CBP Disputes Garlic Importer's Use of Transaction Value Due to Unclear Relationship with Supplier

Lyco Product's use of transaction value for imported garlic was inappropriate due to an unclear relationship between the importer and supplier and China, among other things, CBP found in a Jan. 16 ruling (here). Lyco, the importer, filed an application for further review of protest after CBP's Regulatory Audit Division in Miami said the company undervalued an entry of imported garlic granules. Despite Lyco's claim it was unrelated to the supplier, CBP ruled against the company in HQ H255619 and called for appraisal based on "reasonable adjustments to transaction value of identical or similar merchandise."

Lyco's issues began after a CBP audit of transactions from Jan. 1, 2012 through Feb. 28, 2013 revealed that total payments to the Chinese supplier, Flourish, exceeded the values Lyco had declared by $856,455. While Lyco said the difference was due to pre-payments for future shipments, it was unable to prove that to CBP. Lyco disputed CBP's findings from the audit, which said that Lyco undervalued 22 entries, including the one entry at issue for the ruling. The entry in question for this specific protest, 18,000 kg of dehydrated garlic granules exported from China, was declared at $19,350 on Nov. 2, 2012.

Although Lyco told CBP it is not related to Flourish, CBP remained unconvinced that the sale between the two was at "arm's length," as require for use of transaction value. CBP has reason to reject the claim that the transactions between Lyco and Flourish should be treated as arm’s length transactions. Lyco’s webpage indicates that it is owned by a “Flourish (Group) CO., LTD in China,” and lists an "address in China that is the same as Flourish’s address in China," the agency said. Also, "Lyco’s owner, Jirui Yu, is listed as the legal representative and CEO for QIS, which Flourish assigned to Lyco for shipment payments," CBP said. Lyco gave no additional documentation "to show that the transaction between Lyco and Flourish should be treated as an arm’s length transaction."

Lyco also failed to provide sufficient information on the pre-payments to Flourish, said CBP. While the total payment made to Flourish may be included in the transaction value, "even if the payments represent something other than the per se value of the good," Lyco didn't give specific information on the payments to CBP, it said. "Without this information the total payment for the merchandise cannot be confirmed and transaction value cannot be used," it said.

The port should use the fallback method of appraisement, said CBP in the ruling. The agency said because transaction value and computed value methods are unavailable for valuation purposes, the port should use an adjusted transaction value based on the value of similar merchandise. "The previously accepted value of $2.39 per kg of dehydrated garlic granules entered on December 5, 2012 can be used for the appraisement of the entry in question," CBP said.