OT:RR:CTF:VS H336680 RRB
Center Director
CEE – Electronics
U.S. Customs and Border Protection
301 E. Ocean Blvd.
Long Beach, CA 90802
Attn: Scott Titus, Import Specialist
RE: Application for Further Review of Protest No. 3901-23-130384; Transaction
Value; Assists; Discounts
Dear Center Director:
This is in response to the Application for Further Review (“AFR”) of Protest No.
3901-23-130384, timely filed on October 24, 2023, by Gunster, on behalf of their client,
Bidi Vapor LLC (“Protestant” or “Bidi Vapor”), concerning the appraisement of electronic
cigarettes under 19 U.S.C. § 1401a. The AFR was forwarded to this office for
consideration.
FACTS:
From August 15, 2022, through January 30, 2023, the Protestant filed 28 entries
of electronic cigarettes (“e-cigarettes”). The Protestant purchased the e-cigarettes from
SMISS Technology, Co. Ltd. (“SMISS”), which manufactured the goods in China. Sales
between the Protestant and SMISS were governed by a Manufacturing and IP
Ownership Agreement between the parties, dated January 9, 2020 (“Manufacturing
Agreement”). According to the Manufacturing Agreement and the Bidi Vapor
Organizational Chart, SMISS is an independent contractor that functions as the
exclusive manufacturer and supplier of Protestant’s e-cigarettes. The entry documents
indicate that Bidi Vapor is both the importer and the ultimate consignee.
According to the protest documentation, the Protestant’s sole customer is Kaival
Brands Innovations Group Inc. (“Kaival”). This documentation also indicates that the
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founder and CEO of Bidi Vapor is also a founder and science officer at Kaival. Kaival
purchases e-cigarettes from Bidi Vapor pursuant to an agreement between the parties. 1
Documentation provided by Bidi Vapor indicates that it owns the infrastructure for
the e-liquid nicotine production lab and testing equipment to make and test the e-liquid
according to specification for quality, reliability, safety, and personalized control. Upon
production and testing of the e-liquid nicotine by Bidi Vapor at a laboratory located in
China, the e-liquid nicotine gets released to SMISS for incorporation into the finished e-
cigarettes prior to importation. As confirmed by the packing lists and other entry
documents, the e-cigarettes were imported with the e-liquid nicotine contained within
the e-cigarette hardware.
Prior to the importation of the 28 entries at issue, Bidi Vapor entered into two
transactions with SMISS, POs (“PO”)-013 and PO-014, for a total of 13.8 million e-
cigarettes. Approximately 6.5 million of those e-cigarettes were deemed defective and,
following customer complaints and negotiations, SMISS sent a “Statement of Indemnity”
to Bidi Vapor on February 20, 2021. In relevant part, the “Statement of Indemnity”
advised Bidi Vapor to provide its customers with “replacement products” and stated that
Bidi Vapor may reimburse its customer in the form of a discount on subsequent orders
from batch PO-015, whereby “[t]he specific discount size depends on the specific
circumstances of each order.”
On January 13, 2023, U.S. Customs and Border Protection (“CBP”) issued a
Request for Information (CBP Form 28) for the 28 entries, seeking “entry summary
packets, invoices, BOL [bill of lading], packing list, and detailed product
information/specifications to include color pictures.” On February 15, 2023, CBP issued
a Proposed Notice of Action (CBP Form 29), proposing correction of the transaction
value of the subject merchandise to “the wholesale value per piece net packed.” The
entries were liquidated between April 28, 2023, to July 7, 2023.
Among the protest documents, the Protestant submitted a Microsoft Excel
spreadsheet detailing the protested entry numbers, invoice numbers, quantities, unit
prices, airway bill numbers, and PO attachments. However, the PO numbers identified
on the packing lists for the subject entries do not match the POs attached in the Excel
spreadsheet. We also note that one of the protested entries was tied to two separate
commercial invoices of different quantities of what appears to be the same
merchandise, along with two separate POs. Moreover, one of the protested entries is
missing from the Excel spreadsheet. Lastly, in addition to missing POs associated with
the protested entries, we also note that one of the protested entries is missing most of
the entry documents except for the Entry Summary.
On October 24, 2023, Bidi Vapor filed this Protest and AFR, asserting that the
protested entries were liquidated at a higher rate than declared at the time of entry. In
1 According to a letter from Kaival to Bidi Vapor, dated August 1, 2022, “Kaival purchases certain products
from Bidi pursuant to agreement between the parties, as amended and restated from time-to-time (and
earlier via its predecessor agreements).”
