CON-9-CON-9-04-RR:CR:DR 227704 IOR
Port Director
U.S. Customs Service
700 Doug Davis Dr
Atlanta GA 30354
RE: Temporary Importation Under Bond (TIB); transceivers; 9813.00.05, HTSUS; evidence of exportation; sale or sale on approval
Dear Sir:
This is in response to your internal advice request of August 26, 1997 (your file CLA-1:A SD), which was initiated by Telular Corporation’s letter of July 14, 1997, concerning the temporary importation under bond of transceivers. In addition to the information forwarded to Headquarters by your office, we are in receipt of a May 29, 1998 and April 30, 1999 submission of additional information, copies of which are enclosed. We are not enclosing all of the documents referred to in the submissions, but only those that appear to be necessary in order for you to apply this decision. The April 30, 1999 submission followed a September 23, 1998 meeting between representative’s of Telular Corporation and staff of the Office of Regulations and Rulings, U.S. Customs Service.
FACTS:
Under Temporary Importation Bonds (TIB), Telular Corporation (Telular) imports transceivers, which are radio transmitters-receivers that use many of the same components for both transmission and reception. Telular compares them to cellular telephones without a handset. Transceivers permit a person to converse with someone else by using radio waves. Telular takes an imported transceiver and assembles it with its patented interface board into a housing, in the U.S. The resulting product is known as a Fixed Wireless Terminal (F.W.T.). The F.W.T. permits a regular telephone (and other wireline devices such as faxes and modems) to operate over the cellular telephone network. The user plugs a regular telephone into the F.W.T. and it becomes a cellular telephone. The device which gives the regular telephone the capability to function as a cellular telephone is Telular’s interface board. The interface board monitors all of the activities on the telephone and generates all signals required by both the telephone and the transceiver to permit communication over a cellular network using a regular (non-cellular) telephone.
Some of the FWT’s made with the imported transceivers, are sold to a company in the U.S. prior to their export from the U.S. For example, for one company (“Company A”) that Telular sells to, the FWT’s are shipped to the company’s logistics center in Illinois which is a staging area for exports. The facility does not contain any testing capabilities. The units shipped to Company A are in individually packed boxes and are shipped 50 units to a pallet. The shipping specifications come from Company A and are designed so that the merchandise can fit into air or ocean containers. Company A simply builds a crate around the palletized units and exports them. Nothing else is done to the FWT’s. These particular FWT’s are custom manufactured for MATAV of Budapest, Hungary (the Budapest telephone company), and contain MATAV’s logo. Telular knew that these FWT’s were only for export, based on the following: 1) these FWT’s use imported transceivers with a particular operating protocol, 2) Company A gave Telular specifications for the interface board; and 3) discussions and correspondence between Company A’s and Telular’s personnel as to the ultimate purchaser and use of the FWT’s. In addition, the Addendum to the Purchase Order references the fact that the FWT’s were destined for Hungary.
When the transceivers are imported, they are already manufactured with circuitry and software for a particular protocol which is not used in the U.S., and use of the imported transceivers in the U.S. is impossible. The protocol for which a particular transceiver is designed and manufactured limits the use of that transceiver to the area where that particular protocol is used. A protocol for a cellular telephone consists of the particular specifications which have been defined by the cellular telecommunication providers and the governing standards bodies. In the U.S., AMPS protocol is used for analog cellular telephones, and TDMA and CDMA protocols are used for digital cellular telephones. No other protocols are used. The transceivers imported by Telular are manufactured and designed for use with ETACS and GSM protocols, which are primarily used in Europe, and are not used in the U.S. The Federal Communications Commission (FCC) prohibits use in the U.S. of cellular products which utilize the ETACS and GSM protocols, as the use would interfere with operation of certain other wireless sound systems. Transceivers imported by Telular and which are designed and manufactured to operate with the ETACS and GSM protocols, cannot be modified to the AMPS protocol which would permit their operation in the U.S. According to background information prepared by Telular, 100% of Telular’s FWT’s that incorporate ETACS and GSM imported transceivers are shipped to and used by customers outside the U.S. No ETACS or GSM based FWT’s are sold for operation in the U.S., because during the period in question, there were no ETACS or GSM networks operating in the U.S.
Telular has provided photographs of the transceiver, other components of the FWT, and the completed FWT.
