United States International Trade Commision Rulings And Harmonized Tariff Schedule

faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers

faqs.org > Rulings and Tariffs Home > Rulings By Number > 1991 HQ Rulings > HQ 0222493 - HQ 0544452 > HQ 0544370

Previous Ruling Next Ruling

---

HQ 544370

October 9, 1990

VAL-2 CO:R:C:V 544370 pmh

CATEGORY: VALUATION

Area Director
New York Seaport, NY

RE: Application for Further Review of Protest No. 1001-9-000182; Dutiability of Warranty Costs

Dear Madam:

The above referenced protest and application for further review was filed against your decision regarding the appraised value of certain merchandise imported by Samsung Electronics America, Inc. (the importer). The merchandise was entered December 1, 1988 and entry was liquidated December 30, 1988.

FACTS:

According to a memorandum submitted in support of the protest, Samsung Electronics America, Inc. (the importer) imports electronic merchandise from Samsung Electronics Co., Ltd. (SEC). The subject merchandise consists of televisions, stereos, video cassette recorders, microwave ovens and other electronic articles. The importer sells this merchandise to U.S. consumers and guarantees the quality of this merchandise by means of a limited warranty against latent manufacturing defects in the merchandise. Latently defective merchandise that is returned under warranty is sold at a discounted price by the importer as second quality merchandise. Latently defective merchandise that is returned for repair is sent to unrelated service centers that invoice the importer for parts and labor. The importer maintains records of losses on resale of defective merchandise as well as repair costs incurred.

In a June 5, 1990 letter, the importer stated that it has a servicing agreement with SEC whereby SEC pays the importer for repair costs incurred by the importer in connection with the warranty for defects. The importer submitted a copy of the servicing agreement showing that such agreement was entered into on March 1, 1989.

ISSUE:

Whether the costs associated with the warranty are deductible from the transaction value of the imported merchandise.

LAW AND ANALYSIS:

The method of appraisement is transaction value pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA: 19 U.S.C. 1401). Section 402(b)(1) of the TAA provides, in pertinent part, that the transaction value of imported merchandise is the price actually paid or payable for the merchandise when sold for exportation to the United States plus amounts for the items enumerated in section 402(b)(1) of the TAA. The price actually paid or payable is defined in section 402(b)(4)(A) of the TAA as: "the total payment (whether direct or indirect...) made, or to be made, for the imported merchandise by the buyer to, or for the benefit of, the seller."

In Generra Sportswear Company v. United States, Slip-Op. 89- 1652 (1989), the court held that it was reasonable for Customs to conclude that the entire payment made to the seller for quota charges, was "for imported merchandise" within the meaning of subsection 1401(b)(4)(A). This is in accordance with our position previously set forth in TAA #6 that all moneys paid to the foreign seller are part of the price actually paid or payable.

In contrast, section 402(b)(3)(A) specifies certain items that are not included in transaction value. Section 402(b)(3)(A)(i) of the TAA provides:

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; ...

The importer contends that the costs associated with the warranty should be deducted under section 402(b)(3)(A)(i) as reasonable costs for maintenance of the merchandise after importation into the United States. In HRL 544394, of this same date, Customs addressed the issue of whether costs associated with warranty are deductible from the transaction value of imported consumer goods under section 402(b)(3)(A)(i) of the TAA.

However, we note that in this case the question of whether the warranty/repair costs are deductible from the transaction value is not at issue because according to the Servicing Agreement that the importer submitted to us with its June 5, 1990 letter, the importer is reimbursed for the warranty/repair costs by the foreign manufacturer, SEC, after importation. In this regard, section 402(b)(4)(B) of the TAA provides:

Any rebate of, or other decrease in, the price actually paid or payable that is made or otherwise effected between the buyer and the seller after the date of importation ...shall be disregarded in determining the transaction value under paragraph (1).

We note that the foreign manufacturer agreed to reimburse the importer for the costs associated with the warranty, by a Servicing Agreement dated March 1, 1989, after the December 30, 1988 liquidation of the subject entry of imported goods. Consequently, the above-cited statutory provision precludes the Customs Service from taking into account the manufacturer's reimbursement in determining the transaction value of the imported merchandise.

HOLDING:

Based upon the information submitted and for the reasons stated above, we find that the post-importation reimbursement for warranty costs in this case cannot be considered in determining transaction value under section 402(b) of the TAA. Accordingly, you are directed to deny this protest. A copy of this decision and HRL 544394, should be attached to the Form 19, Notice of Action, to be sent to the protestant.

Sincerely,

John Durant, Director,
Commercial Rulings Division

Previous Ruling Next Ruling