HQ 547607 - Application for Further Review (AFR) of Protest 4103-94-100702; transaction value of imported merchandise; sale for exportation - United States International Trade Commision Rulings

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 > 2002 HQ Rulings > HQ 547487 - HQ 561808 > HQ 547607

Previous Ruling Next Ruling
HQ 547607

February 14, 2002

VAL R:IT:V 547607 MMC

CATEGORY: VALUATION

Port Director
U.S. Customs Service
610 South Canal Street
Chicago, IL 60607

RE: Application for Further Review (AFR) of Protest 4103-94-100702; transaction value of imported merchandise; sale for exportation

Dear Port Director:

This is in reference to Application for Further Review of Protest 4103-94-100702 concerning the proper method of determining transaction value for ladies blouses imported by GFC a New York Corporation. The merchandise was appraised pursuant to transaction value, §402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. §1401a(b)).

Our office received the AFR on December 20, 1999. Included in the package was the October 5, 1994 protest submission as well as two additional submissions made to the port on August 22, 1994 and June 16, 1994. Information provided in the original submission as well as the additional submissions has been taken into consideration in reaching this decision. We regret the delay in responding.

FACTS:

The transactions involving the imported blouses began when LB/buyer contacted GFC. After it was determined that GFC could supply LB’s specified styles and quantities, a price of $00.00 per piece was agreed upon. GFC contacted SC, a purported Hong Kong trading company/shipper to source the ordered goods and agreed to a price of $0.00 per piece. SC then sourced out the order to two manufacturers SGF and VFG for $0.00 per piece.

At the time LB made the order, SC was in the process of acquiring control of GFC. The entered value reflected the unit value between SC and GFC. After LB paid GFC, GFC remitted both the unit value and the remainder of the amount it received from LB to SC. The remainder was remitted to make payment towards an outstanding loan balance. SC made the loan to GFC sometime in 1993.

The subject merchandise was entered on March 23, 1994 and that entry was liquidated on July 8, 1994. A protest was timely filed on October 5, 1994. The issue protested is the port’s decision to appraise the merchandise at the unit value between LB and GFC $00.00. Protestant claims that pursuant to Nissho Iwai American Corp. v. United States, the merchandise should have been appraised at the price between the manufacturers and SC $0.00 or in the alternative the unit value between SC and GFC $0.00. Additionally protestant asserts that the unit value between LB and GFC can not be used for transaction value purposes because it is a domestic sales price between U.S. companies.

The following documentation was provided to support protestant’s claims.

1. A 1993 Loan Agreement between SC (lender) and GFC (borrower): § 3 states in pertinent part:

Purpose

3.01 Unless the Lender shall agree otherwise, the Borrower shall apply all amounts raised by it hereunder in or towards satisfaction of its general corporate financing requirements.

3.02 Without prejudice to the obligations of the Borrower under Clause 3.01, the Lender shall not be obliged to concern itself with the application of amounts raised by the Borrower hereunder.

2. A January 14, 1994 Purchase Order between LB and SC: The initial purchase order #xxxxxx for the goods references LB and SC. However, there is no reference to GFC. It contains an order for 15,000 units and a series of terms and conditions for the “vendor”. The unit cost is $00.00.

3. A March 19, 1994 Invoice from VFG to SC: It includes a style number, description, quantity in pieces, unit price and total amounts. It is signed by a VFG staff member.

4. An Invoice from SGF to SC:
The actual date is illegible. It includes a style number, description, quantity in pieces 0,000, unit price $0.00/pc and total amounts. It is signed by a SGF staff member. It also indicates the goods are to be shipped from Hong Kong to the USA on March 16, 1994.

5. A March 19, 1994 Invoice from SC to GFC: It provides an invoice number, description of the goods, two purchase order numbers that do not correspond to the LB purchase order, quantity 00,000 and a unit price of $0.00. It is signed by a SC official. It states that the goods were supplied by air on March 20, 1994.

6. An undated document identified as an Invoice from GFC to LB: It provides that payment is to be made to a third party and that the invoice is coming from someone else, care of GFC. The identity of the party that GFC is c/o for has been cut off of the copy, as well as other parts of the left side of the document. LB’s purchase order number appears on the document as well as a description, total quantity 00,000 and total unit price $00.00. This appears to be a landed duty paid price. No signatures or dates appear on the document.

7. An April 7, 1994 Office Receipt:
It states it was received from SC and is for the total amount on the SGF invoice. It was paid by check.

8. An April 19, 1994 Office Receipt:
It states it was received from SC and is for the total amount on the VFG invoice. It was paid by check.

9. A copy of an April 21, 1994 Check from LB paid to the order of the Third Party: This is offered as proof of payment between LB and GFC. GFC is not identified on the check but SC NY is. The check is paid to the order of CT. There is an unexplained discount taken beyond the 3% allowance on the invoice referenced in number 6 above.

10. A September 28, 1994 General Ledger Account Activity Report for SC: The report indicates it is for the period between March 1, 1994 until May 31, 1994. It includes several columns including a journal code entry, transaction number, account number, account name, description, debits, credits and Posted. Under the account name appears the phrase SALES-GFC. In the description a variety of entries are noted with the names LB, MH, AL, GFC, SUN and V.

