VAL CO:R:C:V 544911 ILK
RE: Renegotiated price for late delivery; acceptance of
renegotiated price under T.D. 86-56
Dear :
This is in response to your letter of December 31, 1991
requesting a prospective ruling. On behalf of your client, xxx
xxx (hereinafter referred to as the "importer"), a United States
corporation, you request a ruling on the acceptability of
renegotiated prices of merchandise for late delivery, and the
acceptability of renegotiated invoice prices under T.D. 86-56.
FACTS:
The importer is a large retailer of apparel, and imports
merchandise from foreign manufacturers. The importer is not
related to any of the manufacturers from which it purchases
merchandise. Due to the seasonal nature of the importer's
business and its short seasons, the importer requires its sellers
to have the merchandise available for ocean shipment by certain
specified dates. In the past, in instances when the importer's
suppliers have not had a shipment ready by the specified date,
the importer has been required to air freight the merchandise in
order to have it in its stores by the appropriate dates.
The importer is contemplating inserting a clause in future
purchase orders to account for the increased cost caused by the
late delivery. The clause would specifically provide that when
the seller fails to deliver the merchandise by the specified date
to the port of export, the contract price for the merchandise
shall be reduced prior to shipment by an amount equal to the
difference between (1) the estimated cost of shipping the goods
by ocean freight to the port of entry specified in the purchase
order and (2) the estimated cost of such other faster means of
transportation as may then reasonably be chosen by the importer
for transportation of the merchandise to the port of entry so as
to permit the importer to meet its scheduled store delivery dates
to the extent possible. The importer anticipates that in some
instances the renegotiation of the price may result in the terms
of the contract being changed from FOB to C&F. For example the
original FOB price for the merchandise may have been $10.00 per
unit, but upon notification of late delivery the price is
renegotiated to be $10.00 (including the estimated cost of ocean
freight) C&F. In all instances the renegotiation would occur
prior to shipment, the invoice would be adjusted prior to
shipment, and no amount beyond the value shown in the adjusted
invoice would be remitted to the seller.
For merchandise subject to visa requirements, under the
proposed arrangement described above, where late deliveries
result in a price renegotiation prior to shipment, there may be
instances in which the visa for the merchandise is obtained prior
to the issuance of a new invoice reflecting the renegotiated
terms. In these cases, the visa would be stamped on the original
invoice, and there may be instances in which it is not possible
to obtain a new visa on the renegotiated invoice in time for the
shipment. Under such circumstances the importer proposes to
enter the merchandise based upon the renegotiated invoice
accompanied by a visa stamped on the original invoice.
ISSUES:
1. Whether the renegotiated invoice price is acceptable
under transaction value.
2. Whether the discrepancy between the visaed invoice
price of the imported merchandise and the renegotiated invoice
price of the imported merchandise mandates rejection of the
entry.
LAW AND ANALYSIS:
The preferred method of appraisement is transaction value
which is defined by 402(b)(1) of the Tariff Act of 1930, as
amended by the Trade Agreements Act of 1979 (TAA, 19 U.S.C.
1401a(b)) as "the price actually paid or payable for the
merchandise when sold for exportation to the United States ..."
plus certain additions specified in 402(b)(1) (A) through (E).
The term "price actually paid or payable" is defined in TAA
402(b)(4)(A) as:
...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.
In the transactions in which the price of the merchandise is
renegotiated prior to the exportation of the merchandise, and
there is no change in the delivery terms, i.e. the terms remain
FOB and do not change from FOB to C&F, the renegotiated price
becomes the price actually paid or payable. Customs has
previously ruled that in case of a price reduction effected prior
to shipment, and invoiced as such, the price actually paid or
payable is the invoiced price which reflects the reductions due
to late delivery. See Headquarters Ruling Letter (HRL) 542933
dated October 13, 1982. See also HRL 544645 dated July 16, 1991,
HRL 543457 dated April 9, 1985, and HRL 543014 dated February 15,
1983.
As an alternative to price renegotiation, the importer
proposes to change the delivery terms from FOB to C&F in the
event of a late delivery. In HRL 544646 dated December 23, 1991,
we ruled that Customs was unable to make an adjustment to the
transaction value for freight charges as the charges did not
appear to have been included in the price actually paid or
payable for the imported merchandise. In that case the importer
had stated that the freight charges were not part of the total
payment to the seller. In the instant case it is represented by
the importer that the freight charges would be included in the
C&F renegotiated invoice price. Therefore, assuming that the C&F
renegotiated price does include freight charges, the C&F
renegotiated price, less the international freight charges
included therein, would be the price actually paid or payable for
the imported merchandise.
With respect to T.D. 86-56, instructions regarding its
implementation were issued by this office on May 1, 1986 (HRL
543731). The instructions indicated that if an importer provides
an acceptable explanation for differences in the price or value
information in visas and invoices, then the entry may be accepted
by Customs. Several examples were listed which set forth
acceptable scenarios in light of T.D. 86-56. Although the list
was not exhaustive, the instructions stated that additional
legitimate reasons for differences in the entry documentation may
exist. In HRL 544432 dated January 17, 1990, we ruled that while
T.D. 86-56 was intended to prevent false or erroneous invoicing,
"it was also intended to place upon the importer the burden of
proving the validity of information on the documents and veracity
of the transaction in question in order to properly appraise the
merchandise."
In HRL 544432, the facts involved a breached contract for
the purchase of seasonal apparel, and a subsequent purchase, by a
third party, of the apparel at a greatly reduced price. We ruled
as follows:
Presently, you have not provided the invoices or other
information evidencing the original contract for the
purchase of the merchandise, any information of
cancellation of this contract, or any invoice or other
evidence of the subsequent purchase from your client.
In order to find that the invoice price paid by your
client to the middlemen is the proper price for
appraisement purposes and not the price displayed on
the visaed invoice, the importer is required to provide
these invoices and notices of cancellation....Also
assuming that your client is able to produce the
relevant commercial documentation set forth above, we
would agree that entry could be made using the original
visaed invoice and transaction value as represented by
the "settlement price."
Therefore, assuming that the importer is able to provide
Customs with commercial documentation showing the original
purchase order and a renegotiated invoice price due to late
delivery, entry can be made using the original visaed invoice.
However, the district director for the concerned port of entry
will make the final determination as to whether the documentation
presented establishes that the renegotiated price is the price
actually paid or payable.
HOLDING:
1. When the price of the imported merchandise is
renegotiated prior to the exportation of the merchandise, and
there is no change in the delivery terms, the renegotiated price
becomes the price actually paid or payable for the imported
merchandise. When the price of the imported merchandise is
renegotiated prior to the exportation of the merchandise, and the
delivery terms are changed from FOB to C&F, and the C&F price
includes freight charges, the C&F price, less the international
freight charge included therein, is the price actually paid or
payable for the imported merchandise.
2. A discrepancy between the visaed invoice price of the
imported merchandise and the renegotiated invoice price of the
imported merchandise does not mandate rejection of the entry,
provided that the importer supplies Customs with commercial
documentation sufficient to show the original purchase price and
a renegotiated price due to late delivery.
Sincerely,
John Durant, Director