OT:RR:CTF:VS H310403 CMR
U.S Customs & Border Protection
Apparel, Footwear & Textile Center
301 E. Ocean Blvd.
Suite 700
Long Beach, CA 90802
Attn: IS Adriana Garcia
RE: Application for Further Review of Protest No. 2704-20-117509; “First sale” valuation
Dear Center Director:
This is in response to the Application for Further Review (AFR) of Protest No. 2704-20-117509, filed by Sandler Travis & Rosenberg, PA, on behalf of their client, American Marketing Enterprises, Inc. (hereinafter, AME) against your decision to liquidate an entry without benefit of “first sale” appraisal of the merchandise therein. The protest was timely filed and AFR properly approved.
FACTS:
The merchandise at issue was the subject of multiple transactions prior to importation into the United States. As claimed by AME, the protestant and importer of record, the merchandise at issue was the subject of four sales transactions in a series of sales for export to the United States. The transactions at issue are similar to those which were the subject of Headquarters Ruling Letter (HQ) H266540, dated September 8, 2016, which was affirmed by HQ H281951, dated February 16, 2017.
In this case, AME placed seven (7) purchase orders with its related party, Millwork Pte. Ltd. (hereinafter, Millwork), for the subject merchandise. The purchase orders indicate “entered date” as either August 21, 2015 (three purchase orders) or August 27, 2015 (four purchase orders). The purchase orders identify the vendor, Sheen Bright (Shanghai) Ltd. and the manufacturer of the goods in China, Tak Fook (Dongguan) Garment Co. Ltd. They indicate the terms as FOB, but contain no payment terms. Each purchase order adds a mark-up amount to the total for the goods to reach a grand total.
As in HQ H266540, Millwork ordered the merchandise from Sheen Bright (Shanghai) Limited (hereinafter, Sheen Bright). The orders were placed by Millwork via a related party buying agent, LF Centennial Pte. Ltd. using two documents – placement memorandum and purchase orders. Each placement memorandum reflects the same date as the entered date of the corresponding AME purchase order referenced in the placement memorandum. Each placement memorandum indicates that Sheen Bright is the vendor, and that the buyer is Millwork and the payment terms are “As per Buyer payment terms.” No terms of payment are present on the placement memorandums. However, each reflects a trade discount in arriving at the total value of the order.
Each purchase order also reflects the same date as the entered date of the corresponding AME purchase order referenced in the purchase order. However, the purchase orders indicate that Millwork “purchased from the undermentioned Seller, as per terms and conditions stated on the face and overleaf hereof,” while at the same time indicating on the face of the purchase order, under the designation buyer – “American Marketing Ent (Briefly Stated).” They also indicate that the vendor is Sheen Bright. Below the buyer information, the purchase orders indicate that the buying agent for Millwork is LF Centennial. As with the placement memorandums, each purchase order indicates that the payment terms are “As per Buyer payment terms.” As with the placement memorandums, no terms of payment are present on the documents and a trade discount amount is deducted in arriving at the total value of the order.
Accompanying each placement memorandum and purchase order is a packing list. For all but one set of placement memorandum, purchase order and packing list, the documents exhibit language across each page indicating that the document is an executed copy and that the documents have been executed electronically for and on behalf of Sheen Bright on Li & Fung’s vendor portal on August 31, 2015. One set of documents indicate that they were executed electronically on December 3, 2015.
For each purchase order submitted by AME, and then submitted by Millwork, Sheen Bright submitted a purchase order to Tak Fook International Trading Ltd, for production of the merchandise at Tak Fook (Dongguan) Garment Co. Ltd. These seven purchase orders each indicate that shipment is by ocean and the ship terms are FOB. The purchase orders indicate at “payment terms” – “open account 30 days.”
Tak Fook International Trading Ltd., issued an invoice to Sheen Bright, dated December 8, 2015, for all the merchandise which was the subject of Sheen Bright’s seven purchase orders. The invoice indicates shipping terms of “FOB Port Yantian, China,” and payment terms of “open account 60 days.” Similarly, Sheen Bright issued one invoice to Millwork, dated December 8, 2015, for the seven purchase orders it received. The invoice showed shipping terms as “FOB Yantian” and payment terms as “open account 60 days.” The Sheen Bright invoice deducted a trade discount to reach the total amount due.
