HQ 545611

January 2, 2001

VAL RR:IT:VA 545611 CRS

CATEGORY: Valuation

Port Director

U.S. Customs Service

9400 Viscount Boulevard

El Paso, TX 79925

RE: AFR of Protest No. 2402-93-100140; liability of surety; transaction
value; computed value; fallback method; subheading 9802.00.80, HTSUS;
materials; packing; credit for insurance claims

Dear Sir:

This is in reply to your memorandum of March 25, 1994 (your ref.
PRO-4-E:D:C:C DAC), under cover of which you forwarded an application
for further review of protest no. 2402-93-100140, dated August 17, 1993,
filed by American Motorists Insurance Co., as surety, in connection with
demands for payment related to entries of merchandise imported by Sure
Fit Products Company (\"Sure Fit\"). The referenced protest is the lead
protest in a group of four protests filed by American Motorists
Insurance Co.[^1] An additional submission was made by counsel for the
protestant on June 8, 1998. At counsel's request, this matter was also
discussed at a meeting at Customs Headquarters on July 29, 1999.
Following this meeting, additional submissions were made under cover of
letters dated September 24th, 27th and 29th, 1999. Entry numbers
referenced herein will be deleted from published versions of this
decision. We regret the delay in responding.

FACTS:

During the period covered by the protested entries, Sure Fit,
headquartered in Bethlehem, Pennsylvania, imported bed coverings (pillow
shams and bedspreads) and women's knitwear assembled by its foreign
subsidiaries, Jeramex I and Jeramex II, in Juarez, Chihuahua, Mexico.
Jeramex I was the assembly plant for bed coverings and accessories, and
Jeramex II, the assembly plant for women's knitwear. The imported
merchandise was entered under the provisions of the Special Regime
Program previously administered under subheading 9802.00.80, Harmonized
Tariff Schedule of the United States (HTSUS; 19 U.S.C. § 1202) (now
administered under subheading 9802.00.90, HTSUS), and was appraised
under computed value.

In 1992, the Regulatory Audit Division conducted an audit of Sure Fit's
importations through the port of El Paso during the period January 1,
1989, through December 31, 1989. The audit was later extended to cover
importations during the period January 1, 1987, to September 30, 1991.
As a result of the audit it was determined that fabric was being cut to
pattern in Mexico in violation of the provisions of the Special Regime
Program. Accordingly, there was a reclassification from subheading
9802.00.80 to the appropriate dutiable classification of certain pillow
sham material. This resulted an increase in dutiable value of \$26,932
in 1989. Similarly, there was a reclassification of certain material for
women's wearing apparel from non-dutiable to dutiable provisions of the
HTSUS, resulting in an increase in dutiable value of \$6,430 in 1989.
Finally, in analyzing Sure Fit's cost submission, the auditors also
determined that there was a variance of 8.23 percent between Sure Fit's
cost submissions and its accounting records in respect of non-dutiable
materials. Non-dutiable materials were therefore decreased by \$467,222
in order to reflect the actual cost of non-dutiable materials.

The audit identified certain other adjustments to the appraised value of
merchandise imported in 1989. These included: increases to general and
administrative expenses to correct certain clerical errors; an increase
in non-dutiable expenses to reflect adjustments for extraordinary
expenses; increases in assists to adjust for unreported material costs;
increases in foreign packing; and an adjustment to profits to reflect
adjustments to general expenses.[^2] In determining dutiable value, the
auditors adjusted the appraised value of the merchandise to reflect the
value of non-dutiable materials classified in subheading 9802.00.80,
HTSUS, for the value of foreign packing, and by disallowing credits
claimed by Sure Fit in respect of fire damage in 1989 to its Jeramex I
plant and for certain other credits that could not be supported by Sure
Fit's books and records.

As a result of the adjustments to both the appraised and dutiable value
of the imported merchandise made pursuant to the audit, it was
determined that Sure Fit owed additional duties for 1989 of \$25,793. In
addition, for the remainder of the audit period, i.e., 1987, 1988, 1990
and 1991, it was determined that Sure Fit owed additional duties of
\$31,573. This consisted of additional duties in respect of materials of
\$34,426 (\$18,330 in 1990 and \$16,096 in 1991) and a decrease in
dutiable value attributable to packing costs of \$2,853 (\$7,027 in
1987, \$2,299 in 1988, (\$12,962) in 1990, and \$783 in 1991).

In a letter to your office dated December 28, 1992, Sure Fit advised
that it was experiencing cash flow problems and would be unable to pay
the additional amounts due. Subsequently, in January 1993, a member of
your staff contacted Sure Fit and was advised that the company was being
dissolved. Due to Sure Fit's inability to pay, demand notices were
issued to the surety for the additional duties on May 20, 1993, June 17,
1993, and July 16, 1993, in response to which the instant protest was
filed on August 17, 1993. An additional demand for payment relating to
subsequent entries was made on January 24, 1994, and additional protests
(nos. 2402-93-100172 and 2402-94-100022) pertaining to this matter were
filed and later consolidated under the instant protest which was
designated the lead protest in respect of this matter.

