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HQ 228951

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January 9, 2001

RR:CR:DR 228951 DCC

CATEGORY: CLERICAL ERROR VALUATION

Port Director
U.S. Customs Service
P.O. Box 025280
Miami, FL 33102-5280

RE: Application for Further Review of Protest No. 5201-00-100364; Request for Reliquidation; Mistake of Fact or Other Inadvertence; Mistake of Law; and 19 U.S.C. § 1520(c)(1)

This is in response to your memorandum dated August 28, 2000, under cover of which you forwarded an application for further review (“AFR”) of the above-referenced protest, filed by counsel on behalf of Lavasse Corporation of America (“LCA”).

LCA previously filed three protests (Protest Nos. 2704-99-101728, 2704-99-101835, and 2720-99-100483) for identical merchandise entered at the Port of Los Angeles. Although this protest covers only merchandise entered at the Port of Miami, some of the commercial documents provided include information regarding the Los Angeles imports.

FACTS:

LCA, the protestant and importer of record, challenges the Customs’ denial of a petition, filed pursuant to section 520(c) of the Tariff Act of 1930, as amended (19 U.S.C. § 1520(c)(1)), in regard to the appraisement of three entries of men’s shirts and shorts imported from Honduras. Customs appraised the merchandise on the basis of transaction value. LCA asserts that inaccurate information concerning the quantity and value of the subject merchandise was submitted at the time of entry resulting in an incorrect determination of transaction value and an overpayment of duties. LCA’s protest was denied by the import specialist on the ground that the error was the result of negligence and relief is appropriate only under 19 U.S.C. 1514.

In its petition asserting a mistake of fact, filed July 20, 2000, LCA claimed that an an employee of the manufacturer/exporter Zarina Industries (“Zarina”), who prepared the invoice and shipping documents failed to realize that the goods were to be sold as sets, men’s shorts and shirts. Consequently, the employee erroneously doubled the quantity and value of the merchandise and reported the overstated amounts on the commercial invoices. The employee also incorrectly doubled the quantity and value of merchandise on the packing lists for all three shipments. Subsequently, at the time of entry, the brokers did not discover the error and reported the same incorrect information on the Customs entry summaries. LCA claims that because the reported entered value for the subject merchandise was twice the actual amount, Customs assessed double the appropriate duties for these entries. After the error was discovered, Zarina stopped doubling the quantity and value of its shipments. Zarina also issued revised invoices and packing lists for its prior shipments.

In support of its claim, LCA provided photocopies of its financial records. These records include ledger pages showing LCA’s purchases from Zarina. Counsel also submitted records summarizing LCA’s financial transactions with Zarina and a letter from Zarina, dated September 9, 1998, which states that Zarina mistakenly doubled the number of shirts and shorts shipped to LCA.

To illustrate how the problem arose and was reported we describe below the importation of merchandise for Entry Number 336-XXXX883-3 (“Entry 883-3”) based on commercial documents provided by Counsel. This entry was entered on May 20, 1998, and was prepared based on information contained in Zarina’s commercial invoice (Invoice Number 073/98), dated May 19, 1998.

According to Invoice 073/98, Zarina exported 288 dozen men’s cotton jersey shirts and the same quantity of men’s cotton woven shorts. Zarina’s reported value for this shipment was $14,XXX. This same quantity and value information was reported on the entry summary. In addition, at line number 1 of the entry summary, LCA reported the classification of the shirts as 6105.10.0010 with a duty rate of 20.50%. At line number 2, LCA reported the classification of the shorts as 6203.42.4050 with a duty rate of 17.30%.

The revised copy of invoice 073/98 lists 143.28 dozen men’s cotton jersey shirts and shorts, with the same unit value but an extended total value of $7,XXX. The discrepancy of 0.28 units is not explained; however, that discrepancy does not appear to affect the asserted doubling of value or weaken the protestant’s basic assertion because the fact of double counting is shown by the financial statements covering all of the affected entries.

In its submission accompanying LCA’s July 20, 2000 protest, Counsel states that the subject merchandise consists of sets. However, on its entry summaries, LCA failed to classify the merchandise as sets under heading 6103, HTSUS. For sets, the applicable classification for the shorts is 6103.22.0040, HTSUS, and the classification of shirts is 6103.22.0050. For articles classified as a set in this subheading, the rate of duty is determined by the rate applicable to each garment in the set if separately entered. If separately entered, the shorts would be classified under subheading 6203.424.4050 and the shirts would be classified under subheading 6105.10.0010.

In support of its claim that the manufacturer doubled the volume and value of merchandise, LCA provided its planning explosion sheets which record the importer’s orders placed with Zarina. According to these sheets, LCA ordered 58,817 dozen pieces of apparel—29,408 dozen shirts and the same number of shorts. This total includes 24,150 pieces of apparel that were entered at the Port of Los Angeles and which are not subject to this protest.

