OT:RR:CTF:VS H019263 CMR
U.S. Customs and Border Protection
24735 E 75th Ave. Suite 100 Denver, CO 80249
RE: Application for Further Review of Protest No. 3307-07-100042; Valuation of
certain garments; 19 U.S.C. § 1401a
Dear Port Director:
This is in response to Application for Further Review of Protest No. 3307-07-100042, forwarded to this office. The protest is against your port’s liquidation of 47 entries in which the port rejected the declared value of the merchandise for appraisement which was based upon transaction value, 19 U.S.C. § 1401a(b). Individual protests were filed for each entry and this protest was forwarded for our consideration. The port reappraised the merchandise utilizing 19 U.S.C. § 1401a(f) and 19 U.S.C. § 1500. The importer, CSS Trading Company, Inc., (hereinafter, CSS Trading) protested the reappraisement of its merchandise.
FACTS:
CSS Trading made 47 entries through the Port of Denver from May 17, 2006 through June 15, 2007. These entries, consisting of various articles of wearing apparel (shirts, pants, vests and other garments), were entered between June 22, 2007 and July 13, 2007. The entries were liquidated on June 22, 2007, June 29, 2007, July 6, 2007 or July 13, 2007. At liquidation, the wearing apparel was reappraised by your port such that the value for appraisement purposes of the various articles was increased anywhere from double the invoice value to seven times the invoice value. A protest was filed against Customs and Border Protection’s (CBP’s) appraisement and liquidation of the merchandise. The protest was timely filed on August 16, 2007.
As stated above, counsel for the importer filed individual protests for each entry and a “General Protest” “stat[ing] the claims of CSS which are common to all of the individual Protests, and provid[ing] factual material and legal arguments in support of all of the included Protests.” The protest forwarded by your port, along with the “General Protest,” serves as the lead protest for this matter.
CSS Trading imports garments of which most are sold to rental stores for rental to the public for wear at formal black tie events. Some garments, however, are distributed to retailers who sell the garments to the public. The garments, primarily of cotton or synthetic fabrics, include suits, pants, shirts, vests, ties and hats. Most of the garments are for men, but some boys’ and women’s garments are imported. It is claimed that the garments CSS Trading imports are low-end garments to meet a need for less expensive tuxedo wear for proms, wedding, funerals and other occasions requiring formal attire.
CSS Trading submits that the amounts paid for the imported merchandise are reflected in and supported by the invoices from the foreign manufacturers and by the entry documents. Furthermore, CSS Trading submits that it purchased the merchandise from unrelated foreign manufacturers in China or Korea and that transaction value under 19 U.S.C. § 1401a(b) is the proper method of appraisement. In addition, CSS Trading states that there are no additions to be made to the price actually paid or payable as reflected in the commercial invoices with the foreign manufacturers. CSS Trading claims there are no additions to the transaction price as described in 19 U.S.C. § 1401a(b)(1)(A) through (E).
CSS Trading states that the apparent basis for the value advance by the port is that CSS Trading paid less for the garments in 2006 and 2007 than what they paid in 1991 and that the prices do not reflect the inflation rates in the countries of origin. CSS Trading cites to increased competition among manufacturers as one market factor which could account for lower invoice prices.
We note that CBP’s Office of Regulatory Audit conducted an audit of entries made by CSS Trading between January 1, 2006 and December 31, 2006. See Headquarters Ruling Letter (HQ) H082455, dated November 19, 2009. It was found that CSS Trading had made undeclared lump-sum payments to various foreign vendors. However, there were no records or procedures in place to allow for connection of the lump-sum payments to various entries of goods.
In the May 24, 2010, supplemental submission submitted by counsel, documentation was submitted for four representative entries to support the claim that transaction value was the proper method of appraisement and that the invoice prices reflected arms length transaction value. The documentation for each representative entry includes: a purchase order, commercial invoice, wire transfer request, and record of wire transfer payment. We note that in each case, the amount reflected on the commercial invoice and the amount reflected in the wire transfer request and record of payment differ, sometimes significantly. The explanation offered is that payments included multiple invoices, yet two of the examples showed payments of less than the commercial invoice, while two where significantly more (one for more than double the invoiced amount and another for over six times the invoiced amount).
ISSUE:
Is transaction value pursuant to 19 U.S.C. § 1401a(b) the proper method of appraisement for the merchandise at issue?
Did the port use the proper appraisement method in advancing the value of the entries at issue?
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 merchandise when sold for exportation to the United States," plus five statutorily enumerated additions. 19 U.S.C. § 1401a(b)(1). In order for transaction value to be applicable for appraisement purposes, there must be a bona fide sale of merchandise for export to the United States.
There is no dispute that the merchandise at issue was sold for export to the United States. However, it appears from the record that the port had concerns about the validity of the transaction values being asserted by CSS Trading. For instance, on January 26, 2007, the port issued a CBP Form 28 requesting information on the values of merchandise in an entry made on January 25, 2007. The port questioned variances in the values from more than a decade before and the current shipment. By letter dated January 31, 2007, CSS Trading responded to the Request for Information. The port rejected the explanation offered by CSS Trading and advanced the value of the shipments.