Protestant contends that the imported merchandise should be appraised
under transaction value, rather than under computed value, as
liquidated. Protestant further contends that Customs' determination of
computed value was incorrect, that liquidation was not properly
suspended pursuant to a countervailing duty determination, and that
various entries were liquidated by operation of law at the expiration of
four years from the date of entry, at the applicable rates and values
asserted by Sure Fit at the time of entry.

In response to protestant's assertions that transaction value is the
appropriate basis of appraisement, the Regulatory Audit Division, El
Paso, has advised that the monthly sales figures from Sure Fit's income
statement do not correspond with the cash transfers between Sure Fit and
Jeramex I and II. Based on the information presented, Sure Fit
transferred funds to its subsidiaries solely to meet the actual and
ongoing expenses of the subsidiaries, rather than as payment for the
imported merchandise. In light of this, Sure Fit's importations,
including the protested entries, were routinely appraised under computed
value. Protestant has not provided any information relative to the
existence of bona fide sales between Sure Fit and its subsidiaries, or
to validate Sure Fit's transfer prices.

Protestant also submits that certain entries liquidated by operation of
law in that they were improperly suspended due to a countervailing duty
determination. In this regard protestant alleges that the entries were
improperly suspended in that they were not subject to countervailing
duty determinations. Protestant asserts further that, in any case,
various protested entries were liquidated by operation of law at the
rates of duty and values asserted by Sure Fit at the time of entry.
Specifically, protestant contends that suspension was required neither
by statute nor by court order. According to information contained in the
file, entries subject to countervailing duty were suspended pending
liquidation instructions. Entries not subject to countervailing duty
were extended pending the results of the audit. Appropriate notice of
suspension and/or liquidation was provided in each instance.

On April 25, 1994, the surety submitted an amendment to its memorandum
of April 12, 1994. in support of protest no. 2402-94-100022, which is
consolidated under the lead protest referenced above. The surety alleges
that since Sure Fit was a different legal entity as of 1992, it is not
contractually liable for any entries of merchandise filed in the name of
Sure Fit Products Company subsequent to the company's reorganization as
\"UTC Holdings dba Sure Fit Products\" because that would constitute a
material change to the bond contract. The surety provides no evidence of
Sure Fit's corporate status.

Records contained in Customs' Automated Commercial System (ACS) reveal
that American Motorists Insurance Company is the surety for Sure Fit
Products Company on Bond No. 108526353 with a bond limit of liability of
\$100,000.00. This bond was executed on April 18, 1985, by Allen
Goldenberg for Maurice Ojalvo, V.P. Finance, was witnessed by Maurice
Ojalvo, was effective on May 5, 1985, and was renewed on each
anniversary date until it was terminated on February 18, 1993. The bond
(CF 301) itself lists the unincorporated division, Fashion Home
Products, as being permitted to obligate this bond and lists the
principal as a Pennsylvania corporation. The bond was filed in the New
York office of Customs. The reason given to Customs in the surety's
letter dated January 19, 1993, requesting termination of its liability
under the instant bond was \"due to a change in underwriting status.\"
Customs approved the termination on February 18, 1993. We note that the
information contained in ACS is consistent with the hard copy of the
bond.

On November 11, 1993, UTC Holdings Inc. dba Sure Fit Products Co.
executed a bond under a different importer number with a bond limit of
liability of \$200,000.00 in El Paso, Texas. The surety is
[not]{.underline} American Motorists Insurance Company. From the ACS
computer records, the effective date of this bond was November 15, 1993,
and this bond terminated on July 14, 1995. The hard copy of this bond
confirms the information which appears in ACS, but it also reveals that
a broker signed for the principal as attorney in fact. The reason for
termination is not contained in the record file.

The surety, through its counsel, alleges that Sure Fit Products Company
commenced operations as UTC Holdings dba Sure Fit Products some time in
1992. The surety, however, does not provide any evidence as to the exact
date when Sure Fit Products ceased to exist as a legal entity. Neither
does the surety state when its principal (Sure Fit Products Co.) stopped
paying its premium for its bond insurance nor when, or if, it rebated
the premium paid by Sure Fit Products Company when the bond terminated
on February 18, 1993. The only document presented by the surety as
\"evidence\" that Sure Fit Products Company was no longer in existence
was a handwritten notation on the importer's copy of a Notice of Action
(CF 29) issued December 7, 1992, whereon the following writing appears:

> Now will be importing as:
>
> UTC Holdings DBA Sure Fit Products
>
> IRS \# XX-XXXXXXX
>
> SureFit/Pa - Maurice Ojalvo - (215) 867-7581 x 623

No date is specified as to when dissolution would occur, and it is
unclear who wrote this notation and when it was written.

