HQ W548432
MAY 20 2004
RR:IT:VA W548432 CC
Area Port Director
Customs and Border Protection
1000 Second Ave., Suite 2100
Seattle, WA 98104
RE: Application for further review of Protest No. 3001-03-100193; transportation costs; change in method of shipment; HRL 546422; HRL 547069
Dear Madam:
The above-referenced protest was forwarded to this office for further review. We have considered the facts and issues raised, and our decision follows.
FACTS:
The merchandise the subject of this protest is men's and women's wearing apparel. The protestant protested 16 entries. All of these entries, except for one, were entered between August 6 and August 15, 2002. One entry was entered on July 8, 2002, and liquidated on May 23, 2003. All of the other entries were liquidated between June 20 and July 25, 2003.
The protestant states that the terms of sale between the buyer and seller were FOB, with the buyer being responsible for paying the freight charges, which is consistent with the submitted documentation. The protestant also states that various documentation contains a late delivery clause, which shifts the burden of paying freight costs to the seller for late delivery. The purchase orders issued by the buyer stated that the method of shipment was ocean freight and listed a required ship date. Also, the buyer had written "Terms and Conditions," which were agreed to by the seller, that stated that if the goods are shipped 22-28 days late, the "Vendor pays 100% all freight via air using a freight company/forwarder of buyer's choice."
For all of the subject entries the seller failed to ship the merchandise at the time specified in the purchase orders, shipping it 22-28 days late. Thus, the seller shipped the merchandise by air and paid for the air freight charges. The protestant claims that there should be a freight deduction from the price actually paid or payable based on the cost of the air freight.
The port liquidated the entries based on the original FOB price, without a deduction for air freight charges paid by the seller. The protestant filed the protest on September 17, 2003.
ISSUE:
Whether an adjustment can be made to the price actually paid or payable for the actual costs of air freight under these circumstances in which the seller paid for the air freight due to late delivery.
LAW AND ANALYSIS:
Initially, we note that 19 U.S.C. § 1514(c)(3) and 19 CFR § 174.12(e) provide that a protest against the liquidation of an entry shall be filed with Customs within ninety days after the notice of liquidation or reliquidation. The entry liquidated on May 23, 2003, was not protested within 90 days. Therefore protest of that entry was untimely filed and is denied on that basis. The remaining entries were timely filed.
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. § 1401 a). The preferred method of appraisement is transaction valuation, 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).
The definition of price actually paid or payable in 19 U.S.C. § 1401 a(b)(4)(A) excludes freight charges, stating the following:
The term "price actually paid or payable" means the 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) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.
See also, 19 CFR § 152.102(f).
In Headquarters Ruling Letter (HRL) 545201, dated January 27, 1995, we stated the following concerning the effect of terms of sale on the exclusion of freight from the price actually paid or payable.
Among other things, Customs has recognized the differences between FOB and CIF shipment terms with regard to the treatment of freight charges. In particular, "Free on Board" means that the seller fulfills his obligation to deliver when the goods have passed over the ship's rail at the named port of shipment. This means that the buyer has to bear all costs and risk of loss or damage to the goods from that point. On the other hand, "Cost, Insurance and Freight" means that the seller is obligated to pay the costs and freight necessary to bring the goods to the named port of destination as well as to procure and pay for marine insurance against the buyer's risk of loss of or damage to the goods during the carriage. See International Chamber of Commerce, Incoterms, at 38, 44, and 50 (1990).
Based on this understanding of FOB and CIF, Customs considers freight charges to be included in the CIF price for goods, but considers such charges to be separate from the FOB price for goods. Accordingly, we consider the CIF price for the merchandise at issue to include the freight charges as agreed upon by the parties. Regardless as to the costs that will be borne by the importer for such freight charges (depending on the scenario as agreed-upon by the parties) the amounts actually paid to the freight company are to be excluded from the price actually paid or payable for the merchandise. We reiterate, however, that Customs may require documentation from the freight company to substantiate the importer's claims as to the actual amounts which are excluded....
