OT:RR:CTF:VS HQ H326891 UBB/AMW
Center Director
Agriculture and Prepared Products CEE
U.S. Customs and Border Protection
301 E. Ocean Bl., Fl. 14
Long Beach, CA 90802-4826
Attn: Carl Vickerson, Senior Import Specialist
RE: Application for Further Review of Protest No. 130322103681; Green Food Ingredients LLC; "First Sale" Appraisement; Multi-Tiered Transaction
Dear Center Director,
This is in reference to the Application for Further Review ("AFR") of Protest No. 130322103681, timely filed on July 7, 2022, on behalf of Green Food Ingredients LLC ("Green Food" or "the protestant"), concerning the appraisement of certain dehydrated garlic products.
FACTS:
Green Food is a U.S. importer of dehydrated garlic from China. Green Food, along with a related company that is not the subject of this protest, Lunong Ingredients LLC, imported dehydrated garlic from two related Chinese sellers, Jinxiang Lunong Agricultural Trading Co., LTD ("Jinxiang") and Shandong Lunong Food Technology Co., LTD ("Shandong"). The importations that are the subject of this protest and AFR were sold by Jinxiang. Both Jinxiang and Shandong are owned/affiliated to an owner of Green Food. The subject merchandise was sold and shipped directly to McCormick & Co. ("McCormick"), an unrelated party, or to a warehouse designated by McCormick.
The entry subject to this protest was also the subject of a "quick response" audit by U.S. Customs and Border Protection's ("CBP") Trade Regulatory Audit ("Regulatory Audit" or "CBP auditors"). The audit concluded in September 2022 and determined Green Food's entries (including the entry subject to this protest) were undervalued, resulting in an underpayment of duties, Merchandise Processing Fees ("MPF"), and Harbor Maintenance Fees ("HMF"). Before the audit was finalized, Green Food filed this protest.
According to the protestant, Green Food and Jinxiang are "wholly separate" corporations and Green Food's manager and part-owner in the United States has significant amount of autonomy to handle imports, sales, travel, and to seek and engage customers. Green Food has not provided any documentary evidence to support this statement. Indeed, the manager and part owner of both Green Food and Jinxiang, Xian Shao, is the same individual who signed Green Food's invoices to McCormick. Green Food claims that pricing generally quoted to the ultimate customer is based upon Green Food's own understanding of factory prices. The U.S. customer then issues a purchase order to Green Food and Green Food transfers the purchase order to Jinxiang to process the sale. Green Food has provided copies of the purchase orders at issue in this matter. They are issued by McCormick to Green Food, note a direct shipment to McCormick and a "ZDP Prepaid-Destination (CPT)" term of delivery. In the protest, Green Food states that, "[i]f profits are not high enough for Green Food, the price can be negotiated[,]" however it is unclear from this statement whether this refers to a price being negotiated with Jinxiang or with McCormick (the U.S. buyer). Nevertheless, Green Food also states that the "pricing process may be somewhat affected by the relationship of the parties, but this is common in related-party sales." Based upon information and documents shared with Regulatory Audit, it appears that once a shipment is ready, Jinxiang ships the merchandise, ostensibly to Green Food at its U.S. address, although the notify party is Green Food's customs broker, who receives the merchandise and arranges shipment within the United States to the merchandise's destination as determined by McCormick. At no point does the merchandise enter a warehouse managed or paid for by Green Food.
Green Food has provided a series of documents to support the stated transaction. Together with its entry, Green Food submitted the following:
. Two commercial invoices dated June 1, 2018, issued by Jinxiang to Green Food in Burr Ridge, IL ("original invoices"), both dated July 23, 2018, showing a CIF (cost, insurance, freight) term of sale (Qingdao to Baltimore) for two totes of roasted garlic granules (21,229 kg and 24,495 kg respectively, for a total of 45,724 kg) at a cost of $38,212.20 and $44,091, respectively, for a total of $82,303.20). The invoice also noted a freight cost of $12,475 and insurance expenses of $271.60;
. Insurance documents covering the delivery to the Port of Baltimore, showing the payor and insured as Jinxiang, which corroborates that Jinxiang paid for the insurance but does not corroborate the amount of the premium, listing it only "as arranged";
. A packing list that shows two totes of 36 sacks each of roasted garlic granules for a total gross weight of 47,486 kg;
. A bill of lading showing the shipper as Jinxiang, the consignee as Green Food, and the notify party as Green Food's customs broker, port of loading Qingdao and port of delivery Baltimore, showing a total of 72 packages of roasted garlic granules for a gross weight of 47,486 kg and noting "freight prepaid"; and
. An invoice from Green Food's customs broker, including the original entry documents showing duties, HMF and MPF paid on behalf of Green Food (the Importer of Record, or "IOR").
