Application for Further Review of Protest No. 4103-09-100148; Method of Appraisement; Women’s Wearing Apparel

HQ H105275 December 21, 2011 VAL-2 OT:RR:CTF:VS H105275 HkP CATEGORY: Valuation Port Director Port of Columbus U.S. Customs and Border Protection 6431 Alum Creek DriveGroveport, OH 43125 RE: Application for Further Review of Protest No. 4103-09-100148; Method of Appraisement; Women’s Wearing Apparel Dear Port Director: This is in response to the Application for Further Review (AFR) of Protest No. 4103-09-100148, timely filed by counsel on behalf of TH Import Inc. (Importer/Protestant), on September 18, 2009. The protest concerns the proper method of appraisement pursuant to 19 U.S.C. § 1401a for certain women’s wearing apparel. In reaching our decision, we have taken into account additional information submitted by counsel to this office on August 4, 2011. FACTS: Ralsey Group Ltd. (Ralsey) is a U.S. corporation. After receiving an order from a domestic customer, Ralsey (U.S. Buyer) instructed its related agent, Li & Fung (Buying Agent), located in Hong Kong, to place a purchase order for the merchandise with an unrelated Hong Kong seller, HK Peaceful Knitters Ltd (HK Seller). The terms of sale were Delivered Duty Paid (DDP) Columbus. HK Peaceful Knitters, in turn, placed an order for the merchandise with a Chinese company, Shanghai Hefu Knitters Co. Ltd. (Chinese Seller). The terms of sale were Free on Board (FOB) Hong Kong. Shanghai Hefu then subcontracted the order to Dong Duan Dai Long Jing Lai Fashions Knitting Factory in China (Chinese Manufacturer). The merchandise was shipped from China by Dong Duan Dai Long Jing Lai Fashions to HK Peaceful Knitters in Hong Kong. Shanghai Hefu, “on behalf of HK Peaceful Knitters”, then shipped the goods to the U.S. Entry was made on September 13, 2008, by the protestant, TH Import Inc., located in California, which is characterized as the “alter ego” of HK Peaceful Knitters Ltd. According to counsel, the Ralsey Group Ltd., HK Peaceful Knitters Ltd., and Shanghai Hefu Knitters Co. Ltd., are unrelated. The goods were valued by the importer based upon the FOB Hong Kong transaction between Shanghai Hefu and HK Peaceful Knitters. Counsel refers to this as the “first sale”. However, we note that according to the information, the first sale took place between the Chinese manufacturer and the Chinese seller. On June 26, 2009, the port reappraised the merchandise using invoices for similar merchandise previously entered for the same consignee, i.e., the Ralsey Group. The importer filed the Protest and AFR on September 16, 2009, on the basis that the merchandise should have been valued based on the “first sale” (between Shanghai Hefu and HK Peaceful Knitters). The protest was denied by the port, but on April 6, 2010, the denial was set aside by this office. See Headquarters Ruling Letter (HQ) H096758. In the alternative to valuation based on the sale between Shanghai Hefu and HK Peaceful Knitters, protestant seeks appraisement based on the DDP Columbus, Ohio, prices from HK Peaceful Knitters to Ralsey less post-export charges. The record contains, in relevant part: - Placement memoranda, dated July 15, 2008, which state that Li & Fung is the claimed buyer’s agent for the buyer, Ralsey Group Ltd., and that the seller is HK Peaceful Knitters Ltd. The memoranda also show that Li & Fung placed an order for the purchase of 672 acrylic knitted pullovers, style 5779, DDP Columbus, Ohio; - HK Peaceful Knitters purchase order (contract H08168), dated August 2, 2008, placed with Shanghai Hefu (China) for 672 acrylic knitted pullovers, style 5779; - Sales order confirmation issued by Dong Guan Dai Long Jing Lai Fashions Knitting Factory (China) to Shanghai Hefu for contract no. H08168 for 672 pieces of style number 5779; - Shanghai Hefu production specifications (in Chinese) for contract no. H08168, dated August 2, 2008, which references “Ralsey-Lerner”; - Invoice HKPF08-179, dated September 6, 2008, issued by HK Peaceful Knitters to Li & Fung referencing contract H08168 and style 5779 ladies’ acrylic knitted pullovers, in the amount of US $4,429.60, DDP Columbus; - Invoice DWUA/080478, dated September 7, 2008, in the amount of US $4,739.67, issued by Li & Fung to Ralsey Group for 672 acrylic sweaters style 5779 (56 pieces at US $6.50 each, 280 pieces at US $6.60 each, 336 at $6.60 each), and 7 percent commission (US $310.07); - Hong Kong Import Notification form, dated September 9, 2008, which lists the importer as