United States v. Hospitaline, Inc.

• Decision Date: 06 May 1963
• Docket Number: A.R.D. 156.
• Parties: UNITED STATES <I>v.</I> HOSPITALINE, INC.
• Court: U.S. Court of Customs and Patent Appeals (CCPA)

50 Cust. Ct. 556

UNITED STATES

v. HOSPITALINE, INC.

A.R.D. 156.

United States Customs Court, Third Division, Appellate Term.

Decided May 6, 1963.

John W. Douglas, Assistant Attorney General (Morris Braverman, trial attorney), for the appellant.

John D. Rode (Ellsworth F. Qualey of counsel) for the appellee.

Before JOHNSON, DONLON, and RICHARDSON, Judges; DONLON, J., concurring

JOHNSON, Judge:

This is an application for review of a decision and judgment of Judge Lawrence, holding that certain hypodermic syringes and needles, manufactured in Japan, shipped to Canada for storage, and then sent to the United States were subject to appraisement on the basis of the export value in Japan of such or similar merchandise, on the ground that Japan was the country of exportation. Hospitaline, Inc. v. United States, 48 Cust. Ct. 563, Reap. Dec. 10177.

The merchandise was appraised as an exportation from Canada on the basis of the foreign value of similar merchandise. It is this value that the Government contends for. The primary issue in the case, therefore, is whether Canada or Japan is the country of exportation.

It was stipulated at the trial that the merchandise was manufactured in Japan, imported into Canada by Gilbert & Co. of Toronto, and shipped to Hospitaline, Inc., of New York, an affiliated company, during the period from June 1, 1957, to March 1, 1958, without any change or alteration, but in the same condition as originally imported. It was further stipulated:

* * * that during the period when these shipments were made to the United States there was no export value or United States value for such or similar merchandise; that the sole question involved is the existence of a foreign value for such or similar merchandise for the period in question.

I also offer to stipulate that if the court finds that such or similar merchandise was freely offered for sale for home consumption in Canada to all purchasers during the period in question then the appraised values of the merchandise are correct and that they represent such home market value; that if the court finds that such or similar merchandise was not freely offered for sale for home consumption in Canada to all purchasers during the period in question then cost of production as defined in Section 402(a) (f) of the Tariff Act of 1930 as amended is the proper basis of appraisement and that such cost of production for the merchandise covered by each entry is the invoiced value.

I further offer to stipulate that if the court finds that Japan is the country of exportation to the United States for the merchandise here involved then the invoiced and entered values for the merchandise are the statutory export values for such or similar merchandise on the respective dates of exportation from Japan, including all costs, charges and expenses for placing the merchandise in condition, packed ready for shipment to the United States, and that on the respective dates of exportation there was no higher statutory foreign value for such or similar merchandise.

Jules R. Gilbert, president of Gilbert & Co., testified as follows: There is no legal relationship between Gilbert & Co. and Hospitaline, Inc., but both companies are owned by the same major shareholders, Dr. William Bell and himself. The merchandise involved in this case was purchased in Japan through an agent from two manufacturers, Tsubasa Syringe Co. and Tohmon Manufacturing Co. It was purchased for Hospitaline, Inc., and at the time it was ordered in Japan, it was destined for New York. Merchandise of the same kind and quality was also purchased for Gilbert & Co. The needles and the syringes for Hospitaline, Inc., were labeled "Hospitaline, Inc.," and the merchandise for Gilbert & Co. was marked "Gilbert & Co." The latter was sold in Canada for home consumption, but the merchandise marked "Hospitaline, Inc.," was never at any time offered or sold in Canada. It was brought into Canada and kept there as a convenient way of storing it against the time it was needed, because such merchandise comes into Canada free of duty and because Gilbert & Co. had warehouse facilities in Canada, whereas Hospitaline's warehouse facilities in New York were very limited. It was not processed or manipulated in Canada in any way, except for relabeling for transportation to the United States and except where less than a shipping case was required, in which event, the merchandise was transferred to a carton, but the outer packaging of the syringes and needles was not disturbed. Gilbert & Co. billed Hospitaline, Inc., at actual cost, plus a separate service fee for handling, to cover the value of the money Gilbert & Co. had tied up in the merchandise and incidental charges, labor, storage, and shipping. Mr. Gilbert did not consider the transaction a sale, but a transfer of merchandise.

