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 > 2003 HQ Rulings > HQ 229963 - HQ 548239 > HQ 548148

Previous Ruling Next Ruling
HQ 548148




August 12, 2002

RR:IT:VA 548148 CC

CATEGORY: VALUATION

Port Director
U.S. Customs Service
6747 Engle Road
Middleburg Heights, OH 44130

RE: Application for further review of Protest No. 4103-00-100054; Dutiability of quota payments

Dear Sir or Madam:

The above-referenced protest was forwarded to this office for further review. We received the Protest on May 22, 2002. We have considered the facts and issues raised, and our decision follows.

FACTS:

The merchandise at issue is women’s 100 percent silk woven panties imported from China, which were classified under subheading 6208.99.3020 of the Harmonized Tariff Schedule of the United States (HTSUS). The protest consists of one entry made on October 29, 1996.

The protestant, Warnaco, Inc. (hereafter “Warnaco (HK)”), is a Hong Kong corporation that purchased and took over the operation of the GJM (HK) Purchasing Ltd. (hereafter “GJM (HK)”), another Hong Kong corporation, in 1996, about the time the subject transactions were made. Because the entry at issue took place about the same time as acquisition, the protestant states that GJM (HK) is used interchangeably with Warnaco HK in its protest.

The protestant states that GJM (HK) purchased the subject merchandise and acted as the non-resident importer. For the subject entry, the manufacturer and seller of the merchandise was a related factory, Jiejin (Shatou) Garment Factory of Panyu (hereafter “Shatou”).

The protestant states that GJM (HK) purchased the imported goods on a CMT basis. It provided the fabric and trim free of charge, but included it in the final FOB price. While GJM (HK) declared the quota charges upon entry, they were not included in the entered value.

The subject merchandise was subject to quota and visa requirements and twelve visas were obtained in order to make entry. The protestant claims that these visas were obtained from Zhongshan Textiles I/E Corp., which is claimed to be a quota broker unrelated to the factory/seller. Also, the protestant states that Zhongshan Textiles obtained the quota and visas from third party quota holders who are unrelated to the sellers.

The subject entry was liquidated on March 31, 2000, with the inclusion of quota charges in its appraisement. A timely protest was filed on June 28, 2000. The protestant claims that the quota charges for the subject entry were paid to a party unrelated to the seller; therefore, the quota charges should not be dutiable.

In support of its claim, the protestant submitted a copy of the quota contract, purportedly between Zhongshan Textiles and GJM (HK). Also, submitted were a translation of this document, a copy of the check and receipt of payments for quota, and the GJM (HK)’s recordation of the quota payments in its books. Since, according to the protestant, four purchase orders covered the subject entry, copies of four invoices for the CMT amounts were submitted. In addition, general ledger posting of the payments of the orders was submitted.

ISSUE:

Whether the quota payments at issue should be included as part of the price actually paid or payable.

LAW AND ANALYSIS:

Imported merchandise is appraised in accordance with section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA: 19 U.S.C. § 1401a), and the preferred method of appraisement is transaction valuation. Transaction value is the “price actually paid or payable for merchandise when sold for exportation to the United States,” plus five statutorily enumerated additions. 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.”

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, dated September 18, 1980 (T.A.A. 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, dated December 13, 1985. In Generra Sportswear Company v. United States, 905 F.2d 377, 380 (Fed. Cir. 1990), the court held in regard to quota payments that:

[a]s long as the payment was 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.

Moreover, the court stated the foreign seller must obtain quota before they can export their merchandise. Id. 380. Under Generra, it is Customs’ position that all payments to a seller are presumed to be part of the price actually paid or payable for imported merchandise, e.g., HRL 544640, dated April 26, 1991.

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

You have reviewed the documentation in support of the protest and found it to have omissions, inconsistencies, and incongruities. Therefore, you did not believe that there was sufficient evidence to show that the quota payments did not inure to the benefit of the seller. Consequently, you denied the protest and sent it to us for further review. The omissions, inconsistencies, and incongruities you identify in the documentation are as follows:

The document purported to be the quota contract between Zhongshan Textiles and GJM(HK) does not indicate the quota category being bought and sold. Since this document indicates that silk fabric was bought in meters, it appears the quota contract covers the quota on bulk woven silk fabric from which the silk underwear comprising the shipment was to be made.

The purchase contract does not indicate that remittance should be made to Zhongshan, but instead states it should be made to an unidentified manufacturing company and an unidentified bank. The manufacturing company’s role in the transaction is not explained, nor is its relationship to Zhongshan.

The protestant submitted a copy of the check purporting to be in payment of the quota contract. The name of the party to whom the payment is made is not translated.

Submitted was a document purported to be a receipt for payment in connection with the quota contract. Although the document is on Zhongshan’s letterhead, the Chinese characters that represent Zhongshan’s name are inconsistent with those on the check.

The protestant submitted four invoices which are stated to be invoices issued by the manufacturer, Shatou, to GJM(HK) for the CMT charges for the orders in question. The invoices include amounts for raw materials represented by the protestant as having been provided to the manufacturer free of charge.

The protestant submitted a document purporting to be general ledger posting of the payments to Shatou. It is not clear how these posting related to the four invoices.

The entry includes twelve visas. One of two parties is listed as the exporter on these visas. Neither of these two parties has been identified.

Two of the visas list an invoice number that is not referenced by any of the submitted documentation.

We have carefully reviewed the file and all of the documentation submitted and we agree that it contains inconsistencies and omissions. For example, the documentation does not clearly show who is the quota broker and who received payment for the quota charges. Without knowing such information, we cannot determine if such payment went to a party unrelated to seller and did not inure to the benefit of the seller. As stated above, there must be sufficient evidence to indicate that the payments do not inure to the benefit of the seller to find quota payments to be non-dutiable. Because, there is insufficient evidence to make such a finding, the quota payments should be included as part of the price actually paid or payable.

HOLDING:

There is insufficient evidence to show that quota payments were made to an unrelated third party and do not inure to the benefit of the seller. Therefore, the quota payments at issue should be included as part of the price actually paid or payable. Accordingly, the protest should be 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: