VAL CO:R:C:V 545121 er
District Director
Boston, Massachusetts 02222-1059
RE: Deductions of Freight Charges for Late Delivery Shipments
from the Appraised Value of Merchandise; Request for
Internal Advice xxxxxx.
Dear Sir:
This is in response to your memorandum dated September 9,
1992, forwarding the request for reconsideration or clarification,
or in the alternative, the request for internal advice, dated May
29, 1992, submitted by counsel on behalf of their client,
xxxxxxxxxxxxxxxxxxxx Counsel's submission follows the issuance of
HRL 544646 (December 23, 1991), a ruling issued in response to
Further Review Protest (FRP) xxxxxxxxxxxxxx which was also filed by
counsel on behalf of xxxxxxxxxxxxxx, the importer. We regret the
delay in responding.
FACTS:
In both HRL 544646 and under the instant circumstances, the
importer contracts with various sellers for the purchase of wearing
apparel on an FOB basis. The delivery dates are specified by
purchase order. The importer has late delivery agreements with the
various sellers with whom it does business. The late delivery
agreements state that if the seller fails to make delivery within
15 calendar days of the quoted completion date and if the importer
agrees to accept late delivery, then the seller is obligated to
ship the merchandise by air and to assume the cost of the air
freight in excess of the sea freight which the importer would have
paid had the merchandise been shipped by ocean on an FOB basis.
In HRL 544646 the goods were shipped freight collect. The
terms of payment were by Letter of Credit with the importer
securing from the manufacturer, directly or through its buying
agent, a refund for the cost of the air freight, minus the average
amount of the sea freight which the importer would have paid had
the delivery been timely. In that ruling Customs found that "the
file, contracts and late delivery agreement do not indicate that
the change in delivery terms was ever reflected as a change in the
price actually paid or payable." Even though the parties to the
contract entered into the late delivery agreement prior to the
exportation of the goods, no adjustments for freight charges could
be made to the transaction value because there was insufficient
evidence to support a finding that the freight charges had been
included in the price actually paid or payable for the imported
merchandise.
Counsel for the importer characterizes the terms of the late
delivery agreement as specifying that in the event of late
delivery, the order is cancelled; provided, however, that with [the
importer's] authorization the merchandise will be accepted as long
as the seller ships the goods by air at the seller's expense. [The
importer] then is to reimburse the seller the amount for the
average sea freight which [the importer] would have paid under FOB
terms, if delivery had been timely. Under this arrangement, the
seller is supposed to change the terms of the commercial invoice
from FOB, Hong Kong to C&F, Boston and to add a statement on the
invoice identifying that the there is to be a reimbursement
allowance for the average sea freight. Following issuance of HRL
544646, counsel for the importer advised that the issue presented
to Headquarters in HRL 544646 concerned only one of four situations
which arise in connection with late deliveries. Although the three
other situations involve the same late delivery agreements, the
manner in which the terms of the late delivery agreements may be
carried out differ from HRL 544646.
The other three possible scenarios are as follows. In some
circumstances, the terms of the late delivery agreement are fully
complied with and the seller ships the merchandise freight prepaid
noting that the terms of the purchase are C&F instead of FOB and
that an allowance will be granted to the manufacturer for the cost
of the estimated sea freight. In other instances, the manufacturer
erroneously states FOB terms on the invoice. And lastly, the
manufacturer may ship the goods freight collect and the importer
deducts the cost of freight from its payment to the vendor.
ISSUE:
Under the terms of a late delivery agreement, whether an
adjustment can be made to the transaction value of the merchandise
where:
1. The terms of the agreement are fully complied
with and the seller ships the merchandise
freight prepaid noting on the invoice that the
terms of purchase are C&F and that an
allowance will be granted to the seller for
the average sea freight; or
2. Same facts as (1), except the seller
mistakenly states FOB instead of C&F on the
invoice; or
3. The goods are shipped freight collect and the
importer deducts the cost of the freight from
its payment to the manufacturer.
