Application for Further Review of Protest No. 2704-16-100670

U.S. Department of Homeland Security Washington, DC 20229 U.S. Customs and Border Protection HQ H313538 September 18, 2020 OT:RR:CTF:VS H313538 CMR CATEGORY: Valuation Pharmaceuticals, Health and Chemicals Center of Excellence and Expertise 301 East Ocean Boulevard Long Beach, CA 90802 Attn: SIS Ta-Tanisha Lankford RE: Application for Further Review of Protest No. 2704-16-100670 Dear Center Director: This is in response to the Application for Further Review (AFR) of Protest No. 2704-16-100670, submitted by Stein Shostak Shostak Pollack and O’Hara, on behalf of their client, Click Heat, Inc. The protest involves the denial by the Pharmaceuticals, Health and Chemicals Center of Excellence and Expertise (hereinafter, CEE) of a claim for first sale valuation of the entered merchandise. As AFR was properly approved, our decision on this matter is set forth below. FACTS: In this case, the importer, Click Heat, seeks valuation of the entered merchandise based upon the sale between the Chinese seller and a middleman, H&Z Corporation Limited (hereinafter, H&Z). The middleman is related to the importer. Further, Customs and Border Protection (CBP) has determined that the importer’s U.S. customer, Berko Productions, LLC, is also related to the importer. In support of the use of first sale valuation for the seven entries at issue, counsel has submitted supporting documents for each entry. For example, for one entry the following documents were submitted: the entry summary; a purchase order from Berko Productions to Click Heat; a purchase order from Click Heat to H&Z; a purchase order from H&Z to the Chinese seller; an invoice from the Chinese seller to H&Z which indicates FOB Xiamen by sea; a packing list from the Chinese seller indicating merchandise is for Click Heat Inc. and providing Click Heat’s address, but indicating the merchandise is going from Xiamen to Chicago (Click Heat’s address is in New York); a “proof of payment” which appears to be a receipt from the Chinese seller to H&Z; an invoice from H&Z to Click Heat which indicates a third party in Des Plaines, Illinois as the “ship to” party, or recipient of the merchandise; a packing list from H&Z to Click Heat indicating the “ship to” party as a third party in Des Plaines, Illinois; and, a bill of lading showing the Chinese seller as the shipper, Click Heat as the “notify party,” the consignee as “to order,” and that the merchandise was shipped from Xiamen to Chicago. Other than the invoice from the Chinese seller to H&Z which indicates FOB Xiamen by sea, and a notation on the invoice from H&Z to Click Heat that the total payment is due before arrival, the documents are void of any terms of sale. The other six entries at issue contained the same types of documents, though not necessarily all were submitted for each of the entries. For instance, some entries lacked the purchase order from Click Heat’s customer, Berko Productions. For one entry, the invoice from the Chinese seller indicates the terms of sale as ex-works Xiamen, instead of FOB Xiamen by sea. This same entry indicated the shipper was H&Z, as opposed to the Chinese seller. Two other entries indicated another party as shipper, but that party’s role in the transactions is not clear. ISSUE: Whether the protestant submitted sufficient evidence to support valuation of the entered merchandise based upon the sale between the Chinese seller and the middleman, H&Z. 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 statutory additions. 19 U.S.C. § 1401a(b)(1). In accordance with 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, 17 C.I.T. 18 (1993), appraisement of imported merchandise based on a bona fide sale of goods for export to the U.S., prior to the last sale for export to the U.S., is a legitimate basis of appraisal and CBP will appraise merchandise for which a “first sale” claim is made when it meets the requirements for such appraisement. In Nissho Iwai, supra, the case involved a foreign manufacturer, a middleman, and a United States purchaser. The court held that the price paid by the middleman/importer to the manufacturer was the proper basis for transaction value. The court further stated that in order for a transaction to be viable under the valuation statute, it must be a sale negotiated at arm’s length, free from any non-market influences, and involving goods clearly destined for the United States. See also, Synergy, supra. The importer claims that the merchandise at issue should be appraised based upon the transaction value of the sale between the Chinese seller and the middleman, H&Z. In accordance with the Nissho Iwai decision and our own precedent, we presume that transaction value is based on the price paid by the importer.  In further keeping with the court’s holding, we note that an importer may request appraisement based on the price paid by a middleman to a foreign manufacturer or seller in situations where the middleman is not the importer.  However, it is the importer’s responsibility to show that the “first sale” price is acceptable under the standard set forth in Nissho Iwai.  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, the Customs Service (now Customs and Border Protection (CBP)) 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. correspon- dence) 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 or seller, or any other party, cannot form the basis of transaction value. In this case, CBP has not been presented with a complete paper trail. The submitted documents, with the exception of the invoice from the Chinese seller, are void of any terms of sale. With the exception of the Chinese seller, and the third party who receives the merchandise in Chicago, the remaining parties to the transactions, i.e., the U.S. customer placing the order with Click Heat, Click Heat, and H&Z, are related parties. There is no evidence of payment between any of the related parties. As such, the lack of terms of sale and lack of evidence of the passage of consideration, with the exception of the Chinese seller’s receipt to H&Z, brings into question the roles of the parties in the transaction. As the importer has failed to submit evidence of a complete paper trail showing the structure of the entire transaction, including the roles of the parties, terms of sale between the parties, and evidence of the passage of consideration between parties, we agree with the CEE that insufficient evidence has been presented to support valuation based upon a sale between the Chinese seller and the middleman, H&Z. HOLDING: The protest should be denied. The protest should be denied. Appraisement of the merchandise should be based upon the price paid by the importer. In accordance with the Protest/Petition Processing Handbook (CIS HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the CBP Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with this decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision, the Office of Trade, Regulations and Rulings will make the decision available to CBP personnel, and to the public on the Customs Rulings Online Search System (CROSS) at https://rulings.cbp.gov/ which can be found on the U.S. Customs and Border Protection website at http://www.cbp.gov and other methods of public distribution. Sincerely, For Craig T. Clark, Director Commercial and Trade Facilitation Division