During the audit, Green Food supplied the following additional documentation, which also relates to the subject entry:
. Adjusted post-entry invoices dated July 23, 2018, ("adjusted invoice") between Jinxiang and Green Food in Burr Ridge, IL, for two orders of granulated garlic (lot number LN18148) both showing a "DDP A&S" total price. The first invoice (No. 00138056) for 54,000 lbs (approx. 24,493 kg) for a total amount of $86,243.40. The second invoice (No. 00138057) for 46,800 lbs (approx. 21,228 kg) for a total amount of $64,462.32;
. Invoices dated July 23, 2018, sent by Green Food to McCormick, for two orders of granulated garlic both showing a "DDP A&S" total price. The first invoice (No. 00188082) for 54,000 lbs (approx. 24,493 kg) for a total amount of $102,060. The second invoice (No. 00188083) for 46,800 lbs (approx. 21,228 kg) for a total amount of $76,284;
. Purchase orders from McCormick to Green Food, for two orders of granulated garlic (noting manufacturer Lunong Ingredients LLC) for direct shipment to McCormick's consignee, A&S Services Group, LLC in Cockeysville, MD. The first (No. 4501651654) for 54,000 lbs of granulated garlic and a quoted price of $102,060. The second (No. 4501652777) for 46,800 lbs of granulated garlic and a quoted price of $76,284; and
. Documents showing inland freight and delivery from Baltimore port to McCormick's designated warehouse (i.e., the A&S warehouse in Cockeysville, MD), arranged by Green Food's customs broker.
Green Food, through its customs broker, entered the subject merchandise on the basis of the original invoice, paying duties and fees on that basis. In their protest, Green Food claims that this invoice was an "estimated amount required to be received by Jinxiang from Green Food in order to ensure economic viability." According to Green Food, Jinxiang "incorrectly understood that because of the relationship of the parties, no strict requirements were applied to this initial, estimated cost allocation." After the arrival of the shipment, Jinxiang sent Green Food an adjusted invoice "designed to include a further-evaluated price that includes all raw materials, production costs, freight, profit and other relevant outlays." Once Green Food received payment from McCormick, it "wired the appropriate payment to China based on the adjusted invoice." Green Food did not provide proof of payment, either from McCormick to Green Food, or from Green Food to Jinxiang as part of this protest. Green Food did provide proof of lump sum payments to Jinxiang as part of its audit response, however CBP auditors were not provided with a direct tie to the proof of payment for the adjusted invoices at issue in this transaction (or the two other transactions that are the subject of protests suspended under this protest).
On September 14, 2023, our office requested information and documents that would constitute a complete paper trail of the transactions in question, including proof of payments. On October 10, 2023, Green Food provided their response, noting that as this entry (and the two related entries) were the subject of the audit that had already taken place, Green Food had previously submitted all the information they believed necessary to decide the protest and that any other submissions would be duplicative. For that reason, the analysis and decision that follows relies entirely on the documents submitted by Green Food during the audit and the protest currently at issue.
On September 27, 2022, Regulatory Audit issued an audit report related to Green Food's import of garlic products finding undervaluation in all entry summary lines, resulting in an underpayment of $589,623 for the period September 25, 2017, through February 18, 2019 (during which time the subject entry was made). Green Food argues that the transaction between Jinxiang and Green Food was a bona fide sale and should be used as the basis for transaction value.
ISSUES:
1. Whether there was a bona fide sale between Jinxiang and Green Food?
2. What is the proper method of appraisement for the imported merchandise?
LAW AND ANALYSIS:
Initially, we note that the matter is protestable under 19 U.S.C. 1514(a)(1) as a decision on the value of merchandise. The protest was timely filed, within 180 days of liquidation. See Miscellaneous Trade and Technical Corrections Act of 2004, Pub. L. 108-429, 2103(2)(B)(ii)-(iii) (codified as amended at 19 U.S.C. 1514(c)(3) (2006)). Further Review of this protest is properly accorded to the importer pursuant to 19 C.F.R. 174.24(b) because the issues protested involve questions of law or fact, which have not been ruled upon.