HK Peaceful Knitters, the exporter as Dong Guan Dai Long Jing Lai, the date of arrival as September 10, 2008, and the items being imported as 672 acrylic knitted pullovers for contract “H08168A/B (Ralsey-Lerner)”; - Hong Kong Import/Export Manifest, which is illegible; - Invoice HKPF08-179, dated September 10, 2008, in the amount of US $1,680.00, issued by Shanghai Hefu to HK Peaceful Knitters referencing contract H08168, FOB Hong Kong; - Invoice HKPF08-179, dated September 10, 2008, in the amount of US $1,680.00, issued by Shanghai Hefu Knitters to TH Import referencing contract H08168 and style 5779 ladies’ acrylic pullovers, FOB Hong Kong; - Air Waybill dated September 11, 2008, for a shipment of style 5779 ladies’ acrylic pullovers, listing Shanghai Hefu “on behalf of HK Peaceful Knitters” as shipper and TH Import as the U.S. consignee; - Invoice, dated September 11, 2008, in the amount of US $1,177.79, issued by Star Global International (H.K.) Ltd. to HK Peaceful Knitters, listing Shanghai Hefu (for HK Peaceful Knitters Ltd.) as shipper and TH Import as the U.S. consignee; - Invoice, dated September 12, 2008, in the amount of HK $3,484.35, issued by Freight Management Company to HK Peaceful Knitters, re “airfreight via Star Trans ex. HKG to Columbus, provisional import charges in U.S.”; - Invoice, dated September 12, 2008, in the amount of HK $4,484.09, issued by Freight Management Company to HK Peaceful Knitters, re “airfreight via Star Trans ex. HKG to Columbus, provisional duty charged in U.S.”; - Statement dated September 16, 2008, issued by Li & Fung to Ralsey Group for outstanding amounts due for 672 garments, style 5779, supplied by HK Peaceful Knitters, shipped on September 7, 2008; - Entry summary, dated September 25, 2008, listing TH Import as the importer of record and Ralsey Group Ltd. as ultimate consignee; - Check deposit advice issued to Li & Fung by the Bank of China, dated October 23, 2008, that HK $53,554.53 was deposited to the account of HK Peaceful Knitters, with handwritten annotations stating that the deposit was payment for invoice HKPF08-172 (US $2490.88) and invoice HKPF08-179 (US $4429.60); - Bank of China transmission receipt, dated November 19, 2008, for US $80,000, listing HK Peaceful Knitters as payer, and with handwritten annotations stating that the payment is for invoice “HK08-179” and other orders, and that Shanghai Hefu is the payee; - Payment Details, dated March 4, 2009, of an intercompany wire transfer in the amount of US $3,431,762.80 made by LF USA Inc. to The Millwork Trading Company Ltd. #1 for “LFHK Invoices Payment”; - Excerpts from a reconciliation spreadsheet (the first page showing netting and the last page which references invoice DWUA/080507 among others) showing debits and credits between the accounts of LFUSA and LFHK; and - Signed and undated statement by HK Peaceful Knitters that it sold merchandise, style 5779, to Ralsey Group, DDP Columbus, Ohio, and that HK Peaceful Knitters appointed TH Import importer of record on its’ behalf. According to counsel’s submission, dated August 4, 2011, payment by Ralsey to Li & Fung was included in the US $3,431,762 lump sum wire transfer. Concerning the timing of HK Peaceful’s invoice to Li & Fung, which was issued before HK Peaceful claimed title to the goods in Hong Kong, counsel explains that HK Peaceful issued the invoice upon receipt of the invoice from the Chinese seller, whose invoice to HK Peaceful was based on the expectation that the goods would arrive in Hong Kong on September 6 and be exported on September 7. However, the shipment was delayed and did not arrive in Hong Kong until September 10 and was exported on September 11. Shanghai Hefu revised the invoice that accompanied the shipment and that was issued to HK Peaceful to reflect the actual date of arrival, September 10. HK Peaceful did not amend its invoices to reflect the new dates but orally notified Li & Fung of those dates. However, Li & Fung did not amend the invoice that it issued to Ralsey. ISSUE: What is the proper method of appraisement for the imported merchandise under 19 U.S.C. § 1401a(b)? LAW AND ANALYSIS: The preferred method of appraising merchandise imported into the United States is the transaction value method as set forth in section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), codified at 19 U.S.C. § 1401a. The transaction value of imported merchandise is the “price actually paid or payable for the merchandise when sold for exportation to the United States” plus amounts for five enumerated statutory additions. 