HQ 545658 - Application for Further Review of Protest No. 1001-1-106085; Proper Appraised Value; Defective Merchandise - United States International Trade Commision Rulings

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HQ 545658

February 3, 1995

VAL CO:R:C:V 545658 LR

CATEGORY: VALUATION

Area Director of Customs
Kennedy Airport Area Bldg. 178
330B Jamaica, NY 11430

RE: Application for Further Review of Protest No. 1001-1-106085; Proper Appraised Value; Defective Merchandise

Dear Sir:

The above referenced protest and application for further review submitted by counsel on behalf of L.R. Trading (hereinafter referred to as the "importer") is against your decision regarding the appraised value of certain imported dresses. We regret the delay in responding.

FACTS:

The entry in question concerns the importation of 426 dozen women's dresses from Korea. Customs appraised the merchandise under transaction value based on the price the importer paid the Korean supplier. The importer claims that three styles of the imported dresses Styles 267 (511 pieces), 8219 (946 pieces), and 1777 (432 pieces) were defective at the time of importation. The invoiced unit prices for these styles are $17.80, $20.27 and $21.67, respectively. The entry was liquidated on May 24, 1991.

According to the importer, the dresses were to be resold in the United States to retailers of first-quality merchandise at $69.00 each. (Copies of the importer's cost sheets for the three dress styles and invoices to some of the importer's customers indicating a selling price of $69.00 were submitted). The importer claims that upon receipt of the dresses, its customers apparently noticed that they were not first-quality merchandise as ordered, but defective second-quality goods. The merchandise was allegedly made of an inferior fabric (i.e., instead of using polyester georgette, the manufacturers had used a lower quality, less desirable fabric). In addition, the importer indicates that the garments had puckered seams and improperly installed zippers. The importer contends that its customers returned the defective dresses whereupon the importer sold them to various discount stores at second-quality prices ranging from $18.00 to $55.00. Copies of representative invoices were submitted.

It is the importer's position that since the dresses were not first quality merchandise as ordered, but rather defective second-quality goods, they should be appraised under deductive value based on a weighted average of the lower resale price to reflect its true condition as imported.

Your office takes the position that the importer did not provide Customs with clear and convincing evidence that the imported merchandise was defective at the time of importation. The file indicates that your office sent the importer a CF 28 asking for additional documentation to support its claim (i.e., copies of correspondence between the importer and its suppliers and between the importer and its customers regarding the alleged defect). In response, counsel advised that the importer is no longer in business and that the requested documentation could not be obtained.

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. 1401a) based on the price the importer paid to the Korean supplier.

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 is being appraised is defective, allowances will be made (Regulations)"

The implementing regulations regarding the appraisement of defective merchandise are sections 158.11 and 158.12, Customs Regulations (19 CFR 158.11 and 19 CFR 158.12). Section 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. Section 158.12(a) Customs Regulations (19 CFR 158.12(a)) states in pertinent part that 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)

Sufficient corroborating evidence is necessary to prove such a claim. In order for an allowance to be made the buyer/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 Headquarters Ruling Letter ("HRL") 544986, February 28, 1994, HRL 545231, November 5, 1993; HRL 544879, April 3, 1992.

In HRL 545231, supra, Customs determined that the evidence presented warranted an adjustment to the appraised value of imported gloves because of a defect at the time of importation. The evidence consisted of an exchange of detailed correspondence between the importer and the manufacturer regarding the defect and evidence that the manufacturer compensated the importer for the defect. However, in HRL 544986, supra, Customs determined that the evidence presented did not warrant any adjustment to the appraised value of imported blouses due to an alleged defect at the time of importation. In that case, evidence of the price at which the imported blouses were sold was submitted along with internal memoranda from the retailer and correspondence from the importer to the seller. Customs ruled that the evidence was insufficient to establish that the blouses were defective at the time of importation.

In the present case there is virtually no evidence which corroborates the importer's claim that the dresses were defective at the time of importation. Although the importer has submitted some evidence pertaining to the price at which it intended to sell the imported merchandise and the price at which it was eventually sold, as in HRL 544986, supra, this evidence is not sufficient to establish that the merchandise was defective at the time of importation. A lower resale price than originally anticipated could result from a variety of factors. We note that in some instances, the resale price was higher than the price the importer paid for the dresses. In addition, no corroborating samples of the merchandise and no evidence of communications between the importer and its supplier or between the importer and its original customers regarding the alleged defects were submitted. According to counsel such evidence is not available.

We conclude that there is insufficient evidence from which the District Director can determine that the imported merchandise was partially damaged at the time of importation. Consequently, no adjustment in the appraised value is warranted.

HOLDING:

For the reasons set forth above, the imported dresses are not entitled to an adjustment in appraised value under 19 CFR 158.11 or 19 CFR 158.12. You are directed to deny the protest.

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, Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director

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