Merchandise imported into the United States is appraised for customs purposes 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 amounts for certain statutorily enumerated additions to the extent not otherwise included in the price actually paid or payable. See 19 U.S.C. 1401a(b)(1). When transaction value cannot be applied, the appraised value is determined based on the other valuation methods in the order specified in 19 U.S.C. 1401a(a).
Whether there was a Bona Fide Sale Between Jinxiang and Green Food?
In Nissho Iwai American Corp. v. United States, 16 C.I.T. 86, 786 F. Supp. 1002, reversed in part, 982 F. 2d 505 (Fed. Cir. 1992), and Synergy Sport International, Ltd. v. United States, Slip Op. 93-5 (CIT Jan 12, 1993), the Court of Appeals for the Federal Circuit and the Court of International Trade, respectively, reviewed the standard for determining transaction value when there is more than one sale which may be considered as being for exportation to the United States. Both cases involved a foreign manufacturer, a middleman, and a U.S. purchaser. In each case, the court held that the price paid by the middleman/importer to the manufacturer was the proper basis for transaction value. Each court further stated that for a transaction to be viable under the valuation statute, it must be a sale negotiated at arm's length, free from any nonmarket influences, and involving goods clearly destined for the United States.
In accordance with Nissho Iwai and Synergy as well as prior CBP rulings, we presume that transaction value is based on the price paid by the importer. However, it will be the importer's responsibility to show that the "first sale" price is acceptable under the standard set forth in Nissho Iwai and Synergy. That is, the importer must present sufficient evidence that the alleged sale was a bona fide "arm's length sale," and that it was "a sale for export to the United States," within the meaning of 19 U.S.C. 1401a.
In Treasury Decision (T.D.) 96-87, dated January 2, 1997, Customs advised that the importer must provide a description of the roles of the parties involved and must supply relevant documentation addressing each transaction that was involved in the exportation of the merchandise to the United States. The documents may include, but are not limited to purchase orders, invoices, proof of payment, contracts, and any additional documents (e.g., correspondence) that establishes how the parties deal with one another. The objective is to provide CBP with "a complete paper trail of the imported merchandise showing the structure of the entire transaction." T.D. 96-87 further provides that the importer must also inform CBP of any statutory additions and their amounts. If unable to do so, the sale between the middleman and the manufacturer cannot form the basis of transaction value.
Before it can be determined whether the alleged sales by Jinxiang to Green Food were at arm's length and clearly destined for the United States, it must first be established that the purported sale between the two entities was a bona fide sale. For transaction value to be used as a method of appraisement, there must be a bona fide sale between the buyer and seller. In VWP of America, Inc. v. United States, 175 F.3d 1327 (Fed. Cir. 1999), the Court of Appeals for the Federal Circuit found that the term "sold" for purposes of 19 U.S.C. 1401a(b)(1) means a transfer of title from one party to another for consideration, (citing J.L. Wood v. United States, 62 C.C.P.A. 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974)). In determining whether property or ownership has been transferred, CBP considers whether the potential buyer has assumed the risk of loss and acquired title to the imported merchandise. See Headquarters Ruling ("HQ") 548239, dated June 5, 2003. Contracts, distribution and other agreements, invoices, purchase orders, bills of lading, proof of payment, correspondence between the parties, and company reports all may serve as evidence that a party possesses title in and assumes the risk of loss for the imported merchandise and functions as a buyer or a seller. Such documentation should be consistent in its entirety and with the transaction. See, e.g., HQ H326633, dated September 20, 2022.
As noted above, CBP may examine whether the purported buyer paid for the goods (i.e., consideration passed between the potential buyer and seller for the imported merchandise). See HQ 545474, dated August 25, 1995; and HQ 545709, dated May 12, 1995. Evidence that would establish that consideration has passed from one party to another party includes evidence of payment by check, bank transfer, or payment by any other commercially acceptable manner, and it also is necessary to demonstrate that payment was made for the imported merchandise in question. General transfers of money from one corporate entity to another that cannot be linked to a specific import transaction are not sufficient to show passage of consideration between the parties with respect to that import transaction. See, e.g., HQ 545705, dated January 27, 1995.
