HQ 545958 - Application for Further Review of Protest No. 1603-94-10008; Selling Commissions - United States International Trade Commision Rulings

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HQ 545958

April 12, 1996

RR:IT:VA 545958 EK

CATEGORY: VALUATION

Port Director
Charleston, SC

RE: Application for Further Review of Protest No. 1603-94-10008; Selling Commissions

Dear Sir:

This is in response to the application for further review of the protest referenced above. The protest was filed on behalf of Pignone Textile Machinery Inc. (hereinafter referred to as PTMI) against your decision in the liquidation of entries of various spare parts imported into the United States. We regret the delay in responding.

FACTS:

PTMI is a wholly-owned subsidiary of Nuovo Pignone (hereinafter referred to as NP). PTMI acts as selling agent for NP and solicits sales on behalf of NP. PTMI performs all necessary tasks to secure sales on behalf of its parent. The parties are related within the meaning of section 402(g) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a(g)). The imported merchandise was appraised pursuant to transaction value, section 402(b) of the TAA. A selling commission of 10% was added to the price actually paid or payable in determining the value of the imported merchandise.

In a document dated January 4, 1988, NP and PTMI established a sales agency agreement with PTMI acting as a sales agent for NP with respect to products manufactured by NP and imported into the United States. Paragraph 1 of the agreement states: "This Agreement covers the following products manufactured by our company: a) shuttleless weaving machines b) raising machines c) shearing machines d) rotary steam presses e) fringing machines." With regard to the payment of commissions, Paragraph 9 of the agreement provides for a ten percent commission on the ex-works price for spare parts.

In the agreement, PTMI agreed to not represent either any Italian or other foreign company whose machines are in competition with NP, and that PTMI may not
sell articles that are similar to NP's products. The agreement further restricted PTMI to negotiation of sales and it required technical problems to be submitted to NP for resolution. There is nothing in the agreement between the parties that indicates PTMI in any way would act as the purchaser of imported merchandise.

Counsel for the importer indicates that the imported merchandise, i.e., spare parts, was not covered by the agency agreement. Counsel states that the spare part transactions reflected bona fide sales between PTMI and NP and that the 10% was actually a discount given to PTMI. Counsel indicates that the agreement was not intended to cover "spare parts", but in fact the inclusion of such in the payment of commissions paragraph in the agreement was a result of poor drafting. Counsel states that generally, spare part purchases were made by PTMI from NP for inventory purposes.

ISSUE:

Whether PTMI was a selling agent for NP with respect to the transactions involving the imported merchandise.

LAW AND ANALYSIS:

Transaction value, the preferred method of appraisement, is defined in section 402(b) as the "price actually paid or payable" for the merchandise when sold for exportation to the United States, plus amounts equal to "any selling commission incurred by the buyer with respect to the imported merchandise." Selling commissions are to be added to the price actually paid or payable in the determination of transaction value.

In order for a transaction value to exist, there must be a bona fide sale between the buyer and seller. For Customs purposes, the word "sale" is defined as a transfer of ownership in property from one party to another for a price or other consideration. J.L. Wood v. United States, 62 CCPA 25, C.A.D. 1139 (1974). While J.L. Wood was decided under the prior appraisement statute, Customs continues to adhere to this definition under the TAA. The existence of a bona fide sale depends on a number of factors. Customs considers whether the alleged buyer has acquired title to the merchandise and assumed the risk of loss; whether the alleged buyer paid for the merchandise; whether the payments are linked to specific importations; and whether the circumstances of transaction indicate that the parties are functioning as buyer and seller.

With respect to the risk of loss issue, counsel for PTMI has submitted a marine insurance policy which named PTMI as the insured party. However, this policy broadly
covered "textile machinery and spare parts". Counsel acknowledges that in fact PTMI acted as selling agent with respect to the importation of looms and other textile weaving machines sold to third parties in the United States. The fact that PTMI was the insured party with respect to these items does not prove that it was the buyer of the "spare parts". PTMI was the named party with respect to the textile machinery as well, merchandise which it clearly did not purchase. The related parties arranged for PTMI to be the named insured with respect to the marine insurance policy. However, this does not prove that PTMI purchased the "spare parts" from NP as indicated by counsel. In addition, there is nothing in the evidence which indicates that there was a passage of consideration in exchange for the spare parts. There is no proof of payment corresponding to specific purchase orders between NP and PTMI. The documentation submitted by PTMI regarding the practices between PTMI and the U.S. customer are also not relevant to the entries at issue, nor does it establish a bona fide sale between NP and PTMI. PTMI, in its capacity as selling agent for NP, was merely soliciting sales on behalf of NP, as required by the agreement. The entries in this protest occurred in late 1990, and most of the documents submitted with counsel's latest submission dated February 16, 1996, refer to transactions between the parties occurring from 1992 to 1995.

Counsel's claim that the "spare parts" were not covered by the agency agreement is not accepted. It is clear from the agreement that the spare parts were provided for. There is no indication that the spare parts were to be purchased and that a 10% discount would be granted.

Counsel maintains that it is not proper for Customs to solely look to the selling agency agreement and conclude that the transactions at issue were covered by the agreement. However, there is insufficient information regarding the relevant entries to establish that bona fide sales occurred between PTMI and NP. This fact, in conjunction with the clear inclusion of "spare parts" in the agreement, indicates that there was no bona fide sale between the parties with respect to the "spare parts." The totality of the circumstances are consistent with a finding that PTMI was acting as agent of the seller in the transactions regarding the "spare parts." The fact that PTMI holds the "spare parts" as inventory on behalf of NP is not inconsistent with the role of a selling agent. It is common for a selling agent to hold inventory on behalf of the seller to fill orders when received by the U.S. customer.

It is our conclusion that with respect to the importations of the "spare parts", PTMI acted as selling agent for NP. Therefore, the alleged 10% discount is in fact a selling commission and should be included in the price actually paid or payable in the determination of transaction value.

HOLDING:

You are directed to DENY the protest. In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised protest
Directive, this decision should be mailed by your office to the Protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with this decision must be accomplished prior to mailing of this decision. Sixty days from the date of the decision, the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

Acting Director,
International Compliance Division

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