CLA-2 RR:TC:SM 559177 DEC
Area Director of Customs
New York Seaport Area
Six World Trade Center - Room 432
New York, New York 10048
RE: Reconsideration of Application for Further Review; HRL
558911; HRL 558969; Samples of cosmetic products; United
States v. London Records, Inc., C.D. 3087 (1967), aff'd 402
F.2d 1009, 56 C.C.P.A. 14 (1968); Italian Drugs Importing
Co. v. United States, 46 Cust. Ct. 243, C.D. 2263; Keer,
Maurer Company v. United States, 46 CCPA 110, C.A.D. 710
(1959); Cosmos Shipping Co., Inc. v. United States, C.D.
4285 (1971)
Dear Sir:
This is in response to an April 21, 1995, memorandum from
your office requesting reconsideration of Headquarters Ruling
Letter (HRL) 558911, dated March 10, 1995, and HRL 558969, dated
April 21, 1995, in which the Commercial Rulings Division (now
known as the Tariff Classification Appeals Division) of the
Office of Regulations and Rulings determined that the cosmetic
products that were the subject of these rulings were properly
entitled to be classified as samples and eligible for duty-free
treatment pursuant to subheading 9811.00.60, Harmonized Tariff
Schedule of the United States (HTSUS).
FACTS:
In HRL 558911, Customs determined that the "samples" that
Lancaster Group USA (Lancaster) distributed through department
stores and marked in the following manner were eligible for duty-free treatment under subheading 9811.00.60, HTSUS:
1. packaged in full-sized containers available for
testing and demonstration at the retail counter
and marked "tester/demonstration",
2. packaged in small packages such as tubes, sachets,
and bottles for
distribution to individuals and marked "not for
sale", "sample", or
similar language, or
3. packaged in small packages such as tubes, sachets
and bottles that
are part of a "gift-with-purchase" item
distributed to actual
purchasers of Lancaster products and marked "not
for sale", "sample",
or similar language.
We also noted that the retail price of the products which are
sold remains the same whether the customer receives a "sample",
samples a product from a tester or demonstration container, or
receives "samples" as part of a "gift-with-purchase" offering.
In HRL 558969, we determined that five milliliter (ml) glass
perfume bottle "samples" that Christian Dior Perfumes,
Incorporated (Christian Dior), imports from France qualify as
samples pursuant to subheading 9811.00.60, HTSUS. In that case,
counsel for Christian Dior stated that the perfume samples are
packaged and distributed in a cardboard carton marked "NOT FOR
SALE" on the bottom panel and are offered and distributed free of
charge to potential customers. The distribution occurs in one of
the following two ways: (1) interested individuals may place
their name and address on a written register located at a
Christian Dior perfume counter in retail stores and the company
will mail a complimentary sample of the article without charge,
or (2) an individual is given a complimentary sample free of
charge when purchasing a Christian Dior perfume product (gift-with-purchase), the retail price of which is unaffected by the
complimentary sample. Counsel also stated that the perfume
sample is not a promotional sales item offered at a discount.
According to counsel, the "sample" is provided free of charge, is
a promotional size (much smaller than the commercial size
product), and is not authorized to be offered for sale at any
level in the chain of distribution.
In the request for reconsideration, your office agreed with
this office's determination that the distribution of full-sized
containers available for testing and demonstration at the retail
counter and marked "tester/demonstration" and small packages such
as tubes, sachets, and bottles distributed to individuals and
marked "not for sale" or "sample" were eligible for
classification under subheading 9811.00.60, HTSUS. You also did
not take issue with the classification as samples of the
complimentary items mailed to customers who write their name on a
register. However,
your office seeks reconsideration of the Headquarters decision to
classify under subheading 9811.00.60, HTSUS, as "samples" the
cosmetic articles that are offered in the context of a gift-with-purchase. Counsel to Lancaster and Christian Dior provided
written responses to the issues presented in your request for
reconsideration.
ISSUE:
Whether cosmetics of small sample sizes which retail stores
distribute as gifts-with-purchases of other cosmetics at regular
prices are eligible for duty-free entry as "samples" under
subheading 9811.00.60, HTSUS.
LAW AND ANALYSIS:
Subheading 9811.00.60, HTSUS, provides for the duty-free
treatment of any sample either valued at less than $1 each or
marked, torn, perforated, or otherwise treated so that it is
unsuitable for use otherwise than as a sample to be used in the
U.S. only for soliciting orders for products of foreign
countries. The controlling factor is whether the importer uses
the samples for the purpose of soliciting purchase orders for
foreign merchandise and the creation of demand for future orders.