No purchase order, contract, terms and conditions or other correspondence between GFC and SC was provided. No purchase order, contract, terms and conditions or other correspondence was provided between SC and VFG or SGF. Furthermore no, terms of sale were identified on any of the submitted documents.

ISSUE:

Whether the price paid for the merchandise by GFC to SGF and VFG may form the basis for transaction value.

LAW AND ANALYSIS:

Counsel contends that this transaction involves a three-tiered situation involving an GFC (importer), SC (middleman), and SGF and VFG (manufacturers). Counsel reasons that two sales took place, one between GFC and SC and the other between SC and the manufacturer(s). As such Counsel maintains that a bona fide sale for exportation to the U.S. took place between GFC and the manufacturers and that it is this alleged sale that should be used for transaction value purposes. In the alternative, counsel proposes that the transaction between SC and GFC should be considered a bona fide sale for exportation to the U.S.

In Nissho Iwai American Corp. v. United States, 16 C.I.T. 86, 786 F. Supp. 1002, reversed in part, 982 F.2d 505 (1992)(Nissho Iwa), and Synergy Sport International, Ltd. v. United States, Slip Op. 93-5 (CIT Jan 12, 1993) (Synergy), 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 manufacturer, a middleman and a United States importer. In both cases, the middleman was the importer of record. In each case, the court held that the price paid by the middleman/importer to the manufacturer was the proper basis for transaction value. Each court further stated 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 the United States.

We note that in the context of filing an entry, Customs Form 7501, an importer is required to make a value declaration. In accordance with the Nissho Iwai and Synergy decisions and our own precedent, we presume that transaction value is based on the price paid by the importer. See, Headquarters Ruling Letter (HRL) 545648 (IA 10/94) dated August 31, 1994. In those situations where an importer requests appraisement based on the price paid by the middleman to the foreign manufacturer (and the importer is not the middleman), the importer may do so. However, it will be the importer's responsibility to show that such price is acceptable under the standard set forth in Nissho Iwai and Synergy. That is, the importer must present sufficient evidence that the alleged sale was a bona fide "arm's length sale," and that it was "a sale for export to the United States," within the meaning of 19 U.S.C. §1401a(b).

Such evidence should describe the structure of the entire transaction. More particularly, the requestor needs to describe in detail the roles of all the various parties and furnish relevant documents pertaining to each transaction that was involved in the exportation of the merchandise to the United States. If there is more than one possible sale for exportation, information and documentation about each of them should be provided. Relevant documents include, purchase orders, invoices, proof of payment, contracts and any additional documents (e.g., agreements, contracts, correspondence) which demonstrate how all of the parties dealt with one another. Thus the importer must have a complete paper trail of the imported merchandise showing the structure and documentation of the entire transaction.

The evidence submitted does not describe the structure of the entire transaction and in particular the dealings between the manufacturers and SC and the dealings between SC and GFC. In both instances, protestant failed to provide a purchase order, contract, terms and conditions or other correspondence detailing the structure and scope of the dealings between the parties. The lack of identified documents leads us to determine that there is insufficient evidence to conclude that a sale for export occurred between the manufacturers and SC and/or SC and GFC. Moreover, the evidence presented indicates that the only bona fide sale for export was between LB and SC.

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 the result in each case governed by the facts and circumstances of the case itself. Dorf International, Inc. v. United States, 61 Cust. Ct. 604, 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 F.2d 1400, 1406 (1974), to be defined as: the transfer of property from one party to another for consideration.

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 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.

Protestant failed to cite to any documentary evidence demonstrating how and when the various parties acquired title and/or assumed the risk for the imported merchandise. Furthermore, the evidence provided indicates that SC and LB were functioning as buyer and seller. LB’s purchase order is with SC not GFC. GFC appears to pay SC not only the price for the goods but provides the remainder of its mark-up as a “payment” on a loan from SC. In essence, GFC remits all of the money it obtains from LB to SC. GFC’s invoice to LB is undated, unsigned and requests payment to a third party not clearly identified on the invoice and not identified as part of this overall transaction. LB’s proof of payment indicates payment is made to SC not GFC.

Based on the information provided, the only sale for export to the U.S. that occurred is the sale between LB and SC. As such the imported merchandise would be appraised under transaction value based on the price actually paid or payable by LB. This is the sale that you used to appraise the merchandise. However, we note that it appears that this was a delivered duty paid sale. If this is correct, then appropriate adjustments should be made for items that are not properly included in transaction value such as international freight and duties paid, to the extent the importer can substantiate the amounts with acceptable evidence.

HOLDING:

There is insufficient evidence to conclude that a sale for export occurred between the manufacturers and SC and/or SC and GFC. Based on the information provided, the only sale that occurred is the sale between LB and SC. Therefore the imported merchandise was properly appraised under transaction value based on the price actually paid or payable by LB. If protestant supplies sufficient information to document the actual international freight charges included in the price, those amounts should be excluded from the price of the merchandise to arrive at the transaction value.

The protest should be GRANTED in part and DENIED in part. In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065 dated August 4, 1993, Subject: Revised Protest Directive, this decision, together with the Customs Form 19, 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 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, Freedom of Information Act and other public access channels.

Sincerely,

Virginia L. Brown, Chief

Previous Ruling Next Ruling