Other factors that CBP will consider in determining whether a bona fide sale occurred include whether, in general, the roles of the parties and circumstances of the transaction indicate that the parties were functioning as buyer and seller. See HQ 548239, dated June 5, 2003. Specifically, CBP considers as evidence of a valid buyer-seller relationship whether the buyer provided or could provide instructions to the seller, was free to sell the transferred item at any price he or she desired, selected or could select its own downstream customers without consulting with the seller, and could order the imported merchandise and have it delivered for its own inventory. See HQ 545474. While several factors may indicate that a bona fide sale occurred between the purported buyer and seller, no single factor is determinative. See VWP, 175 F.3d at 1339 ("[A] determination that goods are being sold or assembled for exportation to the United States is fact-specific and can only be made on a case-by-case basis")
In the present matter, there is no clear evidence the title or risk of loss passed from Jinxiang to Green Food. For instance, no sales contracts exist between Jinxiang and Green Food. Nonetheless, the shipping terms contained in the applicable documents may be instructive to the risk of loss. Green Food entered the merchandise with an "original" invoice between Jinxiang and Green Food that included a CIF term of sale (Qingdao to Baltimore) and a total cost of $82,303.20 (including a freight cost of $12,475 and insurance expenses of $271.60). However, during the audit, Green Food presented two adjusted, post-entry invoices for the same merchandise that showed a DDP (including thereafter "A&S," presumably in reference to the A&S Services warehouse in Maryland) price for $86,243.40 and $64,462.32, respectively. Neither of the adjusted invoices included break-out amounts for insurance or freight. During the audit, Green Food also provided invoices between Green Food and McCormick for the same merchandise showing a DDP "A&S" total price of $102,060 and $76,284, respectively. Meanwhile, the purchase orders issued by McCormick to Green Food for the subject entry note a direct shipment to McCormick's consignee A&S Services Group and a "ZDP Prepaid-Destination (CPT)" term of delivery, and the invoice issued by Green Food to McCormick indicates that the purchase price is based on "delivered duty paid" ("DDP" and "A&S") terms. Green Food acknowledges that use of the "original" invoice was erroneous; therefore, we rely on the post-entry adjusted invoices. Under the adjusted invoices, the terms of sale between Jinxiang and Green Food and between Green Food and McCormick were both DDP. A DDP transaction is a destination contract, whereupon risk of loss transfers from the seller to the buyer at the named place of destination, which in this case is the location of the U.S. customer, McCormick's consignee, A&S Services Group in Maryland.
Whenever there is a purported series of sales, and the same terms of sale are used in both transactions, there is a concern that the middleman obtains risk of loss and title only momentarily or never at all, and thus has nothing to sell to the ultimate purchaser. See HQ H286286, dated June 9, 2018 (citing HQ H016966, dated December 17, 2007). In such situations the middleman may be a buying or selling agent rather than an independent buyer/seller, and the sale will be said to occur between the party identified as the first seller and the ultimate U.S. purchaser. This issue has been discussed in various rulings. See, e.g., HQ H016966, dated December 17, 2007; HQ 546192, dated February 23, 1996; and HQ 548520, July 20, 2004. Here, the use of identical terms of sale in both sets of invoices (i.e., those issued by Jinxiang to Green Food and Green Food to McCormick) suggests that there is only one sale, namely that between Jinxiang and the ultimate U.S. customer, McCormick. In addition, we note that both sets of invoices (i.e., between Jinxiang and Green Food, and Green Food and McCormick) share the same format and dates (both issued July 23, 2018), which further corroborates a finding that the title and risk of loss passed instantaneously.
Next, Green Food has provided no clear evidence that consideration passed between itself and Jinxiang for the subject merchandise. Green Food provided a "bank statement" for the period of May 1, 2018, through July 31, 2018. As reflected in the statement, Green Food made rounded lump sum payments to Jinxiang and received payments from McCormick. The statement does not contain specific information enabling CBP to reconcile the credit/debit activities to the invoices associated with the entry in question. As a result, it is not possible to make a direct tie to receipt of payment for the invoices issued by Jinxiang to Green Food or the invoices issued by Green Food to McCormick. See HQ H307028, dated February 2, 2021 (citing HQ 545705) ("a general transfer of money from one corporate entity to another, which cannot be linked to a specific import transaction, does not demonstrate passage of consideration.")