In addition, there is a letter contained in the case file, dated
December 28, 1992, from Mr. Maurice Ojalvo, Vice President Finance of
Sure Fit Products Company to U.S. Customs in El Paso, Texas, referencing
a Notice of Action (CF 29) that Customs had issued regarding the
liquidation for the years 1989, 1990 and 1991. In that letter, Mr.
Ojalvo states that the company would like to appeal the assessment and
that \"\[i\]t would be quite impossible for us to make such a large
payment at this time.\" This letter does not state that it is no longer
doing business. On this letter, the Senior Import Specialist wrote the
following notation:

> 1-18-93
>
> Spoke to Mr. Ojalvo. Co is being dissolved due to foreclosure. Payment
> will not be made. New Co. being formed with different owners.
> Explained to him that we would value advance the entries we have and
> he would be getting some bills. If bills not paid, Customs would go
> against their bond.

Due to Sure Fit's inability to pay, demand notices were issued to the
surety for the additional duties on May 20, 1993, June 17, 1993, and
July 16, 1993, in response to which the instant protest was filed on
August 17, 1993.

Three additional protests, nos. 2402-93-100172, dated October 20, 1993,
2402-94-100022, dated April 13, 1994, and 2402-96-100019, dated August
27, 1996, were subsequently filed by the protestant. Protest no.
2402-93-100140 was designated as the lead protest. Per a notation on
Customs From 6445 dated March 16, 1994; one of the entries protested
under the lead protest, viz., entry no.
\[\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\], and one
entry relating to protest no 2402-93-100172, viz., entry no.
\[\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\* were
designated as being representative entries.

ISSUES:

The issues presented are: (1) whether the imported merchandise was
properly appraised under computed value; (2) whether certain entries
were liquidated by operation of law by reason that they were improperly
suspended in that they were not subject to countervailing duty
determinations or orders; (3) whether various entries were liquidated by
operation of law at the expiration of four years from the date of entry;
and (4) whether the protestant/surety is liable for any demand for
payment on the liquidation of the protested entries (made between April
28, 1989 and December 31, 1992) under the bond it issued to the
importer, Sure Fit Products Company.

LAW AND ANALYSIS:

As a preliminary matter, we note that the instant protests and
applications for further review were timely filed under the statutory
and regulatory provisions for protests (19 U.S.C. § 1514; 19 C.F.R. pt.
174). We also note that the issues protested are protestable issues (19
U.S.C. § 1514). Furthermore, we note that the surety timely filed an
amendment to its protest against the valuation of the merchandise, prior
to the expiration of the ninety-day period within which such protest
could have been filed, on the grounds that it was not contractually
liable under its bond for any duties, charges or exactions in connection
with entries of merchandise filed in the name of Sure Fit Products
subsequent to the company's reorganization.

[Valuation]{.underline}

1\. [Method of Valuation]{.underline}

The protestant, as surety for the importer, contends that the imported
merchandise should be appraised under transaction value. As you know,
merchandise imported into the United States is appraised in accordance
with section 402 of the Tariff Act of 1930, as amended by the Trade
Agreements Act of 1979 (TAA; 19 U.S.C. § 1401a). The primary basis of
appraisement under the TAA is transaction value, defined as the "price
actually paid or payable for the merchandise when sold for exportation
to the United States,\" plus certain statutorily enumerated additions
thereto. 19 U.S.C. § 1401a(b)(1)(D)-(E). In the event that insufficient
information is available with respect to any of these additions,
transaction value cannot be determined. 19 U.S.C. § 1401a(b)

In order for imported merchandise to be appraised under the transaction
value method there must be a bona fide sale between the buyer and
seller. For Customs purposes, the term \"sale\", as defined by the court
in [J.L. Wood v. U.S.]{.underline}, 62 CCPA 25, 33, C.A.D. 1139, 505
F.2d 1400, 1406 (1974), means a transfer of property from one party to
another for a consideration. In determining whether a bona fide sale has
occurred between a potential buyer and seller of imported merchandise,
no single factor is determinative. Customs reviews all the facts and
circumstances of the transaction and makes its determination on a
case-by-case basis. Among the factors which Customs will consider is
whether the potential buyer paid for the goods.

