HQ 546150 - Application for Further Review of Protests 1001-95-103435, 1001-95-103436 and 1001-95-103437; transaction value; defective merchandise; SAA; 19 CFR ?158.12(a); C.S.D. 81-144; HRLs 543537, 543091, 543106, 545192 and 543061 - United States International Trade Commision Rulings

United States International Trade Commision Rulings And Harmonized Tariff Schedule

faqs.org Rulings By Number Rulings By Category Tariff Numbers

faqs.org > Rulings and Tariffs Home > Rulings By Number > 1997 HQ Rulings > HQ 544784 - HQ 546479 > HQ 546150

Previous Ruling Next Ruling
HQ 546150

July 11, 1996

RR:IT:VA 546150 KCC

CATEGORY: VALUATION

Port Director
U.S. Customs Service c/o Protest and Control Section
6 World Trade Center, Room 761
New York, New York 10048-0945

RE: Application for Further Review of Protests 1001-95-103435, 1001-95-103436 and 1001-95-103437; transaction value; defective merchandise; SAA; 19 CFR ?158.12(a); C.S.D. 81-144; HRLs 543537, 543091, 543106, 545192 and 543061

Dear Port Director:

This is in regard to the Application for Further Review of Protests 1001-95-103435, 1001-95-103436 and 1001-95-103437, concerning an allowance in value for apparel imported by Cygne Design Inc., claimed to be defective. A supplemental submission with supporting documentation dated July 21, 1995, and information discussed in a telephone conversation with a member of my staff on June 27, 1996, was considered in rendering this decision.

FACTS:

These protests cover three (3) of ten (10) entries of the subject merchandise. The other seven (7) entries are, or will be, protested as the entries are liquidated. You appraised the imported women's tunics under transaction value pursuant to Agreements Act of 1979 ("TAA"), codified at 19 U.S.C. ?1401a. You appraised the merchandise at the invoiced unit value, net packed, which is the price paid for the merchandise by buyer/importer, Cygne Design Inc.("Cygne") to the related seller/manufacturer, T. Wear Company ("T. Wear"). The terms of sale were FOB Italy. Counsel for Cygne states that Cygne owns 100% of T. Wear.

All the entries at issue concern 35,736 women's tunics, style no. S21013. Cygne purchased the merchandise from T. Wear for sale to its U.S. customer, Casual Corner. Casual Corner returned the merchandise to Cygne stating that the garments were defective and unsellable. Counsel submitted various correspondence between Cygne and T. Wear discussing the defects in the women's tunics and inspection reports of the women's tunics. Cygne was able to sell-off 34,670 pieces to other retailers. Cygne has submitted copies of the sell-off invoices and corresponding proofs of payments. Cygne returned the remaining 1,066 women's tunics directly to T. Wear for which Cygne received drawback and, thus, are not part of these protests. Cygne submits that its actual proceeds for the goods was 40.15% less than their anticipated proceeds from the anticipated sale of first-quality goods. Additionally, Cygne submitted a charge back statement submitted to T. Wear showing a markdown in value for 35,763 garments in style number S21013. However, none of the amounts included on this statement correlate to the invoiced unit values upon which appraisement was based. The charge back statement shows an "Original/Last Invoice Value" which is 30.14% higher than the unit invoice value of the garments imported. Additionally, the charge back statement lists a lower "New Invoice Value" allegedly representing Cygne's markdown price. Cygne was unable to present evidence that T. Wear accepted the charge back statement and, thereby, credited or refunded Cygne its calculated markdown price.

Cygne claims that an allowance in the value should be given for the imported merchandise because the women's tunics were defective and had to be sold-off at a lesser value than anticipated. It claims that the transaction value of the goods should be reduced by 40.15%, the same percentage lost from the anticipated proceeds in the sell-off. Thus, Cygne states that the transaction value of the imported merchandise should be 40.15% of the original appraised value.

ISSUE:

Whether Cygne is entitled to the claimed allowance in the appraised value of the imported merchandise which is claimed to be defective.

