VAL CO:R:C:V 544879 GG

Area Director
U.S. Customs Service
Kennedy Airport Area
Building 178, Room 330B
Jamaica, New York 11430

RE: Application for Further Review of Protests 1001-87-009924, 1001-87-009925, 1001-87-011326, and 1001-87-011327; defective merchandise; late or improper shipments; cancelled orders

Dear Sir:

This is in response to the protests referenced above, which were sent to this office for further review. Our decision follows.

FACTS:

The protestant, xxx xxxxxx xxxx xxxxxxx Co., imported textiles from Romania in February and March, 1987. Six entries were liquidated "no change" on April 10, 1987, two others on April 17, 1987. The protestant protested the appraised value of the merchandise covered by all 8 entries by filing protests 1001- 7-009924 and 1001-7-009925 on July 9, 1987. Each protest made reference to a different four of the eight entries. A refund of "50% of the entered value of the merchandise" was requested.

Several reasons were given in the protests to support a refund: 1) The goods were shipped late; 2) The sizes were mismarked; 3) The shading was poor; 4) The pants were shipped separately from tops, although they were meant to be sold together; 5) Solid color linen garments were improperly shipped with striped garments; and 6) Orders were cancelled, causing the goods to be sold at distress prices.

The protestant also filed protests 1001-7-011326 and 1001- 7-011327, on August 13, 1987. These last two protests cover the same eight entries and present arguments identical to those in the earlier protests. The reason for these later filings is unknown.

Customs sent a Customs Form 28, Request for Information, to the protestant on or around December 17, 1988, which asked for documentation to substantiate, on an entry by entry basis, proof of payment, exact damage to each garment, and who was responsible for purchasing and inspection. Also requested was information on the exact dates of shipment and order cancellations. No substantiating documentation has been received by Customs. Although it is implicit from the facts that the importer sustained a loss, it is unclear whether a refund or rebate was sought from the seller.

ISSUE:

Whether losses suffered by the importer because of late or improper shipments of first quality merchandise, the cancellation of orders after importation, and the shipment of defective merchandise, serve as a basis for reappraisement under 19 U.S.C. 1514(1)? LAW AND ANALYSIS:

Late or Improper Shipments of Merchandise

An argument of the protestant is that the appraised value of the imported merchandise was too high because the goods were shipped late, and some shipments were improper because 1) they contained separate items of clothing instead of the intended complete outfit and 2) solid color garments were sent with striped garments. Although no evidence has been provided to support these factual allegations, our decision can be reached in its absence.

The merchandise at issue was appraised under transaction value. Transaction value is defined in Section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a(b)), as the price actually paid or payable for merchandise when sold for exportation to the United States. The term price actually paid or payable means the total payment, exclusive of certain international transportation charges, made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller. Section 402(b)(4)(A) TAA. As opposed to the subsequent discussion on defective merchandise, there is no provision which allows for a post- importation readjustment of the price actually paid or payable to compensate an importer for losses suffered because shipments were late or contained the wrong merchandise. Of course, should the seller give a rebate to the buyer or otherwise lower the price after importation, such a rebate or price decrease will be disregarded in determining transaction value. Section 402(b)(4)(B) TAA. Consequently, there is no legal basis to reappraise merchandise that the protestant alleges was received late or consisted of items different from those ordered.

Cancellation of Orders after Importation

The same analysis as that in the segment above applies to losses allegedly sustained by the protestant because orders were cancelled after importation: post-importation order cancellations are not a legal ground for readjusting the price actually paid or payable. Cancelled orders are a business risk assumed by every commercial importer, who has the options of seeking redress from the party who cancelled the order, trying to find other customers, or exporting or destroying, under Customs' supervision, the unsold merchandise and obtaining drawback. Any reduction in the value of imported merchandise because of business vagaries is a post-importation event to which no recourse, other than drawback, can be had from the government.

Shipment of Defective Merchandise

The protestant asks for a reappraisement because some or all of the imported merchandise was defective. The defects included poor shading and mismarked sizes. This raises the issue of whether the post-importation discovery that imported merchandise was defective warrants its reappraisement.

The Statement of Administrative Action, which has the force of law, states that "where it is discovered subsequent to importation that the merchandise being appraised is defective, allowances will be made". Section 158.12(a) of the Customs Regulations (19 CFR 158.12(a)) provides that merchandise which is subject to an ad valorem or compound rate of duty 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 the damage. Customs has interpreted this to mean that the dutiable value can be adjusted where there is sufficient evidence to establish that the merchandise was defective at the time of importation. See Customs Service Decision (C.S.D.) 81-144; HRL 543106, dated June 29, 1983; HRL 543091, dated September 29, 1983; HRL 543537, dated February 14, 1986. Despite being asked by Customs to furnish such information, the protestant has not done so. There is nothing to substantiate that the merchandise was defective when imported. Consequently, no allowance may be made in the dutiable value because of alleged defects.

HOLDING:

There is no legal basis to reappraise merchandise whose importation caused the protestant to sustain a loss because shipments were late or improper and orders were cancelled after importation. Similarly, no allowance can be made in the value of imported merchandise where it is claimed that the merchandise was defective but no documentation was presented to support that claim.

You are directed to DENY protests 1001-87-009924 and 1001- 87-009925 for the reasons stated above. You are directed to DENY protests 1001-87-011326 and 1001-87-011327 because 1) the protests were filed more than 90 days after the entries were liquidated and were, under 19 U.S.C. 1514(c)(2)(A), untimely; and 2) 19 U.S.C. 1514(c)(1) prohibits the filing of more than one protest for each entry of merchandise.

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
Rulings Division

cc: Regional Commissioner of Customs
c/o Protest and Control Section
6 World Trade Center
Room 762
New York, New York 10048-0945