VAL OT:RR:CTF:VS H241893 EE
Port Director
U.S. Customs and Border Protection
P.O. Box 55580
Portland, OR 97238
RE: Application for Further Review of Protest No. 2904-11-100019; Transaction value; Discounts
Dear Port Director:
This is in response to an Application for Further Review (“AFR”) of Protest No. 2904-11-100019, timely filed by counsel on April 22, 2011, on behalf of the importer, Strategic Import Supply LLC (hereinafter, the “protestant”), concerning the appraisement of certain tires.
FACTS:
The merchandise subject to the protest at issue, certain tires, was entered by the protestant on June 10, 2010 based on the invoice from the seller located in China, Hangzhou Zongce Rubber Co., LTD. (“Hangzhou”), to the protestant for the amount of $31,714.06. The entry liquidated as entered on April 22, 2011. The protestant claims that it failed to make a deduction of $10,963.69 in the appraised value of the merchandise as reflected on the commercial invoice from Hangzhou to the protestant. The discount was to compensate the protestant for defective merchandise. On August 8, 2012, U.S. Customs and Border Protection (“CBP”) issued a Request for Information (CBP Form 28) requesting a contract or evidence supporting the protestant’s defective merchandise claim; information as to how the amount for the allowance was arrived at and how it was tied to the shipment at issue. In response, the protestant submitted an email, dated August 22, 2012, from Hangzhou to the protestant to confirm that Hangzhou would issue an allowance in the amount of .3% of each month’s total purchases to compensate the protestant for the defective tires.
We reviewed the following documents submitted by the protestant:
Invoice no. HX1003570C issued from Hangzhou to the protestant on May 21, 2010. The invoice lists the merchandise, total quantity of 1037 pieces, unit price, total price of $31,714.06, claimed deduction of $10,963.69, and a total FOB price of $20,750.37.
A packing list and a bill of lading which correspond to invoice no. HX1003570C.
Email correspondence between the protestant and Hangzhou May 21, 2010 and June 7, 2010.
Protestant’s internal email correspondence, dated August 22, 2012.
A wire transfer from the protestant to Hangzhou, dated June 7, 2010, for the amount of $484,642.49.
ISSUE:
Whether the defective merchandise discount, as reflected on the invoice between the protestant and Hangzhou, is part of the price actually paid or payable in determining the transaction value of the imported tires.
LAW AND ANALYSIS:
We note that the protest and AFR were timely filed under the statutory and regulatory provisions for protests (19 U.S.C. § 1514; 19 C.F.R. pt. 174). We also note that the issues protested are protestable issues (19 U.S.C. § 1514).
Merchandise imported into the United States is appraised for customs purposes 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 primary method of appraisement is transaction value, which is defined as “the price actually paid or payable for the merchandise when sold for exportation to the United States,” plus amounts for certain statutorily enumerated additions to the extent not otherwise included in the price actually paid or payable. See 19 U.S.C. § 1401a(b)(1). The term “price actually paid or payable” is more specifically defined in section 402(b)(4)(A) of the TAA as the “total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise …) made, or to be made, for the imported merchandise by the buyer to, or for the benefit of, the seller.” The CBP Regulations further provide that in determining transaction value, the price actually paid or payable “will be considered without regard to its method of derivation. It may be the result of discounts, increases, or negotiations, or may be arrived at by the application of a formula . . .” 19 C.F.R. § 152.103(a)(1). The CBP Regulations further cite the following example:
A seller offers merchandise at $100, less a two percent discount for cash. A buyer remits $98 cash, taking advantage of the cash discount. The transaction value is $98, the price actually paid or payable. 19 C.F.R. § 152.103(a)(1), Example 5.
Furthermore, the word “payable” refers to a situation in which the price has been agreed, but actual payment has not been made at the time of importation.
On the other hand, the Statement of Administrative Action states that changes in the price actually paid or payable which are arrived at subsequent to the time of importation shall not be taken into account in determining transaction value. This would apply to renegotiation, deferred quantity discounts, or rebates. Moreover, 19 U.S.C. § 1401a(b)(4)(B) states that “any rebate, or other decrease in, the price actually paid or payable that is made or otherwise affected between the buyer and the seller after the date of the importation of the merchandise into the United States shall be disregarded in determining the transaction value.”
CBP has consistently enumerated three criteria in determining whether a discount or price adjustment should be considered part of the transaction value of imported merchandise. See Headquarters Ruling Letter (“HQ”) 563419, dated May 4, 2006. First, the discount or price adjustment must be agreed on prior to the importation of the merchandise. See Allied International v. United States, 795 F. Supp. 449 (CIT 1992) (importer required to affirmatively show that there was a pre-importation agreement for the claimed discount). See also HQ 964192, dated February 15, 2002 (discounted price constituted the price actually paid for the imported footwear because the discounts were agreed to and effected prior to importation); and HQ 547019, dated March 31, 2000 (discounted price, which was based on established criteria from a price list and was agreed to prior to importation, constituted the price actually paid or payable for the imported merchandise).
