VAL CO:R:C:V 544986 ILK
Area Director
Kennedy Airport Area
Bldg. 178, 330B
Jamaica, NY 11430
RE: Application for Further Review of Protest No. 1001-91-001496;
Appraisement of Defective Apparel
Dear Sir:
The above referenced protest and application for further
review is against your decision regarding the appraised value of
certain ladies blouses imported by Notations, Inc. (hereinafter
referred to as the "importer'), a U.S. company, that were found to
be defective after importation. A conference took place on
September 15, 1992, between counsel for the importer, and members
of my staff from the Value and Marking Branch. We regret the delay
in responding.
FACTS:
Between August 14 and August 29, 1990 the importer entered
ladies blouses, which it purchased from Daewoo Corporation
(hereinafter referred to as the "seller"), a Korean company. The
blouses were sold by the importer to J.C. Penney Corporation
(hereinafter referred to as the "retailer") pursuant to contracts.
Upon importation the blouses were shipped to the retailer's
individual stores, where they were accepted and placed for retail
sale. After sales of the merchandise began, the retailer received
consumer complaints regarding seam failures of the blouses. The
retailer tested the merchandise and determined that there were
deficiencies in the stitching of the blouses, that the seam type
was wrong for the fabric of the blouses and determined that the
stitching could not be reinforced or resewn to make the blouses
acceptable for sale. The retailer returned the unsold merchandise
to the importer and cancelled the balance of its purchase orders.
Upon being made aware of the defective merchandise, the importer
refused delivery of the additional shipments of the merchandise.
The importer negotiated the sale of nearly all of the units of
which it had accepted delivery, including the units returned by the
retailer, to various establishments on an off-price basis, by
November 30, 1990. The importer states it has been unable to
negotiate a settlement with the seller due to the importer's
refusal to accept delivery of the balance of the order. The
entries of the merchandise were liquidated between November 11, and
December 14, 1990, after the defects were discovered by the
retailer and importer.
The importer has provided a sample of the merchandise,
documentation of the retailer's determination of the defective
merchandise, evidence of the dates, quantities and prices of the
off-price sales of the merchandise, the importer's original mark-
up for profit and general expenses and documentation of negotiation
between the importer and seller regarding the defective
merchandise.
The concerned import specialist takes the position that the
importer is not entitled to an adjustment in the appraised value
for the imported merchandise because the importer has not provided
any evidence that it has agreed to a lower price for the
merchandise with the seller, or that the material used in the
merchandise is not what the importer agreed to buy.
ISSUE:
Whether the importer is entitled to an adjustment in the
appraised value for the imported merchandise.
LAW AND ANALYSIS:
The imported merchandise was appraised on the basis of
transaction value pursuant to section 402(b) of the Tariff Act of
1930, as amended by the Trade Agreements Act of 1979 (TAA; 19
U.S.C. 1401).
The Statement of Administrative Action as adopted by Congress
and relating to the TAA, provides that:
"Where it is discovered subsequent to importation that
the merchandise being appraised is defective, allowances
will be made. (Regulation)"
The importer contends that it is entitled to an adjusted value of
the imported merchandise and a refund of duties paid on the subject
defective blouses, based on the above-cited language, and certain
prior Customs rulings. However, the above-cited language is not
self-executing. The specific regulatory authority for the above-
cited statement is set forth in sections 158.11 and 158.12, Customs
Regulations (19 CFR 158.11 and 19 CFR 158.12), pertaining to
damaged and defective merchandise. Section 158.11(a) Customs
Regulation (19 CFR 158.11(a)) states in pertinent part, that when
a shipment of nonperishable merchandise:
...is found by the district director to be entirely
without commercial value at the time of importation by
reason of damage or deterioration, an allowance in duties
on such merchandise on the ground of nonimportation shall
be made in the liquidation of the
entry. (emphasis added)
In addition, section 158.12(a) Customs Regulations (19 CFR
158.12(a)) states in pertinent part:
Merchandise which is subject to ad valorem or compound
duties 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 damage. (emphasis added)
Extensive evidence and argument has been provided pertaining
to the price at which the merchandise was eventually sold by the
importer and the basis upon which the appraised value of the
merchandise could be adjusted. The importer takes the position
that due to the allegedly defective nature of the merchandise, the
proper appraised value of the merchandise is not its price under
transaction value, but a reduced alternative value based upon the
re-sale price of the defective merchandise. In support of its
position the importer cites C.S.D. 84-11 and Headquarters Ruling
Letter (HRL) 543747 dated June 13, 1986. The rulings cited by the
importer both support an allowance in cases where merchandise
received did not conform to the merchandise ordered. Both letters
support the contention that sufficient corroborating evidence is
necessary to prove such a claim. In C.S.D. 84-11 we stated:
To summarize the foregoing discussion-- the importer must
provide the concerned Customs officer 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. The type of
evidence may vary from case to case.
The evidence provided by the importer consists of internal
memoranda from the retailer and correspondence from the importer
to the seller. In this case, there is insufficient evidence from
which the District Director can determine that the imported
merchandise was partially damaged at the time of importation.
Consequently the remedies available under those regulations are
not applicable.
HOLDING:
For the reasons set forth above, the imported blouses are not
entitled to an adjustment in appraised value under 19 CFR 158.11
or 19 CFR 158.12.
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 Rulings Division
Cc: Regional Commissioner of Customs
c/o Protest and Control Section
6 World Trade Center, Rm 762
New York, NY 10048-0945