United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 1998 HQ Rulings > HQ 546681 - HQ 560114 > HQ 546683

Previous Ruling Next Ruling
HQ 546683





August 13, 1997

RR:IT:VA 546683 AJS

CATEGORY: VALUATION

Port Director
U.S. Customs Service
610 S. Canal Street
Chicago, Illinois 60607
Attn: Director, Trade Compliance

RE: Application for Further Review of Protest No. 3901-96-102876; Dutiability of Quota Charges; HRL 542169; HRL 543655; Generra Sportswear Company v. U.S.; HRL 544640; HRL 544016; HRL 544245; HRL 546409; HRL 546343.

Dear Sir:

This is in response to the application for further review of the above-referenced protest, received on December 11, 1996. The protest was filed on behalf of I.K.L. International, Inc., the importer of record, against your decision in the liquidation of various entries consisting of ladies blouses. We apologize for the delay in our response.

FACTS:

The importer, I.K.L., and its buying agent, Gerencia Co., Ltd., are related to one another by virtue of overlapping interests. The protestant states that Gerencia provides routine buying services to I.K.L. and a written buying agency agreement submitted to Customs is in effect. The protestant also states that Customs has always treated Gerencia as a bona fide buying agent.

Both I.K.L. and its agent are related to one of the manufacturers for the subject merchandise, Covo Knitters Ltd. ("Covo"), which produces garments for I.K.L. in the United States. I.K.L. purchases approximately 10-15% of its product from Covo in Asia. One of the entries forwarded to this office listed Covo as the exporter but not as the manufacturer.

I.K.L. utilizes its buying agent, Gerencia, to secure quota. The protestant states that Gerencia's mark-up (or loss) on quota does not affect its buying agency responsibilities to procure the merchandise itself.

The protestant states that Covo may provide quota to I.K.L. in instances where Covo is not the seller/manufacturer of the merchandise. In such case, Covo is the quota holder and, like many other quota resources, may act as a third-party shipper rather than transferring quota to the actual factory or seller. The protestant states that the "third party shippers" are not the actual "sellers" of the merchandise.

Counsel for the protestant has submitted documentation attempting to establish the non-dutiability of the subject quota charges. For example, we have examined the documentation submitted with the entry, dated June 10, 1996, on the attachment to the Customs Form (CF) 19. We note that this entry does not involve Covo either as the manufacturer or as the "third party shipper". Rather, it shows the manufacturer as Tom Tack Knitting FTY Ltd and the "third party shipper" as Euroworld Ltd. The example documentation consists of the following:

The Entry Summary, Custom Form (CF) 7501, indicating that the date of entry is June 7, 1996, I.K.L. is the importer of record, 5 cartons of or 30 dozen ladies garments were entered, the country of origin of the merchandise is Hong Kong, and the entered value including the quota charge.

An entry invoice (no. G/7377), dated June 4, 1996, for 5 cartons or 360 pieces of ladies blouses on the buying agent's (i.e., Gerencia) letterhead identifying the price paid for the merchandise excluding quota ("ex-quota"), and the manufacturer/seller (i.e., Tom Tack Knitting FTY Ltd.)

Bank documentation from I.K.L., the drawee, to Gerencia for payment of the price of the merchandise (ex-quota). The price and G/7377 is handwritten on the document.

A quota charge statement, dated June 4, 1996, for invoice G7377 indicating the price per dozen paid separately by I.K.L. to Gerencia for quota, and identifying the third- party shipper/quota holder (i.e., Euroworld Ltd.)

A debit note, dated June 4, 1996, for invoice no. G/7377, from Gerencia to I.K.L. charging I.K.L. for the quota charge, for 360 pieces of ladies blouses per dozen.

An export license dated May 25, 1996, indicating the export of 5 cartons of ladies blouses by the exporter/third party shipper (i.e., Euroworld), for the consignee (i.e., I.K.L.), from the manufacturer/seller of the merchandise.

A third party shipper's invoice dated June 12, 1996, to Gerencia for 5 cartons of ladies blouses for I.K.L. The invoice separately itemizes and totals the price paid for the merchandise and the quota charge amount.