The planning explosion sheets reference purchase orders 9234 and 9235. Those purchase orders cover the merchandise on the protested entries and certain Los Angeles entries. Purchase order 9234 is for 144,900 shirts and 144,900 shorts, or 12,075 dozen of each (144,900  12 = 12,075). Purchase order 9235 is for 208,000 shirts and 208,000 shorts, or 17,333 dozen of each. Purchase order 9235 is referenced on both the original copy and the revised copy of invoice 073/98 that are part of entry 883-3. The total number of item (shirts plus shorts) covered by purchase order 9234 would be 24,150 dozen and the total number of items (shirts plus shorts) covered by purchase order 9235 would be 34,666 dozen for a combined total of 58,816.

According to Zarina’s original commercial invoices on which the entries were made, however, Zarina shipped 109,632 dozen pieces of apparel—54,816 dozen shirts and the same number of shorts. These documents reveal a discrepancy in the quantity of merchandise LCA ordered (58,816 dozen pieces) and the quantity of merchandise Zarina stated as being shipped (109,632). LCA claims that the discrepancy is the result of an error by the exporter in which Zarina mistakenly doubled the quantity and value of its shipments to LCA. Counsel notes that erroneous amount allegedly shipped is not exactly twice the amount ordered because Zarina corrected the mistake once it was discovered. Also, the corrections on the revised invoices appear to be conversions from a weight or area compilation.

In addition, LCA submitted financial records in support of its claim that Zarina erroneously doubled the quantity of merchandise shipped. According to its monthly purchase ledger, LCA purchased a total of $883,XXX in merchandise from Zarina during the month of May 1998. This amount represents payments for 23 invoices, including a purchase in the amount of $7,XXX for Revised Invoice Number 073/98. According to Zarina’s original invoice used to make the entry, however, the value of this shipment was $14,XXX. The amount on the revised invoice matches the amount show for that invoice on LCA’s financial records.

ISSUES:

Whether protestant’s mistake of fact petition filed pursuant to 19 U.S.C. § 1520(c) should have been granted; and

Whether the documentary evidence is sufficient to support a determination that the quantity and value of the subject merchandise was incorrectly reported in the foreign commercial invoices.

LAW & ANALYSIS:

We note that LCA’s protest was timely filed within 90 days of Customs’ denial of the mistake of fact petition. On September 24, 1999, LCA filed a petition with the appropriate Customs Port Director alleging a mistake of fact pursuant to 19 U.S.C. § 1520(c). Customs denied LCA’s protest on May 16, 2000. Within 90 days of Customs’ denial, on July 20, 2000, counsel filed this protest pursuant to 19 U.S.C. § 1514(a)(7). Under section 1514(a)(7), the denial of protestant’s mistake of fact petition is subject to protest.

Counsel claims that appraisement based on commercial invoices is erroneous because those invoices misstate the quantity and value of the imported merchandise. Counsel further claims that the error in the reported quantity and value of merchandise was a mistake of fact, correctable under section 1520(c).

Under section 1514(a), a protest may be filed against, among other things, “the appraised value of merchandise” within 90 days after the notice of liquidation. Section 1520(c)(1), on the other hand, allows Customs to reliquidate an entry to correct for certain errors in the liquidation. Under the statute, Customs may
reliquidate an entry . . . to correct a clerical error, mistake of fact, or other inadvertence, not amounting to an error in the construction of a law, adverse to the importer and manifest from the record or established by documentary evidence, in any entry, liquidation, or other customs transaction, when the error, mistake, or inadvertence is brought to the attention of the Customs Service within one year after the date of liquidation.

19 U.S.C. 1520(c)(1).

The scope of relief provided for in section 1520(c)(1) is limited in scope and is not intended to be an alternative to the relief provided under section 1514. As noted by the Customs Court in Godchaux-Henderson Sugar Co. v. United States, 496 F. Supp. 1326, 1331 (Cust. Ct. 1980), “section 520(c)(1) [19 U.S.C. 1520(c)(1)] is not remedial for every conceivable form of mistake or inadvertence adverse to an importer, but rather the statute offers ‘limited relief in the situations defined therein’” (quoting Phillips Petroleum Co. v. United States, 54 CCPA 7, 11 (1966)).

Moreover, as noted above, certain statutory conditions must be met before Customs will reliquidate an entry under section 1520. First, a mistake of fact must be manifest from the record or established by submitted documentary evidence. As the Court of Appeals for the Federal Circuit stated in ITT Corp. v. United States, 24 F.3d 1384 (Fed. Cir. 1994), “manifest from the record [means] apparent to Customs from a facial examination of the entry and the entry papers alone, and thus requir[ing] no further substantiation." Id. at 1387.

The evidence supports a determination that there was an apparent error. In particular, Zarina misreported quantity and value of the merchandise it exported to LCA on the commercial invoices and packing lists. At the time of entry, the brokers incorporated these incorrect amounts into the entry summary forms. These errors are manifest from LCA’s financial documents that show LCA ordered and paid for half the value of merchandise that Zarina reported on its invoices. Therefore, there is sufficient information on the record to determine that there was a mistake in the reported quantity and value of merchandise.

