OT:RR:CTF:VS H133044 SEK
Area Director, Port of San Juan
Attention: Import Specialist Branch
#1 La Puntilla Street
Old San Juan, PR 00901
RE: Application for Further Review, Protest 4909-10-100053; Seller Discount
Dear Area Director:
The purpose of this correspondence is to address the Application for Further Review (“AFR”) of Protest Number: 4909-10-100053, dated September 14, 2010. The Importer of Record and Protesting Party is Skiva International, Inc. (“protestant”). The protestant is represented by counsel.
This protest decision is being issued subsequent to the following: (1) a review of the submission dated September 14, 2010; and (2) a review of the documents that accompanied the submission of September 14, 2010.
FACTS:
According to the September 14, 2010 submission, protestant regularly purchases footwear from several unrelated suppliers in Taiwan and Hong Kong. Protestant claims that each of the sellers agree prior to shipment that goods purchased by the protestant are subject to a 2% discount on the seller’s price, which is called a “damage allowance.” The damage allowance is an alternative to requiring the importer to seek refunds on defective merchandise after importation in the event that a particular shoe or shoes are found to be damaged or defective. Protestant asserts that the 2% discount offered by the sellers to the protestant is unconditional and no specified purchasing obligations are placed on protestant in connection with this discount.
Protestant asserts that it regularly issues a letter of credit to the foreign supplier at the time of order placement. This letter of credit sets forth the order number, style number, ordered quantity, price per pair, ship date of the goods, and states that a 2% discount on the seller’s price applies. The commercial invoices issued by the suppliers for the subject merchandise reflect the total price of the goods, the amount of the discount, and the discounted (net) price. The importer only pays the discounted or net price. To support this contention, the protestant provides the following: (1) a letter of credit from the protestant to JJL Fashion Footwear (“seller”) which states “2 percent discount of invoice value must be reflected on all commercial invoices for damage allowance”; (2) a commercial invoice dated July 2, 2009, issued by the seller to the protestant, which reflects the total amount of the goods, the 2% discount, and the discounted (net) price of the goods; (3) a proof of payment for the goods confirming that the total price paid by the protestant to the seller was the discounted (net) price; and (4) a CBP Form 7501showing that the goods were declared at the discounted (net) price.
The merchandise at issue was entered at the discounted value. At the time of liquidation, CBP disallowed the discount and liquidated the entry for a duty based on the undiscounted value. The protestant challenges the liquidation at an appraised value that disregards the 2% discount afforded to the protestant by the foreign seller.
ISSUE:
Whether the discounted prices, agreed to prior to importation, provided unconditionally by the seller to the protestant, and reflected on commercial invoices, constitute the price actually paid or payable for the imported merchandise.
LAW AND ANALYSIS:
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 preferred 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 certain enumerated additions.
Section 402(b)(4)(A) of the TAA defines the term “price actually paid or payable” as:
The total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation 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 Customs and Border Protection (“CBP”) Regulations further provide that the price actually paid or payable “will be considered without regard to its method of derivation. It may be the result of discounts, or negotiations, or may be arrived at by the application of a formula…” 19 CFR § 152.103(a)(1). Thus, where a seller discounts its price for certain merchandise to a buyer, and the discount is agreed to and effected prior to importation of the merchandise, the discounted price constitutes the “price actually paid or payable” for the merchandise. See Headquarters Ruling Letters (“HRL”) 547019, dated March 31, 2000, and HRL 545659, dated October 25, 1995. Although the protestant describes this particular discount as a “damage allowance,” it qualifies as a discount since it is not dependent on the existence of any actual damaged or defective merchandise.
CBP has consistently enumerated three criteria in determining whether a discount or price adjustment should be considered part of the transaction value of imported merchandise. See HRL W563462, dated October 11, 2006. First, the discount or price adjustment must be agreed on prior to the importation of the merchandise. See Allied International v. United States, 16 CIT 545, 795 F. Supp. 449 (1992) (importer required to affirmatively show that there was a pre-importation agreement for the claimed discount).
The second criterion is that the importer must be able to furnish CBP with sufficient documentary evidence to support the existence of the discount and establish that it was agreed to before the time of entry. See HRL 547144, dated November 20, 1998 (appraised value may reflect discount when supplier’s invoices indicated total price, 5% reduction and the discounted price); HRL 545659, dated October 25, 1995 (unconditional discount factored into the value declared at the time of entry and reflected on the invoice presented to Customs may be taken into account in determining transaction value); and HRL 546037, dated January 31, 1996 (discount disallowed when importer failed to submit evidence that it took advantage of 2% discount for payment within 45 days of the invoice date).
The third criterion requires that the discount or price adjustment be unconditional, or if conditional, all the conditions must be met prior to importation. This criterion was discussed in HRL 545659, supra, in which CBP determined that a discount was unconditional when there were no specified purchasing obligations placed on the customer. In that case, CBP held that unconditional discounts, which were reflected on the invoices presented to CBP, could be factored into the declared value of the merchandise. CBP also concluded that, if a conditional discount is agreed to before entry at the time of order placement, and the discount is reflected on the entry documentation presented to CBP, the conditional discount may be used to determine transaction value.
As applied, we must initially consider whether the discounts at issue are agreed upon prior to the importation of the merchandise. While there is no separate written agreement between protestant and seller regarding the unconditional 2% discount, protestant claims that the protestant and the sellers have agreed to a 2% discount on the sellers’ price, and this agreement is confirmed in advance of each shipment on the letter of credit that protestant issues at the time of order placement. The letter of credit sets forth the order number, style number, order quantity, price per pair, shipping date, and states that a 2% discount applies. Most importantly, the discounted amount is reflected on the invoices from seller to protestant and on the entry documentation.
We must next consider whether the documentary evidence provided to CBP is sufficient to support the existence of the discounts and to establish that they were agreed upon before the time of entry. The import specialist determined that the 2% discount was not allowed because the protestant did not establish that there was a written agreement before the time of entry and prior to the importation of the merchandise. The facts in this case are similar to that of HRL 545659, supra, where Customs found that in the absence of a written agreement establishing an unconditional discount, entry documentation and invoices reflecting the discount were sufficient documentary evidence. Consequently, it is our opinion that such documentary evidence will support the existence of the discount and establish that the discount was agreed to before entry. Accordingly, the second criterion is satisfied in this case.
The third criterion requires that the discount or price adjustment be unconditional, or if conditional, all the conditions must be met prior to importation. In support of the assertion that the discounts in this case are unconditional, protestant’s submission of September 14, 2010 states the following:
The 2% discount offered by the sellers to [protestant] is unconditional and no specified purchasing obligations are placed on [protestant] in connection with this discount. (Further, the discount is not dependent upon whether or not any particular goods are actually damaged or defective, but rather is offered as a commercial accommodation in lieu of having the importer claim refunds on particular damaged goods on or after importation.) See September 14, 2010 Submission, p. 2, ¶ 1.
Accordingly, we agree that the discounts under consideration are unconditional and that the third criterion is satisfied.
Based on the information submitted, we find that the three criteria used to determine whether a discount or price adjustment should be considered part of the transaction value of imported merchandise, have been satisfied in this case. Therefore, we find that the 2% discount met CBP’s established criteria for price adjustments and may be used to determine the price actually paid or payable for the imported merchandise.
HOLDING:
The available evidence supports the conclusion that the discounted prices, which were agreed to prior to importation and applied unconditionally, constitute the price actually paid or payable for the imported merchandise.
You are to GRANT this protest. In accordance with the Protest/Petition Processing Handbook (CIS HB, December 2007), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the office of Regulations and Rulings 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