HQ 545980 - Application for Further Review of Protest Number 2704-94-103435; concerning a sale for exportation of merchandise pursuant to three tiered sale; Nissho Iwai America Corp. v. United States - United States International Trade Commision Rulings

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HQ 545980

December 12, 1995
RR:IT:VA 545980 RSD

CATEGORY: VALUATION

Port Director
U.S. Customs Service
300 S. Ferry Street
Terminal Island, California 90731

RE: Application for Further Review of Protest Number 2704-94-103435; concerning a sale for exportation of merchandise pursuant to three tiered sale; Nissho Iwai America Corp. v. United States

Dear Director:

This is in response to the memorandum from the former district director of Los Angeles dated April 26, 1995, forwarding the application for further review of protest number 2704-94-103435 filed by Grunfeld, Desiderio, Lebowitz & Silverman on behalf of Cas Inc. (Cas) on December 24,1994. The protest concerns the appraisement of men's and boys' short pants and trousers made in Singapore. Although the protest covers one entry, information concerning four other entries covering similar transactions was attached to the protest file. This additional information, of course, cannot be considered in deciding this protest.

FACTS:

Cas imported a shipment of men's and boys' short pants and trousers made in Singapore, through the port of Los Angeles on February 17, 1994. The goods were supposedly purchased pursuant to a three-tiered sales arrangement. Cas claims that it bought the goods from Jaiddex Develop Corp. (Jaiddex), located in Taiwan. In turn, Jaiddex allegedly purchased the goods from the manufacturer, Hong Yen Manufacturing (Hong Yen) located in Singapore. Cas also used the services of a buying agent, Dragon Union Ltd., located in Hong Kong.

The protest file contains several different documents related to the transaction. First, there is a purchase order from Jaiddex to Hong Yen for 800 dozen men's 100% cotton woven normal dyed canvas shorts showing a price of $65.00 per dozen dated October 9, 1993, which was revised on November 9, 1993. The file also contains two documents prepared by Hong Yen that are labeled as invoices. One of these invoices is for 799 dozen men's 100% cotton woven shorts, which shows the name and address of Jaiddex and is dated January 21, 1994. The other document is labeled as a commercial invoice and is for the same amount of merchandise at the same price. It lists Cas as the consignee, and is stamped with a textile visa from the Republic of Singapore. However, this invoice from Hong Yen is blank in the space reserved for the name and address of the buyer. The file also contains an invoice prepared by Jaiddex for Cas dated February 3, 1994, for 799 dozen cotton shorts at $70 per dozen. Other documents included in the file are country of origin declarations, a packing list, an order confirmation from the agent, and a bill of lading.

In response to a request for proof of payment from Jaiddex to the manufacturer, three documents titled "CONFIRMATION FOR OUTWARD REMITTANCE" drawn on the Shanghai Commercial & Savings Bank, Ltd. were submitted to Customs. The recipient listed on these documents is "WING YUN TRADING DEVELOPMENT COMPANY", but next to the word remarks "PLS TRANSFER HONG YEN MFT (PTE) LTD." is shown. The amounts shown on the three remittances are $29,510, $13,452, and $11,220.

The record also a contains a letter from Jaiddex stating that Hong Yen is the manufacturer of the goods, and it is an independent entity. The letter further states that there is no partnership between Jaiddex and Hong Yen and that all transactions are negotiated on an arms-length basis. A second letter from Jaiddex describes the chain of ownership of the merchandise. The letter explains that the goods were transported from the factory to the harbor for shipment to Cas in the United States. Jaiddex claims that it held title to the goods from the time the goods were picked up at the factory to the time they were delivered to the ocean carrier, which was about 45 minutes to one hour. The Los Angeles District appraised the imported merchandise based on the price Cas paid to Jaiddex.

ISSUE:

Whether the imported merchandise was appraised correctly?

LAW AND ANALYSIS:

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 preferred method of appraisement is transaction value, which is defined as the "price actually paid or payable for merchandise when sold for exportation for the United States," plus certain enumerated additions.

In Nissho Iwai American Corp. v. United States, 982 F.2d 505 (Fed. Cir 1992), the Court reaffirmed the principle of E.C. McAfee Co. v. United States, 842 F.2d 314 (Fed. Cir. 1988), that a manufacturer's price, for establishing transaction value, is valid so long as the transaction between the manufacturer and the middleman falls within the statutory provision for valuation. In reaffirming the McAfee standard the court stated that in a three-tiered distribution system:

The manufacturer's price constitutes a viable transaction value when the goods are clearly destined for export to the United States and when the manufacturer and the
middleman deal with each other at arm's length, in the absence of any non-market influence that affect the legitimacy of the sale price...[T]hat determination can be made on a case-by-case basis.

Id. at 509. See also, Synergy Sport International, Ltd. v. United States, 17 C.I.T.___, Slip Op. 93-5 (CT. Int'l Trade January 12, 1993).