From early 1996 through June 1997, Telular has been importing GSM and ETACS transceivers under TIB’s. Telular has imported 87,500 transceivers under TIB’s. With regard to the FWT units sold by Telular in the U.S., Telular has provided documentation with regard to 66,093 units sold to two U.S. purchasers (Company A and “Company B”), and has provided no details with respect to the remaining units sold to U.S. purchasers, and claimed to have been subsequently exported. The initial submission referred to 269 units sold to nine different purchasers in the U.S., however in the April 30, 1999 submission, 220 of those are now included with those having been exported directly by Telular, and the remaining 49 are stated as having been sold to eight different purchasers in the U.S. According to Telular, the information that is provided with respect to Company A and Company B could be provided with respect to all other U.S. customers, however “only at great time and expense.”
The remaining units, 1) were exported directly by Telular (9,940 as of the initial submission and 10,166 as of the April 30, 1999 submission) to 59 different foreign companies; 2) remain in inventory (10,491); 3) or were damaged in testing, were defective, or were destroyed in manufacturing (701). Of the transceivers remaining in inventory, 5,595 are in completed FWT’s and 4,896 are in their condition as imported. Of the 5,595 FWT units in inventory, as they contain transceivers spread across eighteen of the open nineteen TIB’s, and Telular does not expect to be able to sell the FWT’s in the near future, Telular would agree to the assessment of liquidated damages on these units so that the TIB’s can be closed. Of the 4,896 transceivers in raw material inventory, 895 are spread across nine of the open TIB’s and 4001 were entered under one TIB. Telular intends to keep the one TIB open until the transceivers are assembled into FWT’s and sold and exported. As to the 895 transceivers, they are spread across nine of the nineteen open TIB’s and Telular would agree to the assessment of liquidated damages on these units so that the TIB’s can be closed. For the 701 units that were damaged, defective or destroyed, Telular has paid liquidated damage duties on those units in order to close the eight TIB’s under which they were covered.
The transceivers were entered under 27 TIB’s and eight of them have been closed. Nineteen TIB’s remain open and their numbers, dates opened, number of extensions and expiration dates, according to ACS, are as follows:
TIB # Opened Extended Expired
1906436-0 6/26/96 1 6/25/98
1906459-2 7/02/96 1 7/01/98
1906529-2 7/07/96 1 7/06/98
1906543-3 7/10/96 1 7/09/98
1906558-1 7/15/96 1 7/14/98
1906599-5 7/19/96 1 7/18/98
1906621-7 7/28/96 1 7/27/98
19066886 8/02/96 1 8/01/98
1906985-6 10/03/96 2 10/02/99
1906993-0 10/03/96 2 10/02/99
2014917-6 11/22/96 0 11/21/97
1907208-2 11/22/96 2 11/21/99
1907261-1 12/13/96 1 12/12/98
0712160-5* 1/03/97 1 1/02/99
6200912-2 3/27/97 2 3/01/00
6200812-4 4/22/97 2 4/21/00
6200911-4 5/03/97 2 5/02/00
6201116-9 5/30/97 2 5/29/00
6201396-7 6/19/97 2 6/18/00
The transceivers at issue, are broken down in the following categories:
TRANCEIVERS AT ISSUE
QUANTITY DISPOSITION #of TIB’s/ STATUS
62,623 Sold to Company A 13/At issue
1,770 Sold to Company B 10/At issue
49 Sold to 8 different U.S. purchasers 10/Assess liq. damages
1,700 Sold to Company A- warranty replacements 1/At issue
10,166 Sold and exported by Telular 18/At issue
5,595 Remain in inventory in FWT’s 18/Assess liq. damages
4,001 Remain in inventory – one TIB 1/At issue
895 Remain in inventory – nine TIB’s 9/Assess liq. damages
701 Damaged, defective, destroyed 0/Liq. damages paid
87,500 Total
The documentation on the sales of the FWT’s and transceivers is as follows:
1) Company A- 74,800 total units, 62,623 TIB units (Sale 1)
Supply contract between Telular and Company A, dated September 29, 1995. The contract clearly provides that the contract is for the supply of FWT’s to Hungary, and that the FWT’s are to contain all of the modifications required by MATAV (the Budapest telephone company). The contract specifies that ETACS transceivers for the Hungarian market are to be supplied. The contract refers to Hungarian customers other than MATAV, and to ETACS markets outside of Hungary.