Millwork issued an invoice to AME, dated December 9, 2015, for the merchandise which was the subject of the seven purchase orders from AME. The invoice indicates the conditions of sale as “FOB CNYTN – Sea – Yantian.” Under “Terms & Currency,” it states O/A 60 days in USD.” The invoice reflects a markup added to the base total and a subtraction of a trade discount amount which appears to also be calculated using the base total to reach a grand total for the invoice. The invoice also states on its first page that “The price(s) shown on this invoice is/are not final and is/are subject to an adjustment.”
A packing list was submitted with indicates that Tak Fook International Trading Ltd. was the shipper on behalf of Sheen Bright. The Forwarder’s Cargo Receipt also reflects that Tak Fook International Trading Ltd. is the shipper, that AME is the consignee and that the service was for container yard to container yard. The bill of lading reflects the same information as the Cargo Receipt.
Proof of payment was submitted for AME’s payment to Millwork, Millwork’s payments to Sheen Bright, and Sheen Bright’s payment to Tak Fook International Trading Ltd. In addition, an affidavit was submitted to attest that Sheen Bright and Tak Fook International Trading Ltd. are not related parties as defined by 19 U.S.C. § 1401(a)(g)(1). In the affidavit, it states that a certain individual, “in [his] capacity as Company director of Sheen Bright (Shanghai) Ltd., a seller of goods to American Enterprise Marketing, Inc.” attests that the middleman, Sheen Bright, is not related to the seller of the imported goods, that is, Tak Fook International Trading Ltd.
In a supplemental submission received on August 19, 2020, this office received documentation of two payment records from Tak Fook International to the factory, Tak Fook (Dongguan), for among others, the goods that shipped on December 8, 2015 and entered as part of the subject entry.
ISSUE:
Whether the imported merchandise may be appraised based on the transaction between the supplier, Tak Fook International Trading, Ltd., and the middleman, Sheen Bright.
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, which is defined as the “price actually paid or payable for the merchandise when sold for exportation to the United States” plus certain statutory additions. 19 U.S.C. § 1401a(b)(1).
In accordance with Nissho Iwai American Corp. v United States, 16 C.I.T. 86, 786 F. Supp. 1002, reversed in part, 982 F. 2d 505 (Fed. Cir. 1992), and Synergy Sport International, Ltd. v. United States, 17 C.I.T. 18 (1993), appraisement of imported merchandise based on a bona fide sale of goods for export to the U.S., prior to the last sale for export to the U.S., is a legitimate basis of appraisal and CBP will appraise merchandise for which a “first sale” claim is made when it meets the requirements for such appraisement. In Nissho Iwai, supra, the case involved a foreign manufacturer, a middleman, and a United States purchaser. The court held that the price paid by the middleman/importer to the manufacturer was the proper basis for transaction value. The court further stated that in order for a transaction to be viable under the valuation statute, it must be a sale negotiated at arm’s length, free from any non-market influences, and involving goods clearly destined for the United States. See also, Synergy, supra. The importer claims that the merchandise at issue should be appraised based upon the transaction value of the sale between the supplier, Tak Fook International Trading Ltd., and Sheen Bright, a middleman.
In accordance with the Nissho Iwai decision and our own precedent, we presume that transaction value is based on the price paid by the importer. In further keeping with the court’s holding, we note that an importer may request appraisement based on the price paid by a middleman to a foreign manufacturer in situations where the middleman is not the importer. However, it is the importer’s responsibility to show that the “first sale” price is acceptable under the standard set forth in Nissho Iwai. That is, the importer must present sufficient evidence that the alleged sale was a bona fide “arm’s length sale,” and that it was “a sale for export to the United States” within the meaning of 19 U.S.C. § 1401a.
In Treasury Decision (T.D.) 96-87, dated January 2, 1997, the Customs Service (now Customs and Border Protection (CBP)) advised that the importer must provide a description of the roles of the parties involved and must supply relevant documentation addressing each transaction that was involved in the exportation of the merchandise to the United States. The documents may include, but are not limited to purchase orders, invoices, proof of payment, contracts, and any additional documents (e.g. correspon- dence) that establishes how the parties deal with one another. The objective is to provide CBP with “a complete paper trail of the imported merchandise showing the structure of the entire transaction.” T.D. 96-87 further provides that the importer must also inform CBP of any statutory additions and their amounts. If unable to do so, the sale between the middleman and the manufacturer, or any other party, cannot form the basis of transaction value.
