CIT Upholds CBP Denial of Freight Deduction in Valuation of Late Delivery Shipments
The Court of International Trade denied Cutter & Buck’s challenge to CBP’s valuation of 168 entries of apparel. Cutter & Buck argued that CBP should have deducted international freight charges when arriving at the price actually paid or payable for the purpose of calculating transaction value. The shipments were subject to a late-delivery clause that shifted responsibility for shipping to the seller. Cutter & Buck said the clause also changed the terms of sale from free on board (FOB) to cost, insurance, and freight (CIF), so the cost of shipping was included in the invoice, and deductible, as a result of the late delivery. But the court found that there was no evidence to support Cutter & Buck’s claim that the invoice price included the international freight charges, so they could not be deducted.
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Entries Made of Late-Delivery Shipments
In 2002 and 2003, Cutter & Buck entered 168 shipments of apparel into the Port of Seattle. The entries were shipped 22 to 28 days late by the exporter, so late shipment terms of the purchase agreements kicked in. According to those terms, freight responsibility was shifted to the seller. The entry documentation for most of the entries still identified FOB-related terms of sale, although on 39 of the entries the FOB-related term was crossed out and CFR was handwritten instead.
Cutter & Buck claimed a deduction in the transaction value of each of the 168 shipments on the basis that the price actually paid or payable included international freight charges. CBP denied the claims, because there was no evidence the actual terms of sale changed from FOB to cost and freight (CFR). In other words, there was no evidence the price paid by Cutter & Buck to the seller included freight charges.
Cutter & Buck protested the denied claims, and CBP denied its protests, in the process issuing ruling HQ W548432 (2004) (here). In the ruling, CBP said a change in terms of sale was necessary to obtain the deduction, because it treats freight costs as separate from an FOB price, but includes them in a CFR (or CIF) price. Freight deductions are available for CIF and CFR transactions, but not for FOB transactions. CBP has said in HQ 544646 (1994) (here) that the purpose behind this practice is to arrive at an FOB or ex-factory price for the goods subject to appeasement.
Cutter & Buck filed suit at CIT over all of the denied protests, but CIT ruled it could only decide on 163 of the entries because of the late filing of a protest covering five of the entries.
Company Didn’t Prove Price Paid or Payable Included International Freight
In its opinion, the court identified several CBP rulings on similar issues. In HQ 544911 (1993) (here), CBP said the importer could claim a deduction because a late purchase agreement reduced the contract price by the difference between estimated ocean and air freight. However, in HQ 167196 (2012) (here), CBP denied a freight deduction claim on a different late shipment clause that authorized a late seller to ship late goods at their own expense via air freight CPT (carriage paid to, a term related to CFR). Because there was no reduction in contract price, and no evidence that the parties actually reduced the price paid or payable, there was no way to conclude the price paid or payable included international freight, CBP said.
In this case, the court ruled that Cutter & Buck did not provide enough evidence to show that international freight charges were included in the invoice price. Even on the entries marked CFR, the company needed supporting evidence to show the charges were included in the price. To the contrary, the evidence provided by Cutter & Buck supported CBP’s decision -- the terms of the late purchase agreement shifted responsibility for shipping to the seller, but did not call for an adjustment to price paid or payable. Because nothing on the record supported granting Cutter & Buck’s claim for deduction, the court ruled that CBP was justified in denying it.
(Cutter & Buck, Inc. v. United States, Slip Op. 13-45, dated 04/03/13, Judge Goldberg)
(Attorneys: Taylor Pillsbury of Meeks Sheppard for plaintiff Cutter & Buck, Inc.; Amy Rubin for defendant U.S. government)