In addition, the roles of the parties and the circumstances of the transaction also indicate that Jinxiang and Green Food were not acting as buyer and seller. Green Food and Jinxiang are related parties. In its protest, Green Food concedes that Xinjiang and Green Food are related parties, although Green Food does not provide additional details on the exact relationship between the parties. In a review of open-source corporate documents, furthermore, CBP found that the same individual, Xian Shao, is identified as a manager for both Green Food and Xinjiang. In addition, this same individual signed the invoices issued by Green Food to McCormick. Despite this relationship, Green Food has provided no evidence that it is empowered to operate independently from the Jinxiang. Furthermore, Green Food has provided no evidence supporting a finding that the company provided or could provide instructions to the seller, Jinxiang, that it was free to sell the subject merchandise at any price it desired, could select its own customers without consulting Jinxiang, or could order the imported merchandise and have it delivered for its own inventory. Indeed, with respect to the latter criteria, the available evidence indicates that Jinxiang shipped the subject merchandise directly to McCormick or to a warehouse designated by McCormick (i.e., A&S), and that no merchandise ever entered or passed through a facility owned by Green Food.
Finally, as required in T.D. 96-87, Green Food has not provided "a complete paper trail of the imported merchandise showing the structure of the entire transaction" between itself and Jinxiang. As outlined above, through the audit and subsequent communication with this office, Green Food provided the following documentation: purchase orders issued by McCormick to Green Food; "original" and "revised" invoices issued by Jinxiang to Green Food; invoices issued by Green Food to McCormick; international freight and insurance documents covering the shipment of the merchandise until delivery through the Port of Baltimore to A&S Services' Cockeysville, MD warehouse at Jinxiang's expense and risk; a bill of lading showing delivery from Qingdao to Baltimore; a packing list showing Jinxiang as the shipper and the merchandise going to Green Food with the destination listed as Baltimore, MD; documents submitted by Green Food's customs broker showing duties, MPF and HMF paid on the original entry; and a bank statement containing debits and credits to Green Food's account. Nevertheless, Green Food failed to provide purchase orders between itself and Jinxiang, specific proof of payment between itself and Jinxiang, contracts or other agreements between itself and Jinxiang, or any additional information demonstrating the relationship between these entities. This office contacted Green Food's attorney to request additional information, including any outstanding documents related to the transaction between Jinxiang and Green Food. In response, Green Food's attorney declined to provide additional documentation.
Accordingly, based on the information provided, we determine that the circumstances relating to the purported sale between Jinxiang and Green Food, and the level of documentation provided, are not indicative of a transfer of title and risk of loss between Jinxiang and Green Food. Instead, all information and documents presented, as well as the findings of Regulatory Audit, lead us to conclude that the bona fide sale for exportation to the United States for customs purposes occurred between Jinxiang and the U.S. end customer, McCormick. Therefore, Green Food may not use the related-party price between itself and Jinxiang as the transaction value for the merchandise.
Furthermore, even if there was a "bona fide sale" between Jinxiang and Green Food, the transaction value proposed by the parties would not be acceptable. Transaction value between a related buyer and seller is acceptable only if the transaction satisfies one of the two tests: (1) circumstances of the sale; or (2) test values. See 19 U.S.C. 1401a(b)(2)(B); 19 C.F.R. 152.103(l). Green Food provided no evidence that the transaction value of imported merchandise approximates one of the "test values" under 19 U.S.C. 1401a(b)(2)(B).
Under the "circumstances of the sale" test, CBP looks for evidence showing that the parties' relationship did not affect the price paid or payable. All relevant aspects of the transaction are analyzed including the way the buyer and seller organize their commercial relations and the way that the price was determined. Three examples that demonstrate that a relationship will not influence the price are provided in 19 CFR 152.103(l): (i) the price was settled in a manner consistent with the normal pricing practices of the industry in question; (ii) the price was settled in a manner consistent with the way the seller settles prices for sales to buyers who are not related to it; or (iii) the price is adequate to ensure recovery of all costs plus a profit that is equivalent to the firm's overall profit realized over a representative period of time in sales of merchandise of the same class or kind.