If the items at issue are valued at more than $1 each, they may
not be entered free of duty under this tariff provision unless
they are marked as samples or treated in some way to render them
unsuitable for commercial sale or any use other than as samples
for obtaining orders for similar articles. Subheading 9811.00.60
(HTSUS) is not an "actual use" tariff provision. Rather, this
provision is a "suitable for use" classification provision, which
requires an examination of whether the value or physical indicia
of the imported sample makes it unlikely to be used for any
purpose other than for the purpose of soliciting purchase orders
for foreign merchandise and the creation of demand for future
orders.
The size of the article and the markings on its container or
packaging are physical features recognized by the court as
indicative of whether a sample is "unsuitable for commercial sale
or any use other than for obtaining orders for similar articles."
In United States v. London Records, Inc., C.D. 3087 (1967), aff'd
402 F.2d 1009, 56 C.C.P.A. 14 (1968), sample records with a white
label stating "Made in England - Not For Sale" were distributed
throughout the United States to record reviewers and radio
stations free of charge to generate demand for the music. The
white labels also contained a catalog number with the letters DJ
inscribed next to the record number. These records were
segregated from the commercial records to be sold and had a red
and silver label with only a catalog number inscribed. The
recipients of the sample records (record reviewers, commercial
and college radio stations, and distributors) were not charged
duty. In holding that these were entitled to duty-free entry as
sample merchandise, the court found that the purpose of these
distributions was to obtain public exposure for the music in
hopes of stimulating future demand for the music. The court
stated:
The radio stations and disc jockeys were no more than a
link in the
"chain of solicitation." We view their role, as did
the court below,
"as incidental and wholly subordinate to what plainly
appears as the
sole motivating purposes behind the importation and
distribution of
the samples - creation of demand for future orders."
Id., 56 C.C.P.A. at 18.
The London Records court also relied upon the earlier
decision in Italian Drugs Importing Co. v. United States, 46
Cust. Ct. 243, C.D. 2263, where the court held that samples of
vitamins distributed to doctors who gave them to their patients
to be samples. The goods in Italian Drugs were marked "Sample,
not for sale." "The court observed that notwithstanding the fact
that a temporary benefit was derived by the patients to whom the
vitamins were distributed free of charge, the importations were .
. . based upon the object of securing future orders . . .."
London Records, 402 F.2d at 1011, 56 C.C.P.A. at 17. The court
noted that the sample vitamins at issue could not merely be used
for show, but that the vitamins had to be consumed in order for a
prospective purchaser to ascertain whether or not they were worth
purchasing in the future.
In the request for reconsideration of the Protest and
Internal Advice Decisions in this matter, the decision in Cosmos
Shipping Co., Inc. v. United States, C.D. 4285 (1971), is cited
as support for the position that the samples in these cases which
are part of "gift-with-purchase" are not eligible for duty-free
treatment under subheading 9811.00.60 (HTSUS). In that case, a
French manufacturer sold commercial size toothpaste tubes to a
U.S. distributor who sold them to a retailer, who, in turn,
packaged the tubes with other cosmetics and sold them to its
customers at a price substantially less than the aggregate retail
price of the cosmetics contained in the kit. The court took
notice of the fact that the toothpaste had never been distributed
free of charge "at any level of distribution from manufacturer
down to consumer." Id. At 282. Thus, although the plaintiff
argued that the "real" sales would be realized upon the
reorders and the sales made by the distributor to the retailer,
the court found that the transaction at issue "constitut[ed]
nothing other than the introductory sale of an ordinary
commercial article...." Id. at 284. The U.S. Customs Court held
that the toothpaste tubes were not "samples" within the meaning
of item 860.30, TSUS (the precursor to subheading 9811.00.60,
HTSUS), stating that the common meaning of the word "sample"
precludes the notion of a sale.
The facts in Cosmos are distinguished from the facts at
hand. First, the importers have stated without rebuttal that the
samples in these cases are not sold to the distributors before
being offered with the "gift-with-purchase". Second, the
imported samples that are included in the "gift with purchase"
are not offered at any price. Unlike in Cosmos, a potential
consumer cannot legally purchase the smaller sized cosmetics
offered in the "gift with purchase" even at a discounted price
since they are clearly marked not for retail sale; they can only
be received with the regular priced purchase of a regular size
cosmetics. Thus, the Cosmos court's statement that the "common
meaning of the word sample' precludes the notion of a sale",
refers only to the facts of that case, where there was an
outright sale of the imported merchandise claimed to be a sample.
