HQ 546253 - Request for Internal Advice on the appraisement of imported alcoholic beverages; Sales for exportation; bona fide sale - United States International Trade Commision Rulings

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HQ 546253

July 9, 1997

RR:IT:VA 546253 RSD

CATEGORY: VALUATION

Port Director
U.S. Customs Service
4477 Woodson Road
Suite 200
St. Louis, Missouri 63134-3716

RE: Request for Internal Advice on the appraisement of imported alcoholic beverages; Sales for exportation; bona fide sale

Dear Director:

This is in response to your memorandum received January 29, 1996, requesting internal advice regarding the appraisement of liquor and other alcoholic beverages imported by Major Brands Inc. and General Standard Inc. through the port of St. Louis. Accompanying your memorandum were copies of documents from the import transactions involving several different liquor brands. Your office sent to us additional materials in this matter by fax. We regret the delay in responding.

FACTS:

General Standard, Inc. (General Standard) is a wholesaler of alcoholic beverages for the Kansas City metropolitan area and for northwest Missouri. Major Brands, Inc. (Major Brands) operates as a branch location of General Standard for wholesaling alcoholic beverages for the state of Missouri excluding the Kansas City area and the Northwest section of the state. General Standard is considered the corporate headquarters of Major Brands with intercompany relations consisting of shared corporate officers and facilities. Major Brands is the ultimate consignee and the importer of record for the imported merchandise.

Both General Standard and Major Brands sell imported alcoholic beverages to grocery stores, taverns, drug stores, hotels, restaurant, and liquor stores. Major Brands maintains approximately 4,000 accounts with establishment of new accounts as they deem necessary. It purchases various liquors and wines from twelve U.S. Distributors and maintains that all purchases of imported products must be made through these U.S. distributors. Major Brands communicates directly with U.S. distributors for all matters regarding the importation of the products. All orders, services for damaged or defective merchandise, and payments are made domestically. It is your understanding that all purchases for merchandise must be made through the U.S. distributors. The U.S. distributors obtain merchandise from various foreign manufacturers. Major Brands does not communicate directly with the foreign manufacturers to place orders, and for the replacement of defective merchandise, etc. In addition, Major Brands controls all of its own advertising and marketing strategies.

U.S. distributors issue invoices of sale for the merchandise to Major Brands. Based on these invoices, Majors Brands pays the U.S. distributors for the merchandise. The foreign manufacturers issue invoices for the merchandise to U.S. distributors, which are presented to Customs for clearance and valuation. The invoices from the U.S. Distributors to Major Brands show higher prices than prices shown on the invoice from the foreign manufacturers to the U.S. distributors. Major Brands uses the higher U.S. distributor invoice prices in valuing the merchandise for internal accounting and insurance purposes. The higher invoice value is attributable to the U.S. distributor's mark-up and general expense costs. All imported merchandise is received at a bonded warehouse facility of Major Brands and General Standard. Major Brand's and General Standard's customers do not receive merchandise directly from the foreign manufacturer. You indicate that the terms of sale on the submitted documentation are "FOB Foreign Port, FOB Cellars, CIF, U.S. Port". Your concern is with five purchases from the Distributor where title and risk of loss passed from the manufacturer to the U.S. Distributor and then immediately to Major Brands.

Major Brands is not related to any foreign manufacturers of the imported products nor does it maintain any relationship with the various U.S. distributors from which it purchases merchandise. However, you are not certain if the foreign manufacturers are related to the U.S. distributors.

The Regulatory Audit Division sent copies of two invoices for our review. The first invoice is from a manufacturer, Gilbey Canada, Inc. to a U.S. Distributor, Paddington Corp. in Fort Lee, New Jersey for a product called Malibu Coconut. The invoice indicates that the merchandise was sold to Paddington Corp. but was to be shipped to Major Brands in St. Louis, Missouri. A second invoice is from Paddington, in Dallas, Texas to Major Brands in St. Louis for Malibu. The invoice indicates that the merchandise was sold to Major Brands. Our file also includes a manufacturer's invoice from Mast-Jagermeister AG to a U.S. Distributor, Sidney Frank Importing Inc. Co., in New Rochelle, New York, dated November 28, 1995. The invoice states "from warehouse Linden, duty unpaid, without taxes, fob North-seaport, through messrs. Hillebrand, Mainz, from shipment to St. Louis via Montreal with MS CAST WOLF'". There is also a second invoice from Sidney Frank to Major Brands dated December 12, 1995 for Jagermeister Liqueur. The invoice indicates that the merchandise was shipped and sold to Major Brands.

ISSUE:

Whether the imported merchandise should be appraised based on the transactions between the manufacturers and U.S. distributors or on the transaction between U.S. distributors and the importer, Major Brands/General Standard?

LAW AND ANALYSIS:

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 (the TAA; 19 U.S.C. 1401a). The preferred method of appraisement under the TAA is transaction value, defined as "the price actually paid or payable for the merchandise when sold for exportation to the United States," plus certain additions, including the packing costs. 19 U.S.C. 1401a(b)(1). The term price actually paid or payable is defined

...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.

In determining whether a bona fide sale takes place between a potential buyer and seller of imported merchandise, no single factor is determinative. Rather, the relationship is to be ascertained by an overall view of the entire situation, with result in each case governed by fact and circumstances of the case itself. Dorf International, Inc, v. United States, 61 Cust. Ct.504, A.R.D. 245 (1968). Customs recognized the term "sale", as articulated in the case of J.L. Wood v. United States, 62 CCPA 25, 33; C.A.D.1139, 505 F2d 1400,1406 (1974), to be defined as the transfer of property from one party to another for consideration.

