HQ 545920 - AFR of Protest No. 1001-4-102675; sale for exportation; Nissho Iwai; presumption that price paid by importer is basis of transaction value not overcome; inconsistencies between visaed and commercial invoices; quota; T.D. 86-56; discrepancies between commercial and visaed invoices - 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 > 1997 HQ Rulings > HQ 544784 - HQ 546479 > HQ 545920

Previous Ruling Next Ruling
HQ 545920

July 25, 1996

VAL R:C:V 545920 CRS

CATEGORY: VALUATION

Port Director
U.S. Customs Service
JFK International Airport
Building 77
Jamaica, NY 11430

RE: AFR of Protest No. 1001-4-102675; sale for exportation; Nissho Iwai; presumption that price paid by importer is basis of transaction value not overcome; inconsistencies between visaed and commercial invoices; quota; T.D. 86-56; discrepancies between commercial and visaed invoices

Dear Sir:

This is in reply to an application for further review of the above-referenced protest, dated April 15, 1994, filed by Bel-Aire Knitworks, Inc. (the "protestant"). A letter in support of protestant's position, dated November 23, 1994, was submitted by counsel. On January 23, 1996, counsel met with members of my staff to discuss this matter. Subsequently, counsel made an additional submission under cover of a letter dated February 6, 1996. We regret the delay in responding.

FACTS:

The protest concerns the appraised value of three entries of women's sweaters, made in the People's Republic of China by Shantou S.E.Z. Yuhua Knitwear Co., Ltd. (the "manufacturer"), and purchased and imported by the protestant pursuant to a three-tiered distribution system. The other party to this transaction was Royal Mandarin Express Company (the "middleman") of Hong Kong. Protestant has advised that none of the parties to the transaction are related.

Protestant contends that the imported merchandise should be appraised on the basis of the manufacturer's price. In support of this contention, counsel has submitted copies of: the protestant's purchase orders to the middleman; the middleman's purchase orders to the manufacturer; the manufacturer's invoices to the middleman; the middleman's invoices to the protestant; a receipt from the middleman for goods purchased; a bill of lading and invoice from the shipper to the protestant for freight costs from Hong Kong; and three visaed invoices bearing the stamp of the Harbin branch of the Ministry of Foreign Economic Relations and Trade. In the case of two of the visaed invoices, the exporter was China National Textiles Import/Export Corporation; in respect of the third, the exporter was Ningxia Textiles Import and Export Company. The terms of sale governing the manufacturer-middleman sale were FOB China; the terms applicable to the sale between the middleman and the protestant were FOB Hong Kong.

Your office has expressed concern that the information submitted by the protestant is insufficient to establish that the manufacturer-middleman sale is the correct basis of appraisement, particularly as it relates to the issue of quota charges and the question of whether the merchandise was clearly destined for exportation to the U.S. In this regard, you note that the Chinese government, through the China Textile and Silk Garment Import/Export Commercial Association (the "Textile Association") has issued regulations governing the allocation of quota and that companies seeking to acquire quota must conform to these regulations.

The regulations which govern all Chinese quota transactions are issued and administered by the China Textile and Silk Garment Import/Export Commercial Association (the "Textile Association") on behalf of the Ministry of Foreign Economic Relations and Trade (MOFERT), the agency responsible for negotiating trade policy and quota category restraints on behalf of the Chinese government. In accordance with the regulations, designated quota categories are annually opened for public tender; however, only export firms that are members of the Textile Association and are authorized by MOFERT to export textiles and apparel may submit tenders for quota categories. In order to submit a bid for quota, firms are required to submit a standard tender application form stating, inter alia, the classification, quota category, quantity, and export price of the goods. Article 7 of the regulations provides further that successful tenderers must sign a formal business contract with their foreign clients within three months of the opening of tender date. The price specified in the contract may equal or exceed the bidding price, but cannot be less than the bidding price. Once a tender contract is awarded, its provisions may not be altered.

Accordingly, you requested that the protestant provide copies of certain documents in order to demonstrate that quota was obtained in accordance with the Textile Association regulations. Protestant maintains that these documents are not necessary to determine whether the sale between the manufacturer and the middleman is the correct basis of appraisement; accordingly, the protestant has not furnished these documents.

You have also advised that the documentation submitted contains certain discrepancies between the prices stated on the commercial invoices as compared with those reflected on the visaed invoices. Furthermore, copies of certain invoices referred to on the stamped, visaed invoice, although requested, were not provided to Customs. Specifically, visaed invoices nos. 594890 and 593801 contain references to two additional invoices, nos. 93025 and 93046, that relate to this transaction. These invoices were requested by your office but were not provided to Customs.

