OT:RR:CTF:VS H200463 EE
Port Director
U.S. Customs and Border Protection
330 2nd Ave. South Suite 560
Minneapolis, MN 55401
RE: Application for Further Review of Protest Nos. 3501-11-100107 and 3501-11-100108; Appraisement of Merchandise; Dehydrated Garlic
Dear Port Director:
This is in response to an Application for Further Review (“AFR”) of Protest Nos. 3501-11-100107 and 3501-11-100108, timely filed by counsel on October 14, 2011, on behalf of the importers, Grand International, Inc. (“GII”) and Grand International Group, Inc. (“GIG”) (hereinafter, the “protestants”), concerning the appraisement of certain dehydrated garlic.
FACTS:
The merchandise subject to the protests at issue, certain dehydrated garlic, was entered by the protestants between April 28, 2009 and October 15, 2009 based on the sale between Shanghai New Long March International Trade Co., Ltd., the foreign seller, and the protestants less freight, duties and fees, and brokerage charges. The commercial invoices submitted indicate that they are issued by the foreign seller to the protestants and list “CFR Des Moines” term of sale. On August 25, 2011, U.S. Customs and Border Protection (“CBP”) issued a Notice of Action (CBP Form 29) which advised the protestants that based on an audit conducted by the Chicago Field Office of the Regulatory Audit Division in 2011, the merchandise was undervalued and was being value advanced. Subsequently, CBP liquidated the entries on September 16, 2011 based on the sale between foreign seller and William E. Martin & Sons, LLC. (“William E. Martin”), the U.S. buyer, as noted on the commercial invoices issued by the protestants to William E. Martin which list “Ex Dock Des Moines” term of sale. CBP did not allow deductions for freight as the alleged international transportation costs could not be substantiated. CBP did allow for deductions for duties and fees actually paid. The protestants’ bank statements reflecting payment to the foreign seller and receipt of payment from the U.S. buyer were submitted. It is stated that the protestants retained a 2 percent fee from the payment they received from William E. Martin, paid Champon & Yung Inc. (“Champon & Yung”), the selling agent, a 2 percent commission, paid Ken Lehat & Associates, Inc. (“Ken Lehat & Associates”), the customs broker, an amount for brokerage and duties, paid for certain minor expenses, and remitted the balance to the foreign seller. Invoices issued by Ken Lehat & Associates to the protestants listing the duty deposit and broker fees and invoices from Champon & Yung to the protestants listing commission fees were submitted. Counsel for the protestants filed protests on October 14, 2011, claiming that (1) the entries are deemed liquidated by operation of law one year after the date of entry, and alternatively that (2) the appraisement should have allowed for a deduction for duties payable on account of the importation of the merchandise and of ocean freight costs.
ISSUES:
Whether the entries liquidated by operation of law.
What is the proper method of appraisement for the imported merchandise under 19 U.S.C. § 1401a(b)?
LAW AND ANALYSIS:
We note that the protests and AFR were timely filed under the statutory and regulatory provisions for protests (19 U.S.C. § 1514; 19 C.F.R. pt. 174). We also note that the issues protested are protestable issues (19 U.S.C. § 1514).
Deemed Liquidation
As an initial matter, the protestants contest the timeliness of the liquidations. The protestants claim that they did not receive the notices of extension for the subject entries from CBP, and therefore, the entries were deemed liquidated under 19 U.S.C. § 1504 at the rate and amount of duties assessed as entered.
As previously noted, the entries were made between April 28, 2009 and October 15, 2009. A verification of CBP’s Automated Commercial System (“ACS”) indicates that, in compliance with CBP Regulations 19 C.F.R. § 159.12, the first notices of extension for the entries, which were issued on December 5, 2009, extended the liquidation period to April 28, 2011 through October 15, 2011, respectively. The second notices of extension, which were issued between January 8, 2011 and June 25, 2011, and before the first extension period expired, extended the liquidation period to April 28, 2012 through October 15, 2012, respectively. Insofar as CBP timely extended the foregoing entries, and liquidation occurred on September 16, 2011, before the expiration of these extensions, these entries did not liquidate by operation of law by virtue of being extended over the three-year period allowable for extensions.
