OT:RR:TCF:ME H337972 ME
Center Director
Industrial and Manufacturing Materials
Center of Excellence and Expertise
Office of Field Operations
U.S. Customs and Border Protection
Buffalo, NY 14225
RE: Internal Advice; First Sale Appraisement / Buying Agent Rules
Dear Center Director,
This is in response to a letter of March 9, 2024, submitted by Diaz Trade Law on
behalf of their client Graniti Vicentia LLC (“Graniti”) regarding the applicability of first sale
valuation for a transaction in which Eswari Exports Private Limited (“Eswari”) served as a
middleman between Graniti and its overseas supplier. In the alternative, counsel requests
that Eswari be considered a bona fide buying agent whose commissions are properly
excludable from the price actually paid or payable for the imported merchandise.
FACTS:
Graniti is a Houston-based company, specializing in the distribution and sale of hotel
furniture. In 2023, Graniti became the subject of an audit by U.S. Customs and Border
Protection (“CBP”). As a result of this audit, CBP identified multiple instances where fees and
duties were still owed. One of these transactions was a January 2020 purchase of glass
countertops, in which Eswari served as a middleman between Graniti and its Chinese supplier
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Deyuan Stone (“Deyuan”). For the purpose of calculating duties, Graniti requested the use of the
“first sale” method of appraisement. The audit team rejected this request, believing that the
relationship between Eswari and Graniti was more consistent with an agency relationship than
that of a buyer/seller. Consequently, on March 9, 2024, Graniti requested Internal Advice from
the Office of Trade, Regulations and Ruling (“RR”) on this issue. In the alternative, Graniti
requested that Eswari be considered a bona fide buying agent whose commissions are properly
excludable from the price actually paid or payable for the imported merchandise
Eswari is an Indian distribution company, focusing on the sale of goods used aboard
ships. The owners of Graniti and Eswari are brothers. Since approximately 2013, Eswari has
served as a middleman for certain transactions between Graniti and its overseas suppliers.
Initially, counsel claimed that there was no formal buying agreement between Graniti and
Eswari. However, counsel later produced two contracts from 2013 and 2015.
The first contract dated September 9, 2013, stipulated that Eswari would use its line of
credit to purchase goods for Graniti from international suppliers. Under the terms, Eswari would
not negotiate the price, quality control or shipment of the goods. It “would be purely facilitating
the finance of the goods and nothing else.” Graniti would be responsible for placing orders,
quality control and shipping. In exchange for its services, Eswari would charge Graniti a 1015%
fee over the cost of the supplier.
However, under the second contract, signed February 3, 2015, all previous agreements
were nullified and superseded. The terms stated that Eswari would purchase goods from foreign
suppliers and sell them to Graniti for a profit, at a price of its choosing. Graniti had the right to
either purchase or decline the offers. Eswari would initiate the purchase of goods from the
suppliers upon receiving an order from Graniti. Regarding who would own title to the goods and
bear the risk of loss, the contract stated:
That Eswari is responsible for delivering the goods at USA port and owns the title of
goods till the container arrives to the USA port. If either the product in the container is
fully or partially damaged due to unforeseen conditions during ocean transit or if the
vessel is sunk and all the goods are lost, Eswari if fully responsible and bears all risk of
loss. Graniti holds no responsibility or risk of loss till the goods are fully inspected.
That Graniti is responsible for pulling the container out of USA port and to inspect goods
and confirm that the goods are intact and matching with the packing slip as per the
purchase order issued to Eswari. It's agreed and assumed that all goods arrived in good
condition and shape and there will be no dispute in invoice raised by Eswari, if Graniti
fails to inform of any damages or discrepancy in the packing slip within a week's time.
