Can You Claim Duty Drawback on Destroyed Merchandise?

Qualifying destruction can support duty drawback under several provisions of 19 U.S.C. § 1313, including manufacturing, unused merchandise, and rejected merchandise drawback.

Destruction is generally not a separate statutory category of drawback. Instead, it is an alternative qualifying disposition to exportation when the underlying merchandise and transaction satisfy the requirements of the applicable drawback provision and CBP's destruction procedures are followed.

Is “Destruction Drawback” a Separate Type of Duty Drawback?

Generally, no.

Destruction is better understood as an alternative to exportation under several duty drawback provisions rather than as its own standalone statutory category.

Current law allows qualifying destruction under provisions including:

Direct Identification Manufacturing Drawback under 19 U.S.C. § 1313(a)
Substitution Manufacturing Drawback under § 1313(b)
Rejected Merchandise Drawback under § 1313(c)
Direct Identification Unused Merchandise Drawback under § 1313(j)(1)
Substitution Unused Merchandise Drawback under § 1313(j)(2)

Each provision has its own eligibility requirements, so destroying merchandise does not by itself create a drawback claim. The underlying transaction must first qualify under the applicable provision.

What Counts as Destruction for Duty Drawback?

Under 19 CFR § 190.2, destruction generally means destroying merchandise or articles to the point that they have no commercial value.

The regulations also recognize that destruction can include a process in which materials are recovered from the merchandise or manufactured article. In those cases, special rules apply to the value of the recovered materials.

Simply discarding, abandoning, damaging, or taking merchandise out of inventory does not necessarily establish destruction for drawback purposes.

The process must satisfy CBP's requirements and be supported by appropriate evidence.

What Types of Merchandise Can Qualify for Destruction-Based Drawback?

The answer depends on the drawback provision involved.

Manufacturing Drawback

Under §§ 1313(a) and 1313(b), articles manufactured or produced in the United States using qualifying imported or substituted merchandise may generate drawback when they are either exported or destroyed under customs supervision, provided the applicable manufacturing requirements are satisfied.

This can be relevant when a qualifying manufactured article cannot be exported and is instead destroyed.

Unused Merchandise Drawback

Under § 1313(j), qualifying imported or substituted merchandise may be destroyed rather than exported if it has not been used in the United States before destruction and the other applicable requirements are met.

This can apply to situations involving excess, obsolete, unsold, or otherwise unwanted inventory, provided the merchandise satisfies the unused-merchandise rules.

Rejected Merchandise Drawback

Under § 1313(c), qualifying defective, nonconforming, unauthorized, or returned retail merchandise may be destroyed instead of exported.

For more information, see Rejected Merchandise Drawback Explained.

Does CBP Have to Witness the Destruction?

Not necessarily.

CBP must generally be given advance notice and an opportunity to determine whether it wants to witness the destruction.

Under 19 CFR § 190.71, the claimant must generally file CBP Form 7553, Notice of Intent to Export, Destroy, or Return Merchandise for Purposes of Drawback, at least seven working days before the intended destruction. The notice is filed with the CBP port where the destruction will occur and must identify the date and specific location.

CBP then has four working days after receiving the notice to advise whether it intends to witness the destruction.

If CBP does not notify the filer within that period, the merchandise may be destroyed without further delay and is deemed to have been destroyed under CBP supervision.

This means “under CBP supervision” does not necessarily mean a CBP officer must physically attend every destruction.

What Happens If CBP Chooses to Witness the Destruction?

If CBP decides to attend, the merchandise must be made available at the stated location and time so CBP can observe the destruction.

When CBP witnesses the destruction, the CBP official certifies the Form 7553. That certified form becomes part of the complete drawback claim based on the destruction.

Companies should therefore avoid destroying merchandise before the applicable notice period has been completed or before CBP has had the required opportunity to respond.

What Proof Is Required If CBP Does Not Witness the Destruction?

When CBP does not attend, the claimant must provide evidence showing that the destruction occurred in accordance with the Form 7553 notice.

Under 19 CFR § 190.71, the evidence must be issued by a disinterested third party, such as a landfill operator. The type of evidence can vary depending on the destruction method and location, but it must demonstrate that the merchandise was actually destroyed within the meaning of the regulations.

Depending on the circumstances, supporting records may include:

Third-party destruction certificates
Landfill or recycling records
Weight tickets
Photographs or video documentation
Inventory records
Transportation records
Product descriptions and quantities
Serial-number, SKU, lot, or part-number information
Records connecting the destroyed merchandise to the drawback claim

The exact evidence required will depend on the merchandise and destruction process.

Can Merchandise Be Recycled and Still Qualify as Destroyed?

Potentially, yes.

Current law expressly recognizes that destruction may include a process through which materials are recovered from imported merchandise or from an article manufactured using imported merchandise.

However, the recovery of materials can affect the amount of drawback available.

A recycling or recovery process should therefore be evaluated before destruction to determine whether it satisfies CBP's definition and how recovered material value will affect the claim.

Does Scrap or Recovered Material Value Reduce the Refund?

It can.

Under 19 U.S.C. § 1313(x) and 19 CFR § 190.71, the value of recovered materials that accrues to the drawback claimant must be taken into account when calculating drawback on destroyed merchandise.

The rule can include more than the physical value of recovered scrap. The statute and regulations also reference items such as tax benefits or royalty payments associated with recovered materials.

The claimant must therefore accurately identify and account for applicable recovered value rather than calculating the refund as if the destruction produced no remaining value.

How Much Can Be Recovered When Merchandise Is Destroyed?

