HQ 545319: Application for Further Review of Protest Number 4909-93- 100026; credit for overpayment for defective merchandise; undeclared assists

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 545319
                            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
                         Commercial Rulings, Division