HQ 544841: Application for Further Review of Protests No. 1501-91- 100021 and 1501-91-100022; Dutiability of Defective Merchandise Allowance

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                            HQ 544841

                        January 17, 1992

VAL-2 CO:R:C:V 544841 GG

CATEGORY:  Valuation

District Director of Customs
Wilmington, NC 28401

RE:  Application for Further Review of Protests No. 1501-91-     
     100021 and 1501-91-100022; Dutiability of Defective
     Merchandise Allowance

Dear Sir:

     The above referenced protests and applications for further
review were filed against your decision regarding the appraised
value of certain merchandise imported by xxxxx Companies, Inc.

FACTS:

     The protestant on several occasions imported Chinese ceiling
fans from various unrelated foreign vendors.  The commercial
invoices for each shipment listed an original as well as an
adjusted price.  The importer paid the adjusted price for the
ceiling fans.  A set percentage, labeled as a "defective
allowance", was deducted from each original price to arrive at
the adjusted price.  The defective allowances purportedly
represented the amount of goods that were either damaged in
transit or defective, and ranged from 1-7%, depending on the
vendor and its prior two year history of shipping defective
merchandise.  According to the protestant, deducting defective
allowances from the price is the method used by the foreign
vendors to reimburse the importer for damaged or defective goods
in a current shipment; it is not a payment for damaged
merchandise that was imported at an earlier date.  This
reimbursement method is used in lieu of returning the defective
merchandise to the foreign vendor for direct monetary
reimbursement or replacement.

     An earlier internal Customs inquiry into whether "defective
allowances" were includable in the dutiable value of imported
merchandise was answered in the affirmative, and as a result the
protestant was required to list the value of the ceiling lamps on
the entry summaries as the original instead of the adjusted
price.  The entries were liquidated as entered, and timely
protests were filed.

ISSUE:

     Whether the defective allowance is part of the price
actually paid or payable in determining the transaction value of
the imported ceiling fans?

LAW AND ANALYSIS:

     In section 402(b)(1) of the Tariff Act of 1930, as amended
by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a),
transaction value is defined as the "price actually paid or
payable" for the merchandise when sold for exportation to the
United States.  The price actually paid or payable includes "the
total payment (whether direct or indirect . . .) made, or to be
made, for imported merchandise by the buyer to, or for the
benefit of, the seller."  Section 152.103(a)(1) of the Customs
Regulations (19 CFR 152.103(a)(1)), provides that in determining
transaction value, "the price actually paid or payable will be
considered without regard to its method of derivation.  It may be
the result of discounts, increases or negotiations, . . ."  In
this case, the protestant paid the foreign vendor a price which
had been discounted for defective merchandise.  Consequently, the
price actually paid for imported ceiling fans was the discounted,
or adjusted, price.

     Customs reached this conclusion in Headquarters Ruling
Letter (HRL) 544371, June 11, 1990, which involved a similar
factual situation.  HRL 544574, November 14, 1990, cited as
authority by the field for denying the protest, is not
dispositive of the issue addressed in this case because the facts
in HRL 544574 left open the possibility that the defective
allowance was to cover previously imported damaged or defective
merchandise, not current shipments.

HOLDING:

     The defective allowance, to the extent that it is not part
of the sales price for the current shipment of imported
merchandise, is not part of the price actually paid or payable.

     You are directed to ALLOW the protests in full.  A copy of
this decision should be attached to the CF 19, Notice of Action,
and sent to the protestant to satisfy the notice requirement of
section 174.30(a) of the Customs Regulations.

                               Sincerely,



                               John Durant
                               Director, Commercial