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 parties are related, therefore pursuant to ?402(b)(2)(B) of the TAA, transaction value is acceptable only if an examination of the circumstances of the sale indicates that the relationship between the Cygne and T. Wear did not influence the price actually paid or payable or if the transaction value of imported merchandise closely approximates the transaction value of identical or similar merchandise in sales to unrelated buyers in the U.S. or the deductive or computed value for identical or similar merchandise. This ruling does not address the acceptability of transaction value.

The Statement of Administrative Action ("SAA") 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)

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. ?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 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.

Customs has consistently taken the position that imported merchandise which is of a lesser quality than ordered and paid for should be granted a defective merchandise allowance and be appraised at a lower value. See, Headquarters Ruling Letter ("HRL") 543061 dated May 4, 1983, and HRL 543106 dated June 29, 1983. However, value adjustments can only be made where there is clear and convincing evidence to establish that the merchandise was defective at the time of importation, i.e., that the merchandise purchased and appraised as one quality was in fact of a lesser quality. See, C.S.D. 81-144 (HRL 542259 dated December 23, 1980); HRL 543537 dated February 14, 1986; HRL 543091 dated September 29, 1983; HRL 543106. Additionally, 19 CFR ?158.12(a) requires that there be a correlation between the value allowance and the extent of damage. In determining whether any value adjustment should be made Customs also considers whether the price actually paid or payable is changed. See, HRL 545231 dated November 5, 1993. In that case, the exchange of correspondence between the importer and the manufacturer regarding the defect and the fact that the manufacturer compensated the importer by adjusting the price was sufficient to establish that the imported merchandise was defective.

In this case, Cygne has submitted evidence that the garments contained various defects in the form of correspondence between the parties. The type of defects and the extent of the defects varied. However, the evidence does not show that the claimed value allowance correlated to the extent of the damage. Cygne claims that an allowance in the value should be given based on the percentage lost from the anticipated proceeds in the sell-off of the imported merchandise (40.15%). However, Cygne has not presented evidence to show that the reduced price at which the women's tunics were sold reflects the amount of damage. Counsel states that the sell-off prices of the women's tunics to various retailers varies due to negotiations between Cygne and the retailers. There is no evidence that the sell-off prices of the women's tunics varied in accordance with the extent of the damage. HRL 545192 dated January 4, 1995, rejected the use of the difference between the original sale price and discounted sale price for determining a value allowance for acid rain damage vehicles. HRL 545192 held that there was no evidence that the discount was linked to the extent of the damage. In this case, allowing a value allowance based on the percentage lost from the anticipated proceeds in the sell-off and the invoice price (40.15%) is unacceptable.

Cygne submitted a charge back statement which it submitted to T. Wear showing a markdown for 35,763 garments in style number S21013. Cygne claims that because of the parties relationship T. Wear would refund or credit its account for the markdown amount. However, Cygne was unable to present evidence showing that the charge back statement was accepted and that the seller reduced the price. Moreover, we do not find the charge back statement credible. The charge back statement shows an "Original/Last Invoice Value" which is 30.14% higher than the unit invoice value of the garments imported. In addition this "Original/Last Invoice Value" figure was multiplied by the total number of garments imported (35,736) to calculate the markdown due Cygne. However, as stated by Cygne, 1,066 garments were returned to T. Wear for which Cygne received drawback. Thus, for the 1,066 garments Cygne has already received a refund of Customs duties and should have received a credit or refund from T. Wear for the unit invoice value, not merely a markdown value. Thus, we do not find the charge back statement serves as a basis of establishing the extent of the defect.

HOLDING:

Insufficient evidence was presented to demonstrate any correlation between the claimed value allowance and the extent of the damage. No allowance based on the percentage lost from the anticipated proceeds in the sell-off can be made where the buyer fails to prove that the sell-off price has a direct correlation to the extent of the damage. In addition, insufficient evidence was presented to show that the price actually paid or payable by Cygne for the imported merchandise was lowered due to the defects or that the amounts Cygne indicated in its charge back statement reflected the extent of the damage or defect. Based on the evidence presented, no allowance for the claimed defective merchandise is warranted.

Consistent with the decision set forth above, the protest is DENIED. In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065 dated August 4, 1993, Subject: Revised Protest Directive, this decision, together with the Customs Form 19, 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 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,

Acting Director
International Trade Compliance

Previous Ruling Next Ruling