Green Food does not address the circumstances of sale test, relying only on an argument that the sale between Jinxiang and Green Food constitutes a bona fide sale. Green Food states that it is a "wholly separate" corporation from its supplier, Jinxiang, with separated purchases, sales, costs, expenses and accounting systems. Green Food states that its manager and part-owner has a "great deal of autonomy" and handles all importation and sales matters, travels to and attends sales conventions and conferences, may seek and engage new customers, and has often held shipments for customers in warehouses while awaiting delivery on a control. Green Food provides no proof to corroborate these statements and it is not known whether Green Food has any other customers other than McCormick. Green Food states that the price it quotes to its ultimate customer is based on its knowledge of the factory prices, but does not provide any information relating to any of the three prongs of 19 CFR 152.103(l). As such, we have no information on whether the price between Green Food and Jinxiang was settled in a manner consistent with the normal pricing practices of the industry in question or consistent with the way it settles prices with unrelated parties (or indeed, if either party engages in transactions with unrelated parties at all). We also have no information on Jinxiang or Green Food's costs and profit levels, making it impossible to determine whether the price between Jinxiang and Green Food was adequate to ensure that Jinxiang recovered all costs plus a representative profit. Because Green Food cannot demonstrate that its relationship with Jinxiang did not influence the price, transaction value between Green Food and Jinxiang is unacceptable even if there were a bona fide sale between the two entities.
What is the Proper Method of Valuation?
CBP typically presumes that the price paid by the importer is the appropriate basis for determining transaction value. See, e.g., HQ H316892, dated July 20, 2022; and HQ H005222, dated June 13, 2007 (citing Treasury Decision ("T.D.") 96-87, 30 Cust. Bull. 52/1, dated January 1, 1997). Nevertheless, in a multi-tier transaction in which the purchase price between a foreign exporter and a related U.S. importer cannot be used as a basis for transaction value, the purchase price paid by a U.S. customer to an unrelated U.S. importer may serve as the basis of a transaction value appraisal where a bona fide sale for export to the United States exists. In La Perla Fashions v. United States, 22 CIT 393, 9 F. Supp. 2d 698 (1998), aff'd, 185 F.3d 885 (Fed. Cir. 1999), for instance, the Court of International Trade ("CIT") reviewed a three-tier transaction in which a U.S. importer purchased merchandise from its Italian parent company and resold the merchandise to unrelated retailers in the United States. The CIT upheld CBP's determination to utilize the transaction value based on the purchase price paid by the unrelated U.S. buyers to the U.S. importer. In doing so, the CIT found that the transaction between the unrelated U.S. purchasers and the U.S. importer represented the only bona fide sale of the multi-tiered transaction. Furthermore, the CIT rejected the plaintiff's argument that the sale by the importer to its U.S. customers was a domestic sale and not a sale for export. See also HQ H309839, dated September 9, 2020 (finding that there was only one bona fide sale in a multi-tiered transaction, and as in La Perla Fashions, that was the sale between the U.S. importer and its unrelated U.S. customers).
As in La Perla Fashions, the instant matter involves a tiered transaction between a U.S. importer and its related foreign seller and between the importer and an unrelated U.S. buyer (in this case McCormick). As McCormick is unrelated to Green Food, the transaction is presumed to be at "arm's length" and a bona fide transaction. See, e.g., HQ H255442, dated October 9, 2014 ("As the parties are unrelated, the sale between them is presumed to be at arm's length.") Furthermore, the sale between Green Food and McCormick constitutes a sale for exportation because the merchandise was clearly destined for the United States when sold to McCormick. As outlined above, the purchase orders issued by McCormick to Green Food are transmitted to Jinxiang for fulfillment. The subject merchandise is then shipped directly from Jinxiang to the United States, being sent either to McCormick or a warehouse designated by McCormick. As a result, the proper method of valuation is the transaction value based on the purchase orders issued by McCormick to Green Food.
Next, Green Food maintains that even if CBP determines transaction value is properly based on the price paid by McCormick to Green Food, the method used by Regulatory Audit to calculate the loss of revenue is incorrect. Specifically, Green Food argues that in determining the loss of revenue, CBP should have deducted the amount of duties Green Food should have paid (that is, based on the transaction value between McCormick and Green Food) and not the amount of duties actually paid at the time of importation based on the price between Green Food and Jinxiang. Regulatory Audit disagrees with Green Food, arguing any duties included in the price paid by McCormick to Green Food were based on the amount of duty actually paid and not on the additional duty due under reappraisement. Specifically, the Audit Report argues, "it is not ascertainable that the pricing to McCormick included the duties and fees payable, but rather factored the duty and fee savings achieved by Green Food and its related sellers...."
