H336680

H336680 December 18, 2025 OT:RR:CTF:VS H336680 RRB CATEGORY: Valuation Center Director CEE – Electronics U.S. Customs and Border Protection 301 E. Ocean Blvd. Long Beach, CA 90802 Attn: Scott Titus, Import Specialist RE: Application for Further Review of Protest No. 3901-23-130384; Transaction Value; Assists; Discounts Dear Center Director: This is in response to the Application for Further Review (“AFR”) of Protest No. 3901-23-130384, timely filed on October 24, 2023, by Gunster, on behalf of their client, Bidi Vapor LLC (“Protestant” or “Bidi Vapor”), concerning the appraisement of electronic cigarettes under 19 U.S.C. § 1401a. The AFR was forwarded to this office for consideration. FACTS: From August 15, 2022, through January 30, 2023, the Protestant filed 28 entries of electronic cigarettes (“e-cigarettes”). The Protestant purchased the e-cigarettes from SMISS Technology, Co. Ltd. (“SMISS”), which manufactured the goods in China. Sales between the Protestant and SMISS were governed by a Manufacturing and IP Ownership Agreement between the parties, dated January 9, 2020 (“Manufacturing Agreement”). According to the Manufacturing Agreement and the Bidi Vapor Organizational Chart, SMISS is an independent contractor that functions as the exclusive manufacturer and supplier of Protestant’s e-cigarettes. The entry documents indicate that Bidi Vapor is both the importer and the ultimate consignee. According to the protest documentation, the Protestant’s sole customer is Kaival Brands Innovations Group Inc. (“Kaival”). This documentation also indicates that the 1 founder and CEO of Bidi Vapor is also a founder and science officer at Kaival. Kaival purchases e-cigarettes from Bidi Vapor pursuant to an agreement between the parties.1 Documentation provided by Bidi Vapor indicates that it owns the infrastructure for the e-liquid nicotine production lab and testing equipment to make and test the e-liquid according to specification for quality, reliability, safety, and personalized control. Upon production and testing of the e-liquid nicotine by Bidi Vapor at a laboratory located in China, the e-liquid nicotine gets released to SMISS for incorporation into the finished e- cigarettes prior to importation. As confirmed by the packing lists and other entry documents, the e-cigarettes were imported with the e-liquid nicotine contained within the e-cigarette hardware. Prior to the importation of the 28 entries at issue, Bidi Vapor entered into two transactions with SMISS, POs (“PO”)-013 and PO-014, for a total of 13.8 million e- cigarettes. Approximately 6.5 million of those e-cigarettes were deemed defective and, following customer complaints and negotiations, SMISS sent a “Statement of Indemnity” to Bidi Vapor on February 20, 2021. In relevant part, the “Statement of Indemnity” advised Bidi Vapor to provide its customers with “replacement products” and stated that Bidi Vapor may reimburse its customer in the form of a discount on subsequent orders from batch PO-015, whereby “[t]he specific discount size depends on the specific circumstances of each order.” On January 13, 2023, U.S. Customs and Border Protection (“CBP”) issued a Request for Information (CBP Form 28) for the 28 entries, seeking “entry summary packets, invoices, BOL [bill of lading], packing list, and detailed product information/specifications to include color pictures.” On February 15, 2023, CBP issued a Proposed Notice of Action (CBP Form 29), proposing correction of the transaction value of the subject merchandise to “the wholesale value per piece net packed.” The entries were liquidated between April 28, 2023, to July 7, 2023. Among the protest documents, the Protestant submitted a Microsoft Excel spreadsheet detailing the protested entry numbers, invoice numbers, quantities, unit prices, airway bill numbers, and PO attachments. However, the PO numbers identified on the packing lists for the subject entries do not match the POs attached in the Excel spreadsheet. We also note that one of the protested entries was tied to two separate commercial invoices of different quantities of what appears to be the same merchandise, along with two separate POs. Moreover, one of the protested entries is missing from the Excel spreadsheet. Lastly, in addition to missing POs associated with the protested entries, we also note that one of the protested entries is missing most of the entry documents except for the Entry Summary. On October 24, 2023, Bidi Vapor filed this Protest and AFR, asserting that the protested entries were liquidated at a higher rate than declared at the time of entry. In 1 According to a letter from Kaival to Bidi Vapor, dated August 1, 2022, “Kaival purchases certain products from Bidi pursuant to agreement between the parties, as amended and restated from time-to-time (and earlier via its predecessor agreements).” 2 response to the Protest filing, the Electronics Center of Excellence and Expertise (“Electronics CEE”) issued a second CBP Form 28 on November 16, 2023, requesting additional information regarding the relationship between the seller and the importer, details of any additional costs or expenses incurred in the transaction (e.g., packing, commissions, proceeds that accrue to the seller, assists, royalties and/or license fees), a copy of a contract (or PO and the seller’s confirmation thereof) covering the transaction, and a breakdown of components, materials, or ingredients by weight and the actual costs of the components at the time of assembly into the finished article. In a letter, dated December 19, 2023, counsel for the Protestant responded to the November 16, 2023, CBP Form 28. In this letter, counsel for the Protestant asserted that Bidi Vapor is not related in any way to the seller of the merchandise and that there are not any additional costs/expenses incurred in the transaction for any of the 28 entries. They also stated that a copy of the contract covering the transaction, breakdown of components, materials, or ingredients by weight and the actual costs of the components were included as exhibits to the Protest, along with all of the entry documents. In response to an email inquiry from our office on December 31, 2024, counsel for the Protestant submitted a supplemental submission, dated March 20, 2025. In this submission, counsel explains that the initial import price per unit of merchandise was $1.50 but that as a result of credit negotiations between Bidi Vapor and Kaival, and consistent with the “Statement of Indemnity” issued by SMISS to Bidi Vapor, the import price per unit from SMISS to Bidi Vapor was reduced to $0.802, as noted in the commercial invoices for some of protested entries,2 “until such time where the discount applied equaled what SMISS owed Bidi Vapor for the defective goods.” Counsel for Bidi Vapor also explained that as part of Bidi Vapor’s overall discussions with Kaival, and to address their disappointment about the defective merchandise, Bidi Vapor agreed to discount their pricing to Kaival by 5% on all future orders for products until the entire total credit given by Bidi Vapor to Kaival in response to the defective merchandise has been exhausted.3 According to the POs attached to the above-referenced Microsoft Excel spreadsheet for the subject e-cigarettes, the total cost per unit is $1.50, with the merchandise hardware costing $0.80 and the selling, general, and administrative (SG&A) expenses, assembly costs, and product licensing costs totaling $0.70. The POs and commercial invoices associated with the protested entries only describe the “Bidi Stick 10PK” or “Atomizer Device.” Moreover, the product description in the entry documents indicates various flavors of e-liquid contained within the imported e- cigarettes, which was confirmed by photos submitted by the Protestant, photos and inspections by the Electronics CEE, and the Protestant’s narrative about production of the hardware and e-liquid overseas. 2 We note that for six of the 28

