HQ 0544378 - Application for Further Review of Protest No. 1001-7-009585 concerning dutiability of U.S. design fees included in buying agent's invoice price - United States International Trade Commision Rulings

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HQ 544378

September 11, 1990

VAL CO:R:C:V 544378 DPS

CATEGORY: VALUATION

Area Director
JFK Airport

RE: Application for Further Review of Protest No. 1001-7-009585 concerning dutiability of U.S. design fees included in buying agent's invoice price

Dear Sir:

The subject protest and application for further review concerns the issue of whether design fees included but not specifically provided for in the buying agent's invoice price of imported merchandise can subsequently be deducted from the transaction value pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. 1401a(b); TAA), on the grounds that the design fees were produced in the United States.

FACTS:

The protestant importer, Argenti, Inc. ("Argenti") imports ladies' wearing apparel from Hong Kong and other locales in the Far East. According to information provided by the importer, Argenti utilizes a buying agent, Italade Exports Limited ("Italade") in Hong Kong. At the time of shipment, Italade prepares and forwards to Argenti an invoice covering the value of the merchandise plus Italade's commission. With respect to the entries under protest, Argenti claims that the invoices include a design fee of $0.60 per garment which was paid for designs created in the United States by Mr. Pat Argenti (a party not related to Argenti, Inc. the importer's counsel claims), and was remitted in full by Italade to Mr. Argenti in the United States.

The subject protest requests that Customs reliquidate the entries and appraise the merchandise at unit values that exclude the design fee. The information provided by Argenti's counsel includes the following: (1) copies of invoices from Italade, the buying agent, to Argenti, Inc., which set forth style numbers, quantities and unit prices which the importer claims include a $0.60 per garment design fee; (2) copies of a computer generated report reflecting design fees payable on Italade Invoice No. I0924-86; (3) a design fee agreement between Italade Exports Limited and Pat Argenti; (4) a document which totals design fees/commissions paid to Pat Argenti from August 1986 through November 1986; (5) documents stated to evidence payment from Heng Seng Bank Ltd. in Hong Kong to Pat Argenti for said design fees; and (6) miscellaneous other documents which include copies of protests filed by Argenti.

ISSUE:

Whether the cost for design work performed in the United States, which is included in the buying agent's invoiced price for the imported merchandise, but not specifically provided for therein, can be deducted from the transaction value of the imported merchandise subsequent to importation into the United States.

LAW AND ANALYSIS:

With respect to the design fees in question, the only invoice that purports to include these charges, and the only invoice provided to Customs, is an invoice from the buying agent. Information on that invoice includes style numbers, price per unit and a five percent buying commission to Italade. Argenti argues that transaction value cannot be based on an invoice from a bona fide buying agent that includes non-dutiable charges, yet it has failed to provide invoices from the actual manufacturers/sellers of the goods at issue. Counsel states that the importer is "merely asking Customs to recognize that the manufacturers of the goods were the sellers and that transaction value is properly determined by the price paid to the sellers, not the buying agent." At the time the protest was filed, the protestant provided no documentation in the form of manufacturers or sellers invoices, to support its claims about the price actually paid or payable to the manufacturers/sellers.

The importer argues that the language of the value statute, specifically, section 402 (b)(1) supports its position. The relevant section defines "transaction value" as follows:

(b)(1) 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 equal to-- ...

The "price actually paid or payable" is more specifically defined in section 402(b)(4)(A) as:

The total payment (whether direct or indirect...) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.

It is clear from the statutory language that in order to establish transaction value one must know the identity of the seller and the amount actually paid or payable to him. As stated in HRL 542141 (TAA #7), dated September 29, 1980, "...an invoice or other documentation from the actual foreign seller to the agent would be required to establish that the agent is not a seller and to determine the price actually paid or payable to the seller. Furthermore, the totality of the evidence must demonstrate that the purported agent is in fact a bona fide buying agent and not a selling agent or an independent seller."