In this case the method of shipment was changed from shipment by vessel to shipment by air. The protestant seeks to change the terms of sale from FOB to CFR (Cost and Freight) in order to deduct the air freight charges paid by the seller from the price actually paid or payable, due to late delivery of the merchandise. We have issued several rulings when there was a change in the method of shipment due to late delivery, and the buyer sought to change the terms of sale from FOB to Cost and Freight.
In HRL 546422, dated May 5, 1997, the goods were to be shipped by air, as opposed to by ocean, due to late delivery. Prior to exportation, the terms of sale were to be changed from FOB port of origin to Cost and Freight destination on the commercial invoice and/or on a late production clause on the letter of credit. We found that a change in the terms of sale in those documents does not show an intent to reduce the price. However, a change in the terms sale in purchase orders, supply agreements, sales agreements, or similar documentation does show an intent to reduce the price because those documents are more closely tied to the purchase and sale of the merchandise than letters of credit and commercial invoices.
In HRL 547069, dated November 16, 1998, the buyer and seller had a signed written agreement stating that if the seller failed to deliver the merchandise at the time specified in the purchase orders, the seller would fly the merchandise at its own expense and the terms of sale would be considered Cost and Freight. The original terms of sale were FOB. The purchase orders covering the merchandise indicated that if the merchandise was not shipped prior to the cancellation date, it was to be shipped by air at the producer's expense. The seller did not meet the deadline, and in accordance with the agreement and the purchase order, shipped the merchandise by air at its expense. The commercial invoice stated that the terms of sale were Cost and Freight. Based on the signed agreement, the purchase order, and the commercial invoice together, we found that there was sufficient evidence to show that the terms of sale were changed from FOB to Cost and Freight. Thus, an adjustment for air freight paid by the seller could be made to the price actually paid or payable.
In this case, the buyer's "Terms and Conditions" state that if the goods are shipped 22-28 days late, the vendor pays for shipment by air. We note that some of the other late delivery clauses in the "Terms and Conditions" provide in addition to shipment by air a reduction in the FOB price. For example, if goods are 29-34 days late, there is to be a 10% reduction in the FOB price, and if the goods are 35-42 days late there is to be a 20% reduction in the FOB price. Thus, the "Terms and Conditions" show that there was to be no change in the terms of sale, e.g., from FOB to CFR, if there was late delivery and change in the method of shipment from vessel to air. In addition, the terms of sale listed on the commercial invoice were FCA (Free Carrier), indicating that there was no change to CFR, in which the cost of freight may be deducted from the price actually paid or payable. Although the purchase order states a date by which delivery must be made, there are no terms of sale. Also, the price of goods on the purchase orders matches the prices on the commercial invoices.
The relevant documentation presented, e.g., the "Terms and Conditions," commercial invoices, and purchase orders, show that the buyer did not intend to change the terms of sale from FOB to CFR, when there was a change in the method of shipment due to late delivery. Consequently, based on the documentation and the foregoing rulings, we find that there was no change in the terms of sale from FOB to CFR, and therefore, the charges for air delivery paid by the seller cannot be deducted from the price actually paid or payable.
The protestant has cited 3 rulings in favor of it position: HRL 547047, dated October 25, 1999; HRL 545201, dated January 27, 1995; and HRL 964192, dated February 15, 2002. The first two rulings cited are very different factually and thus are not applicable to this case, since the original terms of sale in those rulings were CIF. HRL 964192 is not helpful to the protestant since the terms of sale are not discussed in that ruling. Consequently, the rulings cited by the protestant do not support its contention that the air freight paid by the seller should be deducted from the price actually paid or payable.
HOLDING:
No adjustment can be made to the price actually paid or payable for the actual costs of air freight under these circumstances in which the seller paid for the air freight due to late delivery, since the evidence did not show there was a change in the terms of sale from FOB to CFR. Accordingly, the protest should be DENIED.
In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2002, pp. 18 and 21), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings 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,
Virginia L. Brown Chief,
Value Branch