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HQ 546132




April 10, 1996
RR:IT:VA 546132 er
CATEGORY: VALUATION

Port Director
Champlain, NY

RE: Protest and Application for Further Review (0712-95-100473); Cigarettes; Discounts; Indirect Payments.

Dear Sir:

This is in response to your memorandum dated September 5, 1995, forwarding the above-referenced protest dated May 17, 1995, and amendment thereto dated May 22, 1995, submitted by a brokerage on behalf of their client, Leslie F. & Rosalie Matthews D.B.A. Git-N-Go ("Protestant"). We regret the delay in responding.

FACTS:

This protest concerns the appraisement of imported cigarettes. Customs appraised the merchandise under transaction value at $320.00 per case.

Protestant asserts that the cigarettes were purchased at a price of $1.00 per case from a non-related seller as a result of negotiations which occurred prior to the exportation to the United States of the merchandise. All orders are verbal as is alleged by Protestant to be the usual method of business in such transactions. A representative copy of an invoice reflecting the order date and the shipping date was submitted to this office. The invoice reflects a $320.00 per case price and a $319.00 per case discount.

You inform us that the $319.00 per case reduction in price was intended to compensate the importer for a previous shipment involving slow-moving goods. As a credit for the previous shipment, you assert that the credit was, in effect, a prepayment for the instant shipment. Without this credit, the $319.00 per case discount would not have been granted.

ISSUE:

Whether the merchandise was properly appraised?

LAW AND ANALYSIS:

Transaction value, the preferred method of appraisement, is defined in section 402(b) of the Trade Agreements Act of 1930, as amended ("TAA"), as "the price actually paid or payable for the merchandise when sold for exportation to the United States...", plus certain statutory additions. (19 U.S.C. 1401a(b))

The term "price actually paid or payable" is defined in section 402(b)(4)(A) of the TAA as "the total payment (whether direct or indirect ...) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller." (19 U.S.C. 1401a(b)(4)(A)) Section 152.103(a)(1) of the Customs Regulations (19 CFR 152.103(a)(1)) provides that the price actually paid or payable "... will be considered without regard to its method of derivation. It may be the result of discounts, or negotiations, or may be arrived at by the application of a formula ..." A discounted price must be agreed to and effected prior to importation for it to constitute the price actually paid or payable. See, Allied International v. United States, 16 Ct. Int'l Trade 545, 795 F.Supp. 449 (1992); HRL 544907, dated April 13, 1992; HRL 543302, dated November 1, 1984; HRL 543537, dated February 14, 1986; HRL 543662, dated January 7, 1986.

Protestant asserts that the $1.00 per case price is the result of a "discount" negotiated between the parties prior to the importation of the cigarettes. In support of its position, Protestant cites to HRL 544911 dated April 6, 1993, and has presented a copy of an invoice reflecting a $320.00 per case price, less a $319.00 per case discount, for a total payment of $1.00 per case.

It is your position that the $319.00 reduction in price does not represent a discount, but rather a credit for a previous shipment. It is further your position that Protestant's reliance on HRL 544911 is misplaced as that decision involved the acceptability of price renegotiations concerning single shipments of imported goods. The instant matter, you assert, concerns the acceptability of applying a credit to the subject entry because of circumstances involving prior shipments. Specifically, you describe the $319.00 per case credit as compensation to the importer for a previous shipment of slow-moving goods. You cite to HRL 543766 dated September 30, 1986, as support for your position that the credited amount is properly included in the transaction value of the imported merchandise.

For the reasons you describe, we agree that HRL 544911 is not applicable to the instant circumstances. Instead, HRL 543766 is more analogous as that decision involved merchandise sold to the importer for a price significantly lower than prior shipments. There the adjustment was made by the seller due to a previous shipment which was subsequently found to be defective. Rather than give the importer a refund on the prior shipment, the parties to the transactions agreed to a price reduction on the shipment in question. Customs concluded that the credit granted to the importer represented an indirect payment within the meaning of section 402(b)(4)(A), and therefore, was found to be part of the price actually paid or payable for the merchandise. As stated in HRL 543776:

Although is was not intended at the time the initial shipment was imported that a part of its purchase price would be applied to other goods, the facts demonstrate that the importer was owed a credit as a result of the defects in these goods, and that this credit was applied against a later shipment. Under these circumstances, the credit or "overpayment" on the initial shipment is regarded a prepayment for the part of the later shipment, which, but for the credit, would not have been sold at a reduced price.

This claimed reduction in price represents satisfaction of a debt owed the buyer by the seller resulting from the previous shipment of slow-moving goods and constitutes an indirect payment which is part of the price actually paid or payable. See, 19 CFR 152.103(a)(2) and HRL 543776. As previously quoted above, the " price actually paid or payable' means the total payment (whether direct or indirect, ...) made ... for imported merchandise by the buyer to or for the benefit of, the seller." 19 U.S.C. 1401a(b)(4)(A). The total payment for the imported merchandise was $320.00; accordingly, the merchandise was properly appraised.

HOLDING:

The merchandise was properly appraised. You are directed to deny this 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 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 the public via the Diskette Subscription Service, Lexis, Freedom of Information Act and other public access channels.

Sincerely,

Acting Director,
International Trade

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