As noted above, the Office of Regulatory Audit conducted an audit of entries made by CSS Trading between January 1, 2006 and December 31, 2006. Some of the entries at issue in the subject protests were entered in calendar year 2006 and thus fell within the scope of the audit. The Audit Report found problems in the transaction value declared by CSS Trading for the entries subject to the audit. It was discovered that CSS Trading made undeclared lump-sum payments to various foreign vendors. In addition, CSS Trading made payments to overseas foreign entities and was unable to
provide any evidence that these were non-dutiable buying commissions. See HQ H082455, dated November 19, 2009.
Based upon the report by the Office of Regulatory Audit, it is clear that the port was correct in asking questions with regard to the transaction values declared by CSS Trading. The information submitted to this office to substantiate the transaction value of the four representative entries falls short as discrepancies between the commercial invoices and wire transfers are inadequately explained. Simply stating that the wire transfer is for more money than the commercial invoice because it is payment for several shipments is insufficient as it fails to identify the other various commercial invoices and show they equal the amount wired. Without such explanation, CBP is left to question, as in the audit, whether the additional monies sent are dutiable payments.
As noted in the audit report, there were additions to the invoice values of merchandise entered during the calendar year 2006. Pursuant to 19 U.S.C. § 1401a(b) and 19 C.F.R. § 152.103(c), additions to the price actually paid or payable must be based on sufficient information. If sufficient information is not available, as we believe is the case here, then transaction value for the imported merchandise cannot be determined. Therefore, transaction value is not the proper method of appraisement for the merchandise subject to this protest.
With regard to whether the port used the proper appraisement method, having reviewed the record, we must agree with the protestant that the port did not follow 19 U.S.C. 1401a. The port looked to previously declared values from more than a decade ago and adjusted for inflation. This is not proper. The proper method of valuation would be to look to the value of identical or similar merchandise pursuant to 19 U.S.C. 1401a(c). If the Port is unable to find importations of identical or similar merchandise exported to the United States from China or the Republic of Korea at or about the same time as the merchandise at issue at the same commercial level and in substantially the same quantities, § 1401a(c) allows for adjustments to be made to allow for differences in commercial level or quantity. The Port must determine that appraisement under 19 U.S.C. § 1401a(c) is not possible before moving to another method of appraisement.
If the merchandise cannot be appraised under 19 U.S.C. § 1401a(c), then the port may resort to deductive value, § 1401a(d), which includes the deductive value of identical or similar merchandise. As CSS Trading sold some of the merchandise it imported, it would seem that the deductive value method could have been used to appraise the subject merchandise. The next methodology for appraisement would be computed value under 19 U.S.C. § 1401a(e). Only if the port is unable to appraise merchandise under these methods is the port able to avail itself of the flexibility offered by § 1401a(f), commonly referred to as the fallback method.
Under § 1401a(f), there are still constraints on the flexibility a port may exercise in appraising merchandise. The appraisement of merchandise under § 1401a(f) must be based upon one of the methods set forth in §§ 1401a(b) through 1401a(e) with reasonable adjustments as necessary to arrive at a value. In this case, it appears the port went directly to the fallback method under § 1401a(f) and failed to consider any of the constraints of that method. Reference was made in the port’s report to 19 U.S.C.
§ 1500. The Statement of Administrative Action (SAA), which constitutes part of the legislative history of section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979, provides:
Section 500 [19 U.S.C. § 1500] is the general authority for Customs to appraise merchandise. It is not a separate basis of valuation and cannot be used as such. Section 500 allows Customs to consider the best evidence available in appraising merchandise. . . . Section 500 authorizes the appraising office to weigh the nature of the evidence before him in appraising the imported merchandise. . . . As broad as this grant of authority may be, it is clear, under authority of judicial decisions, that it does not give the appraising officer authority to do whatever he wants. He must and will appraise merchandise under the constraints of section 402.
In those transactions where no accurate invoice or other documentation is available, and the importer is unable, or refuses, to provide such information, then reasonable ways and means will be used to determine the appropriate value, using whatever evidence is available, again within the constraints of section 402.
Emphasis added.
The port was correct to reject the transaction value of the protestant as the later audit report showed, however, it erred in the appraisement of the subject merchandise. With regard to the 2006 entries, the audit report provides the port with additional information relevant to the appraisement of the imported merchandise, i.e., information regarding additions to the price actually paid or payable. With this information, the port may be able to utilize a modified transaction value to appraise the merchandise at issue. While the port does not have sufficient information regarding additions per entry under 19 U.S.C. § 1401a(b), the port does have information regarding additions to the price actually paid or payable for entries for calendar year 2006 and could prorate the additions using 19 U.S.C. § 1401a(f), should the port be unable to affix a value using
§§ 1401a(c) through (e).
HOLDING:
The protest is denied in part and allowed in part. The protest is denied as to the protestant’s claim to transaction value as entered. The protest is allowed to the extent that the port utilized an improper method to reappraise the merchandise. The port is to reliquidate the merchandise at issue in accordance with this decision.
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 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 the decision. 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