In addition to this, Graniti provided a collection of transaction documents, which it claims
demonstrate that a bona fide sale had occurred between Eswari and Deyuan. Graniti first
produced a purchase order for multiple glass products including “vanity top,” “window sills,”
“kitchen sink clips,” and “vanity sink clips,” dated November 22, 2019. The purchase order
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showed a balance of $33,255.34 for the goods, and also listed $36,582.24 as “applied
payment/other#.” Graniti claims that this was provided to Eswari who then passed it onto
Deyuan. Graniti also turned over a commercial invoice for $33,255.34 from Deyuan to Eswari
dated January 16, 2020, for those same goods, with the invoice number GV2019058. The
invoice indicated a delivery date of January 16, 2020, and claimed that the goods would be
shipped from Xiamen, China to the Port of Seattle and arrive on February 2, 2020. The invoice
also stated that the factory would be liable for any damage during the loading process and
included the description “FOB (FREE ON BOARD) XIAMEN,” which Graniti claims means
that title to the goods transferred from Deyuan to Eswari when they passed the ships rail in
Xiamen. In addition, Graniti provided a bill of lading from Laufer Group International which
showed the same shipping information as the invoice and listed Deyuan as the exporter on behalf
of Eswari, with Graniti as the consignee. Graniti did not provide any separate written contract
between Eswari and Deyuan. Furthermore, Graniti produced a $36,582.24 invoice issued by
Eswari to Graniti for the goods, dated January 20, 2020, with the invoice number 2001161 and
purchase order number P016773. Eswari’s expected profit on the transaction was $3,326.90.
Graniti also provided a signed CBP Form 7501 and CBP Form 3461, showing that the
goods were entered into the United States on February 6, 2020, at the Port of Seattle and Graniti
was listed as the importer of record. The merchandise was listed as 16 packages of “ARTICLE
OF CHINA, US NTE 20 9903.88.03 18866KG SLABS, SQURES, 0TH ART GLA
7016.90.1050.” However, the items were undervalued at $3,464.00, with an assessed duty of
$1,143.12.
In a supplemental submission on May 10, 2024, Graniti produced a Telex release and an
Arrival Notice for a shipment of sixteen package of glass products that arrived at the Port of
Seatle from Xiamen China on February 6, 2024. Graniti also provided an invoice for U.S. freight
showing that the goods were sent directly from the Port of Seattle to its jobsite near Houston.
Outside of this transaction, Graniti also produced a separate invoice from Deyuan to
Eswari for $4,892.28, dated January 20, 2020, with the invoice number GV2019054. The
invoice was for similar countertop materials and indicated that the goods would be loaded at
Yantian Port, China on January 20, 2020, and arrive at Los Angeles, CA on February 5, 2020.
Finally, Graniti provided several documents detailing payment. The first one shows a
$38,147.62 SWIFT wire transfer from Eswari to Deyuan, dated November 2, 2020. Graniti
claims that this payment is for Eswari’s combined transactions with Deyuan ($4,892.28 +
$33,255.34). Under “Remittance Information,” the invoice numbers GV2019054 and 058 were
listed, reflecting that the payment was for the two separate orders. Next, counsel provided a list
of 21 wire transfers from Graniti to Eswari totaling $353,000.00. All transfers were sent from
Allegiance Bank on January 28, 2022, two years after the initial transaction, with the reference
number W-0128. No single transfer matched the $36,582.24 invoiced from Eswari, nor did they
contain a reference to any invoice or purchase order number. Additionally, while not highlighted
by Graniti, a note on the packing list provided as exhibit 4, appears to list two payments for the
merchandise as “Wire # W-0128 - Jan 28, 2022” from Allegiance Bank for $6,205.58 and
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$30,376.66, totaling Graniti’s owed $36,582.24. However, neither of these transactions directly
correlates with any of the 21 wire transfers provided by Graniti as evidence of payment.
ISSUES:
1. Whether the transaction between Eswari and Graniti qualifies for first sale treatment.
2. If not, whether Eswari qualifies as a bona fide buying agent whose commissions are
properly excludable from the price actually paid or payable for the imported merchandise.
LAW AND ANALYIS:
1. First Sale
The preferred method of appraising merchandise imported into the United States is the
transaction value method as set forth in section 402(b) of the Tariff Act of 1930, as amended by
the Trade Agreements Act of 1979 (“TAA”), codified at 19 U.S.C. § 1401a. Transaction value of
imported merchandise is the “price actually paid or payable for the merchandise when sold for
exportation to the United States” plus amounts for five enumerated statutory additions. 19
U.S.C. § 1401a(b). In order for imported merchandise to be appraised under the transaction
value method, it must be the subject of a bona fide sale between a buyer and seller, and it must be
a sale for exportation to the United States.