ISSUE:

The issue presented is whether the protested entries should be appraised on the basis of the price paid by the middleman to the manufacturer or the price paid by the protestant to the middleman.

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 (the "TAA"; 19 U.S.C. ? 1401a). The preferred basis of appraisement under the TAA is transaction value, defined as the "price actually paid or payable for the merchandise when sold for exportation to the United States" plus, to the extent not already included, certain statutorily enumerated additions thereto. 19 U.S.C. ? 1401a(b)(1)(B). However, imported merchandise is appraised under transaction value only if, inter alia, the buyer and seller are not related, or if related, transaction value is found to be acceptable. 19 U.S.C. ? 1401a(b)(2)(A)-(B). Based on the information submitted we understand that none of the parties to this transaction are related and, accordingly, we have assumed for purposes of this decision that transaction value is the appropriate basis of appraisement.

In Nissho Iwai American Corp. v. United States, 786 F. Supp. 1002 (Ct. Int'l Trade 1992), rev'd in part, aff'd in part, 982 F.2d 505 (Fed. Cir. 1992), the Court of Appeals for the Federal Circuit reviewed the standard for determining transaction value when there is more than one sale which may be considered as being a sale for exportation to the United States. In so doing, the court reaffirmed the principle of E.C. McAfee Co. v. United States, 842 F.2d 314 (Fed. Cir. 1988), that the manufacturer's price, rather than the middleman's price, is valid so long as the transaction between the manufacturer and the middleman falls within the statutory provision for valuation. Nissho Iwai, 982 F.2d 505, 511. In reaffirming the McAfee standard the court stated that in a three-tiered distribution system:

The manufacturer's price constitutes a viable transaction value when the goods are clearly destined for export to the United States and when the manufacturer and the middleman deal with each other at arm's length, in the absence of any non-market influences that affect the legitimacy of the sales price....[T]hat determination can only be made on a case-by-case basis.

Id. at 509. See also, Synergy Sport International, Ltd. v. United States, 17 C.I.T. 18, Slip Op. 93-5 (Ct. Int'l. Trade January 12, 1993).

As a general matter in situations of this type, Customs presumes that the price paid by the importer is the basis of transaction value. In order to rebut this presumption the importer must, in accordance with the court's standard in Nissho, provide evidence that establishes that the manufacturer's price was a statutorily viable transaction value, i.e., that the goods were "clearly destined for export to the United States" and that the manufacturer and middleman dealt with each other at arm's length, absent any non-market influences affecting the legitimacy of the sales price. Id. at 509. It is the importer's responsibility to demonstrate that the standard set forth in Nissho and Synergy has been met. E.g., Headquarters Ruling Letter (HRL) 545144 dated January 9, 1994.

In respect of the first prong of the Nissho test, protestant has submitted copies of signed statements from the manufacturer and the middleman to the effect that the there is no relationship between the two companies. Moreover, the documentation submitted by the protestant suggests that there were two bona fide sales. We have therefore assumed for purposes of this ruling that all parties to this transaction are unrelated and dealt with each other at arm's length. Thus, under the Nissho standard, the only issue to be resolved in determining if the manufacturer-middleman sale was statutorily viable for purposes of establishing transaction value is whether the sweaters were clearly destined for export to the U.S.

To support its contention that the manufacturer's price constitutes a viable transaction value, protestant has submitted the purchase orders, invoices, receipts, bills of lading and visaed invoices underlying the two sales. First, protestant notes that the sweaters were made according to protestant's design and size specifications as set forth on both sets of purchase orders. In addition to size specifications, the purchase orders state that the sweaters should be labeled with the licensed mark of a U.S. retailer. The purchase orders also require that the imported merchandise bear protestant's Federal Trade Commission RN number and note that the order is subject to the provision and approval of sample merchandise. Finally, protestant notes that the sweaters were accompanied by visaed invoices and that the purchase orders and invoices provide that the shipping marks to be placed on the cartons indicate that the goods were at all times destined for New York.

Customs has looked to factors such as these in order to determine whether merchandise was clearly destined for export to the U.S. E.g., HRL 545474, dated August 25, 1995; HRL 545612, dated May 25, 1995; HRL 545709, dated May 12, 1995. However, you contend that the protestant has not overcome the presumption that the price paid by the importer is the basis of transaction value because of certain discrepancies between the visaed and commercial invoices. In this regard, we note that the importer's possession of the requisite quota/visa category is a factor that may support a finding that imported textile and apparel merchandise was clearly destined for export to the U.S. HRL 545271, dated March 4, 1994. However, so long as the imported merchandise is accompanied by a visaed invoice that is correct in all respects, this office has not required the importer in every instance to submit documentation showing that quota was obtained pursuant to Textile Association regulations. Nevertheless, evidence that quota was so obtained may be relevant in other situations. E.g., HRL 545927 dated January 30, 1996.