Addendum to Purchase Order, dated March 8, 1996. The addendum refers to obtaining and maintaining product approval from the Hungarian Telecommunications Company, PKI and MATAV. PKI stands for Post Kiserleti Intezet, which means “Post Experimental Research Institute”. PKI tested and certified the FWT’s prior to MATAV’s purchase of them from Company A. The contract prices for the FWT’s are “FOB Hungary”.
Amendment No. 1, dated November 11, 1996 to Purchase Order Addendum dated March 8, 1996. Changes price term from “FOB Hungary” to “FOB Atlanta” and adds a sum for FOB Hungary shipments.
Purchase Orders for 66,800 FWT’s produced by Telular for Company A. The 66,800 units include 4,177 transceivers which were not entered pursuant to TIB. 56,800 units were produced in Atlanta, Georgia, and 10,000 units were produced in Vernon Hills, Illinois. The purchase orders for the 56,800 units refer to the FWT model number identified by Telular. The single purchase order for the 10,000 units produced in Illinois, refers to the same part number, states that “payment is contingent on MATAV approval” and instructs that the merchandise be crated for international shipment and gives a Budapest address. The Atlanta purchase orders are dated June 10, 1996, and the Illinois purchase order is dated July 9, 1997.
Telular’s invoices for 74,800 units. The invoices are from Telular to Company A, and are for “Phonecells”, with an item number that is referenced on the purchase orders, as a part number. The item number for the FWT’s from Atlanta is different from the item number for the FWT’s from Illinois, by virtue of an alpha-numeric suffix. The invoices for the FWT’s produced in Illinois indicate that the merchandise is to be shipped to Budapest. The invoices are dated from December 30, 1996 through September, 1997.
Waybills and invoices for exported merchandise. The waybills are for shipment to Hungary and the shipper is Company A. The address of the consignee is in Hungary but on some of the waybills, the consignee’s name and address is obliterated. On the waybills, the description of the nature of the goods varies (generally it is identified as “parts suitable for use with transceivers”). The invoices are from Company A, for merchandise with the same part number as on the Georgia purchase orders, and the merchandise is described as “FWT Telular.” On the invoices the identity and address of the party in the “ship to” section is obliterated, and the party identified as “ultimate” is a party with a Hungary address. The invoices indicate that the merchandise was sold to Company A. The invoices for the 10,000 Illinois units are copies of Telular’s invoices to Company A. The waybills are dated from July 24, 1996 through April 9, 1997.
The documents submitted also include a letter from Company A to Telular, stating that 1) Company A purchased 74,800 FWT’s from Telular for Company A’s project in Hungary (the model number corresponds to the part numbers and item numbers on the other documents); 2) upon receipt in the U.S. by Company A the FWT’s are “immediately exported ...unopened, to our facilities in Hungary and subsequently sold to a single customer for use in Hungary”; and 3) the product “purchased from Telular was specifically purchased for use in Hungary” and “[i]ts application is not appropriate for use on other cellular networks.”
2) Company A – 1,700 TIB units (Sale 2)
In it’s submission of April 30, 1999, Telular states that the 1,700 units were sold to Company A as replacement transceivers for fulfilling warranty obligation to MATAV.
Quotation of price for transceivers. A quote from Telular dated February 16, 1999 to Company A for the sale of 1,700 ETACS radios. The terms are described as FOB, Vernon Hills (Telular’s location). A handwritten note on the document says “[Company A] Hungary”.
Company A’s purchase order to Telular. The purchase order is dated February 17, 1999, and is for 1,700 units of “board with radio” and the same part number as identified on Telular’s quotation. The terms are FOB “origin” and the instructions are for shipment to a domestic address.
Telular’s packing list for shipment to Company A. The packing list is dated February 22, 1999 and is for shipment of 1,700 units of merchandise to Company A, at it’s domestic address. The merchandise is identified by the same part number as on the previous two documents. The itemized packing list identifies only 1,598 total units.
Telular’s invoice to Company A. Telular’s invoice is dated February 19, 1999, and is for 1,700 ETACS units, referencing the same part number as on the other documents. The merchandise is to be shipped to Company A in the U.S.
List of transceivers shipped to Company A. This document lists the serial number of each transceiver shipped to Company A, and identifies all 1,700 transceivers as having been entered under one TIB. The total number of transceivers listed is 1,700.
