CBP Rules Against Port, Finds First Sale Valuation Allowable

CBP will allow for a valuation based on the first sale between an unrelated manufacturer and a middleman related to the importer of record after the port of entry said otherwise, the agency said in a Feb. 27 ruling. The importer, Tillsonburg Company (USA), successfully demonstrated through documentation that a "bona fide sale" had in fact occurred, CBP said in HQ H268741. Sandler Travis filed the protest on behalf of Tillsonburg in 2015.

The valuation question involved TUSA's placing of orders from U.S. customers through Tillsonburg Apparel Limited (TAL), which is in Hong Kong, CBP said. TAL then purchased the goods from unrelated manufacturers in China, Indonesia and the Philippines. "The importer based the value of the merchandise at entry on the transaction value of the sale between the unrelated manufacturers and TAL, utilizing the 'first sale' concept, as the sale for export to the United States," CBP said. "The port determined the appropriate sale for appraisement purposes was a sale between the U.S. customer and TAL, because the port and the Office of Regulatory Audit believe there was no bona fide sale between TAL and TUSA."

Here, "the issue is whether there is a bona fide sale between the unrelated manufacturers and TAL," CBP said. "As the manufacturers are not related to TAL, there is a presumption that transactions between these parties are at arm’s length." TAL provided several pieces of documentation to show that the goods were destined for the U.S. and that TAL assumed the risk of loss and title. "In this case, based on the Incoterms, the factory relinquishes the risk of loss to TAL based on FOB [Free on Board] at the port of export," CBP said. "Counsel submitted evidence that TAL and TUSA carried cargo insurance from August 1, 2013 to July 31, 2014. While we note some entries at issue in the protest entered the U.S. outside this time frame, the majority of the entries at issue entered during this time frame. The cargo insurance serves as evidence that TAL and TUSA assumed the risk of loss for the merchandise."

Therefore, the protest should be allowed, CBP said. "We agree with the protestant that appraisement is allowable based upon the sale from the unrelated factories to TAL," the agency said.