Second, section 1520(c)(1) requires a mistake of fact or other inadvertence to be adverse to the importer. As explained by counsel, the alleged error resulted in an overpayment of duties by LCA in the amount of $18,138. Clearly, the mistake of fact is adverse to the interest of the importer.

Third, a petition under section 1520(c)(1) must be filed within one year of the date of liquidation. In this case, Customs liquidated the subject entries on March 26, 1999, April 2, 1999, and May 21, 1999. Within six months of the first liquidation, on September 24, 1999, counsel filed a letter informing Customs of the error. LCA was therefore timely in bringing the mistake to the attention of Customs.

Finally, pursuant to the statutory language, relief under section 1520(c)(1) is limited to errors that are the result of a clerical error, mistake of fact, or inadvertence that do not amount to a mistake of law. Counsel claims that the error was the result of an inadvertence or a mistake of fact.

Inadvertence has been defined by the Federal Circuit as “an oversight or involuntary accident, or the result of inattention or carelessness.” Ford Motor Co. v. United States, 157 F.3d 849, 859 (CAFC 1998) (quoting Hambro Automotive Corp. v. United States, 603 F.2d 850, 854 (CCPA 1979)). From the facts presented, it is apparent that the Zarina employee who prepared the commercial documents intended to double the actual quantity and value reported on the commercial invoice. The fact that the employee consistently doubled the amounts indicates that the mistakes were not typographical errors that could have been the result of an unintentional or involuntary act. The evidence, therefore, does not support the claim that the mistakes were inadvertent.

A mistake of fact occurs when a person understands the facts to be other than what they really are and takes some action based on that erroneous information. See, e.g., C.J. Tower & Sons of Buffalo, Inc. v. United States, 68 Cust. Ct. 17, 336 F. Supp. 1395 (1972), aff'd, 61 CCPA 90, C.A.D. 1129, 499 F.2d 1277 (1974); Hambro Automotive Corp. v. United States, 458 F. Supp. 1220 (1978), aff'd, 66 CCPA 113, 603 F.2d. 850 (1979); and PPG Industries, Inc. v. United States, 7 CIT 118 (1984).

In Ford Motor, the Federal Circuit addressed the distinction between a mistake of fact and a mistake of law. According to the Federal Circuit,

[a] mistake of fact is any mistake except a mistake of law. It has been defined as a mistake which takes place when some fact which indeed exists is unknown, or a fact which is thought to exist, in reality does not exist. A mistake of fact exists where a person understands the facts to be other than they are, whereas a mistake of law exists where a person knows the facts as they really are but has a mistaken belief as to the legal consequences of those facts.

Id., at 859. See also, Executone Information Systems v. United States, 96 F. 3d 1383, (Fed. Cir. 1996), and Degussa Canada Ltd. v. United States, 87 F. 3d 1301 (Fed. Cir. 1996)).

The amount of merchandise supposedly shipped (54,816 dozen sets) is slightly less than twice the quantity orders (29,508 dozen sets) according to the planning explosion sheets which referenced the purchase orders covered by the entry. The fact that the amount shipped is not exactly double the amount ordered may be attributed to the fact that the planning explosion sheets represent a forecast of orders for a particular customer, not actual orders, and the fact that Zarina stopped doubling the quantity and value of its shipments once it discovered the error.

From the facts presented, it is evident that the error was a clerical error. The Zarina factory employee who prepared the invoice doubled the quantity and value on invoices and shipping lists. The brokers subsequently failed to discover the employee’s mistakes and relied on the inaccurate commercial documents to prepare the entry summary forms. Because the Zarina employee and brokers misunderstood the actual amounts to report on the commercial documents and entry summary forms the mistake is of a factual—not legal—nature.

The evidence supports a determination that the error in reporting the quantity and value of the subject merchandise was a clerical error for which relief may be granted under 19 U.S.C. 1520(c)(1). Furthermore, the evidence demonstrates that the error was manifest in the record evidence, that LCA provided timely notice of the mistake, and the results of the error were adverse to LCA’s interest. Therefore, LCA’s protest should be granted in full, with refunds of duties in the amount of the overpayment.

HOLDING:

In conformity with the above discussion, LCA’s mistake of fact petition was timely filed and otherwise in compliance with section 1520(c). Moreover, the evidence shows that there was a clerical error. Therefore, the protest should be granted in full, with refunds of duties in the amount of the overpayment.

In accordance with section 3A(11)(b), Customs Directive 099 3550-065, of August 4, 1993, this decision should be mailed by your office to the protestant no later than sixty days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished before the 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 Diskette Subscription Service, the Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director
Commercial Rulings Division

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See also:

• Tariff No.: 6103.22.00 - Men's or boys' ensembles, knitted or crocheted, of cotton
• Tariff No.: 6105.10.00 - Men's or boys' shirts, knitted or crocheted, of cotton
• Tariff No.: 6203.42.40 - Men's or boys' trousers and shorts, not bibs, not knitted or crocheted, of cotton, not containing 15% or more by weight of down, etc