19 U.S.C. § 1401a(b). In order for imported merchandise to be appraised under the transaction value method, it must be the subject of a bona fide sale between a buyer and a seller, and it must be a sale for exportation to the United States. 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)). When the port valued the merchandise, the port did not use the transaction value method of appraisement under 19 U.S.C. § 1401a(b) because it was unable to verify any of the claimed sales transactions. Thus, the port appraised the merchandise using invoices submitted with previous entries of similar merchandise for the same consignee, the Ralsey Group, as allowed by 19 U.S.C. § 1401a(c). TH Import, the protestant, argues that the merchandise should have been appraised based on the transaction between HK Peaceful Knitters and the Chinese Seller (Shanghai Hefu Knitters), that is, the second sale in the chain of transactions. In the alternative, Protestant argues that appraisal should be based on the DDP Columbus prices of the merchandise, that is, the transaction between HK Peaceful Knitters and Li & Fung, less post-export charges. Based on the documents provided, the sales order confirmation issued by the Chinese manufacturer to Shanghai Hefu Knitters, (Chinese Seller), referred to the contract number (H08168) of the sales agreement between Li & Fung (Buying Agent) and HK Peaceful Knitters (HK Seller) for the specified style of pullover (5779). In addition, the Chinese seller’s production specifications were for contract no. H08168 and referred to “Ralsey-Lerner” (U.S. Buyer). Although Chinese Seller issued two invoices with the same number (HKPF08-179) to HK Seller and HK Seller’s alter ego TH Import and importer of record, with terms of contract “FOB Hong Kong”, the placement memoranda issued by Buying Agent and purchase order issued by HK Seller and their link to documents issued by or to the Chinese seller and the Chinese manufacturer, are evidence that the pullovers were manufactured for export to the United States. Under the terms of its contract with U.S. Buyer, HK Seller was to hold title to the merchandise and assume the risk of loss until the merchandise arrived at the U.S. buyer’s warehouse in Columbus, Ohio. HK Seller was to acquire title to the merchandise from the Chinese seller pursuant to the terms of their contract, which were FOB Hong Kong. However, because HK Seller had no legal presence in the U.S., it is stated that Chinese Seller issued to the importer of record and HK Seller’s alter ego in the U.S., an invoice identical to the one it issued to HK Seller. According to counsel, this second invoice and a written authorization to make entry were issued in the name of the importer of record so that it could make entry on behalf of HK Seller. Section 484(a)(1) of the Tariff Act of 1930, as amended (19 U.S.C. § 1484(a)(1)) provides that only parties qualified as the “importer of record” may make entry. Those qualified parties are identified in § 484(b)(2)(B) as the owner or purchaser of the merchandise, or, when appropriately designated by the owner, purchaser, or consignee of the merchandise, a licensed customs broker. The terms “owner” and “purchaser” are defined in Customs Directive 3530-002A, dated June 27, 2001. Sections 5.3.1 and 5.3.2 of the directive provide: 5.3.1 The terms “owner” and “purchaser” include any party with a financial interest in a transaction, including, but not limited to, the actual owner of the goods, the actual purchaser of the goods, a buying or selling agent, a person or firm who imports on consignment, a person or firm who imports under loan or lease, a person or firm who imports for exhibition at a trade fair, a person or firm who imports goods for repair or alteration or further fabrication, etc. Any such owner or purchaser may make entry on his own behalf or may designate a licensed Customs broker to make entry on his behalf and may be shown as the importer of record on the CF 7501. The terms “owner” or “purchaser” would not include a “nominal consignee” who effectively possesses no other right, title, or interest in the goods except as he possessed under a bill of lading, air waybill, or other shipping document. 