OT:RR:CTF:VS H337092 AP

Center Director
Machinery Center of Excellence and Expertise
U.S. Customs and Border Protection, Laredo Field Office
109 Shiloh Drive, Suite 300
Laredo, TX 78045

RE: Applications for Further Review; Protests Nos. 3901-22-126592, 3901-22-126433 and 3901-22-126756; Transaction Value; Credit for Payments Already Made

Dear Center Director:

This is in response to the Applications for Further Review ("AFR") of Protests Numbers ("Nos.") 3901-22-126592 (lead protest), 3901-22-126433 and 3901-22-126756,[1] timely filed on behalf of the importer R. J. Reynolds Tobacco Company ("protestant") concerning the valuation of Chinese-origin packaged power units[2] for electronic vaporizing devices ("PUKs").

The protestant asked that certain information submitted in connection with these Protests/AFRs be treated as confidential. Inasmuch as this request conforms to the requirements of 19 C.F.R. 177.2(b)(7), the request for confidentiality is approved. The information contained within brackets and all attachments to this ruling request, forwarded to our office, will not be released to the public and will be withheld from published versions of this decision.

FACTS:

The subject PUKs were manufactured in China. The protestant states that in early 2020, it initiated discussions with the Chinese manufacturer regarding packaging changes for the PUKs. According to an e-mail from the manufacturer to the protestant dated September 18, 2020, the following product-specific price reductions were applied to purchase orders for the PUKs before September 30, 2020 and after October 1, 2020:

Product: |MOQ (Minimum Order Quantity) |Original Price |JJ Packaging |Magnet |PO before 9/30 |PO after 10/1 | |Slate PUK (100 pcs/pack) |[x]K |$[x] |-$[x] |-$[x] |$[x] |$[x] | |Slate PUK (50 pcs/pack) |[x]K |$[x] |-$[x] |-$[x] |$[x] |$[x] | |Color PUK (50 pcs/pack) |[x]K [x]K [x]K [x]K |$[x] $[x] $[x] $[x] |-$[x] -$[x] -$[x] -$[x] |-$[x] -$[x] -$[x] -$[x] |$[x] $[x] $[x] $[x] |$[x] $[x] $[x] $[x] | | The protestant states that the manufacturer did not update its commercial invoices to reflect the agreed price revisions until on or about December 6, 2020. The protestant and the manufacturer reconciled the 2020 purchase orders for PUKs imported in the new packaging to quantify the total amount of price reductions. On December 4, 2020, the manufacturer issued a credit note in the amount of $[x] to the protestant to account for the negotiated price adjustments. According to the credit note, the terms of the payment were "within 75 days of the shipment" and the delivery date was December 4, 2020. The credit note refers to an invoice number R91882 and states that credit note was for "PUKs PO amount different after August 1, 2020 (refer to attached PO details)." The attached "PO details" memo lists a $[x] credit for purchase orders for PUKs received between April 20, 2020 and July 30, 2020 and shipped before September 30, 2020; a $[x] credit for purchase orders received between July 30, 2020 and September 11, 2020, and shipped between October 1, 2020 and December 6, 2020; and a $[x] credit for purchase orders received on September 11, 2020 and shipped between December 7 and 13, 2020.

The protestant asserts that the agreed upon price reductions from the Chinese manufacturer executed by the $[x] credit note qualify as price discounts and seeks refunds on U.S. Customs and Border Protection ("CBP") general duties, Section 301 duties, and merchandise processing fees for the entries subject to these Protests/AFRs, which were filed from October 5, 2020 through December 17, 2020. The Machinery Center of Excellence and Expertise ("CEE") denied the three protests and forwarded the AFRs to our office for review.

ISSUE:

Whether the merchandise covered by the three Protests/AFRs may be appraised under transaction value based on the reduced prices detailed in the September 18, 2020 e-mail, and executed by the $[x] credit note.

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 amounts for certain statutorily enumerated additions to the extent not otherwise included in the price actually paid or payable. 19 U.S.C. 1401a(b)(1).

The term "price actually paid or payable" is defined as:

[T]he total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation in the United States) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.

