[Code of Federal Regulations]

[Title 19, Volume 2]

[Revised as of April 1, 2006]

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

[CITE: 19CFR191.14]



[Page 533-538]

 

                        TITLE 19--CUSTOMS DUTIES

 

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

        HOMELAND SECURITY; DEPARTMENT OF THE TREASURY (CONTINUED)

 

PART 191_DRAWBACK--Table of Contents

 

                      Subpart A_General Provisions

 

Sec.  191.14  Identification of merchandise or articles by accounting 

method.



    (a) General. This section provides for the identification of 

merchandise or articles for drawback purposes by the use of accounting 

methods. This section applies to identification of merchandise or 

articles in inventory or storage, as well as identification of 

merchandise used in manufacture or production (see Sec.  191.2(h) of 

this subpart). This section is not applicable to situations in which the 

drawback law authorizes substitution (substitution is allowed in 

specified situations under 19 U.S.C. 1313(b), 1313(j)(2), 1313(k), and 

1313(p); this section does apply to situations in these subsections in 

which substitution is not allowed, as well as to the subsections of the 

drawback law under which no substitution is allowed). When substitution 

is authorized, merchandise or articles may be substituted without 

reference to this section, under the criteria and conditions 

specifically authorized in the statutory and regulatory provisions 

providing for the substitution.

    (b) Conditions and criteria for identification by accounting method. 

Manufacturers, producers, claimants, or other appropriate persons may 

identify for drawback purposes lots of merchandise or articles under 

this section, subject to each of the following conditions and criteria:



[[Page 534]]



    (1) The lots of merchandise or articles to be so identified must be 

fungible (see Sec.  191.2(o) of this part);

    (2) The person using the identification method must be able to 

establish that inventory records (for example, material control 

records), prepared and used in the ordinary course of business, account 

for the lots of merchandise or articles to be identified as being 

received into and withdrawn from the same inventory. Even if merchandise 

or articles are received or withdrawn at different geographical 

locations, if such inventory records treat receipts or withdrawals as 

being from the same inventory, those inventory records may be used to 

identify the merchandise or articles under this section, subject to the 

conditions of this section. If any such inventory records (that is, 

inventory records prepared and used in the ordinary course of business) 

treat receipts and withdrawals as being from different inventories, 

those inventory records must be used and receipts into or withdrawals 

from the different inventories may not be accounted for together. If 

units of merchandise or articles can be specifically identified (for 

example, by serial number), the merchandise or articles must be 

specifically identified and may not be identified by accounting method, 

unless it is established that inventory records, prepared and used in 

the ordinary course of business, treat the merchandise or articles to be 

identified as being received into and withdrawn from the same inventory 

(subject to the above conditions);

    (3) Unless otherwise provided in this section or specifically 

approved by Customs (by a binding ruling under part 177 of this 

chapter), all receipts (or inputs) into and all withdrawals from the 

inventory must be recorded in the accounting record;

    (4) The records which support any identification method under this 

section are subject to verification by Customs (see Sec.  191.61 of this 

part). If Customs requests such verification, the person using the 

identification method must be able to demonstrate how, under generally 

accepted accounting procedures, the records which support the 

identification method used account for all merchandise or articles in, 

and all receipts into and withdrawals from, the inventory, and the 

drawback per unit for each receipt and withdrawal; and

    (5) Any accounting method which is used by a person for drawback 

purposes under this section must be used without variation with other 

methods for a period of at least one year, unless approval is given by 

Customs for a shorter period.

    (c) Approved accounting methods. The following accounting methods 

are approved for use in the identification of merchandise or articles 

for drawback purposes under this section.

    (1) First-in, first-out (FIFO)--(i) General. The FIFO method is the 

method by which fungible merchandise or articles are identified by 

recordkeeping on the basis of the first merchandise or articles received 

into the inventory. Under this method, withdrawals are from the oldest 

(first-in) merchandise or articles in the inventory at the time of 

withdrawal.

