HQ 545223: Internal advice; dutiability of foreign inland freight

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

 



                            HQ 545223
                        September 3, 1993
VAL CO:R:C:V 545223 ILK

CATEGORY: Valuation

District Director
Nogales, Arizona

RE:  Internal advice; dutiability of foreign inland freight

Dear Sir:

     This is in response to your request for internal advice
dated January 20, 1993, regarding the inclusion of foreign inland
freight charges in the transaction value of cars imported by ---
- ----- ------- (hereinafter referred to as the "buyer") from --
-- ----- ------- S.A. de C.V. (hereinafter referred to as the
"seller"), its plant in Hermosillo, Mexico.

FACTS:

     Cars imported by the buyer from its related seller have been
appraised on the basis of transaction value.  Based on its review
of the transfer prices between the buyer and seller, Regulatory
Audit has recommended that the transfer price can be used for
appraisement on the basis of transaction value, and the District
Director is in concurrence.

     One of the costs the seller has included in its transfer
price is the inland freight from its plant in Hermosillo to the
U.S.-Mexican border.  The freight cost is the cost to the seller
to transport the cars from their plant in Hermosillo to the
border at Nogales on the Mexican National Railroad.  At Nogales
the railroad cars containing the imported vehicles are switched
to a Union Pacific engine and crossed into the United States.  

     In 1990 the seller's intercompany invoice indicates that the
merchandise was sold F.O.B. Hermosillo, and that export is from
Nogales, Mexico.  The invoice also included the freight charge in
the transfer price and the seller mistakenly added the freight
charge again to the transfer price to arrive at the entered
value.  In 1991 the seller's invoice price did not include the
freight charge, but it was added on as a separate line item.  In
1991 the seller's invoice also indicates that the merchandise is
sold F.O.B. Hermosillo and that export is from Nogales, Mexico. 
The importer claims that the foreign inland freight is not
dutiable because it is shown as a separate line item expense on
the invoice.  According to the invoices which you provided for
our review, the freight charges are included on both the 1990 and
1991 invoices as separate items.  

     The importer has not provided Customs with a through bill of
lading.  It is your opinion that Customs has no authority to
deduct the foreign inland freight from the price actually paid or
payable for the 1990 and 1991 imported merchandise.

ISSUE:

     Whether the separately itemized foreign inland freight
charges are included in the price actually paid or payable for
the imported merchandise.

LAW AND ANALYSIS:

     Based on the conclusions of Regulatory Audit and the
District Director, as set forth in the facts above, for the
purposes of this ruling we are assuming that transaction value is
an acceptable basis of appraisement for the subject transactions
between the related buyer and seller.  Transaction value is
defined by  402(b)(1) of the Tariff Act of 1930, as amended by
the Trade Agreements Act of 1979 (TAA, 19 U.S.C. 1401a(b)) as
"the price actually paid or payable for the merchandise when sold
for exportation to the United States..." plus certain additions
specified in  402(b)(1) (A) through (E).  The term "price
actually paid or payable" is defined in TAA  402(b)(4)(A) as:

     [T]he total payment (whether direct or indirect, and
     exclusive of any costs, charges, or expenses incurred
     for transportation, insurance, and related services
     incident to the international shipment of the
     merchandise from the country of exportation to the
     place of importation in the United States) made, or to
     be made, for imported merchandise by the buyer to, or
     for the benefit of, the seller. (Emphasis added.)

Section 152.103(a)(5), Customs Regulations (19 CFR 152.103(a)(5))
addresses foreign inland freight and the terms under which it
"may be considered incident to the international shipment" of
merchandise.  Section 152.103 (a)(5)(i) Customs Regulations (19
CFR 152.103 (a)(5)(i)) provides as follows:

          (5) Foreign inland freight and other inland
          charges incident to the international
          shipment of merchandise.
     -(i)  Ex-factory sales.  If the price actually paid or
     payable by the buyer to the seller for the imported
     merchandise does not include a charge for foreign
     inland freight and other charges for services incident
     to the international shipment of merchandise (an ex-
     factory price), those charges will not be added to the
     price.

     An ex-factory price is the cost of the goods at the seller's
loading dock and usually includes export packing, but no other
costs.  It does not include foreign inland freight costs.  See
Headquarters Ruling Letter (HRL) 544875 dated March 2, 1992,
citing Incoterms, 1980 edition.  The existence of an ex-factory
sale must be established in order for the importer to be able to
exclude, under this provision, foreign inland freight charges
from the price actually paid or payable.

     In this case, the invoices to the importer contain the
inland freight charges.  The freight charges are included on the
invoices as a separate amount after the sub total for the
merchandise exclusive of the freight charges.  The freight
charges are included in the total invoice amount.  The presence
of the freight charges in the total invoice amount raises the
question of whether the transfer price is an ex-factory price. 
See HRL 544875, supra.

