CLA-2 RR:CR:TE 964192 JFS
Port Director
U.S. Customs Service
C/O Chief, Liquidation and Protest Branch
Building 77, JFK Airport
Jamaica, NY 11430
RE: Decision on Application For Further Review Of Protest No. 1001-99-102762; “Price Paid Or Payable,” Discounts; Sufficient Evidence; Credit For Payment Already Made
Dear Sir:
This is a decision on a protest timely filed on June 4, 1999, by Grunfeld, Desiderio, Lebowitz, Silverman & Kledstadt, LLP, on behalf of Nine West Distribution Corp. This protest involves a woman’s slip-on shoe, style N-Amby2. Two entries are at issue, and within each entry there are two invoices at issue. More specifically, entry number XXX-XXXX156-5, dated May 5, 1998, involved invoice numbers 10704 and 10705, and entry number XXX-XXXX094-7, dated June 2, 1998, involved invoice numbers 10844 and 10845.
As to all four of the invoices, the protestant seeks to reduce the value of the entered merchandise due to a discount that it claims was granted by the seller prior to exportation. The discount is reflected on the commercial invoices submitted upon entry.
As to the footwear covered by invoice number 10844, the protestant maintains that it was correctly entered under subheading 6402.99.1865, Harmonized Tariff Schedule United States Annotated (HTSUSA), which provides, in pertinent part, for footwear with outer soles of rubber or plastics, having uppers of which over 90 percent of the external surface area (ESAU) is rubber or plastics. The general column one rate of duty is 6% ad valorem. You classified the footwear covered by invoice 10844 under subheading 6404.19.3560, HTSUSA, which provides, in pertinent part, for footwear with outer soles of rubber or plastics, with uppers of textile materials, with open toes or open heels. The applicable rate of duty is 37.5% ad valorem.
Lastly, as to invoice numbers 10704, 10705, and 10845, the protestant maintains that additional duties tendered in a prior disclosure were never credited towards the duties owed.
ISSUES:
1. Should the value of the entered merchandise be reduced because of a discount that was granted by the seller prior to exportation?
2. Is there sufficient evidence to support the protestant’s claim that the footwear covered by invoice 10844 was properly classified as entered as having plastic uppers?
3. Was the protestant properly credited for monies tendered in a prior disclosure?
LAW AND ANALYSIS:
1. Should the value of the entered merchandise be reduced because of a discount that was granted by the seller prior to exportation?
Nine West Distribution Corp. seeks to reduce the value of the entered merchandise due to a discount which it claims was granted by the seller prior to exportation. The discount is reflected on the commercial invoices submitted upon entry. We note that neither the port nor the NIS addressed the discount issue.
The preferred method of appraisement for customs purposes is transaction value pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), codified at 19 U.S.C. 1401a. That section provides, in pertinent part, that the transaction value of imported merchandise is the “price actually paid or payable for the merchandise when sold for exportation to the United States,” plus five enumerated statutory additions. The term “price actually paid or payable” means the total payment made by the buyer to, or for the benefit of, the seller. The payment may be direct or indirect. Any costs, charges or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from country of export to the place of import are excluded. 19 USC 1401a(b)(4)(A).
The price actually paid or payable is considered without regard to its method of derivation, and may be the result of discounts, increases, or negotiations, or may be arrived at by application of a formula. Further, the term “payable” means that the price has been agreed upon, but the actual payment may not have been made at the time of importation. 19 CFR 152.103(a)(1). In Headquarters Ruling Letter (HRL) 543302 dated November 1, 1984, we stated that where a seller discounts its price for certain merchandise to a buyer, and the discount is agreed to and effected prior to importation of the merchandise, the discounted price clearly constitutes the “price actually paid or payable” for the merchandise, as those words are defined in section 402(b)(4)(A) of the TAA. See also Allied International v. United States, 16 CIT 545, 795 F. Supp. 449 (1992); Esprit de Corp v. United States, 17CIT 195; 817 F. Supp. 975 (1993); HRL 547019 dated March 31, 2000; and HRL 547210 dated March 25, 1999.
In this case, the importer states that the reason for the discount is that the vendor failed to deliver the goods on time for ocean shipment, and therefore, compensated Nine West for the airfreight charges incurred by Nine West in shipping the merchandise by air. The discount is clearly listed on the invoice from the seller to the importer. The invoice states “agreed disc. due to air freight diff.” In addition, the invoice states that the merchandise is to be shipped “freight collect,” thus indicating that the importer bears the cost of freight. Further, the bill of lading indicates the merchandise was shipped via air transport, landing at JFK International Airport. These facts coincide with the claims made by the importer in its submission. Based on the evidence presented, we find that the discounts were agreed to and effected prior to importation. Therefore, assuming payment was actually made based on the invoice submitted, the discounted price constitutes the price actually paid for the imported merchandise. The protest on the value issue should be allowed.