A check, dated August 14, 1996, from Gerencia to the third party shipper for the entire invoice amount including quota charges. A receipt, dated August 16, 1996, to Gerencia for payment of the invoice price. A payment voucher, dated August 14, 1996, from Gerencia with the third party shipper listed as payee for the invoice.

A seller/manufacturer's invoice, dated June 3, 1996, to the third party shipper (quota holder) for 360 pieces of ladies blouses for the account of I.K.L. with the "ex-quota" price for the merchandise.

A check, dated August 20, 1996, from the third party shipper to the seller/manufacturer for the price of the merchandise in the seller/manufacturer's invoice. A receipt, dated August 20, 1996, from the seller/manufacturer for the same price with the invoice number referenced.

An agreement, dated February 7, 1996, between Gerencia and the Renfrew Trading Co. (i.e., the quota broker) to provide quota for the category number required for ladies blouses in 1996. Four debit notes, dated either February 7 or May 13, 1996, referencing the agreement, from the quota broker to Gerencia for handling charges of textile exports for the category number of ladies blouses for 1996.

The Customs Service assessed duty on quota payments made by the importer to its related buying agent in connection with the acquisition of third party quota for the subject wearing apparel. Counsel for the protestant asserts that the quota payments were not paid to the seller or a party related to the seller, and thus are non-dutiable third party quota charges.

ISSUE:

Whether the subject quota charges may be included in the price actually paid or payable as part of the transaction value of the imported merchandise.

LAW AND ANALYSIS:

Initially, we note that this protest was timely filed pursuant to 19 U.S.C. 1514(c)(3)(A). The subject entries were liquidated from September 13 through October 18, 1996. The CF 19 was not dated but the protest module of the Automated Commercial System (ACS) indicates that the protest was filed on December 11, 1996.

The preferred method of appraisement is transaction value which is defined by section 402(b)(1) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA, 19 U.S.C. 1401a(b)), as the "price actually paid or payable for the merchandise when sold for
exportation to the United States . . .", plus certain additions specified in section 402(b)(1)(A) through (E). The term "price actually paid or payable" is defined 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."

For purposes of this decision, we have assumed that transaction value is the appropriate basis of appraisement.

Customs has held that quota payments made by the buyer to a third party unrelated to the seller are not part of the price actually paid or payable. Headquarters Ruling Letter (HRL) 542169 (September 18, 1980)(TAA No. 6). Quota charges paid by the buyer to an agent are not part of the price actually paid or payable so long as the payments are not remitted, directly or indirectly, to the seller. HRL 543655 (December 13, 1985). In Generra Sportswear Company v. United States, 905 F.2d 377 (Fed. Cir. 1990), the court held in regard to quota payments that:

[a]s long as the . . . payments were made to the seller in exchange for merchandise sold for export to the United States, the payment properly may be included in transaction value even if the payment represents something other than the per se value of the goods. The focus of transaction value is the actual transaction between the buyer and seller . . .

905 F.2d at 380. Moreover, the court stated the foreign seller must obtain quota before they can export their merchandise. Id. at 380. Under Generra, it is Customs' position that all payments to a seller are presumed to be part of the price paid or payable for imported merchandise. HRL 544640 (April 26, 1991).

When quota payments are made to third parties unrelated to the seller of the imported merchandise, however, Customs has held that the payments are not included in transaction value as part of the price actually paid or payable. However, there must be sufficient evidence to indicate that the payments do not inure to the benefit of the seller. HRL 544016 (June 22, 1988), aff'd HRL 544245 (July 31, 1989).

The CF 6445A cited HRL 546343 (May 22, 1996) in support of Customs position that the quota charges paid for the merchandise are part of the dutiable value. That decision pertained to a protest filed by I.K.L. regarding the appraisement of sweaters it purchased from its related party Covo. In that ruling, Customs held that quota charges were dutiable when they "are either paid directly to the seller of the merchandise, through the buying agent, or the quota charges are remitted to a party related to the seller (the buying agent). Either way, the quota charges are part of the price actually paid or payable for the imported sweaters." In that case, no documentation was provided supporting the position that the quota payments were made to a third party unrelated to the seller and the protest was denied. In this protest, documentation has been provided attempting to establish that fact. Therefore, the conclusion reached in HQ 546343 is not dispositive in this case.

