Section

[Code of Federal Regulations]

[Title 19, Volume 1]

[Revised as of April 1, 2005]

From the U.S. Government Printing Office via GPO Access

[CITE: 19CFR19.12]

[Page 346-351]

TITLE 19--CUSTOMS DUTIES

CHAPTER I--BUREAU OF CUSTOMS AND BORDER PROTECTION, DEPARTMENT OF

HOMELAND SECURITY; DEPARTMENT OF THE TREASURY

PART 19_CUSTOMS WAREHOUSES, CONTAINER STATIONS AND CONTROL OF MERCHANDISE THEREIN--Table of Contents

Sec. 19.12 Inventory control and recordkeeping system.

(a) Systems capability. The proprietor of a class 11 general order

warehouse as described in Sec. 19.1 must have an automated inventory

control and recordkeeping system. Proprietors of existing class 3, 4, or

5 warehouses as described in Sec. 19.1 certified before December 9,

2002, to receive general order merchandise must have automated inventory

control and recordkeeping systems in place with respect to general order

merchandise after a period of 2 years from December 9, 2002. All other

warehouse proprietors have a choice of maintaining manual or automated

inventory control and recordkeeping systems or a combination of manual

and automated systems. All inventory control and recordkeeping systems

must be capable of:

(1) Accounting for all merchandise transported, deposited, stored,

manipulated, manufactured, smelted, refined, destroyed in or removed

from the bonded warehouse and all merchandise collected by a proprietor

or his agent for transport to his warehouse. The records shall provide

an audit trail from deposit through manipulation, manufacture,

destruction, and withdrawal from the bonded warehouse either by specific

identification or other Customs authorized inventory method. The records

to be maintained are those which a prudent businessman in the same type

of business can be expected to maintain. The records are to be kept in

sufficient detail to permit effective and efficient determination by

Customs of the proprietor's compliance with these regulations and

correctness of his annual submission or reconciliation;

(2) Producing accurate and timely reports and documents as required

by this part; and

(3) Identifying shortages and overages of merchandise in sufficient

detail to determine the quantity, description, tariff classification and

value of the missing or excess merchandise so that appropriate reports

can be filed with Customs on a timely basis.

(b) Procedures manual. (1) The proprietor shall have available at

the warehouse an English language copy of its written inventory control

and recordkeeping systems procedures manual in accordance with the

requirements of this part.

(2) The proprietor shall keep current its procedures manual and

shall submit to the port director a new certification at the time any

change in the system is implemented.

merchandise collected by a proprietor or his agent for transport to his

warehouse shall be receipted. In addition, all merchandise entered in a

warehouse will be recorded in a receiving report or document using a

Customs entry number or

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unique identifier if an alternate inventory control method has been

approved. All merchandise will be traceable to a Customs entry and

supporting documentation.

(2) Quantity verification. Quantities received will be reconciled to

a receiving report or document such as an invoice with any discrepancy

reported to the port director as provided in Sec. 19.6(a).

(3) Recordation. Merchandise received will be accurately recorded in

the accounting and inventory system records from the receiving report or

document using the Customs entry number or unique identifier if an

alternative inventory control method has been approved.

(d) Accountability for merchandise in a warehouse--(1)

Identification of merchandise. The Customs entry number or unique

identifier, as applicable under Sec. 19.4(b)(8), will be used to

identify and trace merchandise.

(2) Inventory records. The inventory records will specify by Customs

entry number or unique identifier if an alternative inventory control

method is approved:

(i) The location of the merchandise within the warehouse;

(ii) Except for merchandise in general order, the cost or value of

the merchandise, unless the proprietor's financial records maintain cost

or value and the records are made available for Customs review; and

(iii) The beginning balance, cumulative receipts and withdrawals,

adjustments, destructions, and current balance on hand by date and

quantity.

