OPINION
Plaintiff La Perla Fashions, Inc. (“La Per-la” or “LPF”) brings this action to contest the valuation made by the United States Customs Service (“Customs”) on imports of three styles of women’s apparel. In this three-tiered transaction, La Perla imported merchandise from its parent company, Grup-po La Perla, S.p.A. of Bologna, Italy (“GLP”), and resold the merchandise to retailers in the United States^ Customs valued the subject merchandise based on the price paid by the U.S. customers of La Perla. La Perla contends that the correct transaction value is the price between La Perla and its related supplier GLP. The Court has jurisdiction over this action under 28 U.S.C. § 1581(a) and finds that Customs correctly valued the subject merchandise pursuant to 19 U.S.C. § 1401a on the basis of La Perla’s selling prices to its customers in the United States.
The subject merchandise is comprised of three styles of women’s apparel imported and distributed by La Perla in 1995. La Perla imports swimwear, foundation garments, lingerie, sleepwear and ready to wear from its supplier, a related company, GLP. The three garments at issue were manufactured by the MB International division of GLP identified as Valmy, a top, Kappa, a bodystoeking, and Arquette, a dress. Before 1991, GLP sold apparel directly to U.S. buyers through sales agents. La Perla was activated as a New York corporation in 1991 and became the wholesale distributor for GLP, although GLP continued to sell garments directly to U.S. customers and employed sales agents after La Perla was activated. The terms of sale between La Perla and GLP was ex-works, plus insurance. The terms of sale between La Perla and its U.S. customers were delivered at customer’s premises, duty-paid.
Customs appraised the importation of the three styles of garments based on the transaction value (“TV”) of the prices between La Perla and its U.S. customers, less the amounts deducted for international freight, insurance, Customs duties and various other minor charges. La Perla requested a ruling on Customs’ appraisal contending that the correct transaction value should be based on the prices that GLP charged La Perla. Customs audited the entries at issue and concluded in [¶] 544957, dated April 7,1995, and [¶] 545991, dated June 15, 1995, that there was no bona fide sale between GLP and La Perla and affirmed Customs’ transaction values based on the price La Perla charged its U.S. customers. La Perla subsequently brought this action maintaining that the transactions between GLP and La Perla were bona fide sales at fair prices that approximated statutory test values of deductive value (“DV”) and constructed value (“CV”). La Perla further asserts that the sales made to its U.S. customers were domestic sales which would negate transaction value based on the transaction from GLP to La Perla.
Standard of Review
Under 28 U.S.C. § 2639(a)(1), Customs’ decision is “presumed to be correct” and the “burden of proving otherwise shall rest upon the party challenging such decision.”
1
However, recent decisions from the Court of Appeals for Federal Circuit (“CAFC”) have ruled that the presumption of correctness applies solely to factual questions and that this Court’s duty is to find the correct result. The duty of the Court to find the correct result in a valuation ease stems from both legislative and judicial sources. The CAFC recently found that “the trial court ... must consider whether the government’s classification is correct, both independently and in comparison with the importer’s alternative.... [T]he court’s duty is to find the correct result, by whatever procedure is best suited to the case at hand.”
Jarvis Clark Co. v. United States,
2 Fed. Cir. (T) 70, 75,
Discussion
Importers and foreign manufacturers have an interest in lowering the overall duties
On the other hand, Congress, cognizant of the public policy of fostering trade, provided for means by which related parties could prove that their transfer pricing adequately reflected the equivalent of or at least a reasonable approximation of arm’s length transactions resulting from the pressures of market forces. Congress enacted the valuation statute to control the methodology Customs employs in determining the basis of valuing imported merchandise. Congress was aware of the competing, interests when it drafted the valuation statute. Congress wanted to protect Customs’ legitimate income from imports but not at the expense of proper trading relationships. See 102 Cong. Rec. S13256-302 (daily ed. July 18, 1956) and S.Rep. No. 96-249, at 114-23 (1979), reprinted in 1979 U.S.C.C.A.N. 381 at 500-509. The Court recognizes the tension inherent in the valuation statute as well as the underlying interests involved in its etymology and finds that Customs correctly valued the subject merchandise on the transaction value between La Perla and its U.S. customers for the reasons that follow.
