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HQ 547850





January 12, 2001

RR:IT:VA 547850 DCC

CATEGORY: VALUATION

Port Director
U.S. Customs Service
6 World Trade Center, Room 761
New York, NY 10048-0945

RE: Application for Further Review of Protest No. 1001-00-102703; Transaction Value; Deductive Value; Computed Value; Price Reduction

Dear Port Director:

This is in response to an Application for Further Review (“AFR”) of Protest No. 1001-00-102703, dated June 20, 2000, filed by Grunfeld, Desiderio, Lebowitz & Silverman on behalf of Judy Philippine, Inc. (“Judy Philippine”).

FACTS:

The subject merchandise is part of a larger shipment of girl’s woven jogging sets from Taiwan imported over the course of several months. Jefftex International (“Jefftex”) exported the merchandise which is the subject of this protest to Judy Philippine. In exchange, Judy Philippine agreed to pay Jefftex [                      ] for the entire shipment.

At the time of export of the subject merchandise in December 1998, Judy Philippine informed Jefftex that it was having financial difficulty and would be unable to pay for the merchandise. Despite these warnings, Jefftex exported the merchandise to the United States. After the goods were exported, Judy Philippine went out of business without paying for the goods or the duties assessed at the port. Because the importer failed to pay the estimated duties, the merchandise was declared general order merchandise and placed in the custody of the port director pursuant to 19 CFR § 127.1.

A few months after shipment, JPI Trading, Inc. (“JPI”)—the successor company to Judy Philippine—offered to purchase the entire shipment, including the merchandise which is subject to this protest, for [                    ], approximately 50% off the original sales price. JPI also agreed to assume all liability for duties owed, and charges incurred for storage and handling. Because the merchandise was stored in a warehouse for several months, the merchandise was out of season and the value diminished by the time of entry.

ISSUE:

Whether the subject merchandise was properly appraised on the basis of transaction value using the sale between Jefftex and Judy Philippine.

LAW AND ANALYSIS:

Transaction value, the preferred method of appraisement, is defined in section 402(b)(1) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. 1401a(b); “TAA”) as the “price actually paid or payable for merchandise when sold for exportation to the United States . . . .”

Because the sale between Jefftex and Judy Philippine was never consummated, Counsel argues that the negotiated sales price between Jefftex and Judy Philippine is an inappropriate basis for determining transaction value. In support of this position, Counsel cites to Headquarter Ruling Letter (“HRL”) 542895, (TAA #51), dated August 27, 1982. In that case, Customs found that when an importer refused to accept and pay for imported merchandise there was no transfer of ownership in the goods and therefore there was no transaction value from the original sales price.

Counsel further argues that the subsequent sale between Jefftex and JPI is the appropriate basis for determining transaction value. To support its argument, Counsel cites HRL 544432 in which Customs found that that a subsequent “settlement price” could be appropriate for determining transaction value assuming the importer provided documentary evidence including the subsequent sales invoices and notices of cancellation of the original sale.

For Customs purposes, the word “sale” generally is defined as a transfer of ownership in property from one party to another for a consideration. See J.L. Wood v. United States, 62 CCPA 25, 33; C.A.D. 1139 (1974). Although J.L. Wood was decided under the prior appraisement statute, Customs adheres to this definition under the TAA. The primary factors to consider in determining whether there has been a transfer of property or ownership are whether the alleged buyer has assumed the risk of loss, and whether the buyer has acquired title to the imported merchandise. See, HRL 544775, dated April 3, 1992, and HRL 543633, dated July 7, 1987. In addition, Customs may examine whether the purported buyer paid for the goods, and whether, in general, the roles of the parties and the circumstances of the transaction indicate that the parties are functioning as buyer and seller. See, HRL 545709, dated May 12, 1995, and HRL 545474, dated August 25, 1995.

In the present case, Judy Philippine refused to pay for the merchandise after the goods were shipped to the United States. In addition, Judy Philippine never took possession of the goods. Hence, Counsel is correct in asserting that there was no transfer of title from Jefftex to Judy Philippine, and consequently, there was no sale for exportation to the United States.

Moreover, the merchandise should not be appraised based on the sales price negotiated between Jefftex and JPI. The TAA defines transaction value as the “price actually paid or payable for merchandise when sold for exportation to the United States . . . .” As Customs ruled in HRL 542895, when an intended U.S. buyer rejects goods delivered to the United States and another buyer subsequently purchases the merchandise, there is no sale for exportation to the United States. Similarly in the present case, the merchandise was already in the United States when JPI purchased it from Jefftex. Consequently, transaction value method is inappropriate for appraising the merchandise. Therefore, transaction value of the subject merchandise is not an appropriate method of appraisement.

When imported merchandise cannot be appraised on the basis of transaction value, it is appraised in accordance with the remaining methods of valuation, applied in sequential order. See Section 402(a) of the TAA. The alternative methods of appraisement, in order of preference, are as follows: transaction value of identical or similar merchandise; deductive value; computed value; and the “fallback” method of appraisement.

The second appraisement method in order of statutory preference is transaction value of identical and similar merchandise under section 1401a(c). Transaction value of identical or similar merchandise is based on sales, at the same commercial level and in substantially the same quantity, of merchandise exported to the United States at or about the same time as the merchandise being appraised. If no such sale is found, sales of identical or similar merchandise at either a different commercial level or in different quantities, or both, shall be used, but adjusted to account for any such difference. 19 U.S.C. 1401a(c).

Based on evidence indicating sales of identical or similar merchandise exported to the United States at or about the same time that the subject merchandise was exported, we determine that the transaction value of identical or similar merchandise is the most appropriate method for determining the value of the subject merchandise. Appropriate adjustments pursuant to 19 CFR 152.104(d) and (e) should be made if necessary.

HOLDING:

The protest should be granted in part and denied in part. We determine that transaction value—based on either the incomplete sale between Jefftex and Judy Philippine or the sale between Jefftex and JPI—is an inappropriate means of appraisement. Under these circumstance, the merchandise is most appropriately appraised according to the value of identical or similar merchandise pursuant to section 402(c) of the TAA.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, you should 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 this decision, the Office of Regulations & 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,

Virginia L. Brown
Chief, Value Branch

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