     In situations where an ex-factory price is asserted, but
where foreign inland freight charges are included in the same
invoice as the price, Customs requires a written explanation from
the importer stating that the foreign inland freight charges were
charged separately as part of an accommodation agreement between
the importer and the seller.  See HRL 544875, supra, HRL 543744
dated July 30, 1986, and Customs Telex UNCLAS 6689 dated July 17,
1985.  This information is necessary to overcome any question
that the sale was on other than ex-factory terms.  Customs has
received no information from the importer regarding any
accommodation agreement between the importer and seller. 
Therefore, although the invoices state the sale was F.O.B.
Hermosillo, an ex-factory sale has not been conclusively
established.

     With respect to sales that are made on other than ex-factory
terms,  152.103 (a)(5), Customs Regulations (19 CFR 152.103
(a)(5)) sets forth those instances in which foreign inland
freight "may be considered incident to the international
shipment" of merchandise:

     ...(ii) Sales other than Ex-factory.  As a general
     rule, in those situations where the price actually paid
     or payable for imported merchandise includes a charge
     for foreign inland freight, whether or not itemized
     separately on the invoices or other commercial
     documents, that charge will be part of the transaction
     value to the extent included in the price.  However,
     charges for foreign inland freight and other services
     incident to the international shipment of the
     merchandise to the United States may be considered
     incident to the international shipment of that
     merchandise within the meaning of  152.102(f) if they
     are identified separately and they occur after the
     merchandise has been sold for export to the United
     States and placed with a carrier for through shipment
     to the United States.

     iii)  Evidence of sale for export and placement for
     through shipment.  A sale for export and placement for
     through shipment to the United States under paragraph
     (a)(5)(ii) of this section shall be established by
     means of a through bill of lading to be presented to
     the district director.  Only in those situations where
     it clearly would be impossible to ship merchandise on a
     through bill of lading (e.g., shipments via the
     seller's own conveyance) will other documentation
     satisfactory to the district director showing a sale
     for export to the United States and placement for
     through shipment to the United States be accepted in
     lieu of a through bill of lading. (emphasis added)

     The documentary requirements set forth in the foregoing
paragraph (iii) were explained in T.D. 84-235 as follows:

     To avoid any confusion, it has been determined that in
     order for foreign inland freight to be deemed incident
     to the international shipment of merchandise, instead
     of requiring that freight costs occur subsequent to the
     placing of imported merchandise on the exporting
     carrier, the freight costs and other services incident
     to the shipment of the merchandise must occur after the
     goods have been sold for export to the United States
     and are placed with a carrier for through shipment to
     the United States.  This will cover shipments by more
     than one mode of transportation, by multiple freight
     companies, or through reload centers, as long as the
     merchandise has been sold for export to the United
     States, as evidenced by the presentation to Customs of
     a through bill of lading.  The through bill of lading
     is necessary to permit Customs officers to verify
     objectively that the above conditions have been
     satisfied. (Emphasis added)

     Most recently the United States Court of Appeals for the
Federal Circuit has upheld Customs' requirement of a through bill
of lading, holding that 19 CFR  152.103(a)(5) "only permits
exclusion from transaction value of foreign inland freight
charges if (a) the merchandise is shipped on a through bill of
lading or (b) absent such a bill of lading, a single carrier or
forwarder has sole control of the shipment from the foreign
factory to the United States border."  All Channel Products v.
United States, Slip op. 92-1299, at p.2, December 29, 1992.
     
     Assuming that the sales between the importer and seller were
made on the basis of other than ex-factory terms, we must still
determine whether the foreign inland freight charges are incident
to the international shipment of the merchandise.  In view of the
foregoing regulatory and interpretative language, the
documentation submitted on behalf of the buyer is not sufficient
evidence that the foreign inland freight charges occurred after
the merchandise was sold for export to the United States and
placed with a carrier for through shipment to the United States,
for the purpose of satisfying the criteria set forth in  152.103
(a)(5)(ii), Customs Regulations.  

     From the facts provided in your internal advice request it
appears that the merchandise was not shipped under the control of
a single carrier or forwarder.  However, if the buyer is able to
provide a through bill of lading or documentation of shipment by
a single carrier or forwarder, based on the language in the All
Channel Products decision, the charges for foreign inland freight
would be deducted from the price actually paid or payable for the
imported merchandise.

     With regard to the entries of 1990 merchandise, only the
amounts for foreign inland freight that were actually paid by the
buyer for foreign inland freight may be deducted from the price
actually paid or payable in any event.  If the buyer mistakenly
paid twice for foreign inland freight for each vehicle, only the
amount of one payment may be deducted from the price actually
paid or payable, assuming the requisite documentation discussed
above substantiates that a deduction is proper.

HOLDING:

     The foreign inland freight charges shown on the seller's
invoices are properly included in the price actually paid or
payable for the imported merchandise as there is insufficient
evidence that the merchandise was purchased on an ex-factory
basis, and Customs has not been provided with either a through
bill of lading or documentation of shipment by a single carrier
or forwarder.


     
                                   Sincerely,


                                   John Durant, Director
                                   Commercial Rulings Division