This matter is protestable under 19 U.S.C. § 1514(a)(1) as a decision on the value of merchandise. The protest was timely filed on October 24, 2023, within 180 days of the date of liquidation. See Miscellaneous Trade and Technical Corrections Act of 2004, 3 Pub. L. 108-429, § 2103(2)(B)(ii)-(iii) (codified as amended at 19 U.S.C. § 1514(c)(3) (2006)). Further review of this protest is properly accorded to the importer pursuant to 19 C.F.R. § 174.24(b) because the issues protested involve questions of law or fact, which have not been ruled upon. Merchandise imported into the United States is appraised for customs purposes in accordance with Section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (“TAA”), codified at 19 U.S.C. § 1401a. The preferred method of appraisement is transaction value, which is defined as “the price actually paid or payable for the merchandise when sold for exportation to the United States,” plus certain statutorily enumerated additions, including assists, under 19 U.S.C. § 1401a(b)(1)(A)-(E). Unless there is a bona fide sale of merchandise for exportation to the United States, the transaction value method cannot be used. When merchandise cannot be appraised under the methods set forth in 19 U.S.C. § 1401a(b)-(e), its value is to be determined in accordance with the "fallback" method of 19 U.S.C. § 1401a(f). This method provides that merchandise should be appraised on the basis of a value derived from one of the prior methods reasonably adjusted to arrive at a value. Nevertheless, under section 500 of the Tariff Act of 1930, as amended, which sets forth CBP’s general appraisement authority, the appraising officer may: 4 

 Fix the final appraisement of merchandise by ascertaining or estimating the value thereof, under section 1401a of this title, by all reasonable ways and means in his power, any statement of cost or costs of production in any invoice, affidavit, declaration, or other document to the contrary notw