HQ 545690: Protest and Application for Further Review (272094100246); Defective Merchandise; 19 U.S.C. 1401a(f).

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 545690

                           May 31, 1996

RR:IT:VA  545690 er

CATEGORY:  Valuation

Port Director
Los Angeles

RE:  Protest and Application for Further Review
     (272094100246); Defective Merchandise; 19 U.S.C.
     1401a(f).

Dear Sir:

     This is in response to the above-referenced protest and
application for further review dated March 2, 1994, which was
filed by counsel for AT&T and was forwarded by you to this office
for response.  Additionally, a meeting was held between this
office and counsel for AT&T on October 18, 1995.  We regret the
delay in responding.

FACTS:

     The protest involves entries made on August 12, 1993, and
liquidated on December 3, 1993.  The merchandise consists of two
models of defective telephone answering systems which were sent
to the United States by AT&T's distributor in Canada, Lenbrook
Industries Ltd. ("Lenbrook").   Both models originated in China
and were purchased by Lenbrook from AT&T.

     Some of the models were sold in Canada by Lenbrook, at
retail, to Canadian customers.  The customers returned the
machines to Lenbrook because they were defective.  In accordance
with the warranty on the machines, Lenbrook replaced each
defective system with a new one.   The remaining models were
rejected by Lenbrook for failure to meet certain military
standards.

     AT&T did not buy back the defective merchandise; instead
they credited back to Lenbrook Industries amounts representing
the value of non-defective saleable merchandise($215,512).  Thus,
there was no sale of the defective merchandise for exportation to
the United States.  All of the defective merchandise was shipped
from Canada to Markman Company, a dismantling facility in the
United States.  Markman Company is unrelated to AT&T.    The
salvage value of the parts is $151,227 and the charges to
dismantle the merchandise is $15,561.    

     There is no dispute that at the time of entry the imported
merchandise was defective.  For purposes of making entry,
however, AT&T was advised by Customs to declare the amount
credited to Lenbrook as the value of the imported defective
systems.  Accordingly, the prices declared on the commercial
invoices arriving with the goods in the United States and the
amount declared at the time of entry represents the amount which
AT&T credited to Lenbrook, $215,512.  The merchandise was
appraised under section 402(f) based on the value declared at the
time of entry ($215,512).

     AT&T originally requested that the subject entry be re-liquidated and appraised based on the salvage value of the parts
($151,227) less the costs of dismantlement ($15,561), equaling
$135,666.    On January 30, 1996, AT&T amended its request to
exclude the dismantlement deduction; hence, the request is for
reliquidation at $151,227.

     Even though the merchandise was originally appraised
at$215,512, representing the amounts credited by AT&T to
Lenbrook, it is now your position that the merchandise should be
appraised based on the value of the salvaged parts, plus
dismantlement costs.  By telephone conversation with the import
specialist concerned, this figure was confirmed at $166,788. 
     
ISSUE:

     Whether the means of appraising the defective merchandise
under 402(f) of the TAA is reasonable?

LAW AND ANALYSIS:

     Sections 402(a) through 402(f) of  of the Tariff Act of
1930, as amended by the Trade Agreements Act of 1979 (TAA); 19
U.S.C. 1401a(a)-(f) set forth the hierarchy of methods to be
applied when appraising imported merchandise.  Both you and the
importer agree that the appropriate method of appraisement is the
fallback method of appraisement provided for under section 402(f)
of the TAA.  Section 402(f) provides:

     (1) If the value of imported merchandise cannot be
     determined, or otherwise used for the purposes of this
     Act, under subsections (b) through (e), the merchandise
     shall be appraised for the purposes of this Act on the
     basis of a value that is derived from the methods set
     forth in such subsections with such methods being
     reasonably adjusted to the extent necessary to arrive
     at a value.
     
     As previously stated, you and the importer agree that the
appraisement at the time of entry was incorrect.  Also, you both
agree that there is a reasonable salvage value of the defective
merchandise.  What is disputed is whether the dismantlement
charges should be added to that amount to form the appraised
value under section 402(f) of the TAA.

     When goods are appraised under section 402(f) of the TAA,
the statute instructs us to appraise the goods on the basis of a
value that is derived from the methods set forth in the statutory
hierarchy of appraisement.  Section 402(b)(3)(A)(i) of the TAA
provides that the transaction value of merchandise does not
include any reasonable cost or charge that is incurred 

for "the construction, erection, assembly, or the technical
assistant provided with respect to, the merchandise after its
importation into the United States ..." 19 U.S.C.
1401a(b)(3)(A)(i).  Because the dismantlement occurs in the
United States and the charges are readily distinguishable from
the salvage value of the goods, we find that it is not reasonable
to include the dismantlement charges in the appraised value of
the merchandise.  The merchandise, accordingly, should be
appraised under section 402(f) based on the salvage value of the
parts with no further additions for dismantlement charges.  

HOLDING:

     Based on the information submitted, we find that the subject
defective telephone systems imported into the United States for
dismantlement may be appraised based on the salvage value of the
parts.  The charges associated with dismantlement in the United
States should not be added to the appraised value of the goods. 
Accordingly, you are instructed to affirm this protest and to
appraise the merchandise based on the salvage value of the goods.

     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
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, Lexis, Freedom of
Information Act and other public access channels.  
     
                                   Sincerely,



                                   Acting Director
                                   International Trade
                                   Compliance Division