In respect of sales transactions, Customs views the term
\"consideration\" as meaning payment from one party to another for the
imported merchandise. Evidence to establish that consideration has
passed includes evidence of payment by check, bank transfer, or payment
by any other commercially acceptable manner. Furthermore, in order to
show the existence of a bona fide sale it also is necessary to
demonstrate that payment was made for the imported merchandise; general
transfers of money from one corporate entity to another which cannot be
linked to a specific import transaction are not sufficient to show
passage of consideration. In the instant case, the evidence presented
indicates that funds were transferred by Sure Fit to its subsidiaries on
an \"as needed\" basis. That is, funds were not transferred as payment
for the merchandise, but rather as a means of providing the subsidiaries
with working capital. As such, these transfers were merely general
transfers of funds and were not linked to specific import transactions.
Accordingly, it is our position that there were no sales between Sure
Fit and its subsidiaries for purposes of determining transaction value.
Since a transaction value did not exist, it was appropriate to appraise
the imported merchandise under one of the alternative methods.

If imported merchandise cannot be appraised on the basis of transaction
value, section 402(a) provides that it is to be appraised in accordance
with the remaining methods of valuation, applied in sequential order. 19
U.S.C. § 1401a(a)(1). The alternative bases of appraisement, in order of
precedence, are: the transaction value of identical merchandise or the
transaction value of similar merchandise (19 U.S.C. § 1401a(c));
deductive value (19 U.S.C. § 1401a(d)); computed value (19 U.S.C. §
1401a(e)); and the \"fallback\" method (19 U.S.C. § 1401a(f)). However,
pursuant to section 402(a)(2) of the TAA, the order of application of
the deducted and computed value methods may be reversed provided the
importer makes a request to that effect.

No information with respect to sales of identical or similar merchandise
was available; consequently, the imported merchandise could not be
appraised in accordance with section 402© of the TAA. In conformity with
section 402(a)(2) of the TAA, Sure Fit specifically requested that the
imported merchandise be appraised under the computed value method.

Computed value is defined as: the sum of the cost or value of the
materials and the fabrication and other processing of any kind, employed
in the production of the imported merchandise; an amount for profit and
general expenses equal to that usually reflected in sales of merchandise
of the same class or kind as the imported merchandise made by the
producers in the country of exportation for export to the U.S.; any
assist, if its value is not included in the cost of materials and
processing or the amount for profit and general expenses; and packing
costs. 19 U.S.C. § 1401a(e)(1).

The computed value of the imported merchandise was determined based on
the information presented in Sure Fit's cost submissions (Customs Form
247) for the period in question, and on the results of the audit
undertaken by Regulatory Audit. However, certain information needed to
determine computed value was unavailable. For example, reported packing
costs for 1989 did not reflect actual packing costs. Sure Fit was unable
to substantiate the method used to report packing costs, nor was it able
to provide invoices supporting the purchase of certain vinyl packing
bags in order that the auditors might calculate the actual cost of
packing. Accordingly, computed value under section 402(e) of the TAA is
not an appropriate basis of appraisement.

When merchandise cannot be appraised under the methods set forth in
sections 402(b)-(e) of the TAA, its value is to be determined in
accordance with the \"fallback\" method set forth in section 402(f). The
fallback method provides that merchandise should be appraised on the
basis of a value derived from one of the prior methods reasonably
adjusted to the extent necessary to arrive at a value. 19 U.S.C. §
1401a(f)(1). Under section 402(f), imported merchandise may be appraised
based on one of the methods set forth in sections 402(b)-(e) of the TAA,
reasonably adjusted to the extent necessary to arrive at a value.

In this instance, the information submitted was insufficient to appraise
the imported merchandise by making reasonable adjustments to the
transaction value method, nor by reasonably adjusting the transaction
value of identical, the transaction value of similar merchandise, or
deductive value methods. The information was sufficient, however, to
determine the appraised value of the imported merchandise by reasonably
adjusting the computed value method, e.g., by estimating certain packing
costs. Accordingly, we find that the imported merchandise was properly
appraised under section 402(f) using a modified computed value method.

2\. [Computed Value under Section 402(f)]{.underline}

In addition to challenging the basis of appraisement, protestant
contests certain specific items relating to the determination of
computed value. In particular, protestant challenges Customs'
determination in respect of material costs, packing costs and the
disallowance of the insurance claim.

> A. [Material Costs]{.underline}

In regard to material costs, protestant notes that Customs disallowed
classification in subheading 9802.00.80, HTSUS, for certain materials
used in the production of the imported merchandise. This was due to the
fact that during the audit Customs officials observed that fabric for
pillow shams and king size bedspreads was being cut to length and width
at the Jeramex I plant. Cutting fabric to shape is not allowed under
subheading 9802.00.80, HTSUS. 19 C.F.R. §§ 10.14(a), 10.169(c)(2).
Consequently, Customs determined that the materials were not entitled to
duty free treatment and reclassified them accordingly. In addition,
Customs determined that roll-end materials were being cut at the Jeramex
II facility where certain women's wearing apparel was produced.
Similarly, duty free status was disallowed for these materials.