The second criterion is that the importer must be able to furnish CBP with sufficient documentary evidence to support the existence of the discount and establish that it was agreed to before the time of entry. See HQ 547144, dated November 20, 1998. See also HQ 545659, dated October 25, 1995 (unconditional discount factored into the value declared at the time of entry and reflected on the invoice presented to CBP, may be taken into account in determining transaction value).
The third criterion requires that the discount or price adjustment be unconditional, or if conditional all the conditions must be met prior to importation. We articulated this criterion in HQ 545659, supra, in which we determined that a discount is unconditional when there are no specified purchasing obligations placed on the customer. In that case, we held that with respect to both the unconditional and conditional discounts indicated on the invoice at the time of entry when no amount is rebated, these discounts are taken into consideration in determining transaction value. In those instances where the customer has not yet fulfilled the specified purchasing obligation at the time of entry, the conditional discounts are not taken into consideration in determining transaction value. Id.
In H218255, dated June 7, 2012, the importer and its foreign supplier agreed to a 4% warranty and 1.5% competitive discount which were reflected on the supplier’s invoices. The warranty discount, agreed to by the parties prior to the importation, was provided in case there were defective products for which the importer would credit its customers. It was a fixed percentage and the importer received it regardless of whether it had actual defective merchandise or not. CBP noted that the actual payment, which evidenced that the discount was remitted, was made after the time of importation; however, this did not change the analysis since the price was already agreed upon. CBP determined that the discounts should be taken into account in determining the price actually paid or payable for the imported merchandise since it was sufficiently documented that the importer and its supplier agreed to the discounts prior to the importation of the merchandise and the discounts were unconditional.
In HQ H048152, dated April 30, 2009, the invoices and the proof of payments shown on the Debit Advices from the buyer to the vendors indicated that the parties agreed to a one percent discount. Because the invoices were dated earlier than the CF 28 and before the merchandise was shipped to the United States, CBP found that the one percent discount was agreed to before the merchandise was imported into the United States, and should be included in determining the price actually paid or payable of the imported merchandise. Therefore, CBP concluded that so long as the invoices reflected a discount, that discount was included in determining the transaction value of the imported merchandise.
Additionally, in HQ 544371, dated June 11, 1990, the importer and its related party manufacturer agreed to a .75 percent discount that was given on every shipment to cover any defective merchandise. This discount was deducted from the FOB Hong Kong value of the merchandise reflected on the commercial invoice. CBP ruled that because the invoice price reflected the discount, this discount may be taken into account in determining the transaction value of the imported merchandise. Both HQ H048152 and HQ 544371 found that the invoices (dated earlier than the CF 28 and before the merchandise was shipped to the United States) and the proof of payments from the buyer to the vendors were sufficient to show that the parties agreed to a discount. Thus, no further written agreements were necessary.
In the instant case, no written contracts between the protestant and Hangzhou for the sale of the imported merchandise or for the defective merchandise discount were provided. Nonetheless, we note that the defective merchandise discount was listed on Hangzhou’s invoice that the protestant submitted. The invoice submitted by the protestant is dated earlier than the CF 28, issued by the Port, and prior to the shipment and entry of the imported merchandise into the U.S. As previously noted, the commercial invoice from Hangzhou to the protestant which lists the merchandise and the discount was dated May 21, 2010. The imported merchandise was shipped from Shanghai on May 26, 2010 and entered into the U.S. on June 10, 2010. The entry liquidated on April 22, 2011 and the CF 28 was issued on August 8, 2012. A wire transfer from the protestant to Hangzhou was made on June 7, 2010. The wire transfer was for nine invoices, including invoice no. HX1003570C for the total amount minus the defective merchandise discount. Thus, not only does the commercial invoice include the discount, but the amount paid by the protestant to Hangzhou reflects this discount and was made before the merchandise was entered. Thus, the discount in question is not a rebate as referenced in 19 U.S.C. § 1401a(b)(4)(B).
Moreover, we find that the discount is unconditional because there are no specified purchasing obligations placed on the protestant in order to receive the discount. The defective merchandise discount, agreed to by the parties prior to the importation, is provided to cover any defective merchandise. The discount is a fixed percentage, and the protestant receives it regardless of whether it has actual defective merchandise or not. Thus, the discount at issue is different from a defective merchandise allowance contemplated by 19 C.F.R. § 158.12; therefore, it is unconditional in nature. Accordingly, based on the documentation submitted, we find that the defective merchandise discount may be taken into account in determining the price actually paid or payable of the imported merchandise, since the discount is effected prior to the date of importation.
HOLDING:
It has been sufficiently documented that the protestant and Hangzhou agreed to the defective merchandise discount prior to the importation of the merchandise. Therefore, the discount should be taken into account in determining the price actually paid or payable for the imported merchandise.
In conformity with the foregoing, the protest should be ALLOWED.
In accordance with the Protest/Petition Processing Handbook (CIS HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the CBP Form 19, to the protestant no later than sixty days from the date of this letter. Sixty days from the date of the decision Regulations and Rulings of the Office of International Trade will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division