LAW AND ANALYSIS:
The primary basis of appraisement under the valuation statute,
section 402 of the Tariff Act of 1930, as amended by the Trade
agreements Act of 1979 (TAA), is transaction value. This is
defined in section 402(b) of the TAA as "the price actually paid or
payable for the imported merchandise when sold for exportation to
the United States, " plus amounts for packing costs which are
incurred by the buyer, any selling commission, the value of any
assist, any royalty or license fee the buyer is required to pay as
a condition of the sale, and the proceeds of any subsequent resale
that accrue to the seller.
The price actually paid or payable is defined in section
402(b)(4)(A) of the TAA as the "total payment, . . . made, or to be
made, for the merchandise by the buyer to . . . the seller." The
price actually paid or payable does not include 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.
Issues one and two are very similar to those in Esprit v.
United States, Court No. 91-05-00406, slip. op 93-43 (CIT March 26,
1993), where the court found that there was no evidence to support
a finding that shipping charges were a part of, or that price
reductions were made to, the price actually paid or payable for
imported merchandise. There, plaintiff made an argument
parallelling that made by the importer in the instant case, that
because the letter of credit stated that a late shipment would be
subject to cancellation, payment of the freight differential was a
renegotiation of the original contract. Plaintiff contended that
the late shipment agreement, negotiated prior to shipment to the
United States, was a price discount and the methodology used to
calculate the discount was the freight differential. The court
found that the evidence submitted by plaintiff simply confirmed
that the manufacturer reimbursed the importer for the additional
cost of the air freight, an issue not in dispute, and that there
was nothing to indicate that the manufacturer's assumption of the
additional expense was a price discount.
Under the facts presented for issues one and two, the parties
do not appear to contemplate a change in the price of the goods nor
is any evidence presented to support a finding that freight charges
were ever part of the price; rather, what is contemplated is a
change in who will assume the additional shipping costs in
instances of late delivery. The price of the goods remains the
same. The original order in HRL 544546 called for an FOB price.
That was the price paid by the importer and it did not include a
value for freight when negotiated on the original purchase order.
It is immaterial that the late delivery agreements are in existence
before the time of exportation unless there is also evidence that
the parties intended to adjust the "price actually paid or payable"
for the goods in the event of late delivery. In HRL 544546,
Customs found that the documents presented as evidence of the
parties' intent to adjust the price were unpersuasive. In the
absence of any new documents or evidence which might indicate that
the seller's assumption of the additional cost of air freight
constitutes a price discount, Customs cannot find that the amount
paid for the freight is non-dutiable. Therefore, because 19 U.S.C.
1401a(b)(4)(A) excludes transportation costs from the price
calculation and 19 U.S.C. 1401a(b)(4)(B) disregards any rebate
after the date of importation, the transaction value of the
merchandise would remain unchanged.
Under the third issue, if the original purchase order
contained a provision acknowledging that the price actually paid or
payable would be reduced in the event of a late shipment, then
consistent with C.S.D. 83-62 (February 15, 1983) it is possible
that the reduced amount paid would represent transaction value. In
C.S.D. 83-62 an agreement between the parties made a pre-
exportation change to the contract price of the goods by an amount
equal to the difference between the estimated cost of shipping the
goods by ocean freight and the actual cost of the faster means of
transportation. The invoice price which represented the
transaction value for appraisement purposes under section 402(b) of
the TAA was, accordingly, reduced prior to the shipment of the
goods and no amount beyond the value shown on the invoice was
remitted to the seller. In the instance case, however, the late
delivery agreement makes no reference to a reduction in the price
actually paid or payable should the goods be late. Hence there
appears to be no agreement at the time of exportation, and any
subsequent reduction would constitute a decrease after the date of
importation which must be disregarded in determining transaction
value.
HOLDING:
In the absence of any new documents or evidence that the
parties intended to effect an adjustment to the price actually paid
or payable for the imported merchandise prior to exportation or
that freight charges were part of that price, Customs is unable to
rule that an adjustment to the transaction value would be
warranted.
This decision should be mailed by your office to the internal
advice requester no later than 60 days from the date of this
letter. On that date the Office of Regulations and Rulings will
take steps to make the decision available to Customs personnel via
the Customs Rulings Module in ACS and the public via the Diskette
Subscription Service, Lexis, Freedom of Information Act and other
public access channels.
Sincerely,
John Durant, Director
Commercial Rulings Division