As noted in the audit report, the cost for the disallowed Jeramex I
pillow sham materials was based on the total cost of pillow shams
imported from Jeramex I less the cost of pillow sham materials cut by
Sure Fit in the U.S., times the cost per pillow sham. The cost of
disallowed 15\" fabric strips for certain king size bedspread materials
was based on the number of units requiring the 15\" strips times the
yards per strip, times the cost per strip. However, since bedspreads
requiring the 15\" strip were not imported until 1990, no adjustment was
made to Sure Fit's material costs in 1989 in respect of bedspread
materials. The cost of disallowed roll-end material for women's wearing
apparel was based on the contents of the last box of every style and
color. Sure Fit maintained detailed shipping records for 1990-1991 but
not for 1989. Customs therefore estimated a percentage of material units
to be reclassified, based on 1990-1991 data. The percentage was
determined to be 6.94 percent of the total units of women's knit wearing
apparel imported in 1989, or 27,907 units. This figure was multiplied by
the average unit cost for women's knit wearing apparel to obtain the
dollar value of materials from Jeramex II to be reclassified as dutiable
materials for purposes of determining the appraised value of the
imported merchandise. The above calculations were agreed to by Customs
and Sure Fit. Audit Report 641-91-870-006, Exhibit A, at 3.

Protestant contends, however, that the amounts attributable to materials
costs were arbitrary and fictitious in relation to the actual
merchandise being appraised. In this regard, protestant notes:

> \[T\]here can be little doubt that a purported appraisement of wearing
> apparel, inclusive of amounts attributable to material costs used in
> the manufacture of king sized bedspreads or pillow shams cannot, under
> any stretch of the imagination, be considered as anything other than
> an arbitrary or factious appraisement which has no relationship to the
> actual merchandise undergoing appraisement. Correspondingly, the
> appraisement of pillow shams inclusive of a calculation for the cost
> of king size bedspread material is equally unsustainable. Simply put,
> wearing apparel cannot be appraised at an amount inclusive of
> bedspread fabric cost, bedspreads cannot be appraised inclusive of the
> cost of wearing apparel fabric, and the appraisement of merchandise
> entitled to classification under Heading 9802 cannot include a fudge
> factor for unrelated non-qualifying material not included in the
> product.

Contrary to protestant's assertions, this was not the case. The
appraisement of wearing apparel was not based on amounts attributable to
material costs used in the manufacture of king sized bedspreads, nor on
material costs attributable to pillow shams. As noted in the audit
report, the computed value of wearing apparel was based on a percentage
of the total units of women's knit wearing apparel imported in 1989.
Similarly, pillow shams were not appraised inclusive of a calculation
for the cost of king size bedspread material, nor were bedspreads
appraised inclusive of the cost of wearing apparel fabric.

To the contrary, the computed value of pillow shams was based on the
total cost of pillow shams imported from Jeramex I less the cost of
pillow sham materials cut by Sure Fit in the U.S., times the cost per
pillow sham. The cost of disallowed 15\" fabric strips for certain king
size bedspread materials was based on the number of units requiring the
15\" strips times the yards per strip, times the cost per strip.
However, bedspreads requiring the 15\" strip were not imported until
1990, therefore no adjustment was made to Sure Fit's material costs in
1989 in respect of bedspread materials. Audit Report 641-91-870-006,
Exhibit A, at 3, n. 1. Thus, as explained in the Audit Report, the
material costs used in determining the computed value of pillow shams
were calculated with respect to pillow sham materials. Similarly,
material costs for bedspreads and wearing apparel were determined with
respect to those goods. Accordingly, the "cost or value of the
materials" was properly determined in accordance with section 402(e)(A)
of the TAA.

> B. [Packing Costs]{.underline}

Protestant also contends that the packing costs used in determining the
computed value of Sure Fit's importations were incorrect in that they
were not based on actual costs. When questioned by the auditors, Sure
Fit was unable to explain the method it used to report foreign packing
costs. Moreover, the foreign packing costs reported on Sure Fit's 1989
cost submissions did not reflect actual costs. Audit Report
641-91-870-006, Exhibit A, at 4, n. 6. In lieu of actual costs, 1989
packing costs were therefore determined based on the value (\$0.68) of
the most expensive packing bags used by Sure Fit. This figure was
multiplied by the quantity of bags imported. This resulted a \$48,462
increase from the packing costs reported on Sure Fit's 1989 cost
submissions.

Protestant notes that Sure Fit failed to report actual packing costs,
that Customs calculated the value of foreign vinyl packing bags using
the cost of the most expensive type of bag used by Sure Fit, and that
this figure was used in determining the appraised value of all imported
merchandise, including wearing apparel, even though heavy vinyl bags are
typically used solely for packing bed cover accessories. Protestant
therefore concludes that Customs could not and did not properly
determine the foreign packing costs attributable to imported wearing
apparel. Moreover, protestant notes that as a result of this
methodology, Customs based the cost packing charges for merchandise
shipped in 1990 and 1991 at amounts that exceeded actual packing
charges.