Section 402(b)(4)(B) addresses rebates or decreases in the price actually paid or payable. It states:

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

The language of section 402(b)(4)(B) requires that Customs disregard rebates or decreases in the price actually paid or payable subsequent to importation, thereby preventing a recalculation of transaction value as the protestant has requested here.

Notwithstanding Customs legal position with regard to section 402(b)(4)(B), here, the issue is one of fact. Argenti argues that the design fee that was included in the invoice price provided to Customs was not actually part of the price actually paid or payable for the imported merchandise because the design work was created in the United States. In further support of its arguments, Argenti cites two Customs decisions, both of which address assist issues, C.S.D. 82-151, 16 Cust. Bull. 987 (1982), where Customs held that payments for design work performed in the United States and furnished to the producer, without charge, by other than the importer is not a dutiable assist as defined in section 402, Tariff Act of 1930, as amended by the TAA; and C.S.D. 81-64, 15 Cust. Bull. 862 (1980), where Customs held that if the price actually paid or payable included charges for non- dutiable services rendered abroad or in the United States, and paid by the U.S. employer, no authority exists...to remove them from the price actually paid or payable. While we recognize the concepts of these decisions, they are applicable to the circumstances of this case only to the extent that the statute does not give Customs the authority to remove non-dutiable charges from the price actually paid or payable.

19 U.S.C. 1500 authorizes the appraising Customs officer to consider the best evidence available in appraising merchandise, and to weigh the nature of the evidence. In this case the only information provided was a buying agent's invoice, and documentation concerning design fee payments to Pat Argenti from the buying agent, who provided services to Argenti, Inc., the importer. For the purposes of this ruling we have assumed that a bona fide buying agency exists. However, this assumption in no way constitutes Customs recognition of the existence of a bona fide buying agency in this case.

No invoices from the actual manufacturers were submitted at the time of importation, nor with the protest papers filed by counsel. Only at a meeting with Headquarters attorneys in August, 1990, did Argenti, through counsel, produce any manufacturers invoices. At that time, Argenti's counsel produced manufacturers' invoices reflecting the price from the seller to Italade (buying agent) with regard to seven specific styles. These seven invoices comprise only a small sample of the garments exported by Italade to Argenti, which are the subject of this protest.

At the meeting with Headquarters personnel, Argenti's counsel gave further assurances that payments for design services went to Pat Argenti, individually, and in no way benefitted the manufacturers/sellers in Hong Kong.

HOLDING:

Section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 allows Customs to add certain cost items to transaction value, but the statute does not give us the authority to remove non-dutiable charges from the price actually paid or payable. Absent a clear showing by the importer of the price actually paid or payable for the merchandise, which entails the production of each and every invoice from the manufacturers involved concerning every style listed on Argenti's Commission (design fee) Report, which are the subject of these protests, we have no choice but to deny the protests. Where the importer can show, with manufacturers' invoices satisfactory to your office, the price actually paid or payable to the seller, you are directed to grant the protests, only with regard to those items covered by manufacturers' invoices. For those styles where no manufacturers' invoices are produced, you are directed to deny the protests. The importer is entitled to a refund of duty on the $.60 cent per garment design fee, only on those garments where manufacturer's invoices are presented.

The amount of time the protestant and its counsel have to supply you with the invoice documentation described herein is left to your discretion, but in no case shall it exceed 30 calendar days from the date the protestant is advised of the opportunity to provide this information. One method of advising the protestant of the opportunity to supply further documentation is to provide a copy of this decision prior to your issuance of a Form 19, Notice of Action.

You are directed to grant in part, and deny in part the subject protests in accordance with the decision set forth above. A copy of this decision should be attached to the Form 19, Notice of Action, to be sent to the protestant upon resolution of the matters addressed herein.

Sincerely,

John Durant, Director
Commercial Rulings Division

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