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 547886

Previous Ruling Next Ruling
HQ 547886




July 30, 2002

RR:IT:VA 547886 CC

CATEGORY: VALUATION

Port Director
U.S. Customs Service
6601 W. 25th St.
Miami, FL 33102

RE: Application for further review of Protest No. 5201-99-100487; Foreign inland freight; 19 U.S.C. § 1401a(b)(4)(A); 19 CFR § 152.103(a)(5)

Dear Sir or Madam:

The above-referenced protest was forwarded to this office for further review. We have considered the facts and issues raised, and our decision follows. We regret the delay in responding.

FACTS:

The merchandise at issue is glazed ceramic tiles imported from Venezuela and classified under subheading 6908.90.0050 of the Harmonized Tariff Schedule of the United States (HTSUS). The protest consists of one entry made on June 2, 1998.

The merchandise was entered without including foreign inland freight in the declared value. The terms of sale on the commercial invoice for the subject merchandise were “FOB La Guaira.” In addition, foreign inland freight was included in this same commercial invoice as part of the price of the goods. Consequently, based on this information, the port issued a CF 29, dated December 16, 1998, proposing to value advance the subject entry from $45,213 to $63,357 to include foreign inland freight. Counsel for the protestant responded by a letter dated February 3, 1999, claiming that foreign inland freight should not be included in the price actually paid or payable. Specifically, counsel argued that the sale was an “ex-factory” sale, and thus foreign inland freight should not be part of the price actually paid or payable. In addition, counsel argued that payment of the foreign inland freight by the seller was an accommodation by the seller and was reimbursed by the buyer.

The subject entry was liquidated on June 11, 1999, with the inclusion of foreign inland freight in the appraised value. Protest of the inclusion of foreign inland freight in the appraised value was timely made on August 5, 1999.

ISSUE:

Whether the foreign inland freight charges are included in the price actually paid or payable for the subject entry.

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 (TAA: 19 U.S.C. § 1401a). The preferred method of appraisement is transaction valuation, which is defined as the “price actually paid or payable for merchandise when sold for exportation to the United States,” plus five statutorily enumerated additions. 19 U.S.C. § 1401a(b)(1). We are assuming for purposes of this decision that transaction value is applicable.

19 U.S.C. § 1401a(b)(4)(A) defines the term “price actually paid or payable” as follows:

[T]he total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation in the United States) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.

Foreign inland freight charges are considered to be incident to the international shipment of merchandise, and are not added to the price actually paid or payable by the buyer to the seller for imported merchandise, when the sale was based on an ex-factory price. Section 152.103(a)(5)(i) of the Customs Regulations (19 CFR § 152.103(a)(5)(i)). An ex-factory price is the cost of the goods at the seller’s loading dock and usually includes export packing, but no other costs. It does not include foreign inland freight costs. See Incoterms 2000 – International Chamber of Commerce Official Rules for the Interpretation of Trade Terms and 19 CFR § 152.103(a)(5)(i). The existence of an ex-factory sale must be established for the importer to be able to exclude, under this provision, foreign inland freight charges from the price actually paid or payable. See Headquarters Ruling Letter (HRL) 544875, dated March 2, 1992.

In situations where an ex-factory price is asserted, but where foreign inland freight charges are included in the same invoice as the price, there is a presumption that the sale was on other than ex-factory terms. In order to rebut this presumption, the importer must show that foreign inland freight charges were shown separately as part of an accommodation agreement. In order to determine whether a claimed accommodation agreement is legitimate, Customs will examine relevant documents from the importer, e.g., those relating to insurance, cartage, loading, and inspection. HRL 543744, dated July 30, 1986. In other words, Customs will examine the totality of the evidence to determine if the sales were truly ex-factory. This evidence could include a written explanation from the importer stating that the foreign inland freight charges were charged separately as part of an accommodation agreement.

The protestant claims that the terms of sale were ex-factory and that the FOB terms of sale listed on the invoice was a mistake. The protestant admits that the invoice format used by the importer was confusing. In addition, the protestant claims that the foreign inland freight cost were paid by the seller as an accommodation to the buyer who reimbursed the payment. The protestant states specifically that “the trucker initially billed the freight forwarder, which in turn collected the money from the seller on behalf of the foreign buyer, which benefited from the service, and later billed the seller acting as an agent of the buyer in arranging the transportation logistics, directly in order to speed ultimate payment.”

As evidence, the protestant has submitted copies of undated affidavits from general managers of the buyer and the seller, which state that there was an accommodation from the seller for payment of inland freight which was reflected on the invoice and reimbursed by the buyer. The protestant claims that the back of the invoice lists the terms and conditions of sale, which place the risk of loss on the buyer at the time of sale, which was when the goods left the factory. In addition, submitted was a bill of lading that states “Freight Payable at Destination.”