Section 500 of the TAA provides in pertinent part that Customs shall
"fix the final appraisement of merchandise by ascertaining or estimating
the value thereof, under section 1401a of this title, by all reasonable
ways and means" in its power, any statement of cost or costs of
production in any invoice, affidavit, declaration or other document to
the contrary notwithstanding. 19 U.S.C. § 1500. In the instant case, the
packing costs reported on Sure Fit's 1989 cost submission did not
reflect actual costs. Sure Fit could not support the method it used to
report packing costs and could not provide invoices to support the
purchase of foreign vinyl packing bags. Consequently, the value of
foreign packing was based on the cost of the most expensive packing bags
used by Sure Fit. Based on the information presented, we find that the
basis for estimating Sure Fit's packing costs was reasonable.

Furthermore, protestant notes that vinyl bags were typically used for
packing bed cover accessories, not wearing apparel. In this respect,
protestant alleges that Customs did not determine actual foreign packing
costs attributable to imported wearing apparel. However, Sure Fit did
not begin importing wearing apparel until 1989. Consequently, Customs'
methodology did not affect the determination of packing costs for 1987
and 1988. In 1990, the methodology led to an \$89,392 decrease in
foreign packing costs from the amount claimed by Sure Fit. For calendar
years 1987, 1988, 1990 and 1991, the methodology used by Customs
resulted in an overall reduction in foreign packing costs of \$19,677,
and a corresponding reduction in duty liability of \$2,853.

> C. [Business Interruption Expense]{.underline}

Sure Fit claimed a \$103,219 credit for expenses related to the fire on
its 1989 cost submission. This consisted of an \$80,000 \"business
interruption expense\" and a \$23,219 claim for damaged products not
returned to the U.S. Protestant challenges Customs' decision to disallow
this credit for purposes of determining dutiable value. The term
"dutiable value" refers to that portion, if any, of the appraised value
of the imported merchandise on which duty is actually assessed.
[E.g.]{.underline}, Headquarters Ruling Letter 542905, dated June 24,
1980.

As the result of the audit, it was determined that Sure Fit's cost
submission did not reflect certain extraordinary expenses attributable
to a fire at the Jeramex I plant. These expenses consisted of \$23,219
for the cost of materials damaged by the fire, and \$18,446 for labor
expenses associated with the fire. Since these expenses were
extraordinary, the auditors concluded that they were non-dutiable, and
Sure Fit's general expenses were reduced accordingly. The effect of this
was to reduce the appraised value of the imported merchandise by the
amounts in question.

However, as noted above, Sure Fit claimed a \$103,219 credit for
expenses related to the fire on its 1989 cost submission for purposes of
determining the dutiable value of the imported merchandise. The credit
consisted of the \$80,000 \"business interruption expense\" and the
\$23,219 claim for fire-damaged products not returned to the U.S. The
\$80,000 business interruption expense claim was disallowed. This amount
represented an opportunity loss rather than an actual expense incurred
by Sure Fit on which duties were paid. Regulatory Audit accordingly
determined that a credit could not be allowed against foreign operating
expenses since Sure Fit did not incur any offsetting expenses. On the
other hand, the \$23,219 claim for damaged products was allowed and, as
noted above, this amount was not included in the appraised value of the
imported merchandise.

In regard to the disallowance of the \$80,000 claim, we note that Sure
Fit's revenue loss associated with the fire was reimbursed by insurance.
Protestant contends that the lost revenue for which Sure Fit was
reimbursed by insurance should be nevertheless be credited against
foreign operating expenses. As noted above, the amount in question
represented an opportunity loss. No expenses were incurred by Sure Fit.
Accordingly it is our position that there is no authority, either in
determining the appraised value of the imported merchandise under
sections 402(e) and 402(f) of the TAA, or in determining the dutiable
value of the merchandise, to effect adjustments in respect of the
claimed business interruption credit, where the underlying credit is not
offset by expenses incurred.

[Liquidation by Operation of Law]{.underline}

The controlling statute, in regard to the deemed liquidation issue
raised by protestant, is 19 U.S.C. § 1504. This provision was amended by
section 641 of Public Law 103‑182, the North American Free Trade
Agreement Implementation Act (107 Stat. 2057, 2204), enacted December 8,
1993. As amended, 19 U.S.C. § 1504 states in pertinent part that, except
as otherwise provided, an entry not liquidated within one year from the
date of entry shall be deemed liquidated at the rate of duty, value,
quantity, and amount of duties asserted at the time of entry by the
importer of record. The exception to this general rule is that Customs
can extend or suspend the time for liquidation.