5.3.2 Examples of nominal consignees not authorized to file Customs entries are express consignment operators (ECO), freight consolidators who handle consolidated shipments … and Customs brokers who are not permitted to transact business in Customs ports where a shipment is being entered. In HQ 115110, dated November 2, 2000, the issue was whether an air freight forwarder, listed as consignee on the entry documents had sufficient financial interest in the imported goods to serve as importer of record. Applying C.D. 3530-02, dated November 6, 1984 (the precursor to C.D. 3530-002A), Customs found that nominal consignees do not possess a sufficient financial interest in the goods to make entry. Cited in support were HQ 114396 (Jan. 20, 1999) and HQ 223772 (Aug. 6, 1992), which held that freight forwarders who arrange for the transportation, storage and delivery of imported merchandise are mere nominal consignees and are precluded from making entry. In HQ H007168, dated August 2, 2007, the issue was whether the seller of the imported goods had a financial interest in the goods such that it could act as importer of record. The seller agreed to provide logistics services for a fee to the buyer, including issuing purchase orders, being named as the purchaser and receiver of the goods, and paying for the goods. The buyer would reimburse the seller and arrange for transportation of the goods to the buyer’s distribution centers or customers. At the time the goods were shipped, the buyer would own the goods and bear the risk of loss. After applying C.D. 3530-002A, Customs found that because the seller committed to paying for the goods and awaiting reimbursement from the buyer, the seller had a financial stake in the goods. In this case, there was no sale between the importer of record and the Chinese seller, that is, there is nothing that shows a contract or payment by the importer of record. In addition, there is nothing in the record to indicate that the importer of record was the agent of HK Seller. Based on the terms of the contract between U.S. Buyer and HK Seller, HK Seller was to retain a financial stake in the goods until they reached the U.S. buyer’s warehouse in Columbus and would have had the right to make entry or to designate a licensed Customs broker to make entry. See C.D. 3530-002A and HQ H007168. However, the importer of record, which HK Seller appointed to act as its “alter ego”, is not a licensed Customs broker. Moreover, although the importer of record was named consignee on the invoice submitted to CBP, we have also been told that this was merely to facilitate entry and that the true consignee was U.S. Buyer. Based on these facts, there is no evidence that the importer of record had a financial interest in the imported goods such that the importer of record could be considered an “owner” or “purchaser” of the goods. Consequently, the importer of record had no right to make entry. See C.D. 3530-002A, 5.3; HQ 115110, which held that nominal consignees do not possess sufficient financial interest in the goods to make entry. In VWP, the CAFC stated, “[n]eedless to say, a transaction that is a sham, for example, because one of the parties to the transaction is in fact a nonexistent fraudulent entity, may not properly serve as the basis for transaction value under 19 U.S.C. §1401a(a)(1)…. Neither could such an entity participate in the sale of merchandise for export to the United States for purposes of 19 U.S.C. § 1401a(b)(1).” VWP at 1337. The invoice submitted to CBP as part of the entry process detailed a sham transaction. The importer of record was invoiced as if it were the buyer; however, it was not the buyer. Consequently, the transaction value method of appraisement is not appropriate. See id. Further, under the provisions of 19 U.S.C. § 1401a (b)(1) and 1401a(h)(5)(A)(i), the port was correct in not using the value of the sham transaction between Chinese Seller and the importer of record to appraise the imported merchandise because the invoiced values could not be verified. Furthermore, as a part of its protest, Protestant submitted a copy of a webpage from Bank of China’s Corporate Banking Services Online which shows that HK Seller made a US $80,000 deposit into a bank account on November 19, 2008. We note that the information on the webpage is a mixture of English and Chinese and that the name of HK Seller is in English while the name of the recipient is in Chinese. Handwritten annotations include the number of the invoice issued by Chinese Seller to HK Seller and the amount invoiced, as well as a statement that the deposit is payment to Chinese Seller for the subject merchandise and for other orders. However, nothing on the bank webpage itself can be matched