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response to the Protest filing, the Electronics Center of Excellence and Expertise
(“Electronics CEE”) issued a second CBP Form 28 on November 16, 2023, requesting
additional information regarding the relationship between the seller and the importer,
details of any additional costs or expenses incurred in the transaction (e.g., packing,
commissions, proceeds that accrue to the seller, assists, royalties and/or license fees),
a copy of a contract (or PO and the seller’s confirmation thereof) covering the
transaction, and a breakdown of components, materials, or ingredients by weight and
the actual costs of the components at the time of assembly into the finished article. In a
letter, dated December 19, 2023, counsel for the Protestant responded to the November
16, 2023, CBP Form 28. In this letter, counsel for the Protestant asserted that Bidi
Vapor is not related in any way to the seller of the merchandise and that there are not
any additional costs/expenses incurred in the transaction for any of the 28 entries. They
also stated that a copy of the contract covering the transaction, breakdown of
components, materials, or ingredients by weight and the actual costs of the components
were included as exhibits to the Protest, along with all of the entry documents.
In response to an email inquiry from our office on December 31, 2024, counsel
for the Protestant submitted a supplemental submission, dated March 20, 2025. In this
submission, counsel explains that the initial import price per unit of merchandise was
$1.50 but that as a result of credit negotiations between Bidi Vapor and Kaival, and
consistent with the “Statement of Indemnity” issued by SMISS to Bidi Vapor, the import
price per unit from SMISS to Bidi Vapor was reduced to $0.802, as noted in the
commercial invoices for some of protested entries, 2 “until such time where the discount
applied equaled what SMISS owed Bidi Vapor for the defective goods.” Counsel for
Bidi Vapor also explained that as part of Bidi Vapor’s overall discussions with Kaival,
and to address their disappointment about the defective merchandise, Bidi Vapor
agreed to discount their pricing to Kaival by 5% on all future orders for products until the
entire total credit given by Bidi Vapor to Kaival in response to the defective merchandise
has been exhausted. 3
According to the POs attached to the above-referenced Microsoft Excel
spreadsheet for the subject e-cigarettes, the total cost per unit is $1.50, with the
merchandise hardware costing $0.80 and the selling, general, and administrative
(SG&A) expenses, assembly costs, and product licensing costs totaling $0.70. The
POs and commercial invoices associated with the protested entries only describe the
“Bidi Stick 10PK” or “Atomizer Device.” Moreover, the product description in the entry
documents indicates various flavors of e-liquid contained within the imported e-
cigarettes, which was confirmed by photos submitted by the Protestant, photos and
inspections by the Electronics CEE, and the Protestant’s narrative about production of
the hardware and e-liquid overseas.
2 We note that for six of the 28 entries, the commercial invoices indicated a price per unit of $1.50.
Counsel explained in its March 20, 2025, submission that this was an error and that these entries should
have been declared at the $0.802 unit price as indicated in the POs.
3 This arrangement is memorialized in a signed Memorandum of Understanding between Kaival and Bidi
Vapor, dated September 6, 2021, which was amended pursuant to letter agreements, dated April 29,
2022; August 1, 2022; and November 17, 2022.
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On July 30, 2025, the Electronics CEE explained that the price listed on the entry
summary package invoices ($0.80 per e-cigarette unit) was undervalued and did not
include the cost of the e-liquid nicotine. Thus, the Electronics CEE determined the
proper values of the subject merchandise based on the number of puffs contained in
each device. Accordingly, the value of the protested merchandise was appraised at
$3.83 per piece based on the number of puffs of similar or identical e-cigarettes sold.
On March 26, 2025, counsel and his client’s representatives met with CBP
personnel to discuss this matter and to go over the extensive documentation provided to
support the Protestant’s position. The Protestant asserts that the $0.80 per unit price
should be used to determine the price actually paid or payable at the time of entry under
transaction value and that it represents a discount or price adjustment following the
previous importation of e-cigarettes that were defective.
ISSUE:
What is the proper method of appraisement for the entered merchandise?
LAW AND ANALYSIS:
This matter is protestable under 19 U.S.C. § 1514(a)(1) as a decision on the
value of merchandise. The protest was timely filed on October 24, 2023, within 180
days of the date of liquidation. See Miscellaneous Trade and Technical Corrections Act
of 2004, 3 Pub. L. 108-429, § 2103(2)(B)(ii)-(iii) (codified as amended at 19 U.S.C. §
1514(c)(3) (2006)). Further review of this protest is properly accorded to the importer
pursuant to 19 C.F.R. § 174.24(b) because the issues protested involve questions of
law or fact, which have not been ruled upon.
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”), codified at 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 statutorily enumerated additions, including assists, under 19 U.S.C. §
1401a(b)(1)(A)-(E). Unless there is a bona fide sale of merchandise for exportation to
the United States, the transaction value method cannot be used.
