CBP OKs Unsold Jewelry Held on Consignment for Unused Merchandise Drawback

Imported jewelry that is held on consignment by retailers but never sold is eligible for substitution unused merchandise drawback, CBP said in a ruling released Oct. 3. Though customers of the retailers may try on the jewelry, that doesn’t constitute use of the jewelry for its intended purpose, and the importer retains title to the unsold jewelry unless sold, CBP said in ruling HQ H292054.

International Tariff Management, a customs broker that files drawback claims for its clients, requested the ruling, which was dated Sept. 26. The jewelry is imported by its anonymous client and shipped to various retail locations for sale to its end customers. The retailers never hold legal title, and pay the importer only for jewelry that is ultimately sold to end customers. While in the retailer’s inventory the jewelry is displayed for potential customers and possibly tried on.

CBP considers merchandise unused for drawback purposes if no operations have been performed on it and the merchandise has not been used for its intended purpose. The merchandise must also be in the possession of the claimant prior to its exportation or destruction.

CBP has in prior rulings considered whether the use of merchandise for advertising or as part of the sales process is use for the merchandise’s intended purpose. In one ruling, concerning whether a yacht used for a demonstration sale and filmed as part of an advertisement is used, CBP found that “merely offering merchandise for sale, whether by demonstration or filming for advertising, does not render the merchandise used,” the agency said.

On the other hand, CBP has found imported garments altered to fit celebrities so they can wear them at high-profile events were used for their intended purpose. While intended for advertising to the public, the garments were never offered for sale, and their intended purpose was for the celebrities to wear them to the event.

Here, CBP found the jewelry “has been worn as part of an offer for sale,” it said. “By trying on merchandise offered for retail sale, a prospective customer is generally testing fit and assessing other criteria relevant to their decision to purchase,” the agency said. “Accordingly, at the moment of trying on a piece of jewelry prior to purchase, a prospective customer has not yet decided to utilize that piece for its intended purpose as an article of personal adornment.”

The jewelry also meets the condition that it be in the possession of the claimant prior to exportation. The importer “maintains uninterrupted legal title to the jewelry from importation through sale to an end customer, while retailers only acquire temporary physical custody,” CBP said. “Retailers have no right to dispose of the jewelry except to offer it for sale to an end customer, and any unsold jewelry is returned to the Company,” it said. “The Company has sole control over inventory, deciding what jewelry is distributed to which retailer. All unsold jewelry returned to the Company by a retailer is stored in the Company’s offices prior to exportation.”