Do you pay duty on damaged cargo or goods that never arrived? The Part 158 allowances and how an audit finds them

When is duty not owed on what you did not receive?

Duty is assessed on the goods imported, in the condition they were imported. 19 CFR Part 158, titled relief from duties on merchandise lost, damaged, abandoned or exported, is where the regulations say what happens when the goods on the invoice and the goods that arrived are not the same. Its four subparts cover four situations:

• Subpart A, packages that never arrived and shortages inside packages (158.1 to 158.7).
• Subpart B, goods damaged or worthless when they arrived (158.11 to 158.14).
• Subpart C, loss, theft or casualty while the goods were in CBP custody, in bond or in a bonded warehouse (158.21 to 158.30).
• Subpart D, goods abandoned to the government, destroyed or exported (158.41 to 158.45).

The common thread is that the allowance is made in the liquidation of the entry, so it has to be claimed before liquidation becomes final, and most of the claims need a signed form and evidence that the condition existed at importation. None of this is a post-entry refund route in the sense of a protest or drawback; it changes what the entry is assessed on. Protests, post-summary corrections and drawback are covered in how to recover overpaid import duty.

Which route applies to which situation?

Two gaps in the table are deliberate. There is no allowance for partial damage to iron or steel from discoloration or rust before entry, because Additional U.S. Note 3 to Chapter 72 of the tariff schedule forbids it and 158.12(a) says so. And there is no allowance for damage that happens after release, since the test throughout Subparts A and B is the condition at the time of importation; 158.45(b) adds that export after release earns no refund unless drawback is expressly provided.

How does a post-entry audit find a claim that was never made?

The checks that find Part 158 claims are quantity and value checks an audit already runs on every line, described in the post-entry audit pillar and, for the document matching, in reconciling broker entry exports with invoices and your ERP.

1. Invoice quantity against entered quantity. Column 35 of the Form 7501 should carry the quantity in HTS units; the invoice carries the quantity sold. When the entry was filed from the invoice, as most are, a short shipment leaves the entered quantity and value higher than what arrived.
2. Packing list against the entry. The packing list is the count of what was packed, and the carrier's delivery record is the count of what was delivered. A difference between those two is a missing-package or unconcealed-shortage claim; a difference between the packing list and the goods counted on receipt, with the packages intact, is a concealed shortage.
3. Receiving records against both. The warehouse receipt, the claim against the carrier or the insurer, and the credit note from the supplier are where the shortage or damage usually gets recorded first, often weeks after the entry was filed. An audit that reads the credit note and finds no change to the entry has found an allowance that was never claimed.
4. Entered value against the condition of the goods. A survey report, an insurance claim or a supplier's damage credit on a line whose entered value still equals the invoice price is a partial-damage allowance that was never asked for.

The result of each check is a line with a date, which is what decides whether anything can still be done. A short shipment found while the entry is unliquidated goes on Form 5931 now. One found after liquidation but inside 180 days goes into a protest with the same evidence. One found later is final, and the only remaining value in the finding is to fix the receiving process so that the next one is caught in time.

What is the duty difference on a worked line?

Take an illustrative line: 1,000 units invoiced at $50 each, entered at $50,000 under an HTS number carrying a 6.5 percent ad valorem rate, so $3,250 of duty was deposited. The packing list and the carrier's delivery receipt both show 800 units delivered; two cartons of 100 were never loaded, and the carrier signs the Form 5931.

Every ad valorem duty on the line follows the value, so if the same line also carried a Chapter 99 duty, that duty falls in the same proportion; the duty calculator shows the full stack for a line on its entry date. The merchandise processing fee, which is also ad valorem under 19 CFR 24.23, follows the value as well, subject to its minimum and maximum for the entry.

Now suppose instead that all 1,000 units arrived, but 300 were crushed in transit and the port director, on examination, finds them partially damaged at importation and allows 40 percent of their value. Under 158.12(a) the line is appraised in its imported condition: 700 units at $50 and 300 units at $30, an entered value of $44,000 and duty of $2,860, a difference of $390. If the rate on the line had been specific, for example a rate per kilogram, 158.12(b) would allow nothing for the partial damage, and only a portion that was totally worthless and segregated could be treated as not imported.

The figures are illustrative; the allowance in a real case is the port director's finding, not the importer's survey.

What evidence does each route need?

Part 158 is specific about who signs and what is attached, and the evidence is easier to assemble on the day than months later.

• Missing packages and shortages: Form 5931, with the carrier's signature where the carrier could have seen the shortage, and the dock receipt or other document showing nonreceipt where the carrier will not sign. Keep the packing list, the delivery receipt and the receiving count together with the entry.
• Worthless or partially damaged goods: the port director has to find the condition, so the goods have to be available for examination; segregation of the worthless portion is done under CBP supervision at the importer's expense (158.11(a)). An importer's own surveyor or insurer can document the damage, and that file helps the port director decide, but the allowance rests on CBP's examination.
• Casualty in CBP custody or in bond: the declaration of the person in charge of the goods at the time (the vessel's master, the driver, the warehouse proprietor) stating the time, place and nature of the casualty; the bill of lading, entry summary and invoice; and the insurance appraiser's report if there is one (158.27). For a partial injury, the port director compares the market value of sound goods with the net salvage value of the injured goods at the time and place of examination (158.25).
• Rejected merchandise drawback: documents establishing that the goods did not conform to sample or specification, were shipped without consent or were defective as of importation; the Form 7553 notice; and proof of export or of destruction under CBP supervision (190.42).

In every case, the entry file should also record which route was used and when, because the same shortage must not be claimed twice and the allowance will appear in the liquidation, which the audit should then check.

When is it too late?

The allowances are made in liquidation, so the clocks are the liquidation clocks described in how to check entry liquidation status. An entry not liquidated within one year of entry is deemed liquidated at the importer's declared figures under 19 CFR 159.11, and CBP's normal cycle liquidates earlier than that. After the posted liquidation date, a protest under 19 CFR 174.12 within 180 days is the only way to put a Part 158 claim in front of CBP, with the same forms and evidence attached, and after that period liquidation is final. The shorter deadlines in the table, 96 hours for perishables, 5 days after a condemnation, 30 days for abandonment or for a casualty application, do not wait for liquidation at all.

A licensed customs broker should confirm the route and deadline on any specific shipment; the broker often prepares the Form 5931, which the importer and, where Part 158 requires it, the carrier then execute.

How does a standing audit help?

Quantity and value mismatches between the invoice, the packing list and the entry are findings whether or not duty was overpaid, and most of them are found by reading the three documents side by side. TariffSense reads entry summaries, broker entry exports, invoices and packing lists in any layout and flags, per line, where the entered quantity or value does not agree with the documents, with the entry date and liquidation data attached so that the finding arrives while the entry is still open; the post-entry audit page shows what goes in and what comes back. The Form 5931, the application to the port director and any protest remain filings for the importer and its broker.

What should you do next on your own entries?

Pull the supplier credit notes and carrier claims from the last twelve months and match each to its entry number. For each match, check whether the entered quantity and value were ever reduced; where they were not and the entry is unliquidated or liquidated within the last 180 days, there is still a claim to make. Then put the receiving count into the entry review, so that the next short shipment reaches the broker before the entry summary is filed.