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HQ 544247

February 28, 1989

CLA-2 CO:R:CV:V 544247 VLB

CATEGORY: VALUATION

District Director of Customs
Ogdensburg, New York 13669

RE: Request for Reconsideration of Headquarters Ruling No. 544005

Dear Sir:

Reconsideration of Headquarters Ruling Letter (HRL) 544005 issued on August 16, 1988, has been requested by the attorney concerned. Additionally, clarification of the ruling has been requested by other interested parties. The ruling stated that repair costs of imported precast concrete panels were identified separately in the contract from the price actually paid or payable for the merchandise. Therefore, we concluded that the repair costs were not included in transaction value under section 402(b)(3)(A)(i) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA). The ruling also held that the estimated cost of repairs provided to Customs at the time of entry was the amount that should not be included in the transaction value.

As we discussed in our prior ruling, Skobeton Quebec, Inc. (hereinafter referred to as "SQI"), entered into a contract with Pizzagalli Construction Company (hereinafter referred to as "PCC") to provide and erect precast concrete panels for a building being constructed in New York. The original contract price for manufacturing, delivering and installing the panels was $550,000.

The merchandise was imported one truckload at a time over several months. Each truckload was subject to a separate consumption entry. The parties' counsel indicated that the entered values were not based on separate transactions between SQI and PCC, but rather on the estimated proportion each entry represented of the total merchandise called for by the contract.

The contract contained an estimate of $6,000 for repairs to the panels at the building site. There were also estimated costs
for supervision, installation, hardware and water repellant, freight, brokerage, caulk, jockeying, state sales tax and duty. All of the actual costs exceeded the estimated costs.

The contract had several change orders adding and subtracting amounts. Customs appraised the contract under transaction value by starting with the original contract price, adding the amount of the first change order (furnishing materials) and then subtracting the amounts in three other change orders (dropping material and changing installation of flashing), arriving at a value of $599,300.40.

Customs then deducted the actual cost of supervision, installation, caulk, jockeying, freight, brokerage and state sales tax. Finally, the estimated cost of the repairs was deducted to arrive at the final dutiable value of the merchandise.

As stated previously, our prior ruling concluded that repair costs were separately identified in the contract and were deducted properly under section 402(b)(3)(A)(i) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA) which reads as follows:

The transaction value of imported merchandise does not include any of the following, if identified separately from the price actually paid or payable . . .:

(A) Any reasonable cost that is incurred for -- (i) the construction, erection, assembly, or maintenance of, or the technical assistance provided with respect to, the merchandise after its importation into the United States; . . . (emphasis added)

In the documents submitted, it appears that the repairs involved included mending cracks, cleaning the concrete surfaces which had been stained or discolored and coating the exterior surfaces of the panels with clear damp proofing sealer. The parties characterized these charges as repair costs. However, the import specialist has advised us that these costs are incurred during the construction of the building. Therefore, the costs are more appropriately considered as costs incurred after importation of the panels that were incidental to and necessary for the construction, erection and assembly of a building that was free of defects and acceptable to the owner.

Therefore, we again conclude that these costs, separately identified in the contract, fall under section 402(b)(3)(A)(i) of the TAA. Consequently, these costs are not included in transaction value.

Section 402(b)(3)(A)(i) of the TAA does not refer specifically to repair costs. As a result, a question has arisen regarding Customs authority to adjust the transaction value for this item. Generally, the consideration of the dutiability of repair costs must take into account 19 CFR 158.12(a) which sets forth limited conditions that entitles an importer to an allowance in value for damaged merchandise. However, in the unique facts of this case, section 402(b)(3)(A)(i) of the TAA is applicable rather 19 CFR 158.12(a).

Further, as discussed previously, Customs based appraisement of the merchandise on the original contract price along with the change orders to arrive at the value of the contract. This is the actual value of the contract, i.e. the value incorporates actual changes in the original contract price and represents the starting point for ascertaining transaction value. In the context of using the actual price adjustments to determine the price actually paid or payable, we agree that it is both logical, fair and in accordance with the valuation statute to deduct the actual costs to arrive at the final transaction value. These are the costs that were incurred by the importer after importation for purposes of section 402(b)(3)(A)(i)of the TAA.

Please note, however, in those cases where appraisement is to be based on the initial contract price, any adjustment to the price actually paid or payable would have to be on the basis of estimated costs.

As a result of this reconsideration, we reaffirm Headquarters Ruling 544005 to the extent that it held that the repair costs were not included in the transaction value of the merchandise. We modify the ruling to the extent that it held that the estimated costs not the actual costs should not be included.

Sincerely,

Harvey B. Fox, Director
Office of Regulations and Rulings

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