I. Related Party Transaction Value
Customs is directed to value imported merchandise based on 19 U.S.C. § 1401a. The statute reads
§ 1401a. Value
(a) Generally
(1) Except as otherwise specifically provided for in this chapter, imported merchandise shall be appraised, for the purposes of this chapter, on the basis of the following:
(A) The transaction , value provided for under (b) of this section.
* * *
(b) Transaction value of the imported merchandise
(1) The transaction value of imported merchandise is the price actually paid or payable for the merchandise when sold for exportation to the United States, ....
19 U.S.C. § 1401a (1988). Related party transfers are covered under 19 U.S.C. § 1401a(b)(2) which provides:
(A) The transaction value of imported merchandise determined under paragraph (1) shall be the appraised value of that merchandise for the purposes of this chapter only if-
* * *
(iv) the buyer and seller are not related, or the buyer and seller are related but the transaction value is acceptable, for purposes of this subsection, under sub-paragraph (B).
(B) The transaction value between a related buyer and seller is acceptable for the purposes of this subsection if an examination of the circumstances of the sale of the imported merchandise indicates that the relationship between such buyer and seller did not influence the price actually paid or payable; or if the transaction value of the imported merchandise closely approximates-
(i) the transaction value of identical merchandise, or of similar merchandise,in sales to unrelated buyers in the United States; or
(ii) the deductive value or computed value for identical merchandise or similar merchandise;
but only if each value referred to in clause (i) or (ii) that is used for comparison relates to merchandise that was exported to the United States at or about the same time as the imported merchandise.
19 U.S.C. § 1401a(b)(2) (1988). The statute directs Customs to value the merchandise at the price paid or payable, a bona fide sale, unless the transfer is between related parties where the relationship affected the price. When it is found that the buyer and seller are related parties, the statute next calls for valuation based on a transaction value of the transfer if it closely approximates the transfer price of identical or similar merchandise to unrelated buyers in the U.S. or deductive or computed value. The first question for the Court then is whether the transaction between GLP and La Perla was a bona fide sale reflecting an arm’s length agreement or was the transfer price affected by their relationship.
La Perla first claims that the correct basis for transaction value is the sales between GLP and La Perla under § 1401a(b)(l) since the “transactions between GLP and [La Per-la] were bona fide sales.” Pl.’s Post-Trial Br. (“Pl.’s Br.”) at 18. As evidence of bona fide sales reflecting arm’s length purchasing, La Perla asserts that it is responsible for its own bank accounts, accounting and financial records, resale pricing negotiating authority, inventory, risk of non-payment by customers, risk of loss and the authority to accept orders without approval. Pl.’s Br. at 20-23.
Customs valued the subject merchandise based on the sale between La Perla and its U.S. customers. Customs rejected the price between GLP to La Perla since it was affected by their close relationship and, therefore, “irreparably negate[d] a TV.” Def.’s Post-Trial Br. (Def.’s Br.”) at 25. Customs asserts that under the stipulation of facts, where La Perla and Customs agreed that the “relationship between [La Perla] and GLP, and the circumstances of sale between them, affected the prices between them,” 3 La Perla is precluded from utilizing the transaction value under § 1401a(b)(l) between the parties as a basis for valuation. Def.’s Br. at 24.
Customs and La Perla argue exhaustively on the agency relationship between GLP and La Perla but the Court finds that the stipulation takes the related party transfer price out of the realm of § 1401a(b)(l) and into the related party provision under § 1401a(b)(2)(B). The key to the resolution of valuation issues involving related parties is establishing an objective market-based price of the subject merchandise. The determination that an agency relationship exists only answers the first requirement of the statute, as transaction value can properly be utilized between related parties if the relationship does not affect the transfer price. The Court recognizes that the statute emphasizes the focus on the transfer price, not the presence of an agency relationship. Once La Perla stipulated that the transfer price was affected by their relationship with GLP, its burden is to prove approximate value under § 1401a (b)(2)(B).