However, in HRL 546409 (July 9, 1997), Customs ruled on an issue similar to the subject protest. In that ruling, Customs stated the issue that must be resolved is who was the seller of the imported merchandise and did it receive any of the quota payments. Customs further stated that in determining who was the seller of the imported merchandise, Customs must consider the information contained on the transaction documents.

In HRL 546409 the following transaction documents were provided. The importer's agent issued a purchase order to the third party shipper who then issued a purchase order to the manufacturer. A purchase order contract between the agent and third party shipper referred to the shipper as the vendor. There was a purchase order contract between the third party shipper and manufacturer for the merchandise. The manufacturer's invoices indicated that the merchandise was for the account and risk of the third party shipper. In addition, there was a statement from the manufacturer which indicated that it received payment of the contractual price (ex-quota) from the third party shipper. Similarly, the visa invoice from the Hong Kong government specified the third party shipper as the exporter, the importer as consignee and the manufacturer as such. Based on the transaction documents, Customs concluded that the third party shipper purchased the merchandise from the manufacturer and then resold it to the importer for exportation to the U.S. Consequently, Customs stated that the third party shipper was engaged in a sale for exportation of the imported merchandise, and for appraisement purposes, it was the seller of the imported merchandise. Because the third party shipper was the seller of the importer merchandise and it received the quota payments, the payments were part of the transaction value of the merchandise.

In the subject protest, the importer's buying agent received an invoice for the merchandise and quota charges from the third party shipper, and paid for such invoice. The manufacturer's invoice specifies that the merchandise was for the third party shipper, for the account of the importer. The manufacturer received the ex-quota payment only for the merchandise. The export license from the Hong Kong government specifies the third party shipper as the exporter, the importer as consignee and the manufacturer as such. The importer received from its agent a separate invoice for the merchandise ex-quota and a separate debit note for the quota charges, and paid for both items. Based on these similar transaction documents to those discussed in HRL 546409, we also conclude that the third party shipper bought the merchandise from the manufacturer and then resold it to the importer for exportation to the U.S. Consequently as concluded above, the third party shipper was engaged in a sale for exportation of the imported merchandise, and for appraisement purposes, it was the seller of the imported merchandise. Therefore, due to the fact that the third party shipper was the seller of the imported merchandise and it received the quota payments, the payments were part of the transaction value of the merchandise.

The protestant asserts that the quota payments are not part of transaction value because the third party shipper is not the seller of the merchandise. As quota holder seeking renumeration only for the use of his quota, the protestant asserts that the third party shipper makes no mark-up
on the merchandise. As stated previously, however, we concluded that the third party shipper is the seller. A similar argument was also presented in HRL 546409. In that case, Customs did not agree with the contention that the third party shipper could not be the seller because it did not mark-up the price of the merchandise. For Customs purposes, a "sale" generally is defined as a transfer of ownership in property from one party to another for consideration. J.L. Wood v. United States, 62 CCPA 25, 33; C.A.D. 1139 (1974). In HRL 546409, Customs was presented with no authority to establish a requirement that a seller must mark-up the price of the merchandise that it buys and resells. In this case, no such authority has been provided either. HRL 546409 relied on the manufacturer's invoice and third party shipper's purchase order which indicated that the shipper took title to the merchandise. In this case, the manufacturer's invoice and check from the third party shipper for the invoice also indicates that the third party shipper paid for and took title to the merchandise. In addition in HRL 546409, the agent and third party shipper entered into contracts for the purchase of the imported merchandise which referred to the shipper as vendor. In this case, the third party shipper issued an invoice in its own name to the importer's agent for the merchandise. Therefore, we find HRL 546409 instructive for determining that the third party shipper may still be the seller of merchandise even if it makes no mark-up on such merchandise.

HOLDING:

The protest should be denied. The quota charge in the example entry should be included in the price actually paid or payable as part of the transaction value of the imported merchandise. Your office should review the remaining entries contained in this protest to determine if the relevant documentation warrants the same conclusion.

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 Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

Acting Director,


Previous Ruling Next Ruling