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HQ 544494


June 28, 1993

VAL CO:R:C:V 544494 DPS

CATEGORY: VALUATION

District Director of Customs
1000 Second Avenue
Seattle, Washington 98104-1049

RE: Application for Further Review of Protest No.3001-90-00887; Election of Different Method of Apportioning Value of Assist After Liquidation; 152.103(e)(1) Customs Regulations

Dear Sir:

The above-referenced protest and application for further review was filed against your decision assessing duty against the importer/protestant, Lionel Trains, Inc. (Lionel), on tooling supplied free of charge by the importer, for use by unrelated Chinese manufacturers in the production of certain toy figures it imported into the U.S.

FACTS:

Tooling valued at $282,118.00 was supplied free of charge by the importer to unrelated manufacturers in China for use in producing the imported merchandise, which consists of plastic toy figures of inanimate objects. The first substantial commercial shipment, the entry of which is the subject of this protest, contained 23,316 pieces. After the protested entry summary had been filed and duty paid, duty on the entire value of the tooling assist was paid by the importer's customhouse broker in what has been described as an "unsolicited voluntary tender."

The specific facts as presented by the District Director regarding dates of specific filings and payments are as follows: (1) the entry summary was filed and duty was collected on September 28, 1988, based on invoiced value; (2) on October 6, 1988, a CF 28, Request for Information was issued by the District Director seeking descriptive literature or samples of the subject merchandise--the CF 28 did not inquire about assists, nor ask for tender of duty on any assists; (3) on December 15, 1988, the importer's customhouse broker made a "voluntary tender" of duty on the assists, documenting the existence and cost of the tooling and submitting duty payment based on its full value; (4) the entered classification of the merchandise was determined to be correct, and the entry was liquidated "No Change" on April 21, 1989. The District Director indicates that at no time prior to liquidation did the importer assert any claim that the method of apportioning the assists was incorrect.

According to statements by counsel in the "Memorandum of Law" accompanying the protests, the assists were provided by Lionel in 1987, at which time they were intended to be used to produce at least 500,000 units. We note that this information was not provided to Customs at the time of entry, and no documentation in the form of a contract has been presented to date, establishing intended production volume. Counsel further states that Lionel would have depreciated this tooling on its books and records over three years in accordance with Generally Accepted Accounting Principles (GAAP). As the line of imported toys was placed on the market, the demand for this class of toy merchandise died and Lionel realized that further production was not warranted. It ceased production after the merchandise at issue was entered and wrote off the value of the tooling on its books.

The protestant, through counsel asserts that the value of the tooling assist should be apportioned over the entire anticipated production and duty assessed only on the value pertaining to the units imported.

ISSUE:

Whether the method of apportionment of the value of an assist can be amended retroactively after liquidation of the entry.

LAW AND ANALYSIS:

For the purpose of this decision we assume that transaction value is the proper basis of appraisement. Transaction value is defined in Section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a(b)), as the price actually paid or payable for merchandise when sold for exportation to the United States plus five enumerated statutory additions, one of which covers assists.

Here, there is no dispute as to the dutiability of the tooling assist, the only question concerns the method of apportioning the value of the tooling to the imported merchandise. The District accepted the tender of duties by the protestant's customhouse broker, and accepted the method of apportionment on the first shipment. The protestant seeks to have the method of apportionment changed, whereby the value of the tooling is apportioned over its useful life, which it measures by an anticipated production of 500,000 units.

With regard to apportionment of the value of assists, section 152.103(e)(1), Customs Regulations (19 CFR 152.103(e)(1)), provides:

The apportionment of the value of assists to imported merchandise will be made in a reasonable manner appropriate to the circumstances and in accordance with generally accepted accounting principles. The method of apportionment actually accepted by Customs will depend upon the documentation submitted by the importer. If the entire anticipated production using the assist is for exportation to the United States, the total value may be apportioned over (i) the first shipment, if the importer wishes to pay duty on the entire value at once, (ii) the number of units produced up to the time of the first shipment, or (iii) the entire anticipated production. In addition to these three methods, the importer may request some other method of apportionment in accordance with generally accepted accounting principles. If the anticipated production is only partially for exportation to the United States, or if the assist is used in several countries, the method of apportionment will depend upon the documentation submitted by the importer.

In support of its position that the tooling assists be apportioned over useful life, protestant's counsel argues that the Regulations do not require apportionment on the first shipment, but allow the importer a choice. We agree. However, we do not agree that the regulations allow an importer to choose one method, then after changing its business strategy after liquidation, return to Customs to change its method of apportionment through the protest procedure. If it were making its choice today, or after it determined to cease production of the subject merchandise in December,1988, the anticipated number of production units would approximate 25,000, rather than the 500,000 anticipated in 1987. Accordingly, the cost of the tooling per unit would increase twenty-fold.

From an accounting perspective, the concept of consistency is paramount. Consistent with GAAP, there is a presumption that once adopted, an accounting principle should not be changed in accounting for events or for transactions of a similar nature. See, Miller Comprehensive GAAP Guide 1990, p.1.02.

While we understand the protestant's position, it is our position that the District Director properly appraised the subject merchandise. The payment of duty on the assist was made by the protestant's customs broker. At the time the payment was made, the importer had the option of selecting a different method of apportionment of the assist, and providing supporting documentation. Instead, the importer chose another acceptable method of apportionment, provided documentation on the cost of the tooling and voluntarily paid the duty thereon through its broker. The district had no basis to reject the importer's choice then. We are not compelled to accept the protestant's position now. The appraising officer's decision was legally correct.

HOLDING:

For the reasons set forth above, you are hereby directed to deny the subject protest. A copy of this decision should be attached to the Customs Form 19 and mailed to the protestant as part of the notice of action on the protest.

Sincerely,

John Durant, Director

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