(3) Theft, shortage, overage or damage. Any theft or suspected theft

or overage or any extraordinary shortage or damage (equal to one percent

or more of the value of the merchandise in an entry or covered by a

unique identifier; or if the missing merchandise is subject to duties

and taxes in excess of $100) shall be immediately brought to the

attention of the port director, and confirmed in writing within five

business days after the shortage, overage, or damage has been brought to

the attention of the port director. An entry for warehouse must be filed

for all overages by the person with the right to make entry within five

business days of the date of discovery. The applicable duties, taxes and

interest on thefts and shortages so reported shall be paid by the

responsible party to Customs within 20 calendar days following the end

of the calendar month in which the shortage is discovered. The port

director may allow the consolidation of duties and taxes applicable to

multiple shortages into one payment; however, the amount applicable to

each warehouse entry is to be listed on the submission and shall specify

the applicable duty, tax and interest. These same requirements shall

apply when cumulative thefts, shortages or overages under a specific

entry or unique identifier total one percent or more of the value of the

merchandise or if the duties and taxes owed exceed $100. Upon

identification, the proprietor shall record all shortages and overages

in its inventory control and recordkeeping system, whether or not they

are required to be reported to the port director at the time. The

proprietor must also record all shortages and overages as required in

the Customs Form 300 or annual reconciliation report under paragraphs

(g) or (h) of this section, as appropriate. Duties and taxes applicable

to any non-extraordinary shortage or damage and not required to be paid

earlier must be reported and submitted to the port director no later

than the date the certification of preparation of Customs Form 300 is

due or at the time the certification of preparation of the annual

reconciliation report is due, as prescribed in paragraphs (g) or (h) of

this section. Discrepancies found in a Class 9 warehouse with integrated

locations as set forth in Sec. 19.35(c) will be the net discrepancies

for a unique identifier (see Sec. 19.4(b)(8)(ii) of this part) such

that overages within one sales location will be offset against shortages

in another location that is within the integrated location. A Class 9

proprietor who transfers merchandise between facilities in different

ports without being required to file a rewarehouse entry in accordance

with Sec. 144.34 of this chapter may offset overages and shortages

within the same unique identifier for merchandise located in stores in

different ports (see Sec. 19.4(b)(8)(ii) of this part).

[[Page 348]]

(4) Permit file folders--(i) Maintenance. Permit file folders shall

be maintained and kept up to date by filing all receipts, damage or

shortage reports, manipulation requests, withdrawals, removals and

blanket permit summaries within five business days after the event

occurs. The permit file folders shall be kept in a secure area and shall

be made available for inspection by Customs at all reasonable hours.

(ii) Review. When the final withdrawal of merchandise relating to a

specific warehouse entry, general order or seizure occurs, the warehouse

proprietor shall: review the permit file folder to ensure that all

necessary documentation is in the file folder accounting for the

merchandise covered by the entry; notify Customs of any merchandise

covered by the warehouse entry, general order or seizure which has not

been withdrawn or removed; and file the permit file folder with Customs

within 30 calendar days after final withdrawal, except as allowed by

paragraph (d)(4)(iv) of this section. The permit file folder for

merchandise not withdrawn during the general order period shall be

submitted to the port director upon receipt from Customs of the Customs

Form 6043.

(iii) Exemption to maintenance requirement. Maintenance of permit

file folders will not be required, if the proprietor has an automated

system capable of: satisfactorily summarizing all actions by Customs

warehouse entry; providing upon demand by Customs an entry activity

summary report which lists all individual receipts, withdrawals,

destructions, manipulations and adjustments by warehouse entry and is

cross-referenced to the source documents for each transaction; and

maintaining source documents so that the documents can be readily

retrieved upon request. Failure to provide the entry activity summary

report or documentation supporting the entry activity summary report

upon demand by the port director or the field director of regulatory

audit could result in reinstatement by the port director of the

requirement to maintain the permit file folder for all warehouse

entries. When final withdrawal is made, the proprietor must submit the

entry activity summary report to Customs. Prior to submission, the

proprietor must ensure the accuracy of the summary report and assure

that all supporting documentation is on file and available for review if

requested by Customs.

(iv) Exemption to submission requirement. At the discretion of the

port director, a proprietor may be allowed to furnish formal

notification of final withdrawal in lieu of the requirement to submit

the permit file folder or entry activity summary within 30 calendar days

of each final withdrawal. If approved to use this procedure the

proprietor could be required by the port director to submit permit file

folders or entry activity summaries on a selective basis. Failure to

promptly provide the permit file folder or entry activity summary upon

request by the port director or the field director of regulatory audit

could result in withdrawal of this privilege.

(5) Physical inventory. The proprietor shall take at least an annual

physical inventory of all merchandise in the warehouse, or periodic

cycle counts of selected categories of merchandise such that each

category is counted at least once during the year, with prior

notification of the date(s) given to Customs so that Customs personnel

may observe or participate in the inventory if deemed necessary. If the

proprietor of a Class 2 or Class 9 warehouse has merchandise covered by

one warehouse entry, but stored in multiple warehouse facilities as

provided for under Sec. 144.34 of this chapter, the facility where the

original entry was filed must reconcile the on-hand balances at all

locations with the record balance for those entries with merchandise in

multiple locations. The proprietor shall notify the port director of any

discrepancies, record appropriate adjustments in the inventory control

and recordkeeping system, and make required payments and entries to

Customs, in accordance with paragraph (d)(3) of this section.

(e) Withdrawal of merchandise from a warehouse. All bonded

merchandise withdrawn from a warehouse will be accurately recorded

within the inventory control and recordkeeping system.

[[Page 349]]

The inventory control and recordkeeping system must have the capability

to trace all withdrawals back to a Customs entry and to ultimate

disposition of the merchandise by the proprietor.