Telular’s Bill of Lading. The Straight bill of lading is dated February 22, 1999, and shows shipment by Telular, of 52 cartons of transceivers from Telular’s location to Company A’s domestic address. The bill of lading references the same part number as the other documents.
Export shipping documents from Company A. An air waybill dated February 27, 1999 identifies Company A as the shipper and shows the consignee with an address in Madrid, Spain. The airport of destination is Madrid. The merchandise is identified as ETACS transceivers. A shipper’s export declaration shows Company A as the shipper and an address in Madrid, Spain for the consignee. The merchandise is identified as “parts suitable for use with base stations.”
Letter of export from Company A. A letter dated April 12, 1999 from Company A to Telular, states that the merchandise which is the subject of the above documents was shipped to Hungary, unopened and upon receipt. The letter states:
The transceivers purchased from Telular were specifically purchased for use with FWTs previously sold to [Company A’s] customer, Matav, for operation on a [Company A] built ETACS cellular network in Hungary. None of these units were resold to U.S. customers or used in the U.S.
3) Company B - 2,650 total units, 1,770 TIB units
Purchase orders. The purchase orders do not identify any foreign destination of the FWT’s, but the purchase orders are for ETACS, GSM and AMPS merchandise. One purchase order refers to some of the merchandise as phone cells, and one line item on one purchase order refers to ETACS China, however this item was not the subject of a TIB. One of the purchase orders makes a reference to a meeting in China. The number indicated as having been shipped on the purchase orders is greater than the 2,650 units asserted by Telular. The purchase orders are dated from May 6, 1996 through June 11, 1997.
Telular’s invoices to Company B. The invoices identify the merchandise as phonecells (ETACS and GSM), and the total invoiced which are indicated as having been shipped is 2,650, which is the total amount claimed as having been shipped by Telular. Five of the seven invoices have a reference to “Asia” on them, following a domestic “ship to” address. One of the remaining two invoices, for one line item of 1100 ETACS phonecells indicates “China” in parentheses in the line item. The invoices indicate that they are billed to Company B, but are to be shipped to a different domestic company (a few of them indicate shipment is to Company B or a related party). The invoices are dated from March 29, 1996 through August 28, 1997.
Air waybills and bill of lading. The air waybills for FWT’s from Atlanta show either Company B or another domestic company as the shipper, show an address in China for the consignee, and indicate either Hangzhou or Shanghai, China as the airport of destination. The air waybills identify the merchandise as “mobile network access interface.” The air waybills and one bill of lading for FWT’s from Illinois show Company B as the shipper, show either an address in China or Hong Kong for the consignee, and the destination is shown as Hong Kong. The documents identify the merchandise as “network access terminals”, “access terminal interface” and “electrical N.O.S.” The air waybills and bill of lading are dated from April 5, 1996 through April 9, 1998.
List of TIB transceivers shipped. This document lists the serial number of each transceiver shipped to Company B, and identifies the TIB under which each transceiver was entered. The total number of transceivers listed is 1,770.
Letter to Telular from Company B. In a letter dated May 13, 1998, Company B states that it purchased 2,650 FWT’s from Telular, and that upon receipt of the FWT’s at a U.S. warehouse/freight forwarder, all of the FWT’s were immediately exported by Company B, unopened, to customers for use in Hong Kong. The letter from Company B states that the FWT’s were specifically purchased for use in Hong Kong and “none of these units were resold to U.S. customers or used in the U.S.”
4) Telular’s exportations to foreign companies – 10,166 TIB units
TIB transaction totals and Telular invoices. Telular has provided a list showing each of the 59 foreign companies, the number of TIB units sold to each company and the number of invoices covering the sales to each company. The attached documents for each customer identify the TIB under which the units sold were entered, and the number sold under each TIB. All of the invoices are attached. The invoices are from Telular and most of the billing and shipping addresses are foreign. However with respect to documents from six of the 59 companies, one invoice in each set shows either a U.S. shipping address, or it is indicated that the transaction is for “customer pick-up” or hand-delivery. For one of the six customers, two invoices show U.S. shipping addrresses, and for another of the six customer one shipping address is in the U.S., and another is illegible. The six companies are Abtel Corporation SDN. BHD., Alston Garrard & Co., Beamlight Holdings SDN. BHD., Celltec SARL, Promotel, and Teledata SDN BHD. In the case of a seventh company, Afritel, the invoice shows a foreign shipping address, but a U.S. billing address. We note that in the May 22, 1998 submission, the sales to Afritel were listed among the sales made to U.S. based customers, and in the April 30, 1999 submission those sales are listed as having been exported directly by Telular. The sales to Afritel account for 196 of the transceivers.