The ACS record is sufficient to create the presumption that proper notice of extension was given. See International Cargo & Surety Insurance Co. (Data Memory Corp.) v. United States, 779 F.Supp. 174 (1991). The protestant has not attempted to rebut the presumption that proper notices of extension were sent by CBP. The protestant’s assertion that the notices of extension were not sent to the importer is insufficient to rebut the presumption in favor of CBP. See Headquarters Ruling Letter (“HQ”) W967653, dated July 31, 2008; HQ W563043, dated October 18, 2006.
Valuation
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. § 1401a). The primary 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 five enumerated additions to the extent that each such amount is not otherwise included within the price actually paid or payable. 19 U.S.C. § 1401a(b)(1).
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) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.
19 U.S.C. § 1401a(b)(4)(A).
The enumerated additions to the price actually paid or payable include the value of any selling commissions incurred by the buyer with respect to the imported merchandise. A “selling commission” is any commission paid to the seller’s agent, who is related to or controlled by, or works for or on behalf of, the manufacturer or the seller. 19 C.F.R. § 152.102(b). Bona fide buying commissions, however, are not included in transaction value as part of the price actually paid or payable or as an addition thereto. See Pier 1 Imports, Inc. v. United States¸13 Ct. Int’l Trade 161, 164, 708 F. Supp. 351, 354 (1989); Rosenthal-Netter, Inc. v. United States, 12 Ct. Int’l Trade 77, 78, 679 F. Supp. 21, 23 (1988), aff’d, 861 F.2d 261 (Fed. Cir. 1988); and Jay-Arr Slimwear, Inc. v. United States, 12 Ct. Int’l Trade 133, 136, 681 F. Supp. 875, 878 (1988). The existence of a bona fide buying commission depends upon the relevant factors of the individual case. J.C. Penney Purchasing Corp. v. United States, 80 Cust. Ct. 84, 95, C.D. 4741, 451 F. Supp. 973, 983 (1978). 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, Inc., 13 Ct. Int’l Trade at 164; Rosenthal-Netter, Inc., 12 Ct. Int’l Trade at 78; and New Trends, Inc. v. United States, 10 Ct. Int’l Trade 637, 640, 645 F. Supp. 957, 960 (1986).
Although no single factor is determinative, the primary consideration in determining whether an agency relationship exists is the right of the principal to control the agent’s conduct with respect to those matters entrusted to the agent. Pier 1 Imports, Inc., 13 Ct. Int’l Trade at 164; Rosenthal-Netter, Inc., 12 Ct. Int’l Trade at 79; and Jay-Arr Slimwear, 12 Ct. Int’l Trade at 138. In addition, the courts have examined such factors as the existence of a buying agency agreement; whether the importer could have purchased directly from the manufacturers without employing an agent; whether the agent was financially detached from the manufacturer of the merchandise; and the transaction documents. See J.C. Penney Purchasing Corp., 80 Cust. Ct. at 95-98. The courts have also examined whether the purported agent’s actions were primarily for the benefit of the principal; whether the agent bore the risk of loss for damaged, lost or defective merchandise; whether the agent was responsible for the shipping and handling and the costs thereof; and whether the intermediary was operating an independent business, primarily for its own benefit. See New Trends, Inc., 10 Ct. Int’l Trade at 640-643.