(f) Special provisions for use of FIFO inventory procedures--(1)

Notification. A proprietor who wishes to use FIFO procedures for all or

part of the merchandise in a bonded warehouse shall provide the port

director a written certification that: The proprietor has read and

understands Customs FIFO procedures set forth in this section; the

proprietor's procedures are in accordance with Customs FIFO procedures,

and the proprietor agrees to abide by those procedures; and the

proprietor of a public warehouse will obtain the written consent of any

importer using the warehouse before applying FIFO procedures to their

merchandise.

(2) Qualifying merchandise. FIFO inventory procedures may be used

only for fungible merchandise. For purposes of this section, ``fungible

merchandise'' means merchandise which is identical and interchangeable

for all commercial purposes. While commercial interchangeability is

usually decided between buyer and seller or between proprietor and

importer, Customs is the final arbiter of fungibility in bonded

warehouses. The criteria for determining whether merchandise is fungible

include, but are not limited to, Governmental and recognized industrial

standards, part numbers, tariff classification, value, brand name, unit

of quantity (such as barrels, gallons, pounds, pieces), model number,

style and same kind and quality. Fungible textile and textile products

which are withdrawn from a Class 9 warehouse may be accounted for using

FIFO inventory procedures, inasmuch as such articles would be exempt

from textile quotas.

(3) Merchandise specifically excluded. FIFO procedures cannot be

applied to the following merchandise, as well as any other merchandise

which does not comply with the requirements of paragraph (f)(2) of this

section:

(i) Merchandise subject to quota, visa or export restrictions

chargeable to different countries of origin;

(ii) Textile and textile products of different quota categories;

(iii) Merchandise with different tariff classifications or rates of

duty, except where the difference is within the merchandise itself (such

as kits, merchandise in unusual containers) or where the tariff

classification or dutiability is determined only by conditions upon

withdrawal (for example, withdrawal for vessel supplies, bonded wool

transactions);

(iv) Merchandise with different legal requirements for marking,

labeling or stamping;

(v) Merchandise with different trademarks;

(vi) Merchandise of different grades or qualities;

(vii) Merchandise with different importers of record;

(viii) Damaged or deteriorated merchandise;

(ix) Restricted merchandise; or

(x) General order, abandoned or seized merchandise.

(4) Maintenance of FIFO. FIFO procedures used for merchandise in any

inventory category, must be used consistently throughout the warehouse

storage and recordkeeping practices and procedures for the merchandise.

For example, merchandise may not be added to inventory by FIFO but

withdrawn by bypassing certain inventory layers to reach a specific

warehouse entry other than the oldest one. However, this does not

preclude the use of specific identification for some merchandise in a

warehouse entry and FIFO for other merchandise, so long as they are

segregated in physical storage and clearly distinguished in the

inventory and accounting records.

(5) FIFO recordkeeping. In the inventory and accounting records, the

proprietor shall establish an inventory layer for each warehouse entry

represented in each inventory category. The layers shall be established

in the order of time of acceptance of the entry or by the date of

importation of merchandise covered by each applicable warehouse entry.

There shall be no mixing of layering both by time of acceptance and date

of importation in the same warehouse. Records for each layer shall, as a

minimum, show the

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warehouse entry number, date of acceptance, date of importation,

quantity and unit of quantity. They shall also show for each entry the

type of warehouse withdrawal number or other specific removal event

charged against the entry, by date and quantity. Each addition to or

deduction from the inventory category shall be posted in the appropriate

inventory category within 2 business days after the event occurs. All

FIFO records and documentation shall consistently use the same unit of

quantity within each inventory category.

(6) Entry requirements. Warehouse entries covering any merchandise

to be accounted for under FIFO must be prominently marked ``FIFO'' on

the face of the entry document. The entry document or an attachment

thereto shall show the unique identifier of each inventory category to

be accounted for under FIFO, the quantity in each inventory category and

the unit of quantity.

(7) Receipts. Any shortages, overages, or damage found upon receipt

shall be attributed to the entry under which the merchandise was

received. FIFO procedures will not take effect until the merchandise is

physically placed in the storage location for the inventory category

represented in the entry.

(8) Manipulation. When manipulation results in a product with a

different unique identifier, the inventory and accounting records shall

show the quantities of merchandise in each inventory category appearing

in the product covered by the new unique identifier. The withdrawal

shall show the unique identifiers of both the materials used in the

manipulation and the product as manipulated. The quantities of the

original unique identifiers will be deducted from their respective

warehouse entries on a FIFO basis when the resultant product is

withdrawn.