ISSUES:
1. Whether the sales of the described transceivers, which are manufactured into Fixed Wireless Terminals and sold to U.S. purchasers for exportation, violate the provisions of subheading 9813.00.05, HTSUS?
2. Whether the sales of the described transceivers which are manufactured into FWT’s and are sold to foreign purchasers have satisfied the requirements of subheading 9813.00.05, HTSUS?
LAW AND ANALYSIS:
Under subheading 9813.00.05, HTSUSA, articles to be repaired, altered or processed (including processes which result in articles manufactured or produced in the United States), may be entered temporarily free of duty, under bond, for exportation within one year from the date of importation (emphasis added). This period may be extended for one or more additional periods, which when added to the initial period does not exceed three years. U.S. Note 1(a) of Subchapter XIII, Chapter 98, HTSUS. In order to qualify for admission in the U.S. without payment of duty, under this provision, the subject merchandise may not be imported for sale or sale on approval. Id. Any processing that amounts to a manufacture or production of articles must include a complete accounting to the Customs Service for all articles, wastes, or irrecoverable losses resulting from the processing, and all articles and valuable wastes resulting from such processing must be exported or destroyed under Customs supervision within the bonded period; except that in lieu of the exportation or destruction of valuable wastes, duties may be tendered on such wastes at rates of duties in effect for such wastes at the time of importation. See U.S. Note 2(b) of subchapter XIII, Chapter 98, HTSUS.
As emphasized above, a processing that results in articles manufactured or produced would qualify as a permissible operation under subheading 9813.00.05, HTSUS. Whether a process constitutes a manufacture or production is often at issue in drawback operations under title 19, United States Code, section 1313, since it is a statutory requirement. Customs has consistently relied on court decisions where there is a question of whether a processing constitutes a manufacture or production for purposes of drawback. In Anheuser-Busch Brewing Association v. United States, 207 U.S. 556, 28 S.Ct. 204 (1907), it was held that a “...manufacture implies a change, but every change is not a manufacture, and yet every change in an article is the result of treatment, labor, and manipulation. But something more is necessary...[T]here must be transformation; a new and different article must emerge, having a distinctive name, character, or use.”
In this case, we find that the FWT, produced by Telular incorporating the transceiver is a new and different article, with a distinctive name, character, and use. The remaining issue is whether the merchandise was imported for sale or sale on approval within the meaning of the applicable TIB regulations, 19 CFR 10.31, by virtue of the sales to the domestic purchasers, and whether exportation has been established for purposes of canceling the TIB’s.
The courts and Customs have interpreted the provision regarding sale or sale on approval. The provision itself does not differentiate between merchandise sold for domestic consumption versus merchandise sold for export. In Louise & Co. v. United States, 8 Ct. Cust. Appls. 430, T.D. 37669 (1918), the court interpreted the 1913 Act provision. The decision dealt with two companies: Louise & Co. and La Mode Importing Co., however, only the facts of La Mode were discussed. La Mode imported gowns for use as manufacturing models. After that use, La Mode sold the gowns to Robinson & Co. of Winnipeg, Canada. Pursuant to that sale, the gowns were sent to the Canadian buyer, although the details of the sale and the shipment to Canada were not reported in this decision or the decision of the Board of General Appraisers, T.D. 37590 (1918). The Board of General Appraisers held that any sale came within the proscription. That holding was reversed by the appellate court. The appellate court held that if the sale was to effect or complete the exportation, the sale was outside the proscription. That is, if a sale is the means by which the goods are carried out of the country and exported, there is no violation.
In Grab Fashion Co. et al v. U.S., 10 Ct. Cust. Appls. 42, T.D. 38262 (1920), the court again interpreted the provision in the 1913 Act. The court affirmed the Board’s decision that a proscribed sale and offer for sale occurred notwithstanding the fact that some of the goods were exported. The court found that “when the garments were received in New York, they were immediately placed upon inspection for sale or rent to other manufacturers of women’s garments.” The court noted that “[n]otices in writing or by telephone were promptly sent to numerous customers of the importers advising them of the receipt of the garments and commending the articles as desirable models of the season’s styles, and also requesting that the customers call without delay to inspect them.” See, 10 Ct. Cust. Appls. at 42.