2. Is there sufficient evidence to support the protestant’s claim that the footwear covered by invoice 10844 was properly classified as entered as having plastic uppers?
Style N-Amby2 comes in two versions, one version has plastic uppers and the other version has textile uppers. If the shoe has textile uppers then it is classified in subheading 6404.19.3560, HTSUSA, which has a duty rate 37.5% ad valorem. If the shoe has plastic uppers then it is classified in subheading 6402.99.1865, HTSUSA, which has a general column one duty rate of 6% ad valorem. Because both versions of the shoe have the same style name, the composition of the upper, and therefore the classification, cannot be determined without reference to the Interim Footwear Invoice (IFI). Of course, proper classification of the footwear is dependent upon the IFI having been properly completed by the importer.
This protest stems from errors made by the protestant when classifying style N-Amby2. As previously stated, entry number XXX-XXXX094-7 included invoice numbers 10844 and 10845, both of which covered style N-Amby2. In a prior disclosure letter dated November 17, 1998, counsel, on behalf of Nine West, informed Customs that the footwear covered by invoice number 10845 was incorrectly entered as footwear having leather outer soles. Pertinent portions of the letter read as follows:
Style N-Amby2 is a woman’s slip-on shoe with a fabric upper and a rubber outer sole. . . . The vendor . . . inadvertently prepared the [IFI] to indicate that style N-Amby2 had a leather outer sole. Nine West’s customhouse broker used the IFI to classify the merchandise upon entry. Based upon the description in the IFI, the broker entered the merchandise under subheading 6404.20.40 at the rate of 10% ad valorem, and duties were deposited at this rate. Thus, the vendor’s clerical error on the IFI caused the broker to enter the merchandise at an incorrect duty rate.
(Emphasis added.) This error in classification as to style N-Amby2 involved 20 invoices in addition to invoice 10845. The error affected twelve entries, three different ports, and 37,584 pairs of shoes. The protestant submitted to Customs a check in the amount of $178,032.00 in additional duties.
Invoice 10844 was not one of the invoices covered by the prior disclosure. Relying upon the protestant’s statement that the N-Amby2 has a fabric upper and the admission that the footwear had been improperly classified, Customs reclassified the footwear covered by invoice number 10844 under subheading 6404.19.3560, HTSUSA, as having rubber or plastic outer soles and textile uppers. The protestant maintains that, although invoice 10845 was for shoes with textile uppers, invoice 10844 covered the version of the N-Amby2 with plastic uppers.
Invoice 10844 is an invoice for 1,428 pairs of style N-Amby2 that are covered by contract number H1054587. To support its claim that these shoes have plastic uppers, the protestant submits a contract card for contract H1054587. The information on the contract card includes the color of the shoes, the material of the uppers, the number of pairs and the style of the shoes. Under the provision for the material of the uppers, the contract card states that the material of the upper is “SY,” which the protestant asserts, stands for synthetic or plastic material.
Counsel submits a “Style Master” document to support its claim that the upper is constructed of plastic materials. In a letter dated December 3, 2001, counsel for the protestant explains the significance of the Style Master document as follows:
The Style Master is a database of information maintained on Nine West’s mainframe computer concerning each style of footwear imported and sold by the company. Included in the information in the Style Master system is a description of the material of the upper of the footwear in question. . . . Nine West often produces a single style of footwear with different uppers (e.g., one version will have a plastic upper, a second version will have a fabric upper, etc). A two-letter code is used in the purchase order (contract) to identify the upper material being used for a particular purchase order. For the order in question (1054587), the material code for the upper is “SY.” The Style Master for style Amby2 indicates that the SY code for this style refers to the “glove stretch” material. . . .
Counsel has submitted a swatch of glove stretch material that is constructed of a textile material coated with a layer of plastic. Note 3(a), Chapter 64, states that “the terms “rubber” and “plastics” include woven fabrics or other textile products with an external layer of rubber or plastics being visible to the naked eye. . . .” EN (E) to Chapter 64 states that:
It should be noted that for the purposes of this Chapter, the terms "rubber” and “plastics" include woven fabrics or other textile products with an external layer of rubber or plastics being visible to the naked eye, no account being taken of any resulting change of colour.
The swatch of “glove stretch” material clearly has an external layer of plastics. Assuming that the footwear covered by invoice 10844 is constructed of the “glove stretch” material, then the footwear was properly classified as entered.