    (ii) Example. If the beginning inventory is zero, 100 units with $1 

drawback attributable per unit are received in inventory on the 2nd of 

the month, 50 units with no drawback attributable per unit are received 

into inventory on the 5th of the month, 75 units are withdrawn for 

domestic (non-export) shipment on the 10th of the month, 75 units with 

$2 drawback attributable per unit are received in inventory on the 15th 

of the month, 100 units are withdrawn for export on the 20th of the 

month, and no other receipts or withdrawals occurred in the month, the 

drawback attributable to the 100 units withdrawn for export on the 20th 

is a total of $75 (25 units from the receipt on the 2nd with $1 drawback 

attributable per unit, 50 units from the receipt on the 5th with no 

drawback attributable per unit, and 25 units from the receipt on the 

15th with $2 drawback attributable per unit). The basis of the foregoing 

and the effects on the inventory of the receipts and withdrawals, and 

balance in the inventory thereafter are as follows: On the 2nd of the 

month the receipt of 100 units ($1 drawback/unit) results in a balance 

of that amount; the receipt of 50 units ($0 drawback/unit) on the 5th 

results in a balance of 150 units (100 with $1 drawback/unit and 50 with 

$0



[[Page 535]]



drawback/unit); the withdrawal on the 10th of 75 units ($1 drawback/

unit) results in a balance of 75 units (25 with $1 drawback/unit and 50 

with $0 drawback/unit); the receipt of 75 units ($2 drawback/unit) on 

the 15th results in a balance of 150 units (25 with $1 drawback/unit, 50 

with $0 drawback/unit, and 75 with $2 drawback/unit); the withdrawal on 

the 20th of 100 units (25 with $1 drawback/unit, 50 with $0 drawback/

unit, and 25 with $2 drawback unit) results in a balance of 50 units 

(all 50 with $2 drawback/unit).

    (2) Last-in, first out (LIFO)--(i) General. The LIFO method is the 

method by which fungible merchandise or articles are identified by 

recordkeeping on the basis of the last merchandise or articles received 

into the inventory. Under this method, withdrawals are from the newest 

(last-in) merchandise or articles in the inventory at the time of 

withdrawal.

    (ii) Example. In the example in paragraph (c)(1)(ii) of this 

section, the drawback attributable to the 100 units withdrawn for export 

on the 20th is a total of $175 (75 units from the receipt on the 15th 

with $2 drawback attributable per unit and 25 units from the receipt on 

the 2nd with $1 drawback attributable per unit). The basis of the 

foregoing and the effects on the inventory of the receipts and 

withdrawals, and balance in the inventory thereafter are as follows: On 

the 2nd of the month the receipt of 100 units ($1 drawback/unit) results 

in a balance of that amount; the receipt of 50 units ($0 drawback/unit) 

on the 5th results in a balance of 150 units (100 with $1 drawback/unit 

and 50 with $0 drawback/unit); the withdrawal on the 10th of 75 units 

(50 with $0 drawback/unit and 25 with $1 drawback/unit) results in a 

balance of 75 units (all with $1 drawback/unit); the receipt of 75 units 

($2 drawback/unit) on the 15th results in a balance of 150 units (75 

with $1 drawback/unit and 75 with $2 drawback/unit); the withdrawal on 

the 20th of 100 units (75 with $2 drawback/unit and 25 with $1 drawback/

unit) results in a balance of 50 units (all 50 with $1 drawback/unit).

    (3) Low-to-high--(i) General. The low-to-high method is the method 

by which fungible merchandise or articles are identified by 

recordkeeping on the basis of the lowest drawback amount per unit of the 

merchandise or articles in inventory. Merchandise or articles with no 

drawback attributable to them (for example, domestic merchandise or 

duty-free merchandise) must be accounted for and are treated as having 

the lowest drawback attributable to them. Under this method, withdrawals 

are from the merchandise or articles with the least amount of drawback 

attributable to them, then those with the next higher amount, and so 

forth. If the same amount of drawback is attributable to more than one 

lot of merchandise or articles, withdrawals are from the oldest (first-

in) merchandise or articles among those lots with the same amount of 

drawback attributable. Drawback requirements are applicable to withdrawn 

merchandise or articles as identified (for example, if the merchandise 

or articles identified were attributable to an import more than 5 years 

(more than 3 years for unused merchandise drawback) before the claimed 

export, no drawback could be granted).

    (ii) Ordinary--(A) Method. Under the ordinary low-to-high method, 

all receipts into and all withdrawals from the inventory are recorded in 

the accounting record and accounted for so that each withdrawal, whether 

for export or domestic shipment, is identified by recordkeeping on the 

basis of the lowest drawback amount per unit of the merchandise or 

articles available in the inventory.

