HQ 223727: Application for Further Review of Protest No. 4909-91- 100106; 19 U.S.C. 1504(d); deemed liquidation; 19 U.S.C. 1514; protest period; untimely voluntary reliquidation; void or voidable liquidation; effect on protest of liquidation; appraisement of merchandise sold between related parties; appraisement under deductive value and TAA 402(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 223727
                          April 5, 1993

LIQ-11-CO:R:C:E  223727 DH
VAL CO:R:C:V 

CATEGORY: Entry
          Valuation

District Director
Old San Juan, Puerto Rico

RE:  Application for Further Review of Protest No. 4909-91-
     100106; 19 U.S.C. 1504(d); deemed  liquidation; 19 U.S.C.
     1514; protest period; untimely voluntary reliquidation; void
     or voidable liquidation; effect on protest of liquidation;
     appraisement of merchandise sold between related parties;
     appraisement under deductive value and TAA  402(f)

Dear Sir:

     This protest was filed against a Port of San Juan
appraisement decision in the liquidation of entries pertaining to
the importation of men's and boys' wearing apparel purchased by -
----- ------- (hereinafter referred to as the "importer").  The
merchandise was sold by the importer's parent company, ------ --
----------- S.A., a Colombian company (hereinafter referred to as
the "seller").  

FACTS:

     The merchandise was entered on January 9, 1987.  In order to
obtain information needed for appraisement, liquidation was
extended.  Customs' records show that there were three extension
notices issued, thereby, extending the period to the maximum
allowable under 19 U.S.C. 1504.  By virtue of these extensions,
Customs was required to liquidate the entry before January 8,
1992.  Customs' records show that the entry was liquidated on
December 28, 1990, as "no change" from the entered amount.  On
March 5, 1991, the entry was manually reliquidated, under 19
U.S.C. 1501, with an increase of $282.43.  A bill was issued on
June 14, 1991.  The issuance of the bill on June 14, 1991
erroneously was recorded in the Customs entry records as a
reliquidation. 
 
     On August 9, 1991, within 90 days of the June 14, 1991
recorded date of reliquidation, the importer filed a protest to
the reliquidation alleging that the entry was deemed liquidated
pursuant to 19 U.S.C. 1504(d) at the rate of duty asserted at the
time of entry since Customs failed to liquidate the entries
within four years of the date of entry.  
     
     The subject of this protest is men's and boys' wearing
apparel, manufactured by the seller.  The subject sales occurred
between the importer and seller while the importer was a wholly
owned subsidiary of the seller.  The president of the seller was
also the president of the importer.   In 1987 the importer made
approximately 55 entries of merchandise.  After an audit
pertaining to the 1987 transactions was performed prior to
liquidation of the entries, the merchandise was appraised under
 402(f) of the Tariff Act of 1930, as amended by the Trade
Agreements Act of 1979 (TAA, 19 U.S.C. 1401a(f)).

     The Customs Consumption Entry Audit Report, dated June 22,
1990 found that the importer had failed to include in the entered
value costs for design, undeclared fabric values, selling
commissions, undeclared quantities, undeclared payments to
manufacturers and invoice undervaluations.  According to
subsequent adjusted audit reports, all of the findings of
undeclared value were either resolved or disproved, with the
exception of the undeclared fabric value.

     The audit's review of fabric purchases for the importer by
the seller disclosed that fabrics purchased from Spasa Trading
S.A. (hereinafter referred to as "Spasa") of Brazil, and placed
in production for 1987 were not fully declared in the values
reported on the entries.  Analysis of 18 entries disclosed
undervaluation of fabric costs by 18.3 percent of actual value. 
The total omitted cost on $1,769,668 in purchases was ultimately
calculated at $215,872.  The audit disclosed that the seller
drafts its own payments from the importer's checking account in
Puerto Rico.  