(9) Discontinuance of FIFO. A proprietor may voluntarily discontinue

the use of FIFO procedures for all or part of the merchandise currently

under FIFO by providing written notification to the port director. The

notification shall clearly describe the merchandise, by commercial names

and unique identifiers, to be removed from FIFO. Following notification,

the merchandise shall be segregated in both the recordkeeping system and

the physical location by warehouse entry number and the quantities so

removed shall be deducted from the appropriate FIFO inventory category

balances. Merchandise so removed shall be maintained under the specific

identification inventory method. FIFO procedures which were voluntarily

discontinued may be reinstated, but not for merchandise covered by any

warehouse entry for which FIFO was discontinued.

(g) Warehouse proprietor submission. Except as otherwise provided in

paragraph (h) of this section or Sec. 19.19(b) of this part, the

warehouse proprietor must prepare a Warehouse Proprietor's Submission on

Customs Form (CF) 300 within 45 calendar days from the end of the

business year and maintain the Submission on file for 5 years from the

end of the business year covered by the Submission. The proprietor must

submit to the port director, within 10 business days after preparation

of the CF 300, a letter signed by the proprietor certifying that the CF

300 has been prepared, is available for Customs review, and is accurate.

If the proprietor of a Class 2 or Class 9 warehouse has merchandise

covered by one warehouse entry, but stored in multiple warehouse

facilities as provided for under Sec. 144.34 of this chapter, the CF

300 shall cover all locations and warehouses of the proprietor. An

alternative format may be used for providing the information required on

the CF 300.

(h) Annual reconciliation--(1) Report. Instead of preparing Customs

Form 300 as required under paragraph (g) of this section, the proprietor

of a class 2, importers' private bonded warehouse, and proprietors of

classes 4, 5, 6, 7, 8, and 9 warehouses if the warehouse proprietor and

the importer are the same party, must prepare a reconciliation report

within 90 days after the end of the fiscal year unless the port director

authorizes an extension for reasonable cause. The proprietor shall

retain the annual reconciliation report for 5 years from the end of the

fiscal year covered by the report. The report must be available for a

spot check or audit by Customs, but need not be furnished to Customs

unless requested. There is no

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form specified for the preparation of the report.

(2) Information required. The report must contain the company name;

address of the warehouse; class of warehouse; date of inventory or

information on cycle counts; a description of merchandise for each entry

or unique identifier, quantity on hand at the beginning of the year,

cumulative receipts and transfers (by unit), quantity on hand at the end

of the year, and cumulative positive and negative adjustments (by unit)

made during the year. If the proprietor of a Class 2 or Class 9

warehouse has merchandise covered by one warehouse entry, but stored in

multiple warehouse facilities as provided for under Sec. 144.34 of this

chapter, the reconciliation shall cover all locations and warehouses of

the proprietor at the same port. If the annual reconciliation includes

entries for which merchandise was transferred to a warehouse without

filing a rewarehouse entry, as allowed under Sec. 144.34, the annual

reconciliation must contain sufficient detail to show all required

information by location where the merchandise is stored. For example, if

merchandise covered by a single entry is stored in warehouses located in

3 different ports, the annual reconciliation should specify individually

the beginning and ending inventory balances, cumulative receipts,

transfers, and positive and negative adjustments for each location.

(3) Certification. The proprietor must submit to the port director

within 10 business days after preparation of the annual reconciliation

report, a letter signed by the proprietor certifying that the annual

reconciliation has been prepared, is available for Customs review, and

is accurate. The certification letter must contain the proprietor's IRS

number; date of fiscal year end; the name and street address of the

warehouse; the name, title, and telephone number of the person having

custody of the records; and the address where the records are stored.

Reporting of shortages and overages based on the annual reconciliation

will be made in accordance with paragraph (d)(3) of this section. Any

previously unreported shortages and overages should be reported to the

port director and any unpaid duties, taxes and fees should be paid at

this time.

(i) System review. The proprietor shall perform an annual internal

review of the inventory control and recordkeeping system and shall

prepare and maintain on file a report identifying any deficiency

discovered and corrective action taken, to ensure that the system meets

the requirements of this part.

(j) Special requirements. A warehouse proprietor submission (CF 300)

or annual reconciliation must be prepared for each facility or location

as defined in Sec. Sec. 19.2(a) and 19.35(c) of this part. When

merchandise is transferred from one facility or location to another

without filing a rewarehouse entry, as provided for in Sec. 144.34(c)

of this chapter, the submission/reconciliation for the warehouse where

the entry was originally filed should account for all merchandise under

the warehouse entry, indicating the quantity in each location.

[T.D. 97-19, 62 FR 15836, Apr. 3, 1997, as amended by T.D. 99-78, 64 FR

57565, Oct. 26, 1999; T.D. 02-65, 67 FR 68033, Nov. 8, 2002; CBP Dec.

04-28, 69 FR 52599, Aug. 27, 2004]

Manufacturing Warehouses