RR:IT:VA 545958 EK
Port Director
Charleston, SC
RE: Application for Further Review of Protest No. 1603-94-10008;
Selling Commissions
Dear Sir:
This is in response to the application for further review of
the protest referenced above. The protest was filed on behalf of
Pignone Textile Machinery Inc. (hereinafter referred to as PTMI)
against your decision in the liquidation of entries of various
spare parts imported into the United States. We regret the delay
in responding.
FACTS:
PTMI is a wholly-owned subsidiary of Nuovo Pignone
(hereinafter referred to as NP). PTMI acts as selling agent for
NP and solicits sales on behalf of NP. PTMI performs all
necessary tasks to secure sales on behalf of its parent. The
parties are related within the meaning of section 402(g) of the
Tariff Act of 1930, as amended by the Trade Agreements Act of
1979 (TAA; 19 U.S.C. 1401a(g)). The imported merchandise was
appraised pursuant to transaction value, section 402(b) of the
TAA. A selling commission of 10% was added to the price actually
paid or payable in determining the value of the imported
merchandise.
In a document dated January 4, 1988, NP and PTMI
established a sales agency agreement with PTMI acting as a sales
agent for NP with respect to products manufactured by NP and
imported into the United States. Paragraph 1 of the agreement
states: "This Agreement covers the following products
manufactured by our company: a) shuttleless weaving machines b)
raising machines c) shearing machines d) rotary steam presses
e) fringing machines." With regard to the payment of
commissions, Paragraph 9 of the agreement provides for a ten
percent commission on the ex-works price for spare parts.
In the agreement, PTMI agreed to not represent either any
Italian or other foreign company whose machines are in
competition with NP, and that PTMI may not
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sell articles that are similar to NP's products. The agreement
further restricted PTMI to negotiation of sales and it required
technical problems to be submitted to NP for resolution. There
is nothing in the agreement between the parties that indicates
PTMI in any way would act as the purchaser of imported
merchandise.
Counsel for the importer indicates that the imported
merchandise, i.e., spare parts, was not covered by the agency
agreement. Counsel states that the spare part
transactions reflected bona fide sales between PTMI and NP and
that the 10% was actually a discount given to PTMI. Counsel
indicates that the agreement was not intended to cover "spare
parts", but in fact the inclusion of such in the payment of
commissions paragraph in the agreement was a result of poor
drafting. Counsel states that generally, spare part purchases
were made by PTMI from NP for inventory purposes.
ISSUE:
Whether PTMI was a selling agent for NP with respect to the
transactions involving the imported merchandise.
LAW AND ANALYSIS:
Transaction value, the preferred method of appraisement, is
defined in section 402(b) as the "price actually paid or payable"
for the merchandise when sold for exportation to the United
States, plus amounts equal to "any selling commission incurred by
the buyer with respect to the imported merchandise." Selling
commissions are to be added to the price actually paid or payable
in the determination of transaction value.
In order for a transaction value to exist, there must be a
bona fide sale between the buyer and seller. For Customs
purposes, the word "sale" is defined as a transfer of ownership
in property from one party to another for a price or other
consideration. J.L. Wood v. United States, 62 CCPA 25, C.A.D.
1139 (1974). While J.L. Wood was decided under the prior
appraisement statute, Customs continues to adhere to this
definition under the TAA. The existence of a bona fide sale
depends on a number of factors. Customs considers whether the
alleged buyer has acquired title to the merchandise and assumed
the risk of loss; whether the alleged buyer paid for the
merchandise; whether the payments are linked to specific
importations; and whether the circumstances of transaction
indicate that the parties are functioning as buyer and seller.
With respect to the risk of loss issue, counsel for PTMI has
submitted a marine insurance policy which named PTMI as the
insured party. However, this policy broadly
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covered "textile machinery and spare parts". Counsel
acknowledges that in fact PTMI
acted as selling agent with respect to the importation of looms
and other textile
weaving machines sold to third parties in the United States. The
fact that PTMI was the insured party with respect to these items
does not prove that it was the buyer of the "spare parts". PTMI
was the named party with respect to the textile machinery as
well, merchandise which it clearly did not purchase. The related
parties arranged for PTMI
to be the named insured with respect to the marine insurance
policy. However, this does not prove that PTMI purchased the
"spare parts" from NP as indicated by counsel.
In addition, there is nothing in the evidence which
indicates that there was a passage of consideration in exchange
for the spare parts. There is no proof of payment corresponding
to specific purchase orders between NP and PTMI. The
documentation submitted by PTMI regarding the practices between
PTMI and the U.S. customer are also not relevant to the entries
at issue, nor does it establish a bona fide sale between NP and
PTMI. PTMI, in its capacity as selling agent for NP, was merely
soliciting sales on behalf of NP, as required by the agreement.
The entries in this protest occurred in late 1990, and most of
the documents submitted with counsel's latest submission dated
February 16, 1996, refer to transactions between the parties
occurring from 1992 to 1995.
Counsel's claim that the "spare parts" were not covered by
the agency agreement is not accepted. It is clear from the
agreement that the spare parts were provided for. There is no
indication that the spare parts were to be purchased and that a
10% discount would be granted.
Counsel maintains that it is not proper for Customs to
solely look to the selling agency agreement and conclude that the
transactions at issue were covered by the agreement. However,
there is insufficient information regarding the relevant entries
to establish that bona fide sales occurred between PTMI and NP.
This fact, in conjunction with the clear inclusion of "spare
parts" in the agreement, indicates that there was no bona fide
sale between the parties with respect to the "spare parts." The
totality of the circumstances are consistent with a finding that
PTMI was acting as agent of the seller in the transactions
regarding the "spare parts." The fact that PTMI holds the "spare
parts" as inventory on behalf of NP is not inconsistent with the
role of a selling agent. It is common for a selling agent to
hold inventory on behalf of the seller to fill orders when
received by the U.S. customer.
It is our conclusion that with respect to the importations
of the "spare parts", PTMI acted as selling agent for NP.
Therefore, the alleged 10% discount is in fact a selling
commission and should be included in the price actually paid or
payable in the determination of transaction value.
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HOLDING:
You are directed to DENY the protest. In accordance with
Section 3A(11)(b) of Customs Directive 099 3550-065, dated August
4, 1993, Subject: Revised protest
Directive, this decision should be mailed by your office to the
Protestant no later than 60 days from the date of this letter.
Any reliquidation of the entry in accordance with this decision
must be accomplished prior to mailing of this decision. Sixty
days from
the date of the decision, the Office of Regulations and Rulings
will take steps to make the decision available to Customs
personnel via the Customs Rulings Module in ACS
and the public via the Diskette Subscription Service, Freedom of
Information Act and other public access channels.
Sincerely,
Acting Director,
International Compliance Division