     Based on the audit findings, of an 18.3 percent
undervaluation of fabric costs, the subject merchandise was
appraised at an adjusted transaction value by using a factor of
1.20 times the entered value in order to recover the difference
for the undeclared fabric.  By letter dated June 28, 1991,
Customs, San Juan District, informed the importer that the
subject merchandise could not be appraised under transaction
value because the invoice prices for the imported merchandise did
not reflect the total fabric costs.  By letter dated August 12,
1991, the San Juan District informed the importer that the cost
of the undeclared fabric was determined by application of the
actual unit price per yard to quantities of yards disclosed by
the importer on the Special Customs Invoice (SCI) for those
specific importations.  The actual unit price of the fabric was
determined by obtaining the fabric price from Spasa, and adding
to it the associated costs of freight and insurance incurred in
the purchase of the fabric.  According to the auditor, the
seller's actual cost of the imported merchandise could not be
determined due to the unavailability of records from the seller.

     According to the importer, the quantities of yards of fabric
identified on the SCI's for the imported merchandise do not
reflect the actual amount of fabric used, but instead represent
the nominal conversion factor of the U.S. Department of Commerce
Correlation used to monitor imports of controlled fiber textile
products and to administer bilateral textile agreements programs. 
For example, the textile category for men's and boys' cotton
slacks and jeans is 347, and the conversion factor for category
347 is 17.8 yards of fabric per dozen.  For purposes of
monitoring imports therefore, each importation of one dozen men's
or boys' cotton slacks or jeans is identified as having 17.8
yards of fabric, whether or not that amount of fabric was
actually used.  The amount of actual fabric used may be greater
or smaller.  Thus, the importer claims that it was incorrect for
Customs to rely on the fabric amounts identified on the SCI's.  

     According to a supplemental submission dated November 6,
1992, written on behalf of the importer, the seller also
manufactures similar garments under a brand known as B------,
which are sold to F------ Inc., a company located in Santurce,
Puerto Rico.  According to the importer, the jeans sold to F----
-- are similar to jeans sold to the importer.  The importer
states that both brands of jeans are manufactured from the same
fabric, and have minimal styling differences.  The importer
states that one jean may have a pocket with a flap secured by a
button, while the other jean may have an unsecured pocket.  The
importer has provided us with a November 26, 1987 invoice from
the seller to F------ for 1712 pairs of style 9766 and 3186 pairs
of style 9769, of ornamented men's jeans, at $8.06 per pair.  The
importer has also provided us with a December 29, 1987 invoice
from the seller to the importer for 1240 pairs of ornamented
men's jeans at $8.10 per pair.  Customs' field officers
determined that the one sale of jeans from the seller to F------
was not an adequate representation to establish that throughout
1987 the importer and seller bought and sold from one another as
if they were not related.  Customs' field officers have not seen
samples of the jeans sold to F------.

     In its supplemental submission, the importer has provided
Customs with a cost breakdown of merchandise covered by two
different entries.  The first is for 2091 pairs of men's jeans at
a price of $7.50.  According to the breakdown the total cost to
manufacture the jeans is $6.83 per pair.  Accordingly, the
seller's markup is $.67, or 8.9 percent.  (The invoice price is
$15,682.50, and the importer points out that the entry itself
reflects an unexplained adjustment of $270.00 to create a new
entered value of $15,413.00.)  According to the cost breakdown,
for each pair of jeans in this entry, 1.20 meters of fabric were
used, and for 2091 pairs of jeans 2509.20 meters would be used,
or 2744.0611 yards.  The SCI shows that 3,101.65 square yards
were used for the 2091 pairs of jeans, which is a difference of
about 11.5%.

     The second cost breakdown is for men's ornamented sports
shirts invoiced by the seller on a September 15, 1987 invoice at
$6.90 per unit.  The total cost to manufacture the shirt is
$6.00, and the seller's markup is $.90.  According to a January
1987 entry and accompanying invoice the importer purchased men's
nonornamented sports shirts for $6.60 per garment from an
unrelated supplier, C----, of Columbia.  The importer has also
provided Customs with a December 11, 1986 invoice from C---- for
ornamented shirts for $6.90 per garment.  