19 U.S.C. 1401a(b)(4)(A).

In determining transaction value, the price actually paid or payable "will be considered without regard to its method of derivation. It may be the result of discounts, increases, or negotiations, or may be arrived at by the application of a formula . . ." 19 C.F.R. 152.103(a)(1). The CBP regulations further cite the following example:

A seller offers merchandise at $100, less a two percent discount for cash. A buyer remits $98 cash, taking advantage of the cash discount. The transaction value is $98, the price actually paid or payable. 19 CFR 152.103(a)(1), Example 5.

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.

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 Headquarters Ruling Letter ("HQ") H133044, dated March 9, 2011. First, the discount or price adjustment must be agreed on prior to the importation of the merchandise. See Allied Int'l v. United States, 16 CIT 545 (1992) (importer required to affirmatively show that there was a pre-importation agreement for the claimed discount). Second, 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 HQ 546037, dated Jan. 31, 1996 (discount disallowed when importer failed to submit evidence that it took advantage of 2 percent 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. See HQ 545659, dated October 25, 1995 (a discount was unconditional when there were no specified purchasing obligations placed on the customer. If a conditional discount was agreed to before entry at the time of order placement, the specified purchasing obligation was fulfilled at the time of entry, and the discount was reflected both on the entry documentation presented to CBP and the invoices presented to CBP, the conditional discount may be used to determine transaction value).

The first criterion is satisfied because the September 18, 2020 e-mail with the price reductions predates the first entry covered by the AFRs/protests submitted on October 5, 2020.

We must next consider whether sufficient documentary evidence has been provided to CBP to support the existence of the price reductions and to establish that they were agreed to before the time of entry. Apart from the September 18, 2020 e-mail from the manufacturer listing the price reductions, the protestant has not submitted a written contract with the manufacturer for the sale of the imported merchandise explaining the types of price reductions and how and when the discounts will be applied. The September 18, 2020 e-mail chain contains an updated price list provided by the manufacturer offering different price reductions before September 30, 2020 and after October 1, 2020. At that time, the manufacturer did not issue commercial invoices reflecting the total price of the goods, the amount of the discounts and the discounted price, and the protestant continued to pay the unreduced price. Rather than giving the protestant a refund for the prior shipments, on December 4, 2020, the manufacturer issued a credit note in the amount of $[x] to the protestant towards an invoice number R91882 with a delivery date December 4, 2020, to account for the negotiated price adjustments. The protestant has not submitted invoicing reflecting the price reductions corresponding to the credit note, and proof of payment including the price reductions. Under these circumstances, the second criterion is not satisfied.

The third criterion requires that the price adjustment be unconditional, or if conditional, all the conditions must be met prior to importation. The protestant states that the price reductions were unconditional. However, the September 18, 2020 e-mail reveals that the discounts were conditional because they were linked to a minimum order quantity. Since the protestant has not demonstrated that the specified minimum order quantity was fulfilled at the time of entry, the conditional discount may not be used to determine transaction value. Thus, the third criterion is not satisfied.

Therefore, the claimed price reductions may not be considered in determining the transaction value of the imported merchandise.

HOLDING:

Based on the presented information, the claimed price reductions may not be taken into account in determining the price actually paid or payable for the imported merchandise covered by the three protests/AFRs. These protests should be denied.

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 Gulis, Director
Commercial and Trade Facilitation Division
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[1] The three protests cover a total of 118 entries, which were filed from October 5, 2020 through December 17, 2020. Protest No. 3901-22-126592 covers 50 entries filed from November 10, 2020 to December 7, 2020, and liquidated from October 8, 2021 to October 29, 2021. Protest No. 3901-22-126433 covers 51 entries filed from October 5, 2020 to November 6, 2020, and liquidated from September 3, 2021 to October 1, 2021. Protest No. 3901-22-126756 covers 17 entries filed from December 8, 2020 to December 17, 2020, and liquidated from November 5, 2021 to November 12, 2021.
[2] The PUKs were entered under subheading 8543.90.8860, Harmonized Tariff Schedule of the United States Annotated ("HTSUSA").