HQ 546588 - Application for Further Review of Protest No. 2704-96-102567; Bona Fide Sale - United States International Trade Commision Rulings

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HQ 546588

October 25, 1999

RR:IT:VA 546588 EK

CATEGORY: VALUATION

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

RE: Application for Further Review of Protest No. 2704-96-102567; Bona Fide Sale

Dear Port Director:

This is regard to the Application for Further Review noted above dated August 14, 1996, concerning the appraisement of women’s blouses imported by Conley National, Inc. An additional submission and information obtained in a telephone call with counsel for Conley National, Inc., dated July 9, 1997, were taken into consideration in reaching the following decision. We regret the delay in responding.

FACTS:

This protest involves two entries of women’s blouses imported by Conley National, Inc., (Conley). The blouses were originally ordered in July 1994, by The Limited Stores (Limited) in accordance with their own specifications for sale in their retail stores. One purchase order was for style 4FA LB 3407/690 to Fenn, Wright & Manson, Ltd., Hong Kong (Fenn, Wright), at $12.95 per unit, FOB Hong Kong, and manufactured by King Fai Garment Factory, Hong Kong. The other purchase order was for style 868486 to Fashion Resource, Inc., Los Angeles, Calif. (Fashion Resource), at $11.05 per unit, with unknown terms of sale. Fashion Resource then ordered style 868486 from Tarrant Company Limited, Hong Kong (Tarrant), at a price of $9.51 per unit, FOB Hong Kong. The manufacturer of this style was Ka Yick Garment Factory, Hong Kong.

Limited paid Fenn, Wright & Manson the contracted $12.95 unit price in September, 1994. An invoice from Fenn, Wright & Manson to Limited dated July 28, 1994, for $12.95 per unit, and proof of payment by Limited was submitted. Limited paid Fashion Resource the contracted $11.05 unit price on September, 1994. Invoice LTD-017 from Fashion Resource to Limited dated July 31, 1994, showing “to bill for liability due Fashion Resource due to
cancellation of orders” for $11.05 per unit, and proof of payment by Limited for the total invoice LTD-017 was submitted.

While the blouses were still in Hong Kong, Limited decided that it no longer wanted the blouses for sale in its own stores. Prior to August 30, 1994, Limited negotiated a sale with First Chesapeake Capital Corporation, Cincinnati, Ohio and Conley.

Based on Conley’s submission dated July 9, 1997, First Chesapeake had the opportunity to purchase the goods from Limited but did not have the funds to make the payment. Conley agreed to advance the funds on First Chesapeake’s behalf in return for a split of the proceeds upon resale of the blouses in the U.S. In order to protect Conley’s security interest in the goods and to secure loan repayment, Conley acted as consignee/importer of record and then re-invoiced the goods to the U.S. customers. According to counsel for Conley, First Chesapeake and Conley are not related to Limited. The price was $4.75 per unit,

FOB Hong Kong for both styles of blouses (4FA LB 3407-690 and 868486). Documents submitted as evidentiary proof of this sale include a purchase order for blouses at $4.75 per unit from Conley to Limited dated August 30, 1994; Limited’s invoice #83194 dated August 31, 1994, for $4.75 per unit, FOB Hong Kong; proof of payment from Conley to Limited; and Limited sell-off coordinator’s statement to Customs explaining that Limited’s Fashion Resource and Fenn, Wright & Manson purchases were sold to Conley at the per unit price of $4.75 “due to changes in our merchandising plans for fall . . .” . The blouses were exported from Hong Kong on September 24 and 26, 1994.

Conley imported style 4FA LB 3407/690 on October 7, 1994. The entry documents included the following: an invoice from Fenn, Wright & Manson to Conley dated September 26, 1994, for $12.95 per unit, FOB Hong Kong; the Export License dated September 19, 1994, showing the exporter as Fenn, Wright & Manson; the consignee as Conley and the manufacturer as King Fai Garment Factory, with an FOB Hong Kong dollar value; a bill of lading dated September 26, 1994, showing the exporter as Fenn, Wright & Manson and the consignee as Conley.

Conley imported style 868486 on October 10, 1994. The entry documents included two sets of invoices. One set included an invoice dated September 29, 1994, from Tarrant, a Hong Kong middleman, to Fashion Resource for $9.51 per unit, FOB Hong Kong; the export license dated September 13, 1994, indicating Tarrant as the exporter, Fashion Resource as the consignee, and Ka Yick Garment Factory as the manufacturer; and a bill of lading dated September 24, 1994, showing the exporter as Tarrant and the consignee as Fashion Resources. The second set included an invoice dated September 29, 1994, from Tarrant, a Hong Kong middleman to Fashion Resources for $9.51 per unit, FOB Hong Kong; the export license dated September 17, 1994, indicating Tarrant as the exporter, Fashion Resource as the consignee and Mani Ka Yick Garment Factory as the manufacturer; and a bill of lading dated September 24, 1994, showing the exporter as Tarrant and the consignee as Fashion Resource. Additionally, a “Sale In Transit Proforma

Invoice” dated October 7, 1994, showing a per unit price of $9.71 and $9.51 from Fashion Resource to Conley accompanied this entry.