     In support for its position that the importer and seller
bought and sold from one another as if they were not related, the
importer demonstrates that after June 13, 1990 when the importer
was purchased from the seller, the purchases by the importer from
the seller, before and after the sale of the importer reflected
similar prices.

     The importer takes the position that transaction value is
the proper method of appraisement of the subject merchandise, and
that if transaction value is not applicable then Customs must
apply the other bases of appraisement in their sequential order.
     
ISSUES:

     Whether the liquidation which occurred on December 28, 1990
satisfies the requirements of 19 U.S.C. 1504?

     Whether the reliquidation which occurred on March 16, 1991
is proper under 19 U.S.C. 1501?

     Whether the erroneously recorded date of June 16, 1991, as
the date of reliquidation, is voidable?

     Whether  402(f) of the TAA is the proper basis of
appraisement for the imported merchandise.

LAW AND ANALYSIS:

     The liquidation protested was that of June 14, 1991.  The
protest was filed on August 9, 1991 and is, therefore, timely. 
The importer alleges that the liquidation of June 14, 1991 is
voidable on the ground that there was a deemed liquidation by
operation of law on January 9, 1991.  That date represents the
four-year extension period provided by 19 U.S.C. 1504(d).

     The available evidence shows that the liquidation period was
extended as provided by 19 U.S.C. 1504(b) in order to obtain
information needed to appraise the merchandise.  The Customs
Entry Archive File shows that there were three extension notices
issued.

     The entry was liquidated on December 12, 1990, within the
four-year period set by 19 U.S.C. 1504(d).  Within the 90-day
period provided by 19 U.S.C. 1501, there was a manual
reliquidation on March 16, 1991 with an increase in duty of
$282.43.  The transaction of June 14, 1991 was not a liquidation
or reliquidation; it was simply the issuance of a bill on the
increase determined to be due on the reliquidation of March 16,
1991.  However, that transaction is erroneously stated to be a
liquidation on some Customs documents.
     
     The statutory provisions regarding protests against the
decisions of Customs officers are found in sections 514 and 515
Tariff Act of 1930, as amended (19 U.S.C. 1514 and 1515). 

     Under 19 U.S.C. 1514(a)(1) liquidations and administrative
decisions concerning classification, rates of duty, and charges
and exactions, etc., are final and conclusive on all persons,
including the government, unless they are timely protested or a
civil action contesting the denial of a protest is filed in the
Court of International Trade.  Voluntary reliquidations (19
U.S.C. 1501), refunds and errors (19 U.S.C. 1520), and
reliquidation on the ground of fraud (19 U.S.C. 1521) are
exceptions to this general rule.  Liquidation, the final
computation by Customs of all duties accruing on the entry, is
designed to eliminate confusion, and to guaranty a final
reckoning of an importer's liability for a specific entry. 
American Export Lines, Inc. v. United States, 496 F. Supp. 1320,
85 Cust. Ct. 20, C.D. 4864 (1980); Ambassador Division of
Florsheim Shoes v. United States, 748 F.2d 1562 (Fed. Cir. 1984).

     Time requirements for filing a protest can be found in 19
U.S.C. 1514(c)(2) which states that a protest of a decision,
order, or finding described in subsection (a) of this section
shall be filed with such customs officer within ninety days after
but not before notice of liquidation or reliquidation. 

     Numerous court decisions have held that erroneous
liquidations can only be corrected by strictly following
statutory procedures, and that failure to do so within the period
set by statute renders the liquidation final.  United States v.
Utex International Inc., 857 F.2d 1408 (Fed. Cir. 1988); United
States v. A.N. Deringer, Inc., 593 F.2d 1015, 66 CCPA 50 (1979)
and Omni U.S.A. v. United States, 840 F.2d 912 (Fed. Cir. 1988),
cert. den., 488 U.S. 817 (1988), rehearing den., 488 U.S. 961
(1988).  Under the facts presented, the protestant did not comply
with 19 U.S.C. 1514 by filing a protest contesting the untimely
liquidation within 90 days of the notice of liquidation. 
Furthermore, the "deemed liquidation" issue was inappropriately
raised in the protest to the reliquidation since a protest of a
reliquidation is limited to issues directly involved in the
reliquidation.  See 19 U.S.C. 1514(d).  Since the protest period
expired, the December 28, 1990 liquidation binds all parties. 

