CBP: Importer Must Provide 'Complete Paper Trail' If Using First Sale

By providing documentation sufficient for a paper trail, the importer meets the requirements of Treasury Decision 96-87, dated Jan. 2, 1997, which states that first sale entry line items should be entered at the price actually paid or payable between the importer and middleman vendor and not based on the sales prices between the middleman and the factory related to the middleman, according to CBP.

The Oct. 6 ruling involves multiple actors: importer Dreamwear and four middleman vendors -- Wuxi Xinhexin, Lucky Zone, Windus, and All Success. The middleman vendors did not manufacture the clothing items, but placed orders with a factory seller, some of which were related parties, CBP said.

The facts under consideration were similar to those in another CBP ruling, HQ H332358, dated June 4, 2025. That ruling involved the same importer, the same first sale issue and some of the same middleman vendors and factory sellers, CBP said. In that ruling, CBP said Dreamwear didn't provide sufficient evidence enabling first sale appraisement to serve as a means to determine transaction value (see 2508180035).

The documentation that Dreamwear submitted to CBP in support of its protest included organizational charts of the various middlemen and their related factory sellers, as well as documents -- some of which were not translated into English -- claiming to show relative bona fide sales. These documents included purchase orders under "FOB Shenzen" sales terms, purchase orders and invoices on an ex-factory basis, and invoices from the various middlemen to Dreamwear, among other documents.

CBP sought to address two issues in the proceeding: whether certain entry lines based upon the transaction value between the Protestant and a third-party unrelated vendor were erroneously rate advanced, and whether the Protestant submitted sufficient evidence to support the use of transaction value of the entered merchandise based upon the sales between the middleman vendor and its related factory seller under the “first sale” principle of appraisement.

For the first issue, CBP consulted with the Apparel, Footwear and Textiles Center of Excellence and Expertise and its Regulatory Audit office to find out the circumstances behind the rate advances of the non-first sale entry lines.

"The loss of revenue for the protested entries was calculated on an entry-by-entry basis. The CEE then prorated the undervaluation and loss of revenue for the protested merchandise on an entry-by-entry basis for administrative purposes in the Automated Commercial Environment," CBP said. "This was why some lines not claiming transaction value on a first sale basis had to be amended to capture the total loss of revenue for each entry. Although non-first sale entry lines were rate advanced, the total undervaluation and loss of revenue calculations were accurate."

A prior ruling affirmed this framework, CBP continued. "Because the proration of the loss of revenue and undervaluation was done on an entry-by-entry basis, we find that the rate advances, which included both first sale and non-first sale entry lines to account for the loss of revenue and undervaluation, are allowable."

For the second issue, CBP affirmed that under T.D. 96-87, the importer bears the burden of providing evidence that supports the argument that transaction value should be based on a sale involving a middleman and the manufacturer or other seller, rather than on the sale in which the importer was a party. These documents may include purchase orders, invoices, proof of payment, contracts, and any additional documents that establish how the parties deal with one another, CBP said.

"For transaction value to be used as a method of appraisement, we must determine if indeed a 'sale' between the parties had occurred," CBP said, citing the 1999 U.S. Court of Appeals for the Federal Circuit decision in VWP of America, Inc. v. United States. The agency continued, "No single factor is decisive in determining whether a bona fide sale has occurred. CBP makes each determination on a case-by-case basis and will consider such factors as whether the purported buyer assumed the risk of loss and acquired title to the imported merchandise."

While there is no question that the merchandise manufactured by all four factory sellers was destined for the U.S., CBP "must determine whether the transactions between each of the middleman vendors and their factory sellers were bona fide sales, i.e., whether the middleman was an actual buyer/seller of the merchandise," the agency said. For Wuxi Xinhexin and Lucky Zone as middleman vendors, CBP must also determine whether the transactions with their related factory sellers were conducted at arm’s length, CBP continued.

In scrutinizing the documents, CBP ultimately determined that the documents failed to show which entities assumed the risk of loss, in part because some of the documents were not translated into English. There also was no indication from the documents that the middlemen assumed the risk of loss and title to the goods from the factory door until the goods were loaded onto the ship, nor was there documentation presented regarding inland freight, CBP said.

"While Dreamwear did provide our office with a variety of documents, it did not meet its burden of providing a complete paper trail as required by T.D. 96-87," CBP said. "Accordingly, it is impossible to determine whether the transactions between the various middleman vendors (Wuxi Xinhexin, Lucky Zone, Windus, and All Success) and the corresponding factory sellers (Wuxi Sanxing, DongGuan Lucky Zone, Jiangyin Jinze, and Brilliant HK) constitute bona fide sales for exportation upon which transaction value may be based."

CBP also said Dreamwear failed to meet its burden demonstrating negotiations occurred at arm's length among the middleman vendors and their respective factory sellers. While Dreamwear provided an organizational chart, "this chart falls far short of setting forth detailed descriptions of the roles of each of the parties involved in the multi-tiered transactions," CBP said. "Moreover, according to Dreamwear, Lucky Zone and DongGuan Lucky are related to one another through common family ownership, which raises further concerns regarding arm’s length transactions."

Because Dreamwear didn't demonstrate that the sales between Lucky Zone and DongGuan Lucky Zone were bona fide sales negotiated at arm’s length, CBP said it would not address whether the costs declared to CBP at the time of entry included all dutiable assists provided by the middleman vendors. Rather, appraisement of the merchandise should be based upon the price paid by the importer, CBP said.