    (B) Example. In this example, the beginning inventory is zero, and 

receipts into and withdrawals from the inventory are as follows:



------------------------------------------------------------------------

                                 Receipt  ($ per

             Date                     unit)             Withdrawals

------------------------------------------------------------------------

Jan. 2........................  100 (zero).......

Jan. 5........................  50 ($1.00).......

Jan. 15.......................  .................  50 (export).

Jan. 20.......................  50 ($1.01).......

Jan. 25.......................  50 ($1.02).......

Jan. 28.......................  .................  50 (domestic).

Jan. 31.......................  50 ($1.03).......

Feb. 5........................  .................  100 (export).

Feb. 10.......................  50 ($.95)........

Feb. 15.......................  .................  50 (export).

Feb. 20.......................  50 (zero)........

Feb. 23.......................  .................  50 (domestic).

Feb. 25.......................  50 ($1.05).......

Feb. 28.......................  .................  100 (export).

Mar. 5........................  50 ($1.06).......

Mar. 10.......................  50 ($.85)........

Mar. 15.......................  .................  50 (export).



[[Page 536]]





Mar. 21.......................  .................  50 (domestic).

Mar. 20.......................  50 ($1.08).......

Mar. 25.......................  50 ($.90)........

Mar. 31.......................  .................  100 (export).

------------------------------------------------------------------------



    The drawback attributable to the January 15 withdrawal for export is 

zero (the available receipt with the lowest drawback amount per unit is 

the January 2 receipt), the drawback attributable to the January 28 

withdrawal for domestic shipment (no drawback) is zero (the remainder of 

the January 2 receipt), the drawback attributable to the February 5 

withdrawal for export is $100.50 (the January 5 and January 20 

receipts), the drawback attributable to the February 15 withdrawal for 

export is $47.50 (the February 10 receipt), the drawback attributable to 

the February 23 withdrawal for domestic shipment (no drawback) is zero 

(the February 20 receipt), the drawback attributable to the February 28 

withdrawal for export is $102.50 (the January 25 and January 31 

receipts), the drawback attributable to the March 15 withdrawal for 

export is $42.50 (the March 10 receipt), the drawback attributable to 

the March 21 withdrawal for domestic shipment (no drawback) is $52.50 

(the February 25 receipt), and the drawback attributable to the March 31 

withdrawal for export is $98.00 (the March 25 and March 5 receipts). 

Remaining in inventory is the March 20 receipt of 50 units ($1.08 

drawback/unit). Total drawback attributable to withdrawals for export in 

this example would be $391.00.

    (iii) Low-to-high method with established average inventory turn-

over period--(A) Method. Under the low-to-high method with established 

average inventory turn-over period, all receipts into and all 

withdrawals for export are recorded in the accounting record and 

accounted for so that each withdrawal is identified by recordkeeping on 

the basis of the lowest drawback amount per available unit of the 

merchandise or articles received into the inventory in the established 

average inventory turn-over period preceding the withdrawal.

    (B) Accounting for withdrawals (for domestic shipments and for 

export). Under this method, domestic withdrawals (withdrawals for 

domestic shipment) are not accounted for and do not affect the available 

units of merchandise or articles. All withdrawals for export must be 

accounted for whether or not drawback is available or claimed on the 

withdrawals. Once a withdrawal for export is made and accounted for 

under this method, the merchandise or articles withdrawn are no longer 

available for identification.

    (C) Establishment of inventory turn-over period. For purposes of 

this section, average inventory turn-over period is based on the rate of 

withdrawal from inventory and represents the time in which all of the 

merchandise or articles in the inventory at a given time must have been 

withdrawn. To establish an average of this time, at least 1 year, or 

three (3) turn-over periods (if inventory turns over less than 3 times 

per year), must be averaged. The inventory turn-over period must be that 

for the merchandise or articles to be identified, except that if the 

person using the method has more than one kind of merchandise or 

articles with different inventory turn-over periods, the longest average 

turn-over period established under this section may be used (instead of 

using a different inventory turn-over period for each kind of 

merchandise or article).