In Nissho Iwai American Corp. v. United States, 982 F.2d 505 (Fed. Cir. 1992) and
Synergy Sport International, Ltd. v. United States, 17 CIT 18 (1993), the Court of Appeals for the
Federal Circuit and the U.S. Court of International Trade (“CIT”), respectively, reviewed the
standard for determining transaction value when there is more than one sale which may be
considered as being a sale for exportation to the United States. Both cases involved a foreign
manufacturer, a middleman, and a United States purchaser. In each case, the court held that the
price paid by the middleman/importer to the manufacturer was the proper basis for transaction
value. Each court further stated that in order for a transaction to be viable under the valuation
statute, it must be a sale conducted at arm’s length, free from any non-market influences, and
involving merchandise clearly destined for export to the United States at the time of the first sale.
In accordance with the Nissho Iwai and Synergy decisions, we presume that transaction value is
based on the price paid by the importer. In further keeping with the courts’ holdings, we note
that an importer may request appraisement based on the price paid by the middleman to the
foreign manufacturer in situations where the middleman is not the importer. However, it will be
the importer’s responsibility to show that the “first sale” price is acceptable under the standard
set forth in Nissho Iwai and Synergy. 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
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
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exportation of the merchandise to the United States. The documents may include, but are not
limited to purchase orders, invoices, proof of payments, contracts, and any additional documents
(e.g. correspondence) 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 cannot form the basis of transaction value.
In this case, CBP has not been presented with a complete paper trail. The submitted
documents, including the purchase terms, invoices between the parties, the shipping information,
and the wire transfer between Eswari and Deyuan is insufficient evidence of a complete paper
trail showing the structure of the entire transaction. In particular, the documents fail to show that
Graniti paid consideration to Eswari for the transaction at issue. None of 22 wire transfers
provided by Graniti, match the $36,582.24 that Graniti owed Eswari, or contain any reference to
that transaction. They also took place nearly two years after the initial transaction was completed.
Therefore, insufficient evidence has been presented to support valuation based upon a first sale
between Eswari and Deyuan. Accordingly, we find that the appraisement of the merchandise
should be based upon the price paid by the protestant.
2. Deductible Buying Agent Commission
As indicated above, merchandise imported into the United States is appraised in
accordance with the provisions of 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 basis of
appraisement is transaction value, defined as "the price actually paid or payable for
merchandise when sold for exportation to the United States." 19 U.S.C. § 1401a(b)(1). The
term "price actually paid or payable" is defined as "the total payment (whether direct or
indirect) made, or to be made, for imported merchandise by the buyer to or for the benefit
of the seller." 19 U.S.C. § 402(b)(4). As a general matter, bona fide buying commissions
are not added to the price actually paid or payable. Pier 1 Imports, Inc. v.
United States, 708 F. Supp. 351, 13 CIT 161, 164 (1989); Rosenthal-Netter, Inc. v. United States,
679 F. Supp. 21, 12 CIT 77 (1988); Jay-Arr Slimwear, Inc. v. United States, 681 F. Supp. 875, 12
CIT 133 (1988).
The existence of a bona fide buying commission depends upon the relevant factors of
each particular case. J.C. Penney Purchasing Corp. v. United States, 451 F. Supp. 973
(Cust. Ct. 1978); Nelson Bead Co., 42 CCPA 175, 183 (1955). However, the importer has
the burden of proving that a bona fide agency relationship exists and that payments to the
agent constitute bona fide buying commissions. Pier 1 Imports, 13 CIT at 164;
RosenthalNetter, 12 CIT at 78; and New Trends, Inc. v. United States, 645 F. Supp. 957,
960, 10 CIT 637, 640 (1986). The totality of the evidence must demonstrate that the
purported agent is in fact a bona fide buying agent and not a selling agent or an
independent seller. See Headquarters Rulings (HQ) 542141, dated September 29, 1980,
also cited as TAA No. 7.