In the instant case, the documentation submitted in connection with the protested entries contains certain discrepancies. In particular, there are discrepancies between the manufacturer's price as reflected on the commercial invoice and the manufacturer's price as stated on the visaed invoices. For example, the unit value of sweaters made from seventy-three percent acrylic, twenty-six percent nylon and one percent other fibers is shown as $100.00 on the visaed invoice but as either $115.00, or $118.00, on the manufacturer's commercial invoice, depending on the style concerned. The reason for the discrepancies has not been explained.

In order to explain the price discrepancies between the visaed and commercial invoices, your office requested copies of the documentation that firms are required to submit under the terms of the Textile Association regulations. Pursuant to the regulations, authorized export firms are required to submit a tender application form stating, inter alia, the export price of the goods. Successful tenderers must sign a formal business contract with their foreign clients within three months of the opening of tender date. While the price specified in the contract may equal or exceed the bid price, it cannot be less than the bid price. The China Textile and Silk Garment Import/Export Commercial Association, 1990 Textile Quota Tenders Regulations, art. 7 (John Hu, trans.). Furthermore, once a tender contract is awarded, its provisions may not be altered. Absent this documentation, however, there is no basis for determining whether the discrepancies between the visaed and commercial invoices in the instant case relate to a situation where the contract price equals or exceeds the bid price, whether the contract price is less than the bid price, nor is there any basis for ascertaining whether changes were made to the tender contract.

Furthermore, two of the visaed invoices, viz., nos. 594890 and 593801, make reference to two additional invoices, nos. 93025 and 93046, that relate to this transaction. These additional invoices may also be relevant in explaining the discrepancies. Nevertheless, while the additional invoices relate to the imported merchandise and were requested by your office, they were not submitted by the protestant.

Under Treasury Decision, (T.D.) 86-56, 20 Cust. B. & Dec. 175, differences or discrepancies contained in invoices and other entry documentation presented to Customs in connection with imported merchandise raise the presumption that the documents contain false or erroneous information. In addition, T.D. 86-56 provides:

Section 484(a), Tariff Act of 1930, as amended (19 U.S.C. 1484(a)), requires that importers file with Customs documentation which, among other things, allows Customs "to assess properly the duties on the merchandise, [and] collect accurate statistics with respect to the merchandise * * *." Clearly, an invoice which sets forth a false purchase price does not satisfy this requirement. Equally clearly, such an invoice fails the requirement imposed by 19 U.S.C. 1481(a)(5), that each invoice of imported merchandise set forth "[t]he purchase price of each item * * *."

20 Cust. B. & Dec. 176. T.D. 86-56 provides further that such documentation will not be accepted and must be returned to the importer for correction. Nevertheless, pursuant to the field instructions implementing T.D. 86-56, dated May 1, 1986, Customs may accept an entry so long as there is an acceptable explanation for any differences in the price or value information contained in the entry documentation.

Although in this instance the imported merchandise was released from Customs' custody, please note that in the future such inconsistencies as exist here represent a sufficient basis under T.D. 86-56 for requiring the submission of corrected documentation. Moreover, as you know, an importer's failure to provide corrected documentation in response to a request under T.D. 86-56, allows Customs, in appropriate circumstances, to initiate actions under the civil and criminal penalty statutes it administers, including but not limited to 19 U.S.C. ? 1592, 18 U.S.C. ? 542, and 18 U.S.C.

In the circumstances of this case, however, it is our position that, in accordance with T.D. 86-56, the discrepancies between the commercial and visaed invoices raise the presumption that the documents contain false or erroneous information in regard to appraisement. As noted above, it is the importer's responsibility to demonstrate that the standard set forth in Nissho has been met. Here, the protestant has not satisfactorily explained the discrepancies between the visaed and commercial invoices, e.g., by providing the documentation requested by your office. Consequently, it is our position that the protestant has not overcome the presumption that the imported merchandise was correctly appraised on the basis of the price that the protestant/importer paid to the middleman. Accordingly, the manufacturer's price cannot be used to determine transaction value.

HOLDING:

Pursuant to the foregoing, the protest should be denied. The imported merchandise should be appraised, pursuant to the transaction value method, on the basis of the price actually paid or payable by the protestant to the middleman.

In accordance with section 3A(11)(b), Customs Directive 099 3550-065, dated August 4, 1993, this decision should be mailed by your office to the protestant no later than sixty days from the date of this letter. Any reliquidation of the entry in accordance with this decision must be accomplished prior to the mailing of 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 to the public via the Diskette Subscription Service, the Freedom of Information Act and other public access channels.

Sincerely,

Previous Ruling Next Ruling