, T.D. 36426 (1916), aff'd, 249 U.S. 34, 39 S.Ct. 218, 63 L.Ed. 461 (1919). Customs' regulations define drawback as "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) (1994). While the statute provides several different circumstances in which companies may apply for and receive duty drawback, see 19 U.S.C. § 1313(a)—(l) (1988), ILM sought to receive manufacturing substitution duty drawback pursuant to 19 U.S.C. § 1313(b), which provides:

(b) Substitution for drawback purposes

If imported duty-paid merchandise and duty-free or domestic merchandise of the same kind and quality are used in the manufacture or production of articles within a period not to exceed three years from the receipt of such imported merchandise by the manufacturer or producer of such articles, there shall be allowed upon the exportation of any such articles, notwithstanding the fact that none of the imported merchandise may actually have been used in the manufacture or production of the exported articles, an amount of drawback equal to that which would have been allowable had the merchandise used therein been imported;....

19 U.S.C. § 1313(b) (1988).

A precondition to receiving duty drawback is the completion and approval of a drawback contract with Customs. See 19 C.F.R. § 191.21(a) ("[E]ach manufacturer or producer of articles intended for exportation with drawback, ... shall apply for a specific drawback contract by submitting a drawback proposal."). Not surprisingly, the regulations direct that drawback proposals which "comply with the law and regulations" shall be approved by Customs. 19 C.F.R. § 191.23(a) (1994).

With respect to the instant case, ILM submitted a proposed substitution manufacturing drawback contract to Customs on July 26, 1985. Following its review of ILM's proposal, Customs approved the proposed drawback contract on September 3, 1985. See T.D. 85-165-(N), 19 Cust. B. & Dec. 392 (1985). ILM's approved drawback contract provided for the substitution of "Titanium Sponge, with a minimum titanium content of 99%" for "Titanium Sponge, with a minimum titanium content of 99%." (Pl.'s Ex. 6 at 5.)

Between October 28, 1985 and November 12, 1987, ILM filed twenty-four drawback claims based on its approved drawback contract, Treasury Decision (T.D.) 85-165-(N). While these claims for duty drawback initially were paid by Customs under the accelerated drawback program, a drawback audit dated February 28, 1988, reported ILM had utilized titanium alloy scrap in its production process and thus failed to satisfy the terms of its approved drawback contract which provided for the substitution of titanium sponge for titanium sponge. Additionally, the audit observed that while ILM's substitution of titanium alloy scrap for titanium sponge "may be correctable by an amendment to the firm's drawback contract," it expressed concern that "the substituted materials may not be the same kind and quality as the designated material" and thus not in conformity with the requirements of 19 U.S.C. § 1313(b). (See Def.'s Ex. 3 at 1.) The audit requested further guidance in the form of an "internal advice" as to whether the titanium alloy scrap satisfied the statutory requirement that it be of the same kind and quality as titanium sponge.

In a letter dated July 9, 1990, Customs informed ILM of its determination that titanium alloy scrap was not merchandise of the same kind and quality as titanium sponge. (See Pl.'s Ex. 15A at 1 ("We have now received a ruling from [the Office of Regulations and Rulings] stating that, `The inevitable conclusion is that an alloy scrap, sought to be substituted for both its primary metal and its alloying component(s), is not the same kind and quality as the imported pure metal.'").) As a result, Customs informed ILM that it would be entitled to receive drawback only with respect to those goods manufactured with titanium sponge because goods manufactured with titanium alloy scrap did not meet the same kind and quality requirement of 19 U.S.C. § 1313(b).

Following the issuance of the audit, but prior to Customs' determination that titanium sponge and titanium alloy scrap were not merchandise of the same kind and quality, ILM submitted a proposed revised drawback contract in a letter dated June 19, 1989. The proposed revised contract included language which listed not only titanium sponge as a substitute material, but also listed titanium alloy scrap as a substitute for imported, duty-paid titanium sponge. (See Pl.'s Ex. 7 at 2 (listing "[s]crap made with the use of Titanium sponge containing at least 99.3% pure Titanium" as a substitute for use in the production of exported merchandise).) In a letter dated October 10, 1991, following its review of ILM's proposal, Customs informed ILM that the inclusion of titanium alloy scrap as a substitute for titanium alloy sponge did not satisfy the same kind and quality requirement and...