CLA-2 RR:IT:VA 547926 AML
David R. Ostheimer
Marshall V. Miller
Miller & Company
51st Floor, 233 Broadway
New York, New York 10279
RE: HQ 547798 - Void Ab Initio
Dear Messrs. Ostheimer and Miller:
This is to inform you that Customs has reviewed Headquarters Ruling Letter (“HQ”) 547798, issued to you on August 23, 2000, in which the sales between your confidential client and its foreign suppliers were determined to be sales for exportation within the meaning of §1401a(b)(1) permitting the use of transaction value. HQ 547798 further determined that the retroactive price reductions between unrelated parties, after importation, are not taken into account in determining transaction value. For the reasons set forth below, HQ 547798 is void ab initio.
FACTS:
HQ 547798 set forth the facts under consideration as follows:
[******], Inc. issues purchase orders to its foreign suppliers for products projected for use by its domestic manufacturing facilities. The price between [******], Inc. and its foreign suppliers is agreed upon at the time the shipments are exported to the United States. [******] acts as the importer of record for Customs entry purposes paying all duties and fees, and the merchandise is delivered into Centers for Production Replenishment (CPR), a warehouse supplier. Although [******] is the importer of record, by contract, the risk of loss remains with the exporter, and payment is not due to the exporter until the merchandise is withdrawn from the CPR. The purpose of this arrangement is
that it allows [******] to access products quickly while limiting the inventory on its books. In addition, should the market price for the products drop prior to withdrawal from the CPR, the price paid to the foreign seller is adjusted. The market price is generally the same as the price at the time of shipment but sometimes it is lower depending upon the market demands. We do not address retroactive price increases here, since you state such instances are rare and unanticipated. [******] states that the CPR helps insulate the company from the adverse financial effects of continuing declines in component prices that commonly occur in the computer industry. [******] claims that this adjustment in price takes place after importation and entry. In addition, counsel for [******] explained that the company is not related to its foreign sellers or the CPRs.
ISSUE:
What is the proper method of appraisement of the articles subject to the CPR transactions?
LAW AND ANALYSIS:
During the course of any transaction, it is the responsibility of the importer to provide the Customs Service with all information necessary to make a proper decision. When a ruling request is made, section 177.2 of the Customs Regulations (19 C.F.R. §177.2) sets forth procedures as to the information that must be provided to Customs. These regulations state in relevant part:
(b) Content-(1) Generally. Each request for a ruling must contain a complete statement of all relevant facts relating to the transaction. Such facts include . . . a description of the transaction itself, appropriate in detail to the type of ruling requested.
(2) Description of transaction- (i) Generally. The Customs transaction to which the ruling request relates must be described in sufficient detail to permit the proper application of relevant Customs and related laws.
(iii) Valuation Rulings. If the transaction involves the valuation of an article for Customs purposes, the request for a ruling should describe all of the applicable information described in subpart C of part 152 of this chapter, and, insofar as is relevant, the information which would be required on an invoice as described in subpart F of part 141 of this chapter. The request should also describe the nature of the transaction (whether f.o.b./c.i.f., ex-factory, or some other arrangement), the relationship (if any) of the parties, whether the transaction was at arm’s-length, whether there have been other sales of the same or similar merchandise in the country of importation, whether an agency relationship exists, or any other information relevant to a determination under section 402 or 402a of the Tariff Act of 1930, as amended (19 U.S.C. 1401a, 1402).
In order for an accurate valuation determination to be made, Customs must be provided with a complete set of facts and the onus is on the party seeking a ruling to provide all the necessary information. No contracts or other supporting documentation were submitted with the August 9, 2000, ruling request; thus, Customs relied on your version of the facts when analyzing the issues presented. However, immediately subsequent to the issuance of HQ 547798, Customs learned that there were many permutations to the transactions described in your request for a ruling.
The Regulatory Audit Division obtained copies of several different contracts between your client and its various suppliers that were executed well prior to August 2000 (i.e., prior to July 1999). As you are aware, your client generally enters into what is termed a “Master Supply Agreement” (“MSA”) with its suppliers that sets forth the basic relationship between the parties. A separate contract captioned “Center of Production Replenishment Agreement (CPRA)” is appended to the MSA and delineates the rights and obligations necessary for the “just in time” inventory system. Those contracts present several distinct scenarios and factual bases that differ from those presented in the ruling request, e.g., shipping arrangements and terms, including the provision of insurance and arrangement of shipping; the increase as well as decrease in the price paid for the goods following entry; the passage of title by operation of contract after the expiration of 30 days; a “cover” provision whereby the supplier may, after a period of 4 weeks, sell “forecast” inventory to purchasers other than your client. As a result of these variances and contingencies (which affect the appraisement of the merchandise and Customs ability to reconcile the entries), the Field Director, Regulatory Audit Division, Chicago, Illinois, requested reconsideration of HQ 547798.
At the time HQ 547798 was issued, Customs had no indication that insufficient information had been submitted to warrant the issuance of a ruling as per the terms of sections 177.3 and 177.7 of the Customs Regulations. Based on this omission of relevant facts and supporting documentation in connection with the issuance of HQ 547798, we find that the ruling was void ab initio (i.e., null from the beginning). Accordingly, there is no need to either revoke or modify HQ 547798. (See also, Headquarters Ruling Letters (HQ) 962499, issued February 16, 2000, HQ 960744, issued January 28, 1999, HQ 961505, issued August 20, 1998, and HQ 952349, issued August 17, 1992.) The use of HQ 547798 in the context of any import transactions will raise issues of reasonable care and may result in the imposition of penalties under 19 U.S.C. §1592.
Based on the information submitted to this office by the Regulatory Audit Division, we now conclude that there was insufficient information upon which a ruling could have been based. Further, we believe that the facts are materially different from the facts upon which the ruling was based. See 19 CFR § 177.9(d)(2).
HOLDING:
There were insufficient facts and documentation upon which a ruling could have been based. HQ 547798 is void ab initio. There remain insufficient facts and evidence to determine whether transaction value is the proper basis of appraisement.
Sincerely,
Sandra L. Bell, Director
International Trade Compliance Division