HQ 0544325 - Application for Further Review of Protest No. 2704-86-003164; C.I.E. 13/85, T.D. 86-56 - United States International Trade Commision Rulings

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HQ 544325

September 26, 1991

VAL CO:R:C:V 544325 DPS

CATEGORY: VALUATION

District Director
Los Angeles
300 South Ferry Street
Terminal Island
San Pedro, California 90731

RE: Application for Further Review of Protest No. 2704-86-003164; C.I.E. 13/85, T.D. 86-56

Dear Sir:

The subject protest and application for further review concerns the appraisement of merchandise described as "dress shirts" imported from Taiwan by The Arrow Company, Division Cluett, Peabody & Co., Inc. ("Arrow").

FACTS:

The merchandise at issue was imported on July 1, 1985, and entered July 12, 1985, at the invoice values, which the supplier, General Garment (Taiwan) Ltd. ("General Garment"), through its branch office in Hong Kong, General Garment (H.K.) Ltd., adjusted in order to secure quota allocations to comply with the Arrow Co.'s ("Arrow") purchase orders. According to statements and documents submitted by the protestant's counsel, General Garment and Arrow had agreed, prior to exportation, that Arrow would pay the higher invoice prices and that General Garment would refund the difference between the agreed-upon prices and the invoice prices.

The protestant's counsel argues that as a result of clerical errors, mistakes of fact, or other inadvertence, the documentation evidencing the actual contract prices and the reimbursements from General Garment, although submitted to Customs 8 days after entry and subsequently after a protest had been filed, was not matched up with the entry. Accordingly, Arrow's counsel filed a request for reliquidation pursuant to Section 520(c)(1) of the Tariff Act of 1930, as amended, 19 U.S.C. 1520(c)(1). Customs at the port of Los Angeles denied this request on May 7, 1986, stating:

The copies of the checks supplied with the Protest/Sec. 520 claim do not constitute acceptable proof of a rebate from the seller to the importer.
The merchandise is of Taiwan origin and the checks are drawn on the account of a Hong Kong company, most likely the selling or buying agent.

Los Angeles Customs based its position on Headquarters Ruling Letter (HRL) 543311 BNS, subsequently issued as C.I.E. 13/85, which was not disseminated to the public until September 16, 1985, after the subject entry had been liquidated.

The protestant asserts that the request for reliquidation should have been approved, because evidence of direct reimbursement from the seller to the importer was not required by Customs to establish that the transaction value was the actual contract price rather than the adjusted invoice price, at the time of entry or liquidation of the subject merchandise.

ISSUE:

Whether evidence of direct reimbursement from the seller to the importer was required at the time of liquidation to establish that the transaction value was the actual contract price rather than the adjusted invoice price.

LAW & ANALYSIS:

Transaction value, the preferred method of appraisement is defined in section 402(b)(1) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. 1401a(b); TAA) as the "price actually paid or payable for the merchandise when sold for exportation to the United States," plus five enumerated statutory additions. 402(b)(4)(A) of the Tariff Act of 1930 as amended by the TAA provides the following definition:

The term "price actually paid or payable" means the total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation in the United States) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.

Prior to Customs September 16, 1985 issuance of Headquarters Ruling Letter 543311 in the form of C.I.E. 13/85, the Customs Service allowed an importer to reduce appraised value through pre-importation rebates, whether paid directly or indirectly by the seller. Only upon the dissemination of 13/85 was the policy in place that the type of evidence acceptable as proof of so- called rebate transactions be limited to direct payments from seller to importer. Subsequently, T.D. 86-56 (effective May 5, 1986) further addressed situations involving price manipulations to obtain quota from exporting countries, and the use of false invoices by exporters to obtain export approval of the appropriate government authority in the country of origin. T.D. 86-56, in effect, overruled C.I.E. 13/85, rendering its directives moot, and effectively preventing Arrow from continuing the practice utilized in the transaction which is the subject of this protest.

Until September 16, 1985, when C.I.E. 13/85 was issued modifying C.S.D. 85-15, the actual contract price was the dutiable transaction value in free quota overbill and rebate situations, regardless of whether the rebates were made directly or indirectly. In accordance with Customs treatment of such transactions, in the instant case, Arrow provided Customs with copies of checks in the exact amounts of its overpayments. While Arrow acknowledges that the checks it received were drawn on a bank account of a subsidiary or affiliate of the Taiwanese manufacturer, Arrow claims it took the necessary and required actions to document the true value of the entry and that their method of documenting the rebates was in complete compliance with the Customs requirements as they existed at the time that the transaction occurred. With regard to the subject transaction, we agree.

It was not until issuance of the September 16, 1985 ruling that checks drawn on accounts of subsidiaries of the seller, or affiliated entities, were deemed insufficient proof of the price paid for imported merchandise. Had supporting documentation submitted by Arrow only eight days after the date of entry on July 19, 1985, been matched up with the entry at that time, there would have been no question that the proof of rebates was sufficient to establish the contract price as the transaction value of the entry at issue. Accordingly, we are satisfied that the submitted proof of rebates was sufficient to establish the contract price as the transaction value of the subject entry.

HOLDING:

In accordance with the foregoing, you are hereby directed to grant the subject protest. The entry at issue should be reliquidated for a refund on the grounds that the actual contract price represents the transaction value of the imported merchandise. A copy of this decision should be attached to Form 19, Notice of Action, to be sent to the protestant.

Sincerely,

John Durant, Director
Commercial Rulings Division

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