     An untimely reliquidation by Customs under 19 U.S.C. 1501 is
not void, but rather merely voidable.  Omni U.S.A., (supra);
United States v. A.N. Deringer, Inc., 66 CCPA 50, 55, C.A.D.
1220, 593 F.2d 556-57, 622 F. Supp. 1083, 1086 (1985); Philip
Morris v. United States, 716 F. Supp. 1479 (CIT 1989) (affirmed
in part and reversed in part in an unpublished decision of the
Court of Appeals for the Federal Circuit, 907 F.2d 158 (1990). 
"Neither the legality nor the correctness of a reliquidation by
Customs may be disturbed unless a timely protest is filed
according to the procedures in 19 U.S.C. 1514 (1982 and Supp. V
187), and failure to do so within the stated period leaves the
liquidation final.  United States v. Utex Int'l Inc., (supra);
Omni U.S.A., Inc. v. United States, (supra).

     To the extent that the importer challenged the legality of
the transaction of June 14, 1991, the protest is granted. 
However, the reliquidation of March 16, 1991 was proper. 
Therefore, the protest is denied as to the claim that by voiding
the so-called liquidation of June 14, 1991 defaults to a deemed
liquidation by operation of law.  The entry was liquidated on
December 28, 1990, thereby, satisfying 19 U.S.C. 1504. 
Thereafter, it was reliquidated within the 90-day period provided
in 19 U.S.C. 1501.  There is no evidence to find that the
reliquidation of March 16, 1991 should be voided, even if it were
challenged.
     
     With respect to the appraisement issue, the preferred method
of appraisement is transaction value which is defined by
 402(b)(1) 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 the merchandise when sold for
exportation to the United States..." plus certain additions
specified in  402(b)(1) (A) through (E).  The term "price
actually paid or payable" is defined in TAA  402(b)(4)(A) as:

     ...the total payment (whether direct or indirect...)
     made, or to be made, for imported merchandise by the
     buyer to, or for the benefit of, the seller.

     In transactions involving related parties, pursuant to
 402(b)(2)(B) of the TAA, transaction value is acceptable only if
an examination of the circumstances of the sale indicates that
the relationship between the buyer and seller did not influence
the price actually paid or payable or if the transaction value
closely approximates the transaction value of identical or
similar merchandise in sales to unrelated buyers in the United
States or the deductive or computed value for identical or
similar merchandise.

     Based on the information furnished, Customs has been unable
to determine the validity of the transfer price between the
related importer and seller.  Documentation provided by the
importer showing the prices paid between the seller and the
importer when they are no longer related in 1990 is not relevant
for 1987 importations.  In this case, as it cannot be determined
by an examination of the circumstances of the sale that the
relationship between the parties did not influence the price
actually paid or payable, Customs must then turn to the "test
value" method to determine whether the transaction value of the
imported merchandise is acceptable.  The test values can be used
for comparison only if the values relate to merchandise that was
exported to the U.S. at or about the same time as the imported
merchandise.  In this case Customs determined that the test
values provided by the importer were inadequate to establish that
the transaction value between the related importer and seller
throughout 1987 is acceptable.  It was determined by Customs that
the limited sales between the seller and unrelated importers
precluded use of the sales as test values.  If the importer
cannot substantiate that it meets either of the two tests that
verify the acceptability of the transaction value for the
imported merchandise, transaction value cannot be used to
appraise the merchandise.