When merchandise cannot be appraised under the methods set forth in 19
U.S.C. § 1401a(b)-(e), its value is to be determined in accordance with the "fallback"
method of 19 U.S.C. § 1401a(f). This method provides that merchandise should be
appraised on the basis of a value derived from one of the prior methods reasonably
adjusted to arrive at a value.
Nevertheless, under section 500 of the Tariff Act of 1930, as amended, which
sets forth CBP’s general appraisement authority, the appraising officer may:
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Fix the final appraisement of merchandise by ascertaining or estimating
the value thereof, under section 1401a of this title, by all reasonable ways
and means in his power, any statement of cost or costs of production in
any invoice, affidavit, declaration, or other document to the contrary
notwithstanding...
19 U.S.C. § 1500(a).
In this regard, the Statement of Administrative Action (“SAA”), which forms part of
the legislative history of the TAA, provides in pertinent part:
Section 500 allows Customs to consider the best evidence available in
appraising merchandise … . [It] authorize (sic) the appraising officer to
weigh the nature of the evidence before him in appraising the imported
merchandise. This could be the invoice, the contract between the parties,
or even the recordkeeping of either of the parties to the contract.
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.
Statement of Administrative Action, H.R. Doc. No. 153, 96 Cong., 1st Sess., pt 2,
reprinted in, Department of the Treasury, Customs Valuation under the Trade
Agreements Act of 1979 (October 1981), at 67. Accordingly, if the value of
imported merchandise cannot be determined on the basis of a method derived
from sections 402(b)-(e), we find that the value of the imported merchandise may
be determined under the fallback method provided for in section 402(f) of the
TAA, using all reasonable ways and means
In VWP of America, Inc. v. United States, 175 F.3d 1327 (Fed. Cir. 1999), the
court found that the term “sold” for purposes of 19 U.S.C. § 1401a(b)(1) means a
transfer of title from one party to another for consideration. Id. (citing J.L. Wood v.
United States, 62 C.C.P.A. 25, 33 (1974)). No single factor is decisive in determining
whether a bona fide sale has occurred. CBP makes each determination on a case-by-
case basis and will consider such factors as whether the purported buyer assumed the
risk of loss and acquired title to the imported merchandise.
The term “price actually paid or payable” is defined as:
[T]he 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 from the
country of exportation to the place of importation in the United States)
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made, or to be made, for the imported merchandise by the buyer to, or for
the benefit of, the seller.
19 U.S.C. § 1401a(b)(4)(A)
In the instant matter, the Electronics CEE did not question whether this was a
bona fide sale for exportation of merchandise to the United States between the
Protestant and the manufacturer of the e-cigarettes.
Assists
In the instant protest, Bidi Vapor provided SMISS with the e-liquid nicotine that
was incorporated into the hardware of the e-cigarettes prior to importation.
19 U.S.C. § 1401a(h) provides, in pertinent part, as follows:
(1)(A) The term “assist” means any of the following if supplied directly or
indirectly, and free of charge or at reduced cost, by the buyer of imported
merchandise for use in connection with the production or the sale for
export to the United States of the merchandise:
(i) Materials, components, parts, and similar items incorporated in the
imported merchandise.
(ii) Tools, dies, molds, and similar items used in the production of the imported
merchandise.
(iii) Merchandise consumed in the production of the imported merchandise.\
(iv) Engineering, development, artwork, design work, and plans and sketches
that are undertaken elsewhere than in the United States and are necessary
for the production of the imported merchandise.
As indicated above, an assist is simply a particular item or service that is
supplied directly or indirectly, and free of charge or at reduced cost, by the buyer of
imported merchandise for use in connection with the production or the sale for export to
the United States of that merchandise. An assist includes materials incorporated in the
imported merchandise.
The Electronics CEE denied this protest because the price listed on the entry
summary package invoices was undervalued, as it did not include the cost of the e-
liquid nicotine. The e-liquid nicotine, which was presumably provided free of charge by
the Protestant to the manufacturer for incorporation into the e-cigarettes prior to
importation, were assists within the meaning of 19 U.S.C. 1401a(h)(1)(A)(i). See, e.g.,
Headquarters Ruling Letter (“HQ”) H212283, dated June 19, 2014 (where CBP held that
care labels and made-in labels, provided free of charge and incorporated into the
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imported merchandise, were deemed to be assists). We agree with the Electronics
CEE that the value of the e-liquid nicotine, apportioned as appropriate, should have
been added to the transaction value of the imported merchandise.
