HQ 545658: Application for Further Review of Protest No. 1001-1-106085; Proper Appraised Value; Defective Merchandise

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 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        
                                                                  
                           Commercial Rulings Division