Customs, has followed the courts’ interpretations. In T.D. 54624(25)(1958), Customs stated that merchandise which is to be sold in the United States for exportation to a foreign purchaser is not imported for sale or sale on approval within the meaning of section 308 (the TIB provision at that time), and that the phrase “for sale or sale on approval” relates “only to sales within the United States for domestic use or consumption.” Customs has held “[m]erchandise which is sold in the United states for export to a foreign purchaser is not considered imported for sale or sale on approval within the meaning of the TIB regulations.” See, HQ 225700, dated June 16, 1995, citing C.S.D. 79-96, T.D. 54640 (25).
A ruling published as C.S.D. 79-96 involved two contracts. McDonnell-Douglas imported two wings and empennages from Canada to make two DC-10 aircraft. McDonnell-Douglas had a sales contract with Laker Airways of England, for Laker to buy the two aircraft. The sale that was the subject of the ruling was Laker’s assignment of its purchase contract to Mitsui of Japan. The contract was assigned to Mitsui as a means of getting sufficient financing to complete the purchase with McDonnell-Douglas so that the aircraft could be exported. In HQ 227362, dated December 8, we concluded that in C.S.D. 79-96, the sole purpose of the sales contract was to effectuate the exportation.
In HQ 227362, the foregoing decisions were applied to the following facts: The Egyptian Navy agreed to purchase three new vessels from the U.S. company Paramax. Paramax contracted with Swiftships for Swiftships to build the vessels and with Thoray to provide sonar systems for the vessels. Thoray imported the sonar kits under TIB, and sold them to Paramax which integrated the kits with the rest of the electronic system. Paramax then sold the sonar systems to Swiftships, which then delivered the ships to the Egyptian Navy.
We determined in HQ 227362, that unlike in Louise & Co. v. United States, and C.S.D. 79-96, the sale between Thoray and Parmax was not to effectuate the act of moving the goods out of the country, but to permit the sonar system to be built into the ships in this country. We concluded that the sale was for the purpose of domestic consumption or use in the U.S.
In HQ 227512, dated October 5, 1998, the two sets of facts we considered were as follows: 1) KBK U.S. ordered titanium alloy from Oremet, U.S., for shipment to KBK, Japan, in Japan. A bill of lading for domestic shipment showed Oremet as the shipper and KBK, U.S. as the consignee. A second bill of lading for the shipment of the merchandise from the U.S. to Japan showed KBK, U.S. as the shipper and KBK, Japan as the consignee. 2) Trahide ordered titanium sponge from Oremet. The purchase order, dated November 10, 1995, from Trahide indicates the sale would be FOB Portland, Oregon. Oremet’s invoice, dated December 6, 1995, referenced the purchase order. An Oremet truck bill of lading indicated the delivery of the merchandise to a specific vessel, for shipment to Peru. The ocean bill of lading was for shipment of the merchandise from Seattle, Washington to Peru, and was dated December 13, 1995.
We determined in HQ 227512, with respect to the first transaction, that as the KBK, U.S. purchase order stated that the merchandise was destined for Japan, the documentary evidence showed that the intent of the sale was to carry out the exportation. This intention was further supported by the reference on the invoice to the purchase order. We found that the purpose of the sale was to effect the exportation and that the transaction came within the court’s interpretation of Louise & Co. v. United States. With respect to the second transaction, we found that the facts therein fit more closely with the circumstances in Grab Fashion Co. et al v. U.S. than with those in Louise & Co. v. United States. Regarding the second transaction, we determined that although the merchandise was exported, the evidence failed to show that the Oremet to Trahide sale was incident to that exportation. Our decision was based on the facts that 1) the Trahide purchase order to Oremet showed no foreign destination; 2) the terms of sale, “FOB Portland, Oregon” do not indicate a foreign destination; 3) the trucking bill of lading shows that the shipment destination in the transaction terms was changed from Portland to Seattle; and 4) the movement of the merchandise was not started until almost one month after the purchase was made.