However, several factors may indicate whether a bona fide sale exists between a potential buyer and seller. In determining whether property or ownership has been transferred, Customs considers whether the potential buyer has assumed the risk of loss and acquired title to the imported merchandise. See, HRL 545105 dated November 9, 1993. In addition, Customs may examine whether the potential buyer paid for the goods, and whether, in general, the roles of the parties and circumstances of the transaction indicate that the parties are functioning as buyer and seller.

In Headquarters Ruling Letter (HRL) 546316, dated May 29, 1996, Customs reviewed the question whether there was a sale for exportation of imported alcoholic beverages in a transaction involving three parties, U.S. purchaser/importer, U.S. supplier, and foreign seller. The terms of sale shown on the transaction documents indicated that was a simultaneous transfer of title from the foreign seller to the U.S. supplier to the importer. However, based on the submitted documentation, which included an invoice from the foreign seller, the purchase order confirmation payment document which bore the same invoice number and a copy of the settlement register showing payment by the U.S. supplier to the foreign seller, Customs found that there was a sale between the U.S. supplier and the foreign seller. The ruling states that the additional documentation supports the importer's claim that a bona fide sale took place between the U.S. supplier and the foreign seller and that the amount of the payment remitted to the foreign seller is consistent with the amount on the invoice from the foreign seller to the U.S. supplier. The decision states that while the information submitted did not address the other aspects of the sale transaction, i.e. whether the potential buyer, provides (or could provide instructions to the seller, was free to sell the items at any price he or she desired; selected (or could select) his or her own customers without consulting the seller; and, could order the imported merchandise and have it delivered for his or her inventory, we assume that if asked to address these factors, the importer would be able to provide information which supports the existence of a bona fide sale between the foreign seller and the U.S. supplier.

Additionally, in HRL 546316, Customs advised that in the future, if requested the importer must be able to present to Customs, at the time of entry or shortly thereafter, documentation which supports the merits of the two-tiered sales transaction namely: purchase orders from the importer to the U.S. supplier and from the U.S. supplier to the foreign seller, invoices between the same parties which track the purchase order numbers. The information on these documents must be in conformity with the purported roles of the various parties, i.e. the foreign seller is identified as the vendor, the U.S. supplier is the buyer from the foreign seller and the U.S. supplier resells the merchandise to the importer. See also T.D. 96-87 regarding the evidence needed to establish a sale for exportation .

In this case, we have reviewed the three sets of invoices described above. The invoices show that the manufacturer sold the liquor to the U.S. distributor, and that the U.S. distributor in turn resold the liquor to Major Brands. Accordingly, these sets of invoices are consistent with a finding that two sales occurred, one between the manufacturer and U.S. distributor and the other between the U.S. distributor and the importer. We assume that if asked the importer would be able to provide evidence of payment and other information referred to in HRL 546316 and T.D. 96-87 which demonstrates that in general, the parties are function as buyer and seller. If the evidence establishes that U.S. distributors make payment for the specific imported merchandise and other the criteria of sales mentioned are demonstrated, then based on the reasoning used in HRL 546316, we find that there would be sales of the imported merchandise between the U.S. distributors and the foreign manufacturers.

Assuming that a bona fide sale exists between the U.S. supplier and foreign seller, it is now necessary to determine whether that sale constitutes a sale for exportation upon which transaction value may be based. In Nissho Iwai American Corp. v. United States, 786 F. Supp. 1002 (CIT 1992) rev'd 982 F.2d 5005 (Fed. Cir.) 1992 and Synergy Sport International, Ltd. v. United States, Slip Op. 933-5 (Court International Trade, decided January 12, 1993), the U.S. Court of Appeals for the Federal Circuit and the Court of International Trade, respectively, addressed the proper dutiable value of merchandise imported pursuant to a three-tiered distribution arrangement involving a foreign manufacture, a middleman, and a U.S. purchaser. In both instances the middleman was the importer of record. Both courts held that the manufacturer's price, rather than the middleman's price, was valid as long as the transaction between the manufacturer and the middleman fell within the statutory provision for valuation. The courts explained that in order for a transaction to be viable under the valuation statute, it must be a sale negotiated at "arm's length" free from any non-market influences and involving goods "clearly destined for export to the United States." In T. D. 96-87, published in the Customs Bulletin of January 2, 1997, Customs further outlined the information and documents that must be furnished in order to rebut the presumption that the price paid by the importer is the basis of transaction value and to have the merchandise appraised based on the middleman's price.

In the instant case, the middlemen are the U.S. distributors. Your office is not certain whether the U.S. distributors and foreign sellers are related within the meaning of 19 U.S.C. 1401a(g). This ruling is based on the assumption that the U.S. distributors and the foreign sellers are not related and that the sales are arm's length transactions. If the parties are not related, we will assume that the sales are arm's length transactions. If any of the parties are or become related, this ruling is not applicable.

With regard to whether the goods are clearly destined for the United States, the invoices from the foreign manufacturers to the U.S. distributors show that the merchandise will be shipped to Major Brands in St. Louis, Missouri. In addition, you have presented freight bills from the carrier who shipped the merchandise, which showed that the merchandise was shipped from foreign the manufacturer to the United States. These documents support the conclusion that at the time the orders are placed with the foreign seller, the goods are clearly destined for the United States. As was noted in HRL 546316, we also assume that if asked the importer will also be able to present Customs with purchase orders between the U.S. distributors and the foreign sellers and between Major Brands and General Standard and the U.S. distribution which match the invoices between the same parties.

HOLDING:

Based on the information and documents presented and subject to the importer's ability to provide additional documentation, if requested, Customs finds that there are bona fide sales for exportation to the United States between the foreign sellers and the U.S. distributors upon which transaction value may be based. As indicated above, this decision is applicable only if these parties are not related.
Sincerely,

Acting Director
International Trade Compliance Division

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