On cross-examination, Mr. Gilbert testified that he did not place orders with the Japanese supplier under the name of Hospitaline, Inc.; that Hospitaline, Inc., would place its own orders; that Gilbert & Co. could not place an order under the name of Hospitaline, Inc.; that the merchandise, regardless of how it was marked by the Japanese manufacturer and shipper, was for the account of Gilbert & Co. and was paid for by Gilbert & Co. However, the witness also stated that there was a contract between Hospitaline, Inc., and Gilbert & Co. with the Tsubasa Glass Co., the Japanese supplier, and that he was given the right by Tsubasa Glass Co. to purchase the Hospitaline merchandise. He stated also that Hospitaline, Inc., had the right to import certain syringes from Tsubasa Glass Co. into the United States, but, as a matter of convenience, it purchased from Gilbert & Co. in Canada where the merchandise was stored. Gilbert & Co. shipped the merchandise to Hospitaline, Inc., and never directly to a customer of Hospitaline, Inc.

Gilbert & Co. had exclusive rights to distribute these products in Canada, but there were no restrictions on the sale thereof. Tsubasa Glass Co. had a distributor in the United States, not Hospitaline, Inc., but it is not clear from the record that it was an exclusive distributor.

Defendant introduced into evidence a report of Examiner George W. Arnold who visited the offices of Gilbert & Co. in Toronto on April 30, 1958, and interviewed Mr. Gilbert and Mr. D. L. Bennett, general manager. According to the report, Mr. Bennett stated that that there was an understanding by which Gilbert & Co. includes Hospitaline's requirements in its order to the Japanese manufacturer; that such merchandise was shipped to Toronto and retained in stock until required by Hopitaline, Inc.; that Gilbert & Co. will ship only to Hospitaline, Inc., except when Hospitaline, Inc., is out of stock, in which case, it will ship directly to the American purchaser, with Hospitaline, Inc., billing said purchaser. "All of the merchandise shipped to the United States is taken from stock, which was ordered for and destined for Hospitaline, Inc. * * * none of the stock ordered for Hospitaline Inc. entered the commerce of Canada." The examiner was also informed that the invoice prices were the laid-down costs of the merchandise in Toronto and did not include any profit for Gilbert & Co. According to Mr. Bennett, Gilbert & Co. would be unable to sell the "Hospitaline" brand in Canada, because the Canadian purchasers would believe it to be an inferior substitute for the "Gilbert" brand.

Under section 402 of the Tariff Act of 1930, both foreign and export values are to be determined on the basis of the prices at which the merchandise is freely offered for sale to all purchasers in the principal markets of the country from which exported. A first requisite in determining dutiable value, therefore, is to find the country of exportation. This question has arisen in a number of cases where merchandise is manufactured in one country but shipped to the United States from another.

The classic statement of the rule is found in United States v. G. W. Sheldon & Co. (Damon Raike & Co.), 53 Treas. Dec. 34, 36, T.D. 42541, where the court said:

Merchandise imported from one country, being the growth, production, or manufacture of another country, must be appraised at its value in the principal markets of the country from which immediately imported, unless it is shown that it was destined for the United States at the time of original shipment without any contingency of diversion.

In that case, the merchandise was sent to Canada from Germany for the purpose of sale, but when no market was found there, it was shipped to the United States. The court found that there was an intention of withdrawing it for consumption in Canada and that part of it was so withdrawn. It was, therefore, held that there was a contingency of diverting all the merchandise for consumption in Canada.

In United States v. Meadows, Wye & Co. (Inc.), 49 Treas. Dec. 959, T.D. 41622, affirmed without opinion, 14 Ct. Cust. Appls. 488, merchandise was ordered from Italy through plaintiff's affiliate, D. Appleton & Co. of London, and was shipped directly to New York or transmitted to England for shipment by D. Appleton of London to New York. Payment was by draft transmitted to D. Appleton of London and forwarded by it to Italy. The merchandise was repacked in London for shipment to New York and a new invoice made out. The court held that Italy was the country of exportation, on the ground that the merchandise did not enter the commerce of England. The court said (p. 967):

We therefore...