On October 18, 1994, Conley notified Customs that the invoices were incorrect as they did not represent the actual price paid for the imported merchandise. Conley explained that the invoices represented the original selling price for the goods, but that it had purchased the goods at the $4.75 per unit price. The merchandise was appraised pursuant to transaction value, based upon the sale to Fashion Resource at the $9.51 unit price, FOB Hong Kong and to Limited at the $12.95 unit price, FOB Hong Kong.

Conley claims that the imported merchandise should be appraised pursuant to transaction value based upon the sale between Limited and Conley at $4.75 per unit, FOB Hong Kong. Since this sale took place prior to the exportation of the merchandise to the United States, Conley states that the $4.75 per unit sale is the “price actually paid or payable” in determining the transaction value of the merchandise.

Counsel has submitted a letter dated October 19, 1999, confirming that Conley, First Chesapeake and Limited are unrelated parties.

ISSUE:

Whether the sale between Limited and Conley represents the sale for exportation to the United States.

LAW AND ANALYSIS:

The preferred method of appraising merchandise imported into the United States is transaction value pursuant to §402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA). Transaction value is defined as “the price actually paid or payable for the merchandise when sold for exportation to the United States”, plus amounts for certain enumerated additions. Transaction value is an acceptable basis of appraisement if the buyer and seller are not related, or if related, the relationship between the parties did not influence the price or if the transaction value approximates certain “test” values. According to counsel, the parties in the transactions at issue are not related.

In determining whether a bona fide sale exists 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 the result in each case governed by the facts and circumstances of the case itself. See, Dorf International, Inc. vs. U.S., 61 Cust. Ct. 604, A.R.D. 245 (1968). Customs recognized the term “sale,” as articulated in the case of J.L. Wood vs. U.S., 62 CCPA 25, 33; C.A.D. 1139, 505 F.2d 1400, 1406(1974) as the transfer of property from one party to another for consideration. While J.L. Woodwas decided under the prior
valuation statute, Customs adheres to this definition under the TAA. However, several factors may indicate whether a bona fide sale exists between a 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 examines 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. See, HRL 545709 dated May 12, 1995, HRL 545474 dated August 25, 1995.

Based upon the evidence submitted, it appears that the buyer paid for the goods prior to exportation. This conclusion is based on the proof of payment submitted in the form of a “transfer of funds” confirmation. In addition, based on the bill of lading and other documentation submitted, it appears that Conley assumed the risk of loss and acquired title to the merchandise. It appears that a bona fide sale for exportation occurred between Conley and Limited. Again, please note that Conley and Limited are unrelated parties.

In the context of filing an entry, Customs Form (CF) 7501, an importer is required to make a value declaration. As indicated by the language of CF 7501 and the valuation statute, there is a presumption that the transaction value is based upon the price paid by the importer. Here, the importer of record is listed on the entry summaries as Conley National. Therefore, it is presumed that the price paid by Conley ($4.75 per piece) is the transaction value.

It is our conclusion that the sale to Conley from Limited is the appropriate sale for exportation to the United States for purposes of determining transaction value. Conley has submitted purchase orders, invoices, packing lists, Customs Forms and bills of lading as evidence indicating that the transaction was a sale for exportation to the United States. Both the purchase orders and invoices indicate that the terms of sale or shipping terms were FOB Hong Kong shipping port to Los Angeles. Thus, the wearing apparel was destined for the United States at the time of purchase by Conley. Additionally, the bills of lading show shipment from Hong Kong to the U.S. and Conley as the consignee, i.e., responsible for the payment of the shipping costs. Title to the merchandise transferred from the foreign vendors to Conley at the time the wearing apparel was loaded onto the vessel bound for the United States. The foreign vendors received payment for the merchandise prior to exportation to the United States. The merchandise was then sold, prior to exportation, to Conley.

HOLDING:

The transaction value should be based upon the price actually paid or payable by Conley National, Inc.

The protest should be ALLOWED. In accordance with Section 3A11(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with the Customs Form 19, to the Protestant no later than 60 days
from the date of this letter. Any reliquidation of the entry or entries in accordance with this decision must be accomplished prior to mailing this decision.

Sixty days from the date of the decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.ustreas.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Thomas L. Lobred, Chief
Valuation Branch

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