The invoice clearly lists inland freight charges along with the price; thus there is a presumption that the sale was on other than ex-factory terms. Although it is claimed that the back of the invoice shows that the risk of loss was placed on the buyer at the time of sale, the claimed language is in Spanish. In addition, the terms of the front of the invoice are clear, “FOB LA GUAIRA, ” with La Guaira being the port of export. Those terms mean that risk of loss did not pass to the buyer until the goods were loaded at the port of export. Because the inland freight costs are listed in the invoice, and the terms are listed as FOB at the port of export, there is a presumption that the goods were sold other than at an ex-factory price. Although the protestant has submitted affidavits by the buyer and seller to rebut this presumption by showing an accommodation agreement, no commercial documents have been submitted that show that the risk of loss passed from the buyer to the seller at the time the goods left the factory. For example, no insurance documents were submitted showing that the buyer had insured the goods from the time they left the factory. In addition, the bill of lading, cited by the protestant, lists the seller as the shipper. Consequently, the protestant has not rebutted the presumption that the goods were sold at something other than an ex-factory price, and thus the foreign inland freight charges were properly included in the price actually paid or payable.

Alternatively, the protestant argues that even if it is determined that the sale was not an ex-factory sale, the foreign inland freight charges should be excluded. We have ruled before in a situation where an ex-factory sale was asserted, but it was determined the sale was FOB. In that ruling, HRL 544875, cited above, we stated the following:

A sale on F.O.B. terms means that the price includes all costs of bringing the merchandise alongside, and lading it on board, the exporting carrier. See Incoterms Foreign inland freight charges will be one of those costs, in instances where foreign inland freight charges are incurred. By regulation, when the price actually paid or payable for imported merchandise includes a charge for foreign inland freight, as it does here in this F.O.B. sale, then that charge will be part of the transaction value to the extent it is included in the price. It is immaterial that the freight charges were itemized separately on the invoice. Section 152.103[a](5)(ii) of the Customs Regulations (19 CFR 152.103[a](5)(ii)). However, charges for foreign inland freight may be considered incident to the international shipment of that merchandise, and thus excludable, if they are identified separately and they occur after the merchandise has been sold for export to the United States and placed with a carrier for through shipment to the United States. Id. A sale for export and placement for through shipment to the United States is established by means of a through bill of lading. Section 152.103[a](5)(iii) of the Customs Regulations (19 CFR 152.103[a](5)(iii)).

19 CFR § 152.103(a)(5)(iii) also provides that only in those situations where it clearly would be impossible to ship merchandise on a through bill of lading (e.g., shipments via the seller’s own conveyance) will other documentation satisfactory to the port director showing a sale for export to the United States and placement for through shipment to the United States be accepted in lieu of a through bill of lading.

The protestant argues that although the carrier did not offer a through rate and therefore a through bill of lading was not available, the shipment was under the control of one freight forwarder from the time it left the warehouse until it arrived in the United States. The protestant cites in support of its position All Channel Products v. United States, 787 F. Supp. 1457, 16 CIT 169, (1992), aff’d by 982 F.2d 513 (Fed. Cir. 1992). In addition, submitted was a statement by the purported sole freight forwarder, stating that it was in control of the shipment from the time it left the warehouse until it arrived in the United States.

In All Channel Products, supra, 16 CIT 169, 173, the court interpreted 19 CFR § 152.103(5)(ii) and (iii) as permitting the deduction of foreign inland freight charges in a CIF or other non-ex-factory sale as incident to international shipment of the merchandise “only in cases where the merchandise was placed with one freight forwarder or carrier for through shipment from the factory to the United States documented by a through bill of lading (or other satisfactory documentation establishing through shipment.” The Court of International Trade also stated the following in All Channel Products at pp. 172, 173:

Without belaboring what is obvious from a reading of § 152.103(a)(5)(ii) and (iii), the amended regulations were intended to provide a tightly circumscribed exception to the “general rule” (i.e., that inland freight charges included in a CIF or other non-ex-factory sales price are dutiable) where the importer can satisfactorily document that the FIF charges were “incident to the international shipment of the merchandise.”

Customs has broad discretion in prescribing the forms of satisfactory documentation that foreign inland freight charges are “incident to the international shipment of the merchandise.”

Although the protestant has submitted a statement by the sole purported freight forwarder, there has been no commercial documentation submitted that shows that the shipment was placed with one freight forwarder for through shipment to the United States. Consequently, in its discretion, it was proper for the port to include foreign inland freight in the price actually paid or payable, when satisfactory documentation was never submitted to establish through shipment. Pursuant to 19 CFR § 152.103(5)(ii) and (iii), therefore, foreign inland freight charges are not deductible.

HOLDING:

The foreign inland freight charges are included in the price actually paid or payable for the subject entry. Consequently, the protest is DENIED.

In accordance with Section 3A(11)(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 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 make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Virginia L. Brown

Previous Ruling Next Ruling

See also: