CBP Finds Dehydrated Garlic Importer’s Transactions Don’t Count as First Sale

Chinese seller Jinxiang Lunong Agricultural Trading's sale of dehydrated garlic to U.S. importer Green Food Ingredients isn't “bona fide” first sale that can be used to appraise a transaction, CBP ruled on May 29. This is partly because of how the transaction was structured and invoiced, the agency said.

An appropriate appraisement is the transaction value based on the sale between U.S. spice seller McCormick and Green Food, which counts as a bona fide sale for export, CBP said.

Green Food had applied in July 2022 for further review of its protest regarding the appraisement of its dehydrated garlic products.

Green Food’s owner also owns two Chinese sellers of dehydrated garlic, Jinxiang and Shandong Lunong Food Technology. Green Food had argued that it and Jinxiang were “wholly separate” corporations, although CBP said it didn’t receive any documentary evidence to support this statement.

A CBP audit separate from the ruling found in September 2022 that Green Food’s entries were undervalued, resulting in an underpayment of duties, merchandise processing fees and harbor maintenance fees, according to CBP’s ruling. The audit estimated an underpayment of $589,623 between Sept. 25, 2017, and Feb. 18, 2019.

The documentation that Green Food supplied to CBP in this hearing included two June 2018 commercial invoices from Jinxiang to Green Food dated July 2018 and showing a cost, insurance, freight (CIF) term of sales for roasted garlic granules; insurance documents covering delivery to the Port of Baltimore showing the payor as Jinxiang; a packing list and a bill of lading showing the shipper as Jinxiang, the consignee as Green Food and the notify party as Green Food’s customs broker; and other documents.

CBP said it had requested more documentation in September 2023 showing a paper trail, but Green Food said the following month that it had submitted all the necessary information to CBP. That information included documentation that Green Food gave to CBP when it was being audited for undervaluation between September 2017 and February 2019.

After evaluating the documents, CBP said it found no clear evidence showing there was a title or a risk of loss passed from Jinxiang to Green Food, such as a sales contract between the two parties.

While shipping terms in the documents might instruct CBP in assessing this case, CBP found that Green Food submitted one “original” CIF term of sale to the agency while also submitting to CBP’s audit two adjusted, post-entry invoices for the same merchandise. “Neither of the adjusted invoices included break-out amounts for insurance or freight,” CBP said.

Green Food later acknowledged that the use of the “original” invoice was erroneous, so CBP should rely on the post-entry adjusted invoices, which show that the terms of sale between Jinxiang and Green Food and between Green Food and McCormick were both destination contracts showing delivered duty paid.

“Here, the use of identical terms of sale in both sets of invoices (i.e., those issued by Jinxiang to Green Food and Green Food to McCormick) suggests that there is only one sale, namely that between Jinxiang and the ultimate U.S. customer, McCormick,” CBP said. “In addition, we note that both sets of invoices (i.e., between Jinxiang and Green Food, and Green Food and McCormick) share the same format and dates (both issued July 23, 2018), which further corroborates a finding that the title and risk of loss passed instantaneously.”

CBP also noted that Green Food and Jinxiang are related: “The roles of the parties and the circumstances of the transaction also indicate that Jinxiang and Green Food were not acting as buyer and seller. Green Food and Jinxiang are related parties. In its protest, Green Food concedes that Xinjiang and Green Food are related parties, although Green Food does not provide additional details on the exact relationship between the parties.”

Ultimately, Green Food failed to provide purchase orders, proof of payment, contracts or any other documents between itself and Jinxiang that might confirm a buyer-seller relationship, CBP said.

"Based on the information provided, we determine that the circumstances relating to the purported sale between Jinxiang and Green Food, and the level of documentation provided, are not indicative of a transfer of title and risk of loss between Jinxiang and Green Food. Instead, all information and documents presented, as well as the findings of Regulatory Audit, lead us to conclude that the bona fide sale for exportation to the United States for customs purposes occurred between Jinxiang and the U.S. end customer, McCormick. Therefore, Green Food may not use the related-party price between itself and Jinxiang as the transaction value for the merchandise.”

The agency also found that the proper method of valuation of the subject entry is the transaction value between Green Food and its unrelated U.S. buyer, McCormick: “The protestant is unable to demonstrate that the value of the full, non-dutiable charges as a proportion of the final transaction value is ascertainable,” CBP said.