Where transaction value is based on the price actually payable on a duty-paid invoice price, the proper amount to be deducted is the actual amount of duties paid. The price actually paid or payable is defined in 19 U.S.C. 1401a(b)(4) as "the 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." As outlined in 19 U.S.C. 1401a(b)(3), the transaction value of merchandise does not include "customs duties and other Federal taxes currently payable on the imported merchandise by reason of its importation, and any Federal excise tax on, or measured by the value of, such merchandise for which vendors in the United States are ordinarily liable." In order to deduct duties or other non-dutiable charges from the invoice price, CBP must be satisfied that the invoice price includes the duties and the amount of such duties must be ascertainable. See HQ 546318, dated December 31, 1996; and HQ H200463, dated July 23, 2013. With respect to the deduction of duties from the price actually paid or payable, CBP has consistently held that where duties are included in the invoice price, the proper amount of duty to be deducted is the actual duty paid. See, e.g,. HQ H301408, dated May 26, 2021 (citing HQ 542401, dated May 21, 1981). And, in fact, the deduction is limited to the extent the amount of duty paid is included in the invoice price paid by the buyer. Id. In doing so, CBP has previously elaborated that permitting an importer to deduct additional duties charged in excess of the estimated duties included in the invoice price would allow the importer to reduce the price actually paid or payable in violation of 19 U.S.C. 1401a(b)(4)(B).
Green Food offers two arguments why Regulatory Audit was incorrect in calculating the transaction value based on duties actually paid and not duties owed under the reappraised value. First, Green Food argues that the duties "as measured by a purported transaction value to the ultimate consignee are separately identified" as provided in the relevant Form 7501 filed at the time of importation and via spreadsheets provided to CBP. Second, Green Food argues that Regulatory Audit improperly relied on HQ H200463, dated July 23, 2013, in which CBP similarly deducted duties paid because "a deduction of additional duties as a result of reappraisement is improper because the duties were calculated based on the reported values at entry...." In contrast, Green Food asserts that HQ H200463 is confusing and "lacks appropriate detail to be relied upon" and "that [the transaction] value and duties charged thereon are easily ascertainable by both the DDP invoice to the ultimate consignee and the detailed audit results claiming increased duties."
We disagree with Green Food's arguments. With respect to Green Food's first argument, that the duties paid were separately identified, this argument does not rebut Regulatory Audit's finding that the duties payable are not ascertainable from the purchase price between McCormick and Green Food. Instead, in only identifying the duties paid on the transaction between Jinxiang and Green Food in the DDP purchase price paid by McCormick, Green Food, in fact, supports Regulatory Audit's contention that the price actually paid or payable only incorporates the duties actually paid. Therefore, as noted in HQ 546318, the extent to which any prospective duties would have been incorporated into the price actually paid is not ascertainable and cannot be deducted from McCormick's purchase price. With respect to Green Food's second argument that HQ H200463 is inapplicable to the instant matter, we note that HQ H200463 is, in fact, substantially similar - both involve a multi-tier transaction where the final, unrelated-party transaction value explicitly only includes those duties paid on the first related-party transaction. Further, in both matters, the protestant is unable to demonstrate that the value of the full, non-dutiable charges as a proportion of the final transaction value is ascertainable. In addition, we note that HQ H200463 is not the only matter in which CBP has clearly determined that when duties are included in the invoice price, the proper amount of duty to be deducted is the duty actually paid. See, e.g,. HQ H301408 and HQ 542401. As a result, we agree with Regulatory Audit that the only duties to be deducted from the price actually paid by McCormick are those that the protestant actually paid.
Based on the foregoing, we find that the proper method of valuation of the subject entry is the transaction value between Green Food and its unrelated U.S. buyer, McCormick. The transaction value shall include a deduction for the actual amount of duties paid upon entry. Because we determine that the proper method of valuation in this matter is based on the transaction value between McCormick and Green Food, we do not address whether the subsidiary methods of valuation are applicable.
HOLDING:
This protest should be DENIED. Specifically, we determine: (1) that the sale between Jinxiang and Green Food does not constitute a bona fide sale upon which the subject transaction can be appraised; (2) the correct method of appraisement is transaction value based on the sale between McCormick and Green Food, which is a bona fide sale for export. Protest No. 130322103681 is referred back to your Center for appropriate action.
You are instructed to notify the Protestant of this decision no later than 60 days from the date of this decision. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to this notification. Sixty days from the date of the decision, the Office of Trade, Regulations and Rulings will make the decision available to CBP personnel and the public on the Customs Rulings Online Search System ("CROSS") at https://rulings.cbp.gov/, or other methods of public distribution.
Sincerely,
For Yuliya A. Gulis, Director
Commercial Trade and Facilitation