La Perla cites
Dorf International, Inc. v. United States,
In fact, La Perla cites to Customs’ omission to review La Perla’s “resale transactions, or any alleged commercial relationship between GLP and [La Perla’s] U.S. customers.” Pl.’s Br. at 25. The Court, however, has reviewed those resale transactions and the commercial relationships along the three-tiered transactions found in the trial record in 'the form of invoices. ' While the record was far from complete, the Court finds that the three-tiered transactions between GLP, La Perla and the final U.S. customers compared to the transactions between GLP and its direct U.S. customers illuminates the reality of the three-tiered transaction. The Court found that GLP was selling the same merchandise to direct U.S. customers at a price that was within two percent of the price that La Perla charged its U.S. customers. GLP sold the same merchandise to La Perla for more than 35 percent less than the price charged to GLP’s direct customers. In essence, U.S. customers were paying approximately the same price for the same merchandise sold by GLP and La Perla. La Perla, consequently, was receiving the benefit of the lower price paid to GLP.
The Court finds that the sales from GLP to its direct U.S. customers provides the necessary comparison transaction with an unrelated party in the U.S. Since the price between La Perla and its U.S. customers is approximately the same as the price GLP sells to unrelated parties in the U.S., the Court finds that this price fairly reflects the market price of the subject merchandise. As the court in Wood stated:
In this case, we have all necessary market evidence, since Carter, Ltd., sells for export to selected purchasers in the United States — Carter, Inc., and the OEMs. The price to the OEMs and to Carter, Inc., is the same. Because the OEMs are unrelated to Carter Ltd., or Carter, Inc., further proof of what price the merchandise is able to command in the market is not needed. We join the trial court in saying: ‘What better proof is there of the price fairly reflecting the market value when sales are made to other unrelated United States concerns at the same basic price.”
J.L. Wood v. United States,
La Perla claims that the sales to its U.S. customers “have all the indicia of U.S. sales contracts” precluding a finding that this transaction would qualify as a sale for exportation into the U.S. under the statute. Pl.’s Br. at 38. To support this assertion, La Perla cites
United States v. Massce & Co.,
The courts found two bona fide sales involved in the three-tiered transactions in both Massce and Orbisphere. In the instant case, however, the Court finds that there is only one bona fide transaction: the sale between La Perla and its U.S. customers. Transaction value cannot be based on a transaction that is found not to be a bona fide sale. Therefore, the Court finds that transaction value can only be based on La Perla’s price charged to its U.S. customers.
II. Deductive and Computed Value
La Perla argues that deductive and computed value of the subject merchandise closely approximates the transaction value between GLP and La Perla satisfying § 1401a (b)(2). Pl.’s Br. at 25-37. La Perla provided witnesses who testified that the computed value for the garments in question were calculated “in accordance with the statute directly from the audited accounting records of GLP.” Id. at 26. In addition, La Perla maintains that the accounting records used for the computed value analysis were kept in accordance with Italian law and generally accepted accounting principles (“GAAP”) in Italy. Id. at 27. La Perla maintains that “[sjince the computed value statement was prepared in accordance with generally accepted accounting principles, it cannot be rejected by the government merely because the government might have chosen different allocation methods ... [mjoreover, this Court need not exclude this evidence from consideration merely because it was not created exactly as Customs would have liked.” Id.
Similarly, La Perla introduced deductive values for the three garments that they claim closely approximate the transfer prices from GLP to La Perla. Id. at 32. La Perla reiterated that the figures used in preparing the deductive values were “in accordance with generally accepted accounting principles, [and] cannot be rejected by the government merely because the government might have chosen different allocation methods.” Id. at 35.