If liquidation of any entry is suspended, Customs is required to provide
notice of the suspension to the importer of record and to any authorized
agent and surety of such importer of record. In addition, where
liquidation has been suspended and the suspension is subsequently
removed, an entry will be deemed liquidated if the entry is not
liquidated within six months after Customs receives notice of the
removal of suspension. 19 U.S.C. § 1504(c). The period in which to
liquidate an entry can be suspended, [inter alia]{.underline}, if "the
information needed for the proper appraisement or classification of the
imported merchandise, or for insuring compliance with applicable law, is
not available to the Customs Service." 19 U.S.C. § 1504(b)(1). If
liquidation of an entry is suspended, notice to this effect must be
provided to the importer of record.

Protestant has provided no support for the assertion that certain of the
protested entries were liquidated by operation of law because the
entries were improperly suspended. Protestant merely alleges that the
entries were improperly suspended in that they were not subject to
countervailing duty determinations. However, the information contained
in the file indicates that merchandise produced by Sure Fit's
subsidiary, Jeramex, S.A. de C.V., was the subject of a countervailing
duty order. E.g., [Certain Textile Mill Products From Mexico; Final
Results of Countervailing Duty Administrative Review]{.underline}, 56
Fed. Reg. 50858 (Dep't Comm. 1991). In regard to entries subject to
countervailing duty orders, liquidation was suspended in accordance with
the applicable statutory and regulatory provisions and appropriate
notice of suspension was provided. 19 U.S.C. § 1504(c); 19 C.F.R. pt.
159(E)). The suspended entries were liquidated at a zero duty rate for
countervailing duty upon the receipt of liquidation instructions and
liquidation occurred within six months of the removal of suspension.
Accordingly, the information contained in the file indicates that
liquidation was properly suspended for those entries subject to
countervailing duty and that the protested entries therefore did not
liquidate by operation of law.

Protestant also contends pursuant to section 504(d) of the Tariff Act of
1930, as amended, that certain of the protested entries liquidated by
operation of law at the expiration of four years from the date of entry,
at the rates and values asserted by the importer at the time of entry.
Section 504(d) provides:

> Except as otherwise provided in section 1675(a)(3) of \[Title 19\],
> when a suspension required by statute or court order is removed, the
> Customs Service shall liquidate the entry, unless liquidation is
> extended under subsection (b) of this section, within 6 months after
> receiving notice of the removal from the Department of Commerce, other
> agency, or a court with jurisdiction over the entry. Any entry (other
> than an entry with respect to which liquidation has been extended
> under subsection (b) of \[section 504\]) not liquidated by the Customs
> Service within 6 months after receiving such notice shall be treated
> as having been liquidated at the rate of duty, value, quantity and
> amount of duty asserted at the time of entry by the importer of
> record.

19 U.S.C. § 1504(d). In respect of entries covered by protest no.
2402-96-100019, protestant notes that the date of liquidation was March
15, 1996. However, suspension of liquidation in respect of textile mill
products from Mexico was lifted on April 28, 1995, when the Department
of Commerce published the final results of its countervailing duty
review. [Certain Textile Mill Products from Mexico; Final Results of
Countervailing Duty Administrative Review]{.underline}, 60 Fed. Reg.
20965 (Dep't Comm. 1996). Counsel asserts that suspension of liquidation
was lifted at this time, or at the latest, on June 28, 1995, when
Customs published its liquidation instructions.

However, pursuant to section 504(b)(1) of the Tariff Act of 1930, as
amended, liquidation may be extended in order to obtain information
necessary for the proper appraisement or classification of the imported
merchandise. 19 U.S.C. § 1504(b)(1). In the instant case, the record
shows that the protested entries, e.g., those subject to protest no.
2402-96-100019, were properly extended pursuant to the applicable
statutory and regulatory provisions and that notice of the extension was
provided to Sure Fit and the protestant. For example, entry

[Liability of Surety]{.underline}

In an amendment to protest no. 2402-94-100022, protestant/surety claimed
that it is not liable under the bond issued to the importer, Sure Fit
Products Company, for any demand for payment on the liquidation of the
protested entries (made between April 28, 1989 and December 31, 1992).
Under section 113.3, Customs Regulations, the surety, as well as the
principal, remains liable on a terminated bond for obligations incurred
prior to termination. Also, section 113.24(a)(1), Customs Regulations
permits the use of a rider to a bond when the principal merely changes
its name, as follows:

> A bond rider to change the name of a principal on a bond may be used
> only when the change in name does not change the legal identity or
> status of the principal. If a new corporation is created as a result
> of a merger, reorganization or similar action, a bond rider for a name
> change of the principal can not be used. A new bond would be required.

19 C.F.R. § 113.24(a)(1). There is no bond rider attached to the bond
covering the protested entries. The question which therefore must be
addressed is whether Sure Fit Products Company was a legal entity during
the time period covered by the protested entries or whether a material
change took place regarding its corporate structure.