That single statement should not be broadened to preclude free
distributions of sample-sized articles, which are clearly marked
as samples, solely because they are distributed to regular
customers of the same class of articles under the "gift-with-purchase" programs. Indeed, it is reasonable to expect that
distribution within a group of consumers already familiar with
the manufacturer's product line may yield the highest number of
future orders of the products offered in the samples. The
solicitation of future orders is the whole purpose behind the
duty exemption in subheading 9811.00.60. In the Protest and
Internal Advice decisions that are at issue, the samples are not
"sold" in a manner that would disqualify them from entering under
this duty-free provision. No charge is made in addition to the
cost of the purchased articles. Similarly, no deduction is made
if a customer declines the gift with purchase offering.
Concern was expressed over the fact that some companies are
introducing trial-size products that in many cases are identical
to the items included in the "gifts-with-purchase." In order to
ensure that only eligible goods are entered under subheading
9811.00.60, HTSUS, we offer the following guidance:
(1) No article of the same size as that which is
available at retail may be eligible for duty-free
entry under this subheading even if offered at no
additional charge as part of a gift-with-purchase
offering. Upon importation, Customs personnel
must be satisfied that the article which the
importer is claiming to qualify as a sample
entitled to duty-free entry pursuant to subheading
9811.00.60, HTSUS, is of a smaller size than what
is otherwise commercially available in
the
same
product
line.
For
example, a
full-sized
tube
of
lipstick
offered as
part
of a
gift-with-purchase
offering
would
not
qualify
for
duty-free
entry
under
subheading
9811.00.60,
HTSUS,
since
the
full-tube
of
lipstick
is
the
same
size
that
is
otherwise
commercially
available
for
retail
sale.
(2) In addition, Customs personnel must also be
satisfied that there is no indication that any
merchandise imported under subheading 9811.00.60,
HTSUS, which is to be given away as part of a
gift-with-purchase offering, results in an
increased price of the qualifying purchase.
Evidence of an increase of the price of the
article which entitles the purchaser to the gift-with-purchase offering will disqualify those
articles from eligibility for duty-free entry
under subheading 9811.00.60, HTSUS.
(3) All samples imported under subheading 9811.00.60,
HTSUS, must be marked appropriately as a sample
and must be used to stimulate or solicit future
orders of foreign-produced products. This
standard will avoid the duty-free importation of
trial size articles that are freely sold in the
regular course of commerce which, while they may
create demand for a product, serve as a convenient
alternative for people to use the products they
are accustomed to when they are traveling or they
may serve as a lower-cost purchasing alternative
for a product the consumer is willing to purchase
on a trial basis.
(4) Cosmetic carrying cases or travel bags, which
contain qualifying samples when imported, must be
separately classified since these articles (i.e.
the bags and cosmetic samples) do not constitute a
composite article. The cosmetic products and the
cosmetic bags are not adapted to be used together
and are each offered for sale separately. In
addition, the cases or bags are not classifiable
with its contents pursuant to General Rule of
Interpretation (GRI) 5(a) because they are not
"specially shaped or fitted to contain a specific
article or set of articles." Therefore, carrying
cases or bags containing qualifying samples will
not be eligible for duty-free treatment under
subheading 9811.00.60, HTSUS, unless they
independently qualify for such treatment.
If Customs is made aware of articles that are imported under
9811.00.60, HTSUS, and are later sold in a manner that would
disqualify their status as a sample under subheading 9811.00.60,
HTSUS, Customs may have a basis for a penalty action against the
importer or its transferee depending upon the particular
circumstances of the importation. However, no evidence of this
circumstance is presented in connection with these cases at hand.
Customs is satisfied that the requirements for duty-free
entry as sample merchandise are met with respect to the "gift-with-purchase" offerings described in these cases. The various
products are offered in containers that are marked to indicate
the products' function as samples, and are distributed to
publicize Lancaster's and Christian Dior's products so that
demand for its foreign-produced products is enhanced.
HOLDING:
Cosmetics of small sample sizes which retail stores
distribute in the context of a gift-with-purchase offering with a
qualifying purchase of other cosmetics at regular price are being
used to solicit future orders for the cosmetics so distributed,
and will qualify for duty-free entry pursuant to subheading
9811.00.60, HTSUS, provided that no article of the same size
which is to be offered at no additional charge as part of a gift-with-purchase offering is available for purchase at retail.
Based upon the foregoing and the information presented in
HRL 558911 and HRL 558969, we affirm our determination that the
"gift with purchase" offerings that are the subject of this
ruling as described above are entitled to duty-free treatment as
samples under subheading 9811.00.60, HTSUS. Please take
appropriate action to liquidate the entries covered by the
protest (Protest No. 1001-94-104967) and Internal Advice 60/94 in
accordance with this decision.
Sincerely,
John Durant
Director
Tariff Classification Appeals
Division