VAL CO:R:C:V 545231 GG
District Director
U.S. Customs Service
40 S. Gay Street
Baltimore, Maryland 21202
RE: Application for Further Review of Protest 1303-92-100212;
transaction value; defective merchandise
Dear Sir:
This is in response to the application for further review of
the protest referenced above.
FACTS:
The protestant, Bayside Glove Company ("Bayside"), imported
gloves made in Pakistan by Shehzad Gloves ("Shehzad"). The
gloves were entered on January 27, 1992, and the entry was
liquidated on May 15, 1992. The gloves were appraised at the
invoiced price less ocean freight charges. The protestant timely
protested the liquidation, claiming that the gloves were
defective, and that therefore an allowance in their value should
be made.
Specifically, in its protest Bayside states that the gloves
it received from Shehzad were of a poor quality and did not meet
specifications. Bayside further claims that Shehzad agreed to
credit Bayside's account in the amount of $867.75. The
protestant references several letters and facsimiles, which
outline the defect and the credit agreement between the parties.
These documents were not attached to the protest, but were more
recently submitted to Customs.
Bayside sent Shehzad a facsimile, dated February 6, 1992,
which stated in pertinent part that
We just received our shipment into our warehouse.
Unfortunately, our quality control department informed
us that your gloves do not meet our standards and are
not the same quality as previous shipments. Fabric
weight per dozen pair are [sic] 530 grams. Your
proforma invoice and our specifications call for at
least 570 grams per dozen pair. Unfortunately, your
factory used different knit wrist and different weave
of fabrics . . .
As you have realized in the past our quality standards
are higher than some of your other customers. The
quality of this product prevents us from selling these
gloves at our regular prices. A settlement in the
amount of USD.30 per dz. pr. for a total amount of
USD1735.50 will be appreciated . . .
In a reponse to Bayside dated February 11, 1992, Shehzad
acknowledged that it "had used yarn of another textile mill which
proved to be thinner in the same yarn count. This has resulted
into [sic] light weight." Shehzad offered a discount of U.S.
$0.15 per dozen (U.S.$867.75 total) for the shipped quantity.
Bayside accepted the offer in a February 14, 1992 facsimile to
Shehzad, and subsequently received a check from Shehzad for
$867.75.
Bayside requests a reliquidation of the entry to take into
account the $867.75 credit. As an alternate means of refund, it
also seeks relief under Section 520(c)(1), Tariff Act of 1930, as
amended (19 U.S.C. 1520(c)(1)).
ISSUE:
Whether losses suffered by the importer because of the
shipment of defective merchandise serve as a basis for
reappraisement under 19 U.S.C. 1514 or alternatively, 19 U.S.C.
1520(c)(1)?
LAW AND ANALYSIS:
The protestant asks for a reliquidation of the entry of
gloves manufactured by Shehzad because it claims that the gloves
were defective. The defect allegedly was due to a thinner yarn
than specified being used in the production process. This
resulted in gloves of too light a weight.
The Statement of Administrative Action, which was
specifically adopted by Congress, states that "where it is
discovered subsequent to importation that the merchandise being
appraised is defective, allowances will be made. (Regulation.)"
Section 158.12(a) of the Customs Regulations (19 CFR 158.12(a))
provides that merchandise which is subject to an ad valorem or
compound rate of duty and found by the district director to be
partially damaged at the time of importation shall be appraised
in its condition as imported, with an allowance made in the value
to the extent of the damage.
Customs has previously taken the position that imported
merchandise which is of a lesser quality than that ordered
and paid for should be granted a defective merchandise allowance
and be appraised at a lower value. See Headquarters Ruling
Letter (HRL) 543061, dated May 4, 1983; HRL 543106, dated June
29, 1983. The importer, however, must provide Customs with clear
and convincing evidence to support a claim that merchandise
purchased and appraised as one quality was in fact of a lesser
quality, thus warranting an allowance in duties. See HRL 543106,
supra. In addition, Customs will only make allowances for
defects found after liquidation in cases where the price actually
paid or payable is changed.
In this particular case, the importer promptly notified the
manufacturer of the defect in writing. The manufacturer in turn
acknowledged the defect and explained, in some detail, its cause.
While this exchange of correspondence certainly supports the
claim that the gloves were defective, the fact that Shehzad
compensated Bayside for the defects, thereby changing the price
actually paid or payable, solidifies the claim.
We would note that although price rebates do not form the
basis of an adjusted appraised value in situations where an
adjustment due to defects is requested, they can serve as a means
of determining the bona fides of a defective merchandise claim
when the claimed defects or their extent are in question. Here,
the refund, together with Bayside's sending notice to Shehzad of
the defect and Shehzad's written acknowledgement of the same,
suffice to permit an allowance in the value of the gloves to be
made.
HOLDING:
The importer has provided sufficient documentation to
establish that the imported gloves were defective. Therefore an
adjustment to the appraised value may be made.
You are directed to ALLOW this protest in full. Please
reliquidate the entry in question accordingly.
In accordance with Section 3A(11)(b) of Customs Directive
099 3550-065, dated August 4, 1993, Subject: Revised Protest
Directive, this decision should be mailed by your office to the
protestant no later than 60 days from the date of this letter.
Any reliquidation of the entry in accordance with the decision
must be accomplished prior to mailing of the decision. Sixty
days from the date of the decision the Office of Regulations and
Rulings will take steps to make the decision available to customs
personnel via the Customs Rulings Module in ACS and the public
via the Diskette Subscription Service, Lexis, Freedom of
Information Act and other public access channels.
Sincerely,
John Durant
Director, Commercial