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HQ 545319

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December 2, 1994

CO:R:C:V 545319 RSD

CATEGORY: VALUATION

District Director of Customs
# 1 LA Puntilla Street
Room 203
San Juan, Puerto Rico 00901

RE: Application for Further Review of Protest Number 4909-93- 100026; credit for overpayment for defective merchandise; undeclared assists

Dear Sir:

This is in response to your memorandum dated May 10, 1993, forwarding the application for further review of Protest 4909-93-100026 submitted on behalf of Morabella Shoe Corp by its attorney Sandler, Travis and Rosenberg. Attached to your memorandum was a copy of a report from the Office of Regulatory Audit. We regret the delay in responding.

FACTS:

In response to a request for an audit by your office, the Office of Regulatory Audit, San Juan, performed an examination of the accounting and import records of Morabella Shoe Corporation (Morabella) located in Isabela, Puerto Rico. Based on the findings of the audit report, your office proceeded to appraise the imported merchandise at the invoiced unit values, plus an additional $318,138, which the auditors had determined had been omitted from the importer's declared value. This resulted in the assessment of an additional $11,771.12 in duties and merchandise processing fees. The importer responded by filing this protest.

The record indicates that on April 6, 1990, Morabella made a disclosure and tendered duties in the amount of $147,918.70 for failing to declare $3,989,470 in dutiable values for 1989 entries of shoe uppers. These undeclared values included overpayments to suppliers, invoice undervaluations, undeclared values and undeclared assists. Duty payments were accepted and allocated to their related entries. The audit was conducted to determine whether Morabella's disclosure to Customs regarding consumption entries filed during the period from January 1, 1989, through December 31, 1989 was complete and accurate.

In researching Morabella Shoe Corporation, the auditors learned that it is a wholly-owned subsidiary of Morse Shoe, Inc., a subsidiary of Moacq Holding Corporation. Morabella is related to White Cap Foot Wear, Inc., Isabela Shoe Corporation, and Lowell Shoe Inc., all of which are owned by Morse Shoe, Inc. Morabella is engaged in the importation, manufacture and sale of ladies finished footwear produced with imported leather uppers from Brazil, Mexico, Dominican Republic, Uruguay, and Haiti. All footwear production is sold to their related company Lowell Shoe, Inc.

The auditors selected 77 importations in the disclosure for their initial review, and later extended the audit to cover all entries from Brazil for the calendar year of 1989. Based on their audit, the auditors concluded that there was an additional $304,163 in dutiable value which was still undeclared. This resulted in an additional liability due to Customs of $11,771.12 in duties and merchandise processing fees. The analysis of undeclared values was broken down into five basic points or findings. The first area of undeclared value was that an analysis of the 1989 trial balances and purchase register disclosed that the importer carried on its books purchases for 1989 for $11,300,226 but declared only $11,192,592 to Customs. In other words, the importer did not declare $107,634, which left a duty liability of $4,165.44.

The auditor's second finding was that an account settlement overpayment made by a supplier to the importer in the amount of $29,356 was dutiable. The auditor found that there was an agreement by which the supplier agreed to reduce the price of future shipments by 10%. The duty and merchandise processing fee owed from this overpayment were calculated at $1,136.08.

Finding number three was that the auditors found that the contract prices on various styles of uppers were higher than the prices shown on the invoices. The auditors felt that the value shown on the invoices should be considered invoice undervaluations, and calculated the additional duty and merchandising processing fee owed at $2,454.55.

The fourth finding was that the importer failed to declare value in the form of omitted quantities on two entries. The undeclared value amount was $73,321 with additional duties owed to Customs at $2,837.52.

Finally, the fifth finding was that the importer failed to declare dutiable assist costs supplied to Brazilian manufacturers in the form of amortization, materials, tubes machine parts, leather test instruments, and other assists not disclosed in the tender or consumption entries. The total of the undeclared assists amounted to $27,427 for a duty and MPF liability of $1,061.43.

After the protest arrived at Customs Headquarters, the auditors revised their findings and determined that there was not sufficient evidence to support three of the claims against the importer for undervaluation. The auditors were willing to accept the importer's claim that the Atlantica Account Settlement did not result in a reduction in the invoice value of the goods. They also agreed that there was not enough evidence to establish that there were invoice undervaluations and that there were no undeclared imported merchandise.

However, the auditors continue to stand by their position that the importer had failed to declare the full value of all their purchases for 1989, which created a duty liability of $4,165.44 and also failed to declare assist costs which left a duty liability of $1061.43. In a letter dated November 10, 1994, the importer's attorney stated that it has decided not to dispute these two claims.

ISSUE:

Under the circumstances presented, was the imported merchandise appraised correctly?

LAW AND ANALYSIS:

As you know, merchandise imported into the United States is appraised in accordance with section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA: 19 U.S.C. ? 1401a). The preferred method of appraisement is transaction value, which is defined as the "price actually paid or payable for merchandise when sold for exportation for the United States," plus certain enumerated additions.

In this case, the Office of Regulatory Audit has reviewed their original findings regarding the entries in question and has now concluded that three of their original claims should be abandoned because of insufficient evidence. Regulatory Audit has concluded, however, that there is sufficient evidence to support two of the claims that the importer improperly valued the imported merchandise. These claims were that the importer failed to declared the value of all their purchases in 1989 and certain dutiable assists. The importer has decided not to contest these two findings.

Consequently, we find that the three claims noted above should be abandoned, that the appraised value was correctly determined for the entries in question based on the two findings of Regulatory Audit which the importer is not contesting. HOLDING:

Consistent with the discussion above, you are directed to grant the protest in part regarding the three of the Regulatory Audit's findings that they have withdrawn and deny the protest concerning the two Regulatory Audit's findings that are uncontested.

A copy of this decision with the Form 19 should be sent to the protestant. 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 to the public via the Diskette Subscription Service, Lexis, the Freedom of Information Act and other public access channels

Sincerely,

John Durant, Director

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