RR:IT:VA 547042 MMC
Port Director of Customs
C/O Residual Liquidation and Protest Branch
6 World Trade Center, Room 761
New York, New York 10048-0945
RE: Protest 1001-96-100734; Boiled Wool Jackets; Defective Merchandise
Dear Port Director:
This is our decision on Protest 1001-96-100734, concerning an allowance in value for boiled wool jackets which are claimed to be defective. The protest was filed on behalf of I.K.L. International, Inc. (IKL) by Grunfeld, Desiderio, Lebowitz & Silverman. The goods were entered by ILK in 1995 and the entry was liquidated on October 27, 1995. A protest, with a memorandum in support of the protest, was timely filed on January 25, 1996, and received in this office on March 13, 1998. Additional information was received on May 17, 1999. We regret the delay in responding.
FACTS:
The entry at issue concerns 4,948 100% boiled wool knitted jackets, Style No. 10045. The imported boiled wool jackets were appraised based on transaction value pursuant to §402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), 19 U.S.C. §1401a. You appraised the merchandise at the invoiced price paid for the merchandise by the buyer ILK to its agent, Gerencia Co., LTD. (Gerencia). Gerencia purchased the jackets from the seller/manufacturer, Covo Knitters LTD.
IKL’s counsel states that the merchandise was defective because it did not conform to specifications as ordered, it exhibited poor workmanship, and it was damaged. Therefore, counsel asserts that the entire shipment should be reappraised at the total entered value less an allowance for repair work, repacking, and related costs.
In support of its assertion, IKL’s counsel submitted an “Addendum to Protest and Application for Further Review” which contained extensive documentation, including:
import documents: a copy of the CF 7501, commercial invoice, quota charge statement, packing list, export license and bill of lading;
specification sheet provided to the factory setting for the measurements of ordered garments;
original purchase orders confirming the size ranges for the ordered garments;
inspection reports documenting the defects;
internal documentation and documentation between IKL and Gerencia concerning the defects;
an agreement between IKL and Woopps Enterprises, Inc. (“Woopps”) to repair the merchandise;
two Woopps invoices;
documentation of IKL’s expenses for examining and overseeing the repairs; transportation expenses to Woopps; and cartage between Woopps and the warehouse.
According to counsel, the subject style has been produced over several seasons, commencing in October 1994. The specification sheet provided to the manufacturer was for the Fall 1996 season. Alleged defects were discovered after importation when the jackets were inspected by IKL’s Quality Control Department. Specifically, the finished garments were measured and compared to the specifications and found to deviate beyond the standard industry tolerance
of ½ inch. Such deviations were found in sleeve length, shoulder size and collar size and shape.
IKL arranged for the jackets to be repaired by Woopps Enterprises, Inc. (Woopps). According to the submitted Woopps invoices, repairs totaled $10,766.80. IKL calculates its costs for overseeing and examining the repair work at $1,611.79, the transportation of its people to and from Woopps at $410.90 and cartage of the merchandise between Woopps and the warehouse $1408.50. According to IKL the grand total for repair and associated costs is $14,197.99. IKL seeks an allowance for this amount.
ISSUE:
1) Whether the importer is entitled to an allowance in the appraised value of the allegedly damaged jackets, pursuant to 19 C.F.R. §158.12(a)?
LAW AND ANALYSIS:
The imported merchandise was appraised on the basis of transaction value pursuant to §402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), as codified at 19 U.S.C. §1401.
The Statement of Administrative Action ("SAA") as adopted by Congress and relating to the TAA, provides that:
[w]here it is discovered subsequent to importation that the merchandise being appraised is defective, allowances will be made. (Regulation)
Statement of Administrative Action, H.R. Doc. No. 153, Pt II, 96th Cong., 1st Sess. (1979), reprinted in Department of the Treasury, Customs Valuation under the Trade Agreements Act of 1979 (October 1981), at 47. In addition, §158.12(a), Customs Regulations (19 C.F.R. §158.12(a)), states, in pertinent part, that:
[m]erchandise which is subject to ad valorem or compound duties and found by the port 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.
The garments are subject to ad valorem duties; therefore, they meet the first requirement of 19 CFR §158.12(a) for a value allowance. However, sufficient corroborating evidence is necessary to prove a defective merchandise claim. In order for an allowance to be made, the importer must provide Customs with clear and convincing evidence to support a claim that the merchandise purchased and appraised as one quality was, in fact, of a lesser quality. C.S.D. 84-11, 18 Cus.B. & Dec. 849, 852 (1984). See also, Samsung Elecs. America, Inc. v. United States, 35 F. Supp. 2nd 942 (1999), and Headquarters Ruling Letters (“HRL”) HRL 544986 (February 28, 1994), HRL 545231 (November 5, 1993), HRL 544879 (April 3, 1992).
Counsel has submitted detailed evidence, of what it originally ordered (purchase orders, and specifications) and what it actually received. Quality control reports and IKL internal correspondence between IKL and the seller documenting the defective goods were submitted as evidence of what ILK considers to be the alleged defects in the jackets. We believe that this evidence is sufficient to meet the clear and convincing evidence standard outlined above. As such, we believe the jackets were damaged at the time of importation and should be appraised in their condition as imported.
IKL proposes that the actual repair cost, its own internal costs, and the cartage to and from the repair site all be combined to create the basis for the value allowance calculation. Section 158.12(a), Customs Regulations (19 C.F.R. §158.12(a)), states, in pertinent part, that:
[m]erchandise...found...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)
In Headquarters Ruling Letter (HRL) 545534 dated May 15, 1995, we determined that shorts with faulty zippers were damaged at the time of importation. Counsel proposed that the allowance include costs associated with the importation, distribution and resale of the shorts after they were repaired. We held that only the actual repair costs were, in fact, a measure of the extent of the damage of the merchandise. We are of the opinion that the same conclusion applies here. An allowance in appraised value of the subject jackets may be made equal to the amount of actual repair costs only. The costs for overseeing and examining the repair work, the transportation of IKL people to and from Woopps and cartage of the merchandise between Woopps and the warehouse are not part of the actual repair costs and therefore are not a part of the calculation of the allowance.
HOLDING:
Based on the evidence presented, an allowance in appraised value of the subject jackets may be made equal to the amount of actual repair costs only. The costs for overseeing and examining the repair work, the transportation of IKL people to and from Woopps and cartage of the merchandise between Woopps and the warehouse are not part of the actual repair costs and therefore are not a part of the calculation of the allowance.
The protest should be ALLOWED in part as set forth above. In accordance with Section 3A(11)(b) of Customs Directive 099 3550 065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with the Customs Form 19, to the Protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to mailing the decision. Sixty days from the date of the decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Thomas L. Lobred
Chief, Valuation Branch