VAL CO:R:C:V 544879 GG
Area Director
U.S. Customs Service
Kennedy Airport Area
Building 178, Room 330B
Jamaica, New York 11430
RE: Application for Further Review of Protests 1001-87-009924,
1001-87-009925, 1001-87-011326, and 1001-87-011327; defective
merchandise; late or improper shipments; cancelled orders
Dear Sir:
This is in response to the protests referenced above, which
were sent to this office for further review. Our decision
follows.
FACTS:
The protestant, xxx xxxxxx xxxx xxxxxxx Co., imported
textiles from Romania in February and March, 1987. Six entries
were liquidated "no change" on April 10, 1987, two others on
April 17, 1987. The protestant protested the appraised value of
the merchandise covered by all 8 entries by filing protests 1001-
7-009924 and 1001-7-009925 on July 9, 1987. Each protest made
reference to a different four of the eight entries. A refund of
"50% of the entered value of the merchandise" was requested.
Several reasons were given in the protests to support a
refund: 1) The goods were shipped late; 2) The sizes were
mismarked; 3) The shading was poor; 4) The pants were shipped
separately from tops, although they were meant to be sold
together; 5) Solid color linen garments were improperly shipped
with striped garments; and 6) Orders were cancelled, causing the
goods to be sold at distress prices.
The protestant also filed protests 1001-7-011326 and 1001-
7-011327, on August 13, 1987. These last two protests cover the
same eight entries and present arguments identical to those in
the earlier protests. The reason for these later filings is
unknown.
Customs sent a Customs Form 28, Request for Information, to
the protestant on or around December 17, 1988, which asked for
documentation to substantiate, on an entry by entry basis, proof
of payment, exact damage to each garment, and who was responsible
for purchasing and inspection. Also requested was information on
the exact dates of shipment and order cancellations. No
substantiating documentation has been received by Customs.
Although it is implicit from the facts that the importer
sustained a loss, it is unclear whether a refund or rebate was
sought from the seller.
ISSUE:
Whether losses suffered by the importer because of late or
improper shipments of first quality merchandise, the cancellation
of orders after importation, and the shipment of defective
merchandise, serve as a basis for reappraisement under 19 U.S.C.
1514(1)?
LAW AND ANALYSIS:
Late or Improper Shipments of Merchandise
An argument of the protestant is that the appraised value of
the imported merchandise was too high because the goods were
shipped late, and some shipments were improper because 1) they
contained separate items of clothing instead of the intended
complete outfit and 2) solid color garments were sent with
striped garments. Although no evidence has been provided to
support these factual allegations, our decision can be reached in
its absence.
The merchandise at issue was appraised under transaction
value. Transaction value is defined in Section 402(b) of the
Tariff Act of 1930, as amended by the Trade Agreements Act of
1979 (TAA; 19 U.S.C. 1401a(b)), as the price actually paid or
payable for merchandise when sold for exportation to the United
States. The term price actually paid or payable means the total
payment, exclusive of certain international transportation
charges, made, or to be made, for imported merchandise by the
buyer to, or for the benefit of, the seller. Section
402(b)(4)(A) TAA.
As opposed to the subsequent discussion on defective
merchandise, there is no provision which allows for a post-
importation readjustment of the price actually paid or payable to
compensate an importer for losses suffered because shipments were
late or contained the wrong merchandise. Of course, should the
seller give a rebate to the buyer or otherwise lower the price
after importation, such a rebate or price decrease will be
disregarded in determining transaction value. Section
402(b)(4)(B) TAA. Consequently, there is no legal basis to
reappraise merchandise that the protestant alleges was received
late or consisted of items different from those ordered.
Cancellation of Orders after Importation
The same analysis as that in the segment above applies to
losses allegedly sustained by the protestant because orders were
cancelled after importation: post-importation order
cancellations are not a legal ground for readjusting the price
actually paid or payable. Cancelled orders are a business risk
assumed by every commercial importer, who has the options of
seeking redress from the party who cancelled the order, trying to
find other customers, or exporting or destroying, under Customs'
supervision, the unsold merchandise and obtaining drawback. Any
reduction in the value of imported merchandise because of
business vagaries is a post-importation event to which no
recourse, other than drawback, can be had from the government.
Shipment of Defective Merchandise
The protestant asks for a reappraisement because some or all
of the imported merchandise was defective. The defects included
poor shading and mismarked sizes. This raises the issue of
whether the post-importation discovery that imported merchandise
was defective warrants its reappraisement.
The Statement of Administrative Action, which has the force
of law, states that "where it is discovered subsequent to
importation that the merchandise being appraised is defective,
allowances will be made". 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 interpreted this to mean that the dutiable value can
be adjusted where there is sufficient evidence to establish that
the merchandise was defective at the time of importation. See
Customs Service Decision (C.S.D.) 81-144; HRL 543106, dated June
29, 1983; HRL 543091, dated September 29, 1983; HRL 543537, dated
February 14, 1986. Despite being asked by Customs to furnish
such information, the protestant has not done so. There is
nothing to substantiate that the merchandise was defective when
imported. Consequently, no allowance may be made in the dutiable
value because of alleged defects.
HOLDING:
There is no legal basis to reappraise merchandise whose
importation caused the protestant to sustain a loss because
shipments were late or improper and orders were cancelled after
importation. Similarly, no allowance can be made in the value of
imported merchandise where it is claimed that the merchandise was
defective but no documentation was presented to support that
claim.
You are directed to DENY protests 1001-87-009924 and 1001-
87-009925 for the reasons stated above. You are directed to DENY
protests 1001-87-011326 and 1001-87-011327 because 1) the
protests were filed more than 90 days after the entries were
liquidated and were, under 19 U.S.C. 1514(c)(2)(A), untimely; and
2) 19 U.S.C. 1514(c)(1) prohibits the filing of more than one
protest for each entry of merchandise.
A copy of this decision should be attached to the CF 19,
Notice of Action, and sent to the protestant to satisfy the
notice requirement of section 174.30(a) of the Customs
Regulations.
Sincerely,
John Durant
Director, Commercial
Rulings Division
cc: Regional Commissioner of Customs
c/o Protest and Control Section
6 World Trade Center
Room 762
New York, New York 10048-0945