In this case, the only information submitted with regard to the transaction between the factory and the supplier, Tak Fook International Trading Ltd. consists of evidence of two payments from the supplier to the factory. In addition, CBP has not been provided with any contracts or agreements between any of the parties, beyond purchase orders and invoices. Without a contract or other document containing terms of sale between these parties, CBP presumes the parties intended title and risk of loss to pass in accordance with the Incoterms contained in the purchase order and invoice documents. With regard to the three subsequent transactions, all were based upon the terms, FOB Yantian. This means that if each transaction was a bona fide sale, title flashed through all the parties to the ultimate party, AME. While Customs and Border Protection (CBP) recognizes that bona fide sales may occur in instances of “flash title,” such transactions generally are viewed with greater scrutiny so as to determine whether the middleman truly is an independent buyer/seller of goods or is actually acting as an agent on the part of one of the other parties. See HQ H097616, dated November 21, 2011; see also HQ W563605, dated November 19, 2009. Further, the invoices between Tak Fook International Trade Ltd. and Sheen Bright, Sheen Bright and Millwork, and Millwork and AME, not only have the same FOB port terms, but they also reflect the identical payment terms, that is, open account 60 days. Each sale in the chain of sales has identical terms.
As in HQ H266540, the initial purchase orders submitted by AME specify the vendor, that is, the middleman and the factory which will produce the goods. As such, the related parties involved in these transactions, Millwork and LF Centennial (Millwork’s buying agent) had no choice in vendors. Nor did the vendor, Sheen Bright, have a choice in factories. Therefore, as in HQ H266540, neither Millwork nor Sheen Bright looked for a seller for the goods, and they did not choose a factory for production of the goods as the factory was specified in AME’s purchase order. The lack of freedom to choose a vendor or choose a factory causes CBP to question the independence of the middlemen parties in this transaction. A true buyer/seller of goods has the ability to choose his/her own sourcing and own customers. The documents in this case seem to indicate that neither Millwork, Sheen Bright, nor even, Tak Fook International Trading Ltd. enjoyed such freedom of choice.
In addition, we note that while the purchase orders from AME and Millwork both indicate a reduction in cost of goods based on a trade discount, we have no other documents, such as an agreement between the parties that would explain the basis for the trade discount, or the additional mark-ups. Normally, such subtractions or additions to an amount due would be the subject of an agreement, but CBP has been told there are no contracts or agreements between any of the parties involved in these transactions. In HQ H266540, Sheen Bright was billed by both the factory and the supplier on the same day for the same price. The only documentation CBP has received in this case regarding the sale between the factory and the supplier, who are related parties, is evidence that the supplier paid the factory.
As discussed in HQ H275640, dated December 20, 2017, “[e]ach transaction must be individually assessed and all the information considered in determining whether sufficient information has been provided to support a determination that separate bona fide sales occur when “flash title” transfer occurs. HQ H275640 referenced the following passage from HQ 547697, dated December 27, 2001, which is relevant here:
The fact that title and risk of loss transferred simultaneously from the Manufacturer to License Holder to the Middleman to the Importer in each of the four transactions—i.e., Manufacturer/License Holder, License Holder/Middleman, Manufacturer/Middleman, and Middleman/Importer—suggests that there were no bona fide sales between the Manufacturer, License Holder and Middleman. See HRL 545980, dated December 12, 1995 (finding evidence insufficient to support claim of a bona fide sale in two-tiered transaction when first and second sale were FOB foreign port of export), and HRL 546225, dated April 14, 1997 (declaring that a bona fide sale did not appear not to have occurred when there was simultaneous passage of title between the manufacturers and the middleman).
T.D. 96-87 speaks of “a complete paper trail . . . showing the structure of the entire transaction.” Although AME has provided purchase orders, invoices, and proof of payment, as in HQ H266540, we cannot conclude that “first sale” appraisement is proper in this case. Taking into consideration the totality of the circumstances, including that the invoices between the parties reflect the same terms, i.e., FOB and payment terms, as in HQ H266540, we do not believe there is sufficient support to conclude that the transactions at issue constitute a series of bona fide sales. Therefore, appraisal of the merchandise based on the price paid by the importer, AME, under transaction value is proper.
HOLDING:
The protest should be denied. In accordance with Sections IV and VI of the CBP Protest/Petition Processing Handbook (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 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to mailing the decision.
Sixty days from the date of the decision, the Office of Trade, Regulations and Rulings will make the decision available to CBP personnel, and to the public on the
Customs Rulings Online Search System (CROSS) at https://rulings.cbp.gov/ which can be found on the U.S. Customs and Border Protection website at http://www.cbp.gov and other methods of public distribution.
Sincerely,
For Craig T. Clark, Director
Commercial and Trade Facilitation Division