     Under the TAA it is necessary to proceed sequentially
through the remaining bases of appraisement to determine the
appropriate valuation method.  The second appraisement method in
order of statutory preference is transaction value of identical
and similar merchandise under  402(c) of the TAA.  This basis
refers to a previously accepted transaction value of identical or
similar merchandise which was exported at or about the same time
as the merchandise being valued.  It is Customs' field position
that there is no previously accepted transaction value of any
identical or similar merchandise, as discussed above.  Therefore,
the merchandise cannot be appraised under  402(c) of the TAA.

     Unless, upon entry, the importer selects appraisement under
the computed value method, the succeeding basis of appraisement
is deductive value under  402(d) of the TAA.  Deductive value
involves appraising the merchandise on the basis of whichever of
three prices, adjusted as provided in  402(d)(3) of the TAA, is
appropriate.  See   152.105, Customs Regulations (19 CFR
 152.105).  From the file it does not appear that the importer
was given an opportunity to provide information for appraisement
under deductive value, before the imported merchandise was
appraised under  402(f) of the TAA.  As the merchandise could not
previously be appraised under deductive value, the importer
should be given the opportunity to provide information for
appraisement under deductive value. 

     In the event the merchandise cannot be appraised under
deductive value, the succeeding basis of appraisement is computed
value under  402(e) of the TAA.  The computed value is the sum of
the cost or value of the materials and fabrication, an amount for
profit and general expenses equal to that usually reflected in
sales of merchandise of the same class or kind, any assists, and
the packing costs.  However, as according to the auditor,
information from the seller was not readily available for the
determination of fabric costs, it does not appear that
appraisement of the merchandise under computed value would be
possible in this case.

     The last statutorily acceptable method is valuation pursuant
to  402(f) of the TAA, value if other values cannot be determined
or used.  Under  402(f) the merchandise is appraised on the basis
of a value that is derived from   402(b)-(e) with reasonable
necessary adjustments.  

     Section 152.107(a)-(c), Customs Regulations (19 CFR
152.107(a)), sets forth examples of acceptable appraisements
using  402(f) of the TAA.  Subparagraph (a) of  152.107 directs
Customs to appraise merchandise based upon a previously accepted
value, reasonably adjusted to the extent necessary to arrive at a
value.  For example, in this case the merchandise could be
appraised based on the value of the merchandise imported by F---
---, Inc. on the basis of  402(c), using a flexible
interpretation of the "at or about the same time of exportation
provision."  Alternatively, identical or similar imported
merchandise produced in a country other than Columbia could be
the basis for Customs valuation.

     Conversely,  152.108, Customs Regulations (19 CFR 152.108),
gives examples of unacceptable bases of appraisement under
 402(f).  The method in which the merchandise was appraised under
 402(f) is precluded, as it was based on what amounts to
fictitious fabric calculations.  The audit's determination of the
fabric amounts used in the production of the imported merchandise
was based on the nominal conversion factors, and not on the
amount of fabric actually used in the production of the
merchandise.  The cost breakdowns submitted by the importer
support its position that the nominal conversion factors are not
representative of the amount of fabric used in the production of
the imported merchandise.  Appraisement on the basis of arbitrary
or fictitious values is specifically precluded under
 402(f)(2)(G).

HOLDING:

     1. The protest is granted to the extent that the transaction
of June 14, 1991 was not a proper liquidation.  The protest is
denied to the extent that 19 U.S.C. 1504 has any effect against
the liquidation of December 28, 1990 or the reliquidation of
March 16, 1991.

     2. Deductive value is the appropriate method under which to
appraise the imported merchandise provided that sufficient
information is available.  If deductive value cannot be used to
appraise the imported merchandise, assuming that sufficient
information is not available for appraisal under computed value,
appraisal under  402(f) is necessary, however, such appraisal
must be based on permitted adjustments.

     The protest is therefore granted in part and denied in part
with respect to the deemed liquidation issue, and granted with
respect to the remaining issues.  A copy of this decision should
be attached to the Customs Form 19 mailed to the protestant as
part of the notice of action on the protest.


                                   Sincerely,


                                   John Durant, Director
                                   Commercial Rulings Division