Discounts
We will next address the Protestant’s assertion that the declared value of the e-
cigarettes at entry was the result of credit negotiations between the Protestant and
Kaival following Kaival’s complaints regarding defective merchandise and was
consistent with the “Statement of Indemnity” issued by the manufacturer to the
Protestant, which stated that the Protestant may reimburse Kaival in the form of a
discount on subsequent orders. According to the Protestant, this was why the initial
import price per unit was discounted from $1.50 to $0.80.
CBP Regulations 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.
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 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 (appraised value may reflect discount when supplier’s invoice indicated total price,
5% reduction and the discounted price; see also HQ 545659, dated October 25, 1995
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(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. CBP discussed 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, CBP 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.
Here, the Protestant asserts that “[a]s a result of credit negotiations between Bidi
and Kaival, the import price from SMISS to Bidi was reduced to $0.802. In other words,
given that SMISS was unable to pay Bidi Vapor LLC the cash value of the defective
goods, SMISS agreed with Bidi Vapor LLC that they would discount their future
shipments ($0.802 instead of $1.50) until such time where the discount applied equaled
what SMISS owed Bidi Vapor LLC for the defective goods.” The Protestant also points
to the “Statement of Indemnity” between the Protestant and the manufacturer, which
advised the Protestant to provide its customers with replacement products and stated
that the Protestant may reimburse its customer in the form of a discount on subsequent
orders whereby “[t]he specific discount size depends on the specific circumstances of
each order.” While the language of the “Statement of Indemnity” notes that Bidi Vapor
may reimburse Kaival in the form of a discount, it is silent on the existence of an agreed
upon discount with respect to the selling price between SMISS and Bidi Vapor.
Moreover, some of the commercial invoices included with the Protest indicate an import
price per unit of $1.50. 4 We are also unable to compare these commercial invoices to
the POs tied to those entries. 5 Counsel for the Protestant notes that the Protestant
agreed to discount their own pricing to Kaival by 5% on all future orders for e-cigarette
products until the entire total credit given by Bidi Vapor to Kaival in response to the
defective merchandise has been exhausted, as memorialized in a Memorandum of
Understanding. This arrangement, however, does not support the existence of any
discounts agreed upon between SMISS and Bidi Vapor. In sum, the evidence
submitted with this protest falls short in satisfying the three criteria for determining
whether a discount or price adjustment should be considered part of the transaction
4 Counsel for Bidi Vapor notes that six of the 28 entries indicate the import price per unit of $1.50 on the
commercial invoices declared for entry, but asserts that this was an error.
5 As noted above, the PO numbers identified on the packing lists for the protested entries do not match
the POs attached in the Excel spreadsheet provided by counsel. We also note that one of the protested
entries was tied to two separate commercial invoices of different quantities of what appears to be the
same merchandise, along with two separate POs. Moreover, one of the protested entries is missing from
the Excel spreadsheet. Lastly, in addition to missing POs associated with the protested entries, we also
note that one of the protested entries is missing most of the entry documents except for the Entry
Summary.
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value of imported merchandise. Therefore, a discount or price adjustment in the instant
matter should not be considered in determining the price actually paid or payable for the
imported merchandise.
Based on the foregoing, we agree with the CEE’s determination that the
proposed transaction value set forth by the protestant cannot be used. Accordingly, the
CEE continued down the hierarchy of appraisement methods and used all “reasonable
ways and means” under the fallback method to determine the value of the e-cigarettes
based on their “wholesale value per piece net packed.” As noted above, the price on the
entry summary package invoices was either $0.802 or $1.50 per device, while the
protest documentation indicated that the cost of the e-liquid nicotine was not included as
part of the unit price per device. The CEE concluded that the e-cigarettes were
therefore undervalued. Where no accurate invoices or other documentation was
available to appraise the merchandise, the CEE used reasonable ways and means to
determine the appropriate value using whatever evidence was available within the
constraints of section 402 of the TAA. See Statement of Administrative Action, H.R.
Doc. No. 153, 96 Cong., 1st Sess., pt 2, reprinted in, Department of the Treasury,
Customs Valuation under the TAA (October 1981), at 67. Under this fallback approach,
the CEE determined the wholesale value per unit to be $3.83. This is consistent with
CBP’s authority under 19 U.S.C. §§ 1401a(1)(F) and a(f), and 19 U.S.C. § 1500.
HOLDING:
Based on the information presented, this protest should be DENIED.
You are instructed to notify the protestant of this decision no later than 60 days
from the date of this decision. Any reliquidation of the entry or entries in accordance
with the decision must be accomplished prior to this notification. 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/, or other methods of public distribution.
Sincerely,
for Yuliya A. Gulis, Director
Commercial Trade and Facilitation Division
U.S. Customs & Border Protection
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