In the instant case, applying the analysis used in C.S.D. 79-96, HQ 227362 and HQ 227512, based on the evidence submitted, the purpose of the first sale to Company A was to effect the exportation of the merchandise and the sale clearly fits within the court’s determination of a permissible sale as found in Louise & Co. v. United States. It is clear from the documents, beginning with the supply contract, that from the inception of the transaction, the FWT’s are for the Hungarian market. The subsequent documents continue to support that the destination of the FWT’s is Hungary. The first purchase order from Telular’s customer A was made on September 29, 1995. There was a modification on March 8, 1996, which dealt with obtaining product approval from the Hungarian telecommunications company. The TIB entries in issue were made beginning on June 26, 1996, about nine months after the purchase order which clearly showed that Hungary was the destination. The second and third purchase orders from Telular’s customer A are dated June 10, 1996, a date which also precedes the first importation in issue, and July 9, 1997. The text of the orders clearly show Hungary as the destination.
The purpose of the sale to Company B is not as apparent, however, there are more indications of an intent to sell for export than were present in the second transaction in HQ 227512, or in Grab Fashion Co. et al v. U.S. While Telular and Company B did not have a supply contract as did Telular and Company A, Telular’s invoices to Company B, did indicate shipment to Asia, are dated prior to and at the same times as the purchase orders, and combined with the fact that ultimately they were exported to Asia, and the merchandise was of little use domestically, we find that the purpose of the sale was to effect the exportation of the merchandise, and the sale was not in violation of the TIB provision.
With respect to the 49 transceivers imported under TIB and sold to domestic purchasers, the TIB cannot be canceled without actual evidence of the sale for exportation such as that discussed with respect to the sales to Company A (Sale 1) and Company B. Without more, the fact alone that the FWT’s cannot be used in any way in the U.S. is not sufficient evidence of sale for exportation to cancel the TIB bonds. It would leave open the possibility for a domestic vendor of FWT’s to purchase the FWT from Telular and keep it in inventory until receipt of a foreign purchase order for it. Such a sale would violate the prohibition against a sale. Telular has stated that it does not feel it is a good use of its resources to track down the documentation pertaining to the sales to the eight customers, and would agree to pay liquidated damage duty on these 49 units. Liquidated damages however cannot be simply limited to the 49 units. The claim for liquidated damages must be on the entire TIB entry. To the extent that the importer shows that some of the goods did not violate the TIB terms, the demand could be cancelled for a lesser sum.
With respect to the 1,700 transceivers sold to Company A for replacement under warranty, there is no evidence in the documents provided that at the time of the sale the merchandise was intended specifically either for export or as replacement parts. As in HQ 227512, we find that although there is evidence that the merchandise was exported, the evidence does not show that the sale was incident to exportation. The April 12, 1999 letter of export from Company A states that the merchandise was exported but does not address any communication between Telular and Company A regarding export at the inception of the transaction, and there is no evidence of such in the transaction documents.
The TIB laws provide an exemption from the general imposition of duty on imported merchandise. A general requirement of the TIB laws is a prohibition against sale. The sale for export exemption from that general prohibition is an exception to that prohibition. Entitlement to an exception requires satisfactory evidence. Guess? Inc. v. United States, 944 F.2d 855, 9 Fed Cir 111, 115 (1991). The issue turns on intent of the sale. Intent is a state of mind and can only be inferred from acts and circumstances. It is clear that expressions of intent may be for self-serving purposes. American Customs Brokerage (a/c Astral Corp. v. United States, 72 Cust. Ct. 245 (1974). See also AK Steel Corp. v. United States, 34 F. Supp. 2d 756 (CIT 1998). With respect to affidavits, in the case of Andy Mohan Inc. v. United States, 537 F.2d 516, 63 CCPA 104, 107 (1976), the court found that affidavits made years after the events to which they attest and based on unproduced records, are entitled to little weight. The letter of April 12, 1999 from Telular’s customer A is likewise unpersuasive that this sale fell within the exception.
We find that the sale of 1,700 units to Company A in this instance was prohibited under the TIB provisions. Accordingly, the TIB under which the 1,700 transceivers were entered cannot be closed without assessment of liquidated damages. We note that this TIB was extended twice, and the merchandise was exported within the three-year time period in which the merchandise had to be exported or destroyed. However, it does not appear that the imported transceivers were subject to any repair, alteration or processing and were sold in the same condition as they were imported. Thus the imported transceivers may not have met the TIB requirement in any event.