As a general matter in situations of this type, Customs presumes that the price paid by the importer is the basis of transaction value. However, in order to rebut this presumption, the importer must in accordance with the court's standard in Nissho, provide evidence that establishes that at the time the middleman purchased, or contracted to purchase, the imported merchandise the goods were "clearly destined for export to the United States" and that the manufacturer and middleman dealt with each other at "arm's length."

In the instant case, Cas is claiming that in accordance with Nissho, the transaction value for the imported merchandise should be based on the sale between Jaiddex and the manufacturer Hong Yen. In determining if this claim is valid, the first question to be considered is whether there was a bona fide sale between Jaiddex and the manufacturer.

For Customs purposes, a "sale" generally is defined as a transfer of ownership in property from one party to another for a consideration. J.L. Wood v. United States, 62 CCPA 25, 33; C.A.D. 1139 (1974). Although J.L. Wood was decided under the prior appraisement statute, Customs recognizes this definition under the TAA. Several factors may indicate whether a bona fide sale exists between potential seller and buyer. In determining whether property or ownership has been transferred, Customs considers whether the alleged buyer has assumed the risk of loss and acquired title to the imported merchandise. In addition, Customs may examine whether the alleged buyer paid for the goods, whether such payments are linked to specific importations of merchandise, and whether, in general, the roles of the parties and circumstances of the transaction indicate that the parties are functioning as buyer and seller. See HRL 545705, January 27, 1995.

In assessing whether there was a sale between the manufacturer and Jaiddex, we have analyzed the transaction documents, and reviewed the terms of sale to determine if Jaiddex acquired title to the goods and bore the risk of loss. First, we note that the invoices from the manufacturer do not specify the terms of sale. The purchase order from Jaiddex to the manufacturer does show the terms of sale was FOB Singapore. In addition, the order confirmation prepared by the agent, Dragon Union Limited, on behalf of Cas, indicates that the terms of sale between Jaiddex and Cas were FOB Singapore. If these documents are accurate, it means that Jaiddex got title to the merchandise from Hong Yen and bore the risk of loss for the merchandise in Singapore and that title and risk loss transferred almost immediately from Jaiddex to Cas in Singapore. Although Jaiddex stated in a letter that it holds title for 45 minutes to one hour, there is no supporting documentation to confirm this claim. Accordingly, it is not clear when or if title to the goods passed from the manufacturer to Jaiddex.

We must also consider other factors to see if there was a bona fide sale between Hong Yen and Jaiddex. We find it highly significant that the manufacturer, Hong Yen, prepared two invoices for this shipment of merchandise. One invoice, labeled as a commercial invoice appears to be in a standard format with numbered blocks where information was to be filled in. This invoice shows Hong Yen as the seller and Cas as the consignee. The document was stamped by the Singapore government on January 20, 1994. Space 5 where the buyer's name and address, if other than consignee, was supposed to go was left blank. This implies that Cas was the only buyer of the merchandise. The second invoice from Hong Yen was received in response to Customs' request for additional information. Although the other invoice shows the name and the address of Jaiddex, it does not indicate in what capacity Jaiddex was functioning. The invoice also shows that the merchandise was to be shipped from Singapore to Los Angeles. From the file, there is no way to tell, which was the manufacturer's invoice for the transaction in question.

In order to clarify the situation, Customs requested that Cas present proof of payment from the alleged middleman, Jaiddex, to the manufacturer, Hong Yen. The evidence that Cas presented to establish payment from Jaiddex to the manufacturer is not satisfactory. These documents labeled as "confirmation for outward remittances" drawn on the Shanghai Commercial and Savings Bank do not indicate who is the seller of merchandise. The recipient of the payment is listed as Wing Yun Trading Development Company. Although next to the word "Remarks" these remittances show the words transfer to Hong Yen, there is no explanation of exactly who is receiving the funds. The documents do not include any identifying numbers that can be matched with numbers on the invoice or other shipping documents. In addition, the dates on the remittances do not in relate any way to the relevant transaction. Most significantly, the total amount of money on the three remittance is different than the price of the goods shown on the invoices or purchase orders.

Under these circumstances, we must conclude that the evidence presented is insufficient to demonstrate that there was a bona fide sale between these parties which may serve as the basis of transaction value of the imported merchandise. Accordingly, it is not necessary to determine whether the merchandise was clearly destined to the United States.

Protestant has not overcome the presumption that the importer's price is the basis of the transaction value. Therefore, we find that the imported merchandise was appraised correctly.

HOLDING:

The imported merchandise was properly appraised based on the importer's price because the importer has not demonstrated that there was bona fide sale between the manufacturer and the middleman.

You are directed to deny the protest. A copy of this decision with the Form 19 should be sent to the protestant. 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 the decision must be accomplished prior to mailing of the 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 to the public via the Diskette Subscription Service, the Freedom of Information Act and other public access channels.

Sincerely,

Acting Director
International Trade Compliance Division

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