Drawback claims generally seek up to 99% of eligible duties, taxes, and fees, subject to the rules governing the applicable drawback provision.

For substitution claims, the amount can also be affected by the applicable “lesser-of” calculation. When merchandise is destroyed, recovered material value can further reduce the amount available.

The actual refund therefore depends on factors including:

The drawback provision used
Duties, taxes, and fees paid
The merchandise designated for drawback
Whether direct identification or substitution applies
Applicable value limitations
Recovered material value
Documentation supporting the claim
Any duty-specific drawback restrictions

Destruction should not be viewed as automatically producing a refund equal to 99% of everything paid at import.

What Documentation Is Required for Destruction Drawback?

A complete destruction-based claim requires records supporting both the underlying drawback eligibility and the destruction itself.

Depending on the claim, documentation may include:

Import entry data
Duty, tax, and fee information
Commercial invoices
Inventory records
HTSUS classifications
Bills of material and manufacturing records, when applicable
Merchandise-transfer records
Evidence of unused status, when applicable
Documentation supporting rejected merchandise eligibility, when applicable
CBP Form 7553
CBP certification when destruction is witnessed
Third-party destruction evidence when CBP does not attend
Quantity and product-identification records
Records of recovered materials and their value
Drawback calculations

Current regulations require the complete drawback claim to include applicable Form 7553 notices and evidence of destruction. The electronic drawback entry must also identify the destroyed merchandise, the destroyer, and applicable certifications concerning recovered material value.

For more information, see What Documentation Is Required for a Duty Drawback Claim?

How Long Do You Have to Destroy Merchandise for Duty Drawback?

The applicable deadline depends on the drawback provision.

For example, current § 1313(j) generally requires qualifying unused merchandise to be exported or destroyed before the end of the five-year period beginning on the date of the relevant importation and before the drawback claim is filed.

Rejected merchandise under § 1313(c) generally must be exported or destroyed within five years after the applicable importation or withdrawal.

Manufacturing provisions also include timing requirements tying the imported merchandise, manufacturing activity, and eventual exportation or destruction together.

Because different statutory timing rules can interact, companies should evaluate potential drawback before scheduling destruction, particularly when older inventory is involved.

For additional information, see How Far Back Can You Claim Duty Drawback?

Can Merchandise Be Destroyed Before Filing the Drawback Claim?

Yes, and in many cases destruction necessarily occurs before the claim is completed.

However, the required advance destruction notice must generally occur before the merchandise is destroyed.

Under the standard procedure in 19 CFR § 190.71, Form 7553 must generally be filed at least seven working days before the intended destruction. After the destruction occurs, the appropriate CBP certification or third-party destruction evidence becomes part of the complete drawback claim.

A company that destroys merchandise first and investigates drawback afterward may therefore lose the ability to establish a qualifying destruction.

What If the Merchandise Has Already Been Destroyed?

Eligibility may be significantly more difficult if the required CBP procedures were not followed before destruction.

The standard destruction procedure gives CBP advance notice and an opportunity to witness the destruction. If the merchandise has already been disposed of without the required notice, the claimant may not be able to establish that it was destroyed under CBP supervision for drawback purposes.

Companies should therefore evaluate potential drawback before destroying imported merchandise, excess inventory, rejected merchandise, or qualifying manufactured articles.

Is It Better to Export or Destroy Merchandise for Drawback?

There is no universal answer.

The appropriate disposition depends on factors such as:

Whether the merchandise can be exported
Transportation and handling costs
Commercial value
Destruction costs
Recovered scrap or recycling value
Timing
Applicable drawback methodology
Documentation
Regulatory requirements
Potential refund

From a drawback perspective, both exportation and qualifying destruction can support claims under several provisions. The company should evaluate the operational and financial circumstances before selecting a disposition.

Can Destroyed Merchandise Be Used for More Than One Drawback Claim?

Generally, no.

Under 19 U.S.C. § 1313(v), merchandise exported or destroyed to satisfy one drawback claim cannot also serve as the basis for another drawback claim, subject to statutory rules concerning appropriate credits and deductions for components or ingredients.

This is another reason the applicable methodology should be evaluated before the claim is structured.

How Can J.M. Rodgers Help With Destroyed Merchandise?

J.M. Rodgers can evaluate whether merchandise planned for destruction may qualify under an applicable drawback provision and help structure the required process before destruction occurs.

Depending on the situation, our team can assist with:

Identifying the applicable drawback provision
Reviewing import and duty data
Evaluating unused, manufacturing, or rejected merchandise eligibility
Reviewing merchandise and inventory records
Determining applicable documentation requirements
Supporting Form 7553 procedures
Coordinating destruction-related claim documentation
Reviewing recovered material value
Preparing and filing the drawback claim
Maintaining supporting records for potential CBP review

The key is to evaluate the transaction before the merchandise is destroyed, while the company still has the opportunity to satisfy CBP's notice and evidentiary requirements.

Next Steps

If your company plans to destroy imported merchandise, excess inventory, defective goods, returned merchandise, or manufactured articles containing imported materials, consider evaluating duty drawback eligibility before disposal occurs.

J.M. Rodgers can review the merchandise, import activity, proposed destruction process, available documentation, and applicable drawback methodology to determine whether the destruction may support a claim and what CBP procedures must be followed.

Disclaimer

This information is general in nature and does not constitute legal advice. Duty drawback eligibility for destroyed merchandise depends on the applicable statutory provision, merchandise, transaction history, use, manufacturing activity, timing, destruction procedure, recovered material value, documentation, and current CBP requirements.