    (D) Example. In the example in paragraph (c)(3)(ii)(B) of this 

section (but, as required for this method, without accounting for 

domestic withdrawals, and with an established average inventory turn-

over period of 30 days), the drawback attributable to the January 15 

withdrawal for export is zero (the available receipt in the preceding 30 

days with the lowest amount of drawback is the January 2 receipt, of 

which 50 units will remain after the withdrawal), the drawback 

attributable to the February 5 withdrawal for export is $101.50 (the 

January 20 and January 25 receipts), the drawback attributable to the 

February 15 withdrawal for export is $47.50 (the February 10 receipt), 

the drawback attributable to the February 28 withdrawal for export is 

$51.50 (the February 20 and January 31 receipts), the drawback 

attributable to the March 15 withdrawal for export is $42.50



[[Page 537]]



(the March 10 receipt), and the drawback attributable to the March 31 

withdrawal for export is $98.00 (the March 25 and March 5 receipts). No 

drawback may be claimed on the basis of the January 5 receipt or the 

February 25 receipt because in the case of each, there were insufficient 

withdrawals for export within the established average inventory turn-

over period; the 50 units remaining from the January 2 receipt after the 

January 15 withdrawal are not identified for a withdrawal for export 

because there is no other withdrawal for export (other than the January 

15 withdrawal) within the established average inventory turn-over 

period; the March 20 receipt (50 units at $1.08) is not yet attributed 

to withdrawals for export. Total drawback attributable to withdrawals 

for export in this example would be $341.00.

    (iv) Low-to-high blanket method--(A) Method. Under the low-to-high 

blanket method, all receipts into and all withdrawals for export are 

recorded in the accounting record and accounted for so that each 

withdrawal is identified by recordkeeping on the basis of the lowest 

drawback amount per available unit of the merchandise or articles 

received into inventory in the period preceding the withdrawal equal to 

the statutory period for export under the kind of drawback involved 

(e.g., 180 days under 19 U.S.C. 1313(p), 3 years under 19 U.S.C. 1313(c) 

and 1313(j), and 5 years otherwise under 19 U.S.C. 1313(i)). Drawback 

requirements are applicable to withdrawn merchandise or articles as 

identified (for example, if the merchandise or articles identified were 

attributable to an import more than 5 years (more than 3 years for 19 

U.S.C. 1313(j); more than 180 days after the date of import or after the 

close of the manufacturing period for 19 U.S.C. 1313(p)) before the 

claimed export, no drawback could be granted).

    (B) Accounting for withdrawals (for domestic shipments and for 

export). Under this method, domestic withdrawals (withdrawals for 

domestic shipment) are not accounted for and do not affect the available 

units of merchandise or articles. All withdrawals for export must be 

accounted for whether or not drawback is available or claimed on the 

withdrawals. Once a withdrawal for export is made and accounted for 

under this method, the merchandise or articles withdrawn are no longer 

available for identification.

    (C) Example. In the example in paragraph (c)(3)(ii)(B) of this 

section (but, as required for this method, without accounting for 

domestic withdrawals), the drawback attributable to the January 15 

withdrawal for export is zero (the available receipt in the inventory 

with the lowest amount of drawback is the January 2 receipt, of which 50 

units will remain after the withdrawal), the drawback attributable to 

the February 5 withdrawal for export is $50.00 (the remainder of the 

January 2 receipt and the January 5 receipt), the drawback attributable 

to the February 15 withdrawal for export is $47.50 (the February 10 

receipt), the drawback attributable to the February 28 withdrawal for 

export is $50.50 (the February 20 and January 20 receipts), the drawback 

attributable to the March 15 withdrawal for export is $42.50 (the March 

10 receipt), and the drawback attributable to the March 31 withdrawal 

for export is $96.00 (the March 25 and January 25 receipts). Receipts 

not attributed to withdrawals for export are the January 31 (50 units at 

$1.03), February 25 (50 units at $1.05), March 5 (50 units at $1.06), 

and March 20 (50 units at $1.08) receipts. Total drawback attributable 

to withdrawals for export in this example would be $286.50.

    (4) Average--(i) General. The average method is the method by which 

fungible merchandise or articles are identified on the basis of the 

calculation by recordkeeping of the amount of drawback that may be 

attributed to each unit of merchandise or articles in the inventory. In 

this method, the ratio of:

    (A) The total units of a particular receipt of the fungible 

merchandise in the inventory at the time of a withdrawal to;

    (B) The total units of all receipts of the fungible merchandise 

(including each receipt into inventory) at the time of the withdrawal;

    (C) Is applied to the withdrawal, so that the withdrawal consists of 

a proportionate quantity of units from each particular receipt and each 

receipt is correspondingly decreased. Withdrawals and corresponding 

decreases to



[[Page 538]]



receipts are rounded to the nearest whole number.