to the invoice issued by Chinese Seller to HK Seller. Consequently, Protestant has provided weak evidence to establish that this deposit was the payment by HK Seller to Chinese Seller for the subject merchandise. Under the terms of 19 U.S.C. 1401a(b)(1)(ii), if sufficient information is not available to determine the price actually paid or payable, the transaction value of the imported merchandise shall be treated as one that cannot be determined. In this case, we find that the value of the transaction between the Chinese seller and the HK seller cannot be determined based upon insufficient information. The next issue is whether appraisement should be based on the transaction between U.S. Buyer (through Buying Agent) and HK Seller, i.e., DDP Columbus, Ohio, price less post-export charges, as claimed in the alternative by counsel. As discussed above, Chinese Seller issued two invoices dated September 10, 2008, both to HK Seller and to the importer of record, FOB Hong Kong. On September 6, 2008, HK Seller issued an invoice to Buying Agent, DDP Columbus. The air freight documents list the shipper as Chinese Seller on behalf of HK Seller with the consignee as the importer of record. Accordingly, as we found that there was no sale between Chinese Seller and the importer of record, similarly we find that there is no bona fide sale between Chinese Seller and HK Seller considering the two invoices issued, the pre-dated invoice from HK Seller to Buying Agent and that the shipper listed as Chinese Seller with the consignee as the importer of record. Further, the record contains, in relevant part, invoice HKPF08-179 issued by HK Seller to Buying Agent in the amount of US $4,429.60 for 672 pieces of style 5779 pullovers, and check deposit advice from the Bank of China advising that HK $53,554.53 was deposited to the account of HK Seller on October 23, 2008. Included on the same page with the check deposit advice is a scanned copy of the deposited check, which is illegible. Handwritten annotations indicate that the deposit was payment for two invoices, one of which was HKPF08-179 totaling US $4,429.60, and that the payment was made by Buying Agent. However, nothing in the bank’s deposit advice itself can be matched to the invoice issued by HK Seller. In addition, handwritten annotations on a Bank of China transmission receipt state that a payment for invoice H08-179 was made by HK Seller to Chinese Seller on November 19, 2008. As there is no bona fide sale between Chinese Seller and HK Seller based on the conflicting documentation presented, we also conclude that the merchandise can not be appraised based on the value of the transaction between the U.S. Buyer and HK Seller, that is, the DDP prices. Based on the record, we find that the port was correct not to use the transaction value method of appraisement set forth in 19 U.S.C. § 1401a(b). When transaction value is not available as an appraisement method, the remaining methods of appraisement set forth in 19 U.S.C. § 1401a must be applied in sequential order. The alternative methods of appraisement, in order of precedence, are: the transaction value of identical or similar merchandise (19 U.S.C. § 1401a(c)); deductive value (19 U.S.C. § 1401a(d)); computed value (19 U.S.C. § 1401a(e); and the "fallback" method (19 U.S.C. § 1401a(f)). The transaction value of identical or similar merchandise is based on sales at the same commercial level and in substantially the same quantity of merchandise exported to the United States at or about the same time as the merchandise being appraised. See 19 U.S.C. § 1401a(c). Based on the record, the port correctly used this information to value the subject merchandise. As a result, there is no need to consider the other methods of appraisement under 19 U.S.C. § 1401a(d)-(f). HOLDING: The imported garments may not be appraised using the transaction value method set forth in 19 U.S.C. § 1401a(b) based on the conflicting documentation presented. Appraisement was correctly based on the price of similar merchandise using invoices for previous entries issued to the consignee as allowed under the provisions of 19 U.S.C. § 1401a(c). The protest should be denied. 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 the mailing of the decision. Sixty days from the date of the decision the Office of International Trade, Regulations and Rulings, will make the decision available to CBP personnel and to the public on the CBP home page 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