Customs argues that the computed and deductive values submitted by La Perla were not acceptable because the evidence presented was inadmissible. Specifically, Customs claims that the evidence was inadmissible because it represented summaries or summaries of summaries that were not verifiable by a Customs auditor. Def.’s Br. at 31. In fact, Customs stated that their auditor
could not verify the bases for virtually all of the critical factual information relating to [La Perla’s] proposed CV comparisons, and unequivocally testified that in his experience there have been occasions where information submitted based upon a companies [sic] summaries of business records and financial statements were erroneous and understatements of value, even though the basic documents were audited business records of the company.
Id.
Finally, Customs contends that La Perla “failed to prove the existence of a DV or CV for identical or similar merchandise, as contemplated by the statute and decisions of the courts involving materially identical statutory provisions.” Def.’s Br. at 26. Customs claims that any computed or deductive value calculations that are based on the transaction between related parties are void under the statute based on the belief that the values are inherently flawed. Customs cites to § 1404a(h)(2) and (3) for the proposition that the statute
contemplated] that: (a) where the price between the parties was affected by the relationship, and a DV or CV comparison must be made, in the first instance one must use the DV or CV for identical or similar merchandise that is manufactured by the same manufacturer that made the importations, but which is made up of elements that are not prejudiced because of the relationship — involving sales to unrelated parties; (b) if there is no DV or CV for that type of merchandise then one looks to the DV or CV of that type ofmerchandise, but which is manufactured by another person in the same country of exportation.
Id. at 27, n. 10.
The Court finds that its examination of the transactions in the trial record provide the objective, market-based price of the subject merchandise upon which this opinion is based. The computed and deductive values submitted by La Perla exposed the dangers of utilizing unverified deductive and computed values to value merchandise. First, as the Court held in
VWP,
“value comparisons using allocations of costs verified and in compliance with GAAP do not necessarily provide the Court with accurate information with respect to the import statute in the U.S.”
VWP of America, Inc. v. United States,
21 CIT -, -,
Second, as a practical matter, La Perla’s failure to provide the supporting information raises the specter that they are withholding information. It is clear from the record that Customs persistently requested the underlying records that were used to compile the computed and deductive values prepared by La Perla. The reluctance of La Perla to provide this information easts doubt as to what that record contained. If there were no discrepancies in the underlying records, it would seem that La Perla would have been more forthcoming in furnishing them to Customs and the Court.
Finally, the Court finds that there is no support in the statute for Customs’ contention that computed and deductive value calculations must be derived from an unrelated manufacturer or exporter. The Court can envisage scenarios where a manufacturer sells unique merchandise to a single related importer in the U.S. In this situation there would be no comparable unrelated third party transfer with which to compare cost information. Customs wishfully .reads into the statute a condition for comparison to unrelated party sales from exporter to importer where there is none. Customs should have instead focused its scrutiny on the comparison of the price charged by GLP to its direct U.S. customers with the price between GLP and La Perla. It is this comparison that the Court finds provides the requisite market-based price upon which the correct valuation is based.
Conclusion
For the foregoing reasons, the Court finds that the subject entries of garments were correctly valued on the price between La Perla and its customers in the United States. Accordingly, judgment is entered for the defendant and this case is dismissed.
JUDGMENT
Upon conducting trial, reading plaintiff’s post trial and reply briefs, .defendant’s post trial and reply briefs, and upon consideration of all other papers and proceedings had herein, it is hereby
ORDERED, that valuation of the subject merchandise is properly based on the transaction value between the plaintiff and its U.S. customers; and it is further
ORDERED that the defendant’s valuation based on the transaction value between the plaintiff and its U.S. customers is correct and affirmed.
Notes
. 28 U.S.C. § 2639(a)(1) (1994).
.
See Goodman Mfg., Inc. v. United States,
13 Fed. Cir. (T) -, -,
. Agreed Stipulation of Fact, Jan. 28, 1997.
.
VWP of America, Inc. v. United States,
21 CIT -, -,