Retailer's Returns Policy Impedes Drawback Request for Unused Goods, CBP Says

An importer and domestic retailer of footwear and handbags that accepts customer returns with "no questions asked" would need to provide more information in order to meet the requirements for unused merchandise drawback claims, CBP said in a July 25 ruling. Carlo Pazolini (USA) LLC submitted the claims for unused drawback in 2013 and 2014, which were rejected by the Port of New York/New Jersey due to lack of proof about use. Pazolini protested the rejections and said that the merchandise in question showed "no evidence of use."

CBP discussed the protest with Pazolini in 2014 and the "conflict between Pazolini’s 'no questions asked' returns policy and the statutory requirements," it said in HQ H263493. The agency advised that Pazolini seek drawback under another statute, "which confers drawback eligibility on retail merchandise returned for any reason, regardless of whether it was used prior to being returned by a customer." While Pazolini "conceded" CBP's points, the company "explained that it would pursue the protest because it could not satisfy the filing deadline to claim drawback" under the other provision. The company then sought a further review of protest.

The company argued that the merchandise "was merely tested," CBP said. Even if true, "Customs holds that merchandise employed for its intended purpose has been used even if it was deemed unsatisfactory," it said. "At the moment that footwear is worn, and a handbag is used to hold items or carried, by a customer after retail purchase, it is used for the purpose for which it was manufactured and intended," CBP said. But, "due to Pazolini’s 'no questions asked' policy for customer returns, it lacks information, and does not even inquire, as to whether the merchandise being returned was used," CBP said. If the purchased footwear and handbags are found unsuitable by "a customer after being worn, or carried or used to hold items," that merchandise "has been employed for the purpose for which it was manufactured, and has not been employed for the sake of testing."

Pazolini also argued that the goods can be considered unused based on a visual review and pointed to CBP's consideration of visual signs of use in past rulings. But the company glossed over CBP's "key finding" that appearance is "not dispositive" for showing use, the agency said. "The absence of signs of use is similarly insufficient evidence to prove non-use," it said. "Carefully used and returned footwear or handbags may appear unused for purposes of resale by a retailer, but are nevertheless ineligible for unused merchandise drawback. Therefore, Pazolini’s drawback claims were properly denied "because it is incapable of conclusively establishing whether any customer returned footwear or handbags within the underlying entries were used," CBP said.