CBP Denies Refiner Drawback Claims due to Improper Substitution
CBP shot down a protest of three denied drawback claims filed by a petroleum refiner and marketer due to the company's substitution of a finished product. CBP's March 6 ruling, HQ H024887, reviewed drawback claims filed by the refiner, Tesoro, in 2007. The drawback claims were on crude oil imported into the company's Washington facility because of exports of jet fuel refined from different crude oil at the company's Alaska refinery. CBP also looked at whether two separately incorporated refineries owned by Tesoro, should be considered as a single legal entity.
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CBP's drawback center in 2007 denied the drawback requests due to the company's failure to comply with two requests for additional information. Tesoro protested the denials, claiming that crude petroleum used by Tesoro's refineries served as the basis for drawback on jet fuel manufactured at its Washington-state and Alaska refineries using substitute crude petroleum. The agency found that despite the fact that the Washington and Alaska refineries were different Tesoro subsidiaries, they may be considered a single entity because they report together to the Securities and Exchange Commission, among other things. As a result "Tesoro may substitute imported merchandise received at one refinery with same kind and quality merchandise located at a different refinery," said CBP.
The company argued that because the refineries are part of a single entity, it can designate imported crude petroleum as the basis for drawback on jet fuel made at its Washington refinery for exported jet fuel made at its Alaska refinery. "However, although Tesoro and its refineries qualify as a single legal entity, for purposes of substituting merchandise that will be used in the manufacturing process, the company is not permitted to substitute the manufactured articles when claiming drawback," said CBP.
In order for the company to receive drawback benefits from the petroleum, it "must export jet fuel manufactured from the selected substitute crude" from the Washington refinery, CBP said. "Rather than export jet fuel manufactured from the selected substitute crude, however, Tesoro acknowledged that the company never physically transported jet fuel from its Washington Refinery to Alaska for exportation," it said. Therefore, "although Tesoro selected crude petroleum from its Washington Refinery as the substitute merchandise, the company failed to export any finished articles, i.e., jet fuel, manufactured from the substitute merchandise." CBP regulations don't allow a drawback claim to substitute finished articles at the time of exportation, "thus, Tesoro’s three drawback claims are properly denied," the agency said.