VAL CO:C:R:V 545105 CRS
U.S. Customs Service
Regulatory Audit Division
55 East Monroe Street
Chicago, IL 60603-7590
RE: Internal advice request; bona fide sale; J.L. Wood; sale for
exportation; transfer of title; risk of loss; HRL 544613 and HRL
This is in reply to your memorandum of September 16, 1992,
in which you requested internal advice with regard to the price
actually paid or payable for certain merchandise in connection
with audits of an liquor importers and distributors in the North
Central Region. We regret the delay in replying.
An audit of liquor importers and distributors in the North
Central Region suggests that the ultimate consignees of imported
merchandise, who are also the importers of record, pay more for
the goods than the value declared to Customs.
You state that the audit findings apply generally to a
number of companies. However, the documentation attached to the
instant request relates to a specific transaction. Accordingly,
our response is based on the documentation underlying this
transaction. There are three principal actors involved in the
transaction: the U.S. purchaser, ********* Co., who is the
ultimate consignee and importer of record (hereinafter the
"ultimate consignee"); the U.S. supplier, ********* Ltd.,
(hereinafter the "supplier"); and the foreign seller, ********
(hereinafter the "seller"). You have advised that in
transactions of this type the supplier is either the subsidiary,
or the selling agent or exclusive distributor, of the seller.
However, in the instant case the precise nature of the
relationship is not stated.
The documentation consists of six exhibits. The first is a
purchase order from the ultimate consignee to the supplier. The
purchase order reflects unit prices for one liter, 375 milliliter
(ml) and 50 ml bottles of a certain liqueur.
The second exhibit is the invoice from the seller of the
liqueur. The invoice identifies supplier as the buyer, and the
U.S. purchaser/ultimate consignee, as the consignee. The terms
of sale are "ex works." Lower unit prices are quoted than those
shown on the purchase order submitted as Exhibit 1. The invoice
identified as Exhibit 2 was not submitted with Customs Form (CF)
7501 but was obtained from the ultimate consignee's customs
Exhibit 3 is the CF 7501 which reflects the invoice values
from Exhibit 2. Exhibit 4 consists of six items, marked (a)-
(f), and includes copies of a bill of lading, a waybill, notices
from a shippers association, a broker's invoice, and a check from
the ultimate consignee's broker to the shipper for shipping
Exhibit 5 is an invoice from the supplier to the ultimate
consignee. The terms of sale are given as "F.O.B. ex cellars,"
and the unit prices are the same as those on the purchase order
(exhibit 1). A check from the ultimate consignee to the supplier
in the amount specified on the invoice is enclosed as Exhibit 6.
You have inquired as to whether the higher of the two
invoice prices should be the basis for appraisement. You state
that the supplier acted without the knowledge of the ultimate
In a telephone conversation between a member of your office
and a member of my staff it was confirmed that insurance claims
filed by the ultimate consignee in regard to imported merchandise
are paid directly by the insurance company to the ultimate
consignee. This was determined by a examination of the ultimate
consignee's ledger records.
The issue presented is whether the transaction between the
seller and the supplier, and/or that between the supplier and the
ultimate consignee, are bona fide sales such that the price
actually paid or payable constitutes a valid transaction value.
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 value,
defined as the price actually paid or payable for the merchandise
when sold for exportation to the United States, plus amounts for
certain enumerated additions, including any selling commissions
incurred by the buyer. 19 U.S.C. 1401a(b)(1).
For Customs purposes, the word "sale" generally is defined
as a transfer of ownership in property from one party to another
for a consideration. J.L. Wood v. United States, 62 CCPA 25, 33;
C.A.D. 1139 (1974). While 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. E.g., HRL
544775 dated April 3, 1992; HRL 543633 dated July 7, 1987.
In HRL 543708 dated April 21, 1988, we stated in regard to
the transfer of title and the assumption of the risk of loss:
[A] determination of when title and risk of loss
pass from the seller to the buyer in a particular
transaction depends on whether the applicable contract
is a "shipment" or "destination" contract.... FOB
point of shipment contracts are "shipment" contracts,
while FOB place of destination contracts are
"destination" contracts.... Unless otherwise agreed by
the parties, title and risk of loss pass from the
seller to the buyer in "shipment" contracts when the
merchandise is delivered to the carrier for shipment,
and in "destination" contracts when the merchandise is
delivered to the named destination.
The question of whether the instant transactions are shipment
contracts or destination contracts accordingly depends on the
shipment terms specified in the documentation.
The shipment terms between the seller and the supplier were
"ex works," while those between the supplier and the ultimate
consignee were "F.O.B. ex cellars". It is the understanding of
this office that the term "ex cellars" is a merely a variant of
"ex works," and that the meaning of the terms is synonymous. The
term "ex works" means that:
[T]he seller's only responsibility is to make the goods
available at his premises (i.e. works or factory). In
particular he is not responsible for loading the goods
on the vehicle provided by the buyer, unless otherwise
agreed. The buyer must bear the full cost and risk
involved in bringing the goods from there to the
desired destination. This term represents the minimum
obligation for the seller.
International Chamber of Commerce, Incoterms: International
Rules for the Interpretation of Trade Terms, Publication No. 350,
at 16 (1980).
The shipment terms stated on the invoice from the seller to
the supplier ("ex works") indicate that this transaction was
structured as a shipment contract, with title and risk of loss
passing to the supplier at the seller's plant. However, based on
the invoice from the supplier to the ultimate consignee, the
terms of shipment ("F.O.B. ex cellars") prevailing in that
transaction indicate that title and risk of loss also passed to
the ultimate consignee at the seller's plant. Furthermore, the
documentation also establishes that the merchandise was shipped
directly from the seller to the ultimate consignee.
Thus under the circumstances of the transaction at issue
title and risk of loss passed from the seller to the supplier,
then immediately thereafter from the supplier to the ultimate
consignee. The supplier held title only momentarily, if ever.
In HRL 544513 dated September 6, 1990, we stated that in a
situation where there is a simultaneous passage of title between
parties, while an intermediary might take title to merchandise
for a split second, this would not negate the fact that in
reality it was acting for the seller. As a result, we held that
the intermediary was operating as a selling agent for the seller,
and that amounts retained by the intermediary were selling
commissions. See also, HRL 544513 dated September 6, 1990.
Similarly, in this case it is also our position that the
supplier acted as a selling agent for the seller. The supplier
took possession of the merchandise at the seller's plant for but
an instant, before title and risk of loss passed to the ultimate
consignee. In essence, therefore, the supplier never held title
nor did it bear the risk of loss. The ultimate consignee was the
importer of record, had title to, and bore the risk of loss for,
the merchandise when it entered the U.S. It is therefore the
position of this office that since the supplier never had title
there was never a valid sale between the seller and the supplier.
The only sale in the instant transaction occurred between the
seller and ultimate consignee, and consequently, there is only
one statutorily viable transaction value.
Accordingly, the imported merchandise should be appraised
under transaction value based on the price actually paid or
payable by the ultimate consignee. The difference between the
seller's price and that of the supplier represents a selling
commission retained by the latter. However, since this amount is
already included in the price paid by the ultimate consignee, no
addition to the price actually paid or payable is warranted under
19 U.S.C. 1401a(b)(1)(B).
Based on the documentation submitted, the price actually
paid or payable by the ultimate consignee constitutes a valid
transaction value for the purposes of appraisement under 19
John Durant, Director