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In determining whether an agency relationship exists, the primary consideration is
the right of the principal to control the agent's conduct with respect to those matters
entrusted to the agent. Jay-Arr Slimwear, 681 F. Supp. at 879. The degree of discretion
granted the agent is a further consideration. New Trends, 645 F. Supp. at 960. The existence
of a buying agency agreement, moreover, has been viewed as supporting the existence of a
buying agency relationship. Dorco Imports v. United States, 67 Cust. Ct. 503, 512, R.D.
11753 (1971). In addition, the courts have examined such factors as whether the purported
agent's actions were primarily for the benefit of the principal; whether the agent was
responsible for the shipping and handling and the costs thereof; whether the language used
in the commercial invoices was consistent with a principalagent relationship; whether the
agent bore the risk of loss for damaged, lost or defective merchandise; and whether the
agent was financially detached from the manufacturer of the merchandise. New Trends, 645
F. Supp. at 961-62.
In this case, while Graniti claims that there was no written buying agency
agreement, it did produce two contracts between Graniti and Eswari and does not indicate
that the most recent contract was amended or no longer in effect. The superseding
agreement from 2015 lists terms that are more indicative of an independent buyer/seller
relationship, than that of a buying agent. According to the contract, Eswari would
independently initiate the process by approaching Graniti with an offer to sell goods from a
foreign suppler, at a price of its choosing, and keep any remaining profit. Graniti would
then have the option to either accept or deny the offer. The terms imply that Graniti was
not in control of any negotiations between Eswari or the foreign suppliers, and instead
suggests that it negotiated a separate price and terms with Eswari.
Furthermore, the contract stipulated that Eswari would own full title to the goods
and bear the risk of loss while in transit. This is supported by the documents in this case, as
the invoice from Deyuan stated FOB XIAMEN, which indicates that title to the goods
transferred to Eswari when they passed the ship’s rail in Xiamen. This is typically not the
case with a buying agent. See J.C. Penney Purchasing Corp., 451 F. Supp. at 986.
To prove that a buying agency relationship existed, counsel cites several factors as
evidence of Graniti’s control over Eswari. Counsel first claims that Graniti absorbed the
cost of shipping and handling. No proof of payment or invoices from the shipping
company for the shipment from Xiamen to Seattle were produced, although Graniti was
listed as the consignee on the bill of lading. Counsel also claims that Graniti was free to
purchase goods from the manufacturer without the use of a buying agent, and that Eswari is
financially detached from the manufacturer. However, unlike with most buying agents,
Graniti had no control over how Eswari paid for the merchandise. The sale from the
suppler to Eswari used completely different sets of invoices, and Eswari paid the foreign
supplier directly for the $33,255.34 purchase. Then, years later Graniti allegedly paid
Eswari for this and other transactions.
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Graniti has the burden of showing that the purported agent is in fact a bona fide
buying agent, and not a selling agent nor an independent seller. See 23 Cust. B. & Dec.,
No. 11, General Notice, dated March 15, 1989, at 9; HQ 545660, dated February 10, 1995.
Yet here, the documents indicate that Eswari acted with a degree of independence that is
not typical of a buying agent. This includes, controlling the sales terms and the final sale
price, taking title to the goods, bearing the risk of loss, and independently handling all
payments to the foreign supplier. Therefore, we find that Graniti has not shown that
Eswari acted as a bona fide buying agent and the payments from Graniti to Eswari cannot
be deducted as buying agent commissions.
HOLDING:
Based upon the information, Graniti has not meet its burden of showing that the
transaction between itself and Eswari qualifies for first sale treatment, because it failed to
provide CBP with a complete paper trail of the entire transaction. Furthermore, Graniti has failed
to show that Eswari acted as a bona fide buying agent, and that payments to the agent constitute
bona fide buying commissions.
You are to mail this decision to the internal advice requester no later than 60 days from
the date of the decision. At that time, 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,
Monika R. Brenner, Chief
Valuation and Special Programs Branch
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