With respect to the 10,166 units of transceivers that Telular states it has sold and exported, Telular has provided copies of invoices for those sales and lists correlating the TIB’s with the transceiver units shipped. We find that with respect to the sales to 51 of the foreign customers, whose invoices had foreign addresses for both the shipping and billing information, the sales were incident to exportation of the merchandise. Those sales appear to be typical sales for exportation, such as would satisfy TIB requirements. However, prior to closing any of the TIB’s related to those sales or making any determinations on the assessment of liquidated damages, Telular should be requested to verify actual exportation with air waybills or bills of lading to the extent as ordinarily would be required before any TIB is closed, as such information was not provided at all, but is said to exist. With respect to the six sales for which the shipping address is a U.S. address, Telular should be required to provide purchase orders and air waybills or bills of lading in order to determine whether the sale was incident to the exportation, using an analysis such as was used for the sales to Companies A and B, before any determination can be made as to the related TIB’s. With respect to the sale of 196 units to Afritel, for which a U.S. billing address is provided, Telular should also be required to provide purchase orders and air waybills or bills of lading in order to determine whether the sale was incident to the exportation, using an analysis such as was used for the sales to Companies A and B, before any determination can be made as to the related TIB’s. We note that in the May, 1998 submission this transaction was identified as being a sale to a U.S. based company.
With respect to the 5,595 units remaining in inventory in FWT’s, as they contain transceivers spread across eighteen of the open nineteen TIB’s, and Telular does not expect to be able to sell the FWT’s in the near future, Telular would agree to the assessment of liquidated damages on these units so that the TIB’s can be closed. We also note that of the 18 TIB’s , as of January 2, 2000, the three year’s time in which to export or destroy the merchandise will have expired with respect to all but five of the TIB’s. We agree that if the merchandise under the remaining five TIB’s, which have been extended twice, is not exported or destroyed within the meaning of the TIB provision, within the three-year time period, all eighteen of the TIB’s have been breached, and as of January 2, 2000, all of the remaining 13 TIB’s have been breached.
With respect to the 4,001 transceivers remaining in inventory under one TIB, the three year time period in which the merchandise may be exported or destroyed within the meaning of the TIB provision, expired on November 21, 1999. Therefore, the TIB under which those units were entered has been breached.
With respect to the 895 transceivers remaining in inventory, as they are spread across nine of the nineteen open TIB’s, Telular would agree to the assessment of liquidated damages on these units so that the TIB’s can be closed. We note that for five of the nine TIB’s the three-year time period in which the merchandise may be exported or destroyed within the meaning of the TIB provision expired by January 2, 2000 (even with extensions), and those TIB’s have been breached. With respect to the remaining four TIB’s, Telular’s submission indicates that extensions have been made into 2000 (March to June), and therefore those TIB’s have not been breached as of the time of this decision.
With respect to the 701 units which are defective or have been damaged or destroyed, liquidated dmages have already been paid on the TIB’s related to those units, the TIB’s have been closed, and they are no longer in issue.
In order to otherwise satisfy the requirements of the TIB’s, the entire group of transceivers imported under any one bond, must have been either exported or destroyed. For example, although Customs may be satisfied that the bond was not breached with respect to the 1,770 transceivers sold to Company B, before the bond can be closed without a breach, Customs must be satisfied that all of the remaining tranceivers entered under the same bonds have also been timely exported or destroyed within the requirements of the TIB provision.
Please not that this decision addresses only the issue of breach of the bond requirements and not the applicability of liquidated damages or any petition of relief from those damages, or compliance with procedures under 19 CFR Part 172, concerning liquidated damages.
HOLDING:
1. Sales of the described transceivers, manufactured into Fixed Wireless Terminals, to U.S. purchasers for exportation, are not in violation of subheading 9813.00.520, HTSUS, provided the evidence shows the sale was incident to the exportation.
2. The sales of the described transceivers, manufactured into Fixed Wireless Terminals, to foreign purchasers, satisfy the requirements of subheading 9813.00.520, HTSUS, provided the sale is clearly to a foreign purchaser and the merchandise is exported.
You are to mail this decision to the internal advice applicant no later than 60 days from the date of this letter. On that date, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
John Durant
Director,
Commercial Rulings Division
Enc