Application for Further Review of Protest No. 4103-8-000093; Appraisement of Knit Sweaters; Cancellation of Sale

HQ W544661 June 28, 1991 VAL CO:R:C:V HQ W544661 pmh CATEGORY: Valuation District Director U.S. Customs Service 55 Erieview Plaza Plaza 9 Building Cleveland, OH 44114 RE: Application for Further Review of Protest No. 4103-8-000093; Appraisement of Knit Sweaters; Cancellation of Sale Dear Sir: The above referenced protest and application for further review is against your decision regarding the appraised value of imported knit sweaters. FACTS: According to an April 4, 1989 letter from counsel for Mast Industries, Inc. (hereinafter referred to as "MII"), MII contracted to purchase the subject knit sweaters from a foreign seller. However, due to the fact that the merchandise became subject to an embargo, MII cancelled the original sale for the merchandise. After the embargo was lifted, MII withdrew the merchandise from bond and made it available for resale. Since MII had originally made entry of the merchandise as importer of record, it paid duties based on the original f.o.b. purchase price. The merchandise was ultimately sold to an unrelated purchaser at a price significantly lower than the original contract price. (The merchandise was sold to a party related to the seller and subsequently resold to an unrelated U.S. purchaser.) Counsel for the importer contends that since the original sale was cancelled, transaction value was not the appropriate method of appraisement. Counsel further contends that the merchandise should have been appraised using the deductive value method based on the price to the unrelated purchaser, less certain costs incurred in selling and shipping the merchandise. In your June 7, 1990 memorandum, you contend that appraisement was properly based on the original f.o.b. price contracted between MII and the foreign manufacturer. You note that since MII accepted the merchandise and entered it at the original f.o.b. price, the sale was never actually cancelled, rather the price was merely renegotiated after importation. You further contend that in the event that it is determined transaction value is not appropriate in this case, deductive value is not the appropriate alternative because the merchandise was sold 181 days after importation. Your office advises that transaction value of identical merchandise according to section 402(a)(l)(B) of the TAA, is the proper method of appraisement, because shipments of merchandise identical in manufacture, style number and country of origin, were exported from the same country, by the same seller and to the same buyer within the same week as the subject shipments. ISSUE: Whether transaction value was the appropriate basis of appraisement for the imported merchandise. LAW AND ANALYSIS: The imported merchandise was appraised on the basis of transaction value pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA: 19 U.S.C. 1401a). As you know, transaction value is defined in section 402(b) as "the price actually paid or payable for the merchandise when sold for exportation to the United States, plus amounts ... " for certain items not already included in that price (emphasis added). Therefore, there must be a bona fide sale for the imported merchandise to be appraised under transaction value. A "sale" is generally defined as a transfer of title from one party to another for a price or consideration. In the case at hand, MII and the seller entered into an agreement to purchase the knit sweaters. However, due to the fact that MII cancelled the purchase order, there was never a transfer of title in the goods from the seller to MII. Consequently, since no sale was consummated between the two parties at the agreed upon price, transaction value cannot be based on that price. (See also, TAA No. 51, dated August 27, 1982 and HRL 544262, dated June 27, 1989.) Furthermore, since there was no other price for which the goods were "sold for exportation to the United States," transaction value is not applicable as the basis of appraisement for the imported knit sweaters. Consequently, the imported merchandise should be appraised following the hierarchy set forth in section 402(a) of the TAA. Pursuant to section 402(a) of the TAA, the next basis of valuation is transaction value of identical merchandise exported to the United States at or about the same time that the merchandise being appraised is exported to the United States (see section 402 (c) of the TAA ). If shipments of identical merchandise were exported within the same week as the instant merchandise, the transaction value for this merchandise should be used as the basis of appraisement in this case. HOLDING: Under the circumstances described above, transaction value is not the appropriate method of appraising the imported merchandise. Transaction value for identical merchandise, as referenced above, qualifies as the basis of appraisement. Accordingly, you are directed to dispose of this protest in a manner consistent with this decision. A copy of this ruling should be attached to Form 19, Notice of Action, to be sent to the protestant. Sincerely, John Durant, Director Commercial Rulings Division