Of concern is that, within the Style Master document, subheading 6404.19.3560 is entered for the HTS code. Subheading 6404.19.3560, HTSUSA, is a provision for footwear with textile uppers. In the letter dated December 3, 2001, counsel for the protestant explains this entry as follows:
The Style Master also indicates a proposed HTS classification for the footwear produced with the upper material in question. The HTS classification is entered by a Nine West employee in the merchandising department of the particular footwear division that sell that style(in this case the Nine West division). The Style Master for N-Amby2 with the glove stretch material should have indicated an HTS classification of 6402.99.18, which covers footwear with plastic uppers, rather than 6404.19.35, which covers textile upper footwear. The use of the wrong HTS number in the Style Master for the glove stretch uppers was simply a clerical error in the data input, which may have been caused by the fact that nearly all of the other orders of N-Amby2 contained textile upper footwear classified in subheading 6404.19.35.
When deciding on an AFR, Customs must weigh the evidence before it, taking into consideration the credibility and reliability of all the evidence presented. Counsel has presented materials in the form of the contract card and the Style Master document, as proof that the footwear of invoice 10844 has plastic uppers. Counsel has also explained in writing the inconsistencies within the documentation. However, it must be noted that counsel for the protestant also stated in the letter dated November 17, 1998, that the style N-Amby2 has textile uppers. Much unnecessary confusion has been created due to the protestant’s failure to distinguish which shoes have textile uppers and which have plastic uppers. The most persuasive facts supporting the protestant, are that the protestant made a prior disclosure and submitted over $127,000 in additional duties (which indicates that the protestant is acting in good faith); and that counsel for the protestant submitted a credible written explanation for the protestant’s errors. The demonstration of good faith and counsel’s written explanation provide sufficient evidence that the footwear at issue was correctly classified as entered in subheading 6402.99.18, HTSUSA.
3. Was the Protestant properly credited for monies tendered in a prior disclosure?
In the prior disclosure letter dated November 17, 1998, the Protestant admitted that it had improperly classified twelve entries of style N-Amby2 (with textile uppers) as having outer soles of leather in subheading 6404.20.40, HTSUSA, with a duty rate of 10%. Entries XXX-XXXX156-5 (invoices 10704 & 10705) and XXX-XXXX094-7 (invoice 10845) were covered by the letter. The protestant notified Customs that the shoes had rubber outer soles and that the proper rate of duty was 37.5%. The protestant stated that because of this error $127,891.50 was owed in additional duties and that a check for this amount would be forthcoming. The protestant has submitted a copy of the check that was tendered to Customs.
Enclosed with the letter, the protestant submitted a schedule detailing the entries covered, and the amounts owed as to each entry. The protestant stated that the check was to be applied to the entries in accordance with the schedule. Pursuant to the schedule the total amount owed after the corrected duty for entry number XXX-XXXX156-5 (invoices 10704 & 10705) was $18,794.16. The protestant had already paid $5,520.30 at entry. Accordingly, the protestant paid $13,273.95 in additional duties. The total amount owed after the corrected duty for entry number XXX-XXXX094-7 (invoice 10845) was $5,309.73. The protestant had already paid $1,570.20 at entry. Accordingly, the protestant paid $3,739.05 in additional duties.
The protestant asserts that the monies paid as part of the prior disclosure were never credited towards these two entries and a review of the entries in ACS appears to substantiate the claim. It is possible that the funds were applied towards other duties owed on other entries. If it is determined that the protestant was never credited with these payments, then the money should be applied to these two entries.
HOLDING
The discounted price constitutes the price actually paid for the imported merchandise. The protest as to the value of the footwear covered by both entries should be allowed.
The protest as to the classification of style N-Amby2 covered by invoice 10844 should be allowed. The footwear is classified under subheading 6402.99.1865, HTSUSA, which provides for “Other footwear with outer soles and uppers of rubber or plastics: Other footwear: Other: Having uppers of which over 90 percent of the external surface area (including any accessories or reinforcements such as those mentioned in note 4(a) to this chapter) is rubber or plastics (except footwear having a foxing or a foxing-like band applied or molded at the sole and overlapping the upper and except footwear designed to be worn over, or in lieu of, other footwear as a protection against water, oil, grease or chemicals or cold or inclement weather): Other: Other, Other: For women: Other." The general column one duty rate is 6 percent ad valorem.
To the extent that the payments have not been credited, the protestant should be credited with payments made pursuant to the schedule submitted with the prior disclosure letter dated November, 17, 1998, and to this extent, the protest should be allowed.
In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, Revised Protest Directive, dated August 4, 1993, a copy of this decision attached to Customs Form 19, Notice of Action, should be mailed to the protestant no later than 60 days from the date of this decision. Any reliquidation of entries in accordance with the decision must be accomplished prior to mailing the decision.
Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make this decision available to Customs personnel, and to the general public on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act and other methods of publics distribution.
Sincerely,
John Durant, Director
Commercial Rulings Division