    (ii) Example. In the example in paragraph (c)(1)(ii) of this 

section, the drawback attributable to the 100 units withdrawn for export 

on the 20th is a total of $133 (50 units from the receipt on the 15th 

with $2 drawback attributable per unit, 33 units from the receipt on the 

2nd with $1 drawback attributable per unit, and 17 units from the 

receipt on the 5th with $0 drawback attributable per unit). The basis of 

the foregoing and the effects on the inventory of the receipts and 

withdrawals, and balance in the inventory thereafter are as follows: On 

the 2nd of the month the receipt of 100 units ($1 drawback/unit) results 

in a balance of that amount; the receipt of 50 units ($0 drawback/unit) 

on the 5th results in a balance of 150 units (100 with $1 drawback/unit 

and 50 with $0 drawback/unit); the withdrawal on the 10th of 75 units 

(50 with $1 drawback/unit (applying the ratio of 100 units from the 

receipt on the 2nd to the total of 150 units at the time of withdrawal) 

and 25 with $0 drawback/unit (applying the ratio of 50 units from the 

receipt on the 5th to the total of 150 units at the time of withdrawal)) 

results in a balance of 75 units (with 50 with $1 drawback/unit and 25 

with $0 drawback/unit, on the basis of the same ratios); the receipt of 

75 units ($2 drawback/unit) on the 15th results in a balance of 150 

units (50 with $1 drawback/unit, 25 with $0 drawback/unit, and 75 with 

$2 drawback/unit); the withdrawal on the 20th of 100 units (50 with $2 

drawback/unit (applying the ratio of the 75 units from the receipt on 

the 15th to the total of 150 units at the time of withdrawal), 33 with 

$1 drawback/unit (applying the ratio of the 50 units remaining from the 

receipt on the 2nd to the total of 150 units at the time of withdrawal, 

and 17 with $0 drawback/unit (applying the ratio of the 25 units 

remaining from the receipt on the 5th to the total of 150 units at the 

time of withdrawal)) results in a balance of 50 units (25 with $2 

drawback/unit, 17 with $1 drawback/unit, and 8 with $0 drawback/unit, on 

the basis of the same ratios).

    (5) Inventory turn-over for limited purposes. A properly established 

average inventory turn-over period, as provided for in paragraph 

(c)(3)(iii)(C) of this section, may be used to determine:

    (i) The fact and date(s) of use in manufacture or production of the 

imported designated merchandise and other (substituted) merchandise (see 

19 U.S.C. 1313(b)); or

    (ii) The fact and date(s) of manufacture or production of the 

finished articles (see 19 U.S.C. 1313(a) and (b)).

    (d) Approval of other accounting methods. (1) Persons proposing to 

use an accounting method for identification of merchandise or articles 

for drawback purposes which has not been previously approved for such 

use (see paragraph (c) of this section), or which includes modifications 

from the methods listed in paragraph (c) of this section, may seek 

approval by Customs of the proposed accounting method under the 

provisions for obtaining an administrative ruling (see part 177 of this 

chapter). The conditions applied and the criteria used by Customs in 

approving such an alternative accounting method, or a modification of 

one of the approved accounting methods, will be the criteria in 

paragraph (b) of this section, as well as those in paragraph (d)(2) of 

this section.

    (2) In order for a proposed accounting method to be approved by 

Customs for purposes of this section, it shall meet the following 

criteria:

    (i) For purposes of calculations of drawback, the proposed 

accounting method must be either revenue neutral or favorable to the 

Government; and

    (ii) The proposed accounting method should be:

    (A) Generally consistent with commercial accounting procedures, as 

applicable for purposes of drawback;

    (B) Consistent with inventory or material control records used in 

the ordinary course of business by the person proposing the method; and

    (C) Easily administered by both Customs and the person proposing the 

method.



[T.D. 98-16, 63 FR 11006, Mar. 5, 1998; 63 FR 15288, Mar. 31, 1998; 63 

FR 27489, May 19, 1998]