We have made a cursory search of the corporate records of the
Commonwealth of Pennsylvania to determine the corporate status of Sure
Fit Products Company. It appears that Sure Fit Products Company was
incorporated in Pennsylvania on September 3, 1968, and changed its name
to Bethlehem Fashions, Inc. as of January 14, 1993. The corporation is
listed as being in good standing but out of existence. No date is given
as to when the corporation went out of existence; however, the last date
of activity regarding its corporate officers is December 9, 1993. A
Minnesota Secretary of State corporate record indicates Bethlehem
Fashions, Inc. as a \"revoked corporation\" on December 20, 1993, and
lists its prior name as Sure-Fit Products Company.

Another Pennsylvania corporate record reveals that Sure-Fit Products
Company is owned by UTC Holdings Inc. (a Delaware corporation) as of
February 9, 1993, and that as of February 9, 1993, UTC Holdings Inc.
uses Sure-Fit Products Company as its corporate fictitious name. The
Dallas County, Texas, Assumed Names records lists Sure-Fit Products
Company as the assumed name of UTC Holdings Inc. as of March 9, 1993.
The State of Delaware reported, upon our request, that UTC Holdings Inc.
was incorporated in Delaware on December 29, 1992, and is active and in
good standing; no name changes are recorded. The US Business Directory
of the American Business Information reports that UTC Holdings Inc. sold
Sure Fit Products Co. on January 27, 1995, to Fieldcrest Cannon, but
does not provide a date as to when Sure Fit Products was acquired by UTC
Holdings Inc.

In searching the ACS computer records under the listed importer number
that Sure Fit Products Company used under its bond with the
protestant/surety, the date of December 31, 1992, is listed as the
\"bankrupt date.\" This information does not establish that the
corporation was dissolved as of that date. A corporation is not bankrupt
until it, by law, performs \"an act of bankruptcy,\" or when proceedings
in bankruptcy have been instituted by or against it. Dissolution in the
law of corporations is the end of the legal existence of a corporation.
However, dissolution and bankruptcy are two separate actions.

We have discovered no direct evidence from our research that Sure Fit
Products was dissolved as a legal entity on December 31, 1992, although
it appears that it may have been bankrupt as of that date from Customs
computer records, not state corporate records. No evidence has been
presented whether there was a voluntary dissolution, an involuntary
dissolution, or a de facto dissolution of Sure Fit Products Company in
1992. The surety has the burden of proof in establishing that Sure Fit
Products was not a legal entity during the time the protested entries
were made. There is no evidence contained in the protest itself that the
corporation was dissolved as of December 31, 1992.

Protest 2402-94-100022 covers 220 entries, made between April 24, 1989
and December 31, 1992. Specifically, there are 2 entries from 1989, 128
entries from 1991, and 90 entries from 1992. Four out of the 90 entries
from 1992 were made on December 15, 21, 23 and 31, 1992. However, only
one entry was made on December 31, 1992, the date that appears in
Customs computer records as Sure Fit Products Company's bankrupt date.
At this time, however, we conclude that the surety is liable for all the
protested entries since there is no evidence that Sure Fit Products
Company was dissolved as a legal entity on December 31, 1992. The surety
has not succeeded in its burden of proving that a material change
occurred in the corporate structure of its client in order to relieve
itself of its contract liability for the entries made by its client. In
passing, we note that the surety, in essence, appears to argue that its
principal committed fraud in asserting importations made by a
\"non-existent\" importer.

HOLDING:

In conformity with the foregoing, the protest should be denied in full.
The transaction value method does not apply. The appropriate basis of
appraisement is the fallback method pursuant to section 402(f) of the
TAA. The appraising officer made reasonable adjustments to the computed
value method, e.g., in determining packing costs, in determining the
appraised value of the merchandise under section 402(f). Adjustments
made to the cost of materials, including the disallowance of duty free
treatment under heading 9802 and the denial of the insurance claim, were
proper.

The surety has not established that Sure Fit Products Company was not a
legal entity during the time period the entries were made under its
bond. Unless otherwise established, the surety's bond remains liable for
the entries covered under this protest.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550‑065,
dated August 4, 1993, this decision and the Customs Form 19 are to be
mailed to the protestant no later than sixty days from the date of this
letter. Any reliquidation of the entry or entries in accordance with
this decision must be accomplished prior to mailing the decision. Sixty
days from the date of the decision, the Office of Regulations and
Rulings will make the decision available to Customs personnel, and to
the public on the Customs Home Page on the World Wide Web at
www.customs.ustreas.gov, through the Freedom of Information Act, and by
other methods of public distribution.

Sincerely,

Thomas L. Lobred

Chief, Value Branch

[^1]: Also covered by the lead protest, according to the protest control
    record in ACS are protest nos. 2402-93-100172, 2402-94-100022 and
    2402-96-100019.

[^2]: Sure Fit calculated its profit by multiplying operating expenses
    by a factor of 3 percent.