In the instant case, according to counsel for the protestants, the foreign seller established all terms of sale, including the price for the merchandise, directly with William E. Martin or through Champon & Yung, its selling agent (a company unrelated to the protestants). Counsel provided an email correspondence between Champon & Yung and William E. Martin which shows that they can negotiate directly without employing the protestants. According to counsel, the protestants acted on behalf of the foreign seller as importers of record and arranged for payment. The foreign seller instructed the protestants to collect payment from William E. Martin and from the proceeds retain a 2 percent fee for their service, pay Champon & Yung a 2 percent commission, pay Ken Lehat & Associates the amount for brokerage and duties, and other minor expenses incurred by the protestants such as occasional FDA inspection fees. The balance was then remitted to the foreign seller. Based on the protestants’ bank statements, this amount was far greater than the invoice amount shown from the foreign seller to the protestants which the protestant used to make entry and upon which duties were collected. We note that the terms of sale on the invoices between the foreign seller and the protestants and the invoices between the protestants and William E. Martin suggest that the protestants assumed risk of loss temporarily (from the time the goods were on board the vessel at the port of shipment until they were unloaded on dock at port of discharge); however, the protestants did not acquire the merchandise since it was directly delivered to William E. Martin. Additionally, the protestants were not responsible for shipping and handling costs. Based on the totality of the circumstances in this case, we find that the protestants act as selling agents on behalf of the foreign seller. Accordingly, the protestants’ 2 percent commission is a selling commission which should be included in the price actually paid or payable for the imported merchandise. The 2 percent commission paid to the seller’s agent, Champon & Yung, is also included in the price actually paid or payable for the imported merchandise as selling commissions.
In Treasury Decision (“T.D.”) 00-20, CBP reiterated its longstanding position that with regard to freight, insurance and other costs incident to international shipment, including foreign inland freight, the importer of record must deduct the actual costs for these charges from the price actually paid or payable in determining transaction value, if these costs are included in the price actually paid or payable. The notice advised that CBP considers actual costs to constitute those amounts ultimately paid to the international carrier, freight forwarder, insurance company or other appropriate provider of such services. Commercial documents to and from the service provider such as an invoice or written contract separately listing freight/insurance costs, a freight/insurance bill, a through bill of lading or proof of payment of the freight/insurance charges (i.e., letters of credit, checks, bank statements) are examples of some documents which typically serve as proof of such actual costs. Other types of evidence may be acceptable.
For six of the eight entries at issue, no evidence of actual costs such as bills or invoices from the carrier or freight forwarder were submitted. Consequently, the freight costs may not be deducted from the price actually paid or payable for those entries. For the remaining two entries, counsel submitted International Freight Forwarding Special Invoices as evidence of actual freight costs. The International Freight Forwarding Special Invoices are mostly in Chinese, so we are unable to determine to whom they were issued and what the list of charges on the invoices consist of. Accordingly, no deduction may be made for these charges.
The protestants claim that CBP should have deducted the amount for customs duties, MPF, and HMF that they should have paid based on the reappraisement of the merchandise rather than the customs duties, MPF, and HMF actually paid at the time of entry.
In order to deduct non-dutiable charges included in the invoice price, CBP must be satisfied that such prices include the non-dutiable charges and the amount of such charges must be ascertainable. See HQ 546318, dated December 31, 1996. In the instant case, a deduction of additional duties as a result of reappraisement is improper because the duties were calculated based on the reported values at entry which represented the amounts listed on the fictitious invoices between the foreign seller and the protestants. Therefore, we agree with the Port that the only duties to be deducted are those that the protestants actually paid at the time of entry and not an amount based on the reappraisement of the merchandise based on the price actually paid or payable by William E. Martin.
HOLDING:
In conformity with the foregoing, the protest is DENIED.
The entries were not deemed liquidated by operation of law.
The imported merchandise shall be appraised under transaction value based on the price actually paid or payable by William E. Martin.
The protestants’ and Champon & Yung’s commissions are selling commissions which are already included in the price actually paid or payable for the imported merchandise; therefore, no adjustments are necessary for these amounts.
The international freight charges should not be deducted from the price actually paid or payable for the imported merchandise.
The duties to be deducted from the price actually paid or payable are the duties actually paid at the time of entry because the information presented on these charges was inadequate.
In accordance with the Protest/Petition Processing Handbook (CIS HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the CBP Form 19, to the protestant no later than sixty days from the date of this letter. Sixty days from the date of the decision Regulations and Rulings of the Office of International Trade 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,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division