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HQ 545575

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August 31, 1994
VAL CO:R:C:V 545575

CATEGORY: VALUATION

District Director
Seattle, Washington

RE: Application for Further Review of Protest No. 3004-94-10018; Transaction Value; Price Actually Paid or Payable.

Dear Sir:

This is in response to your memorandum dated February 24, 1994, forwarding the above-referenced protest and request for further review, dated January 10, 1994, which was filed by Arthur J. Humphreys Division on behalf of its client, Diceabed Distributors Ltd. ("Diceabed"). We regret the delay in responding.

FACTS:

The imported merchandise is a Dicemaster 3 machine which is used to shred and bale newspaper. The merchandise was sold by Diceabed, located in Canada, to Mike Flodstrom in Aberdeen, Washington, pursuant to a contract signed by the parties on December 5, 1992. A copy of that contract was submitted with this request.

The entry was liquidated on November 5, 1993 at an appraised value of $26,000. This value was arrived at by adding together $11,200 for the machine, $11,200 for certain rights to sell the machine within a designated territory and $3,600 representing the value of 2400 bales of Diceabed product, supplied to the seller by the buyer free of charge. Protestant claims that the value should be $14,800 and that the amount paid for the marketing rights is separate from the purchase price of the imported merchandise.

ISSUE:

Whether the subject merchandise was properly appraised under transaction value by including in the price actually paid or payable those amounts remitted to the seller in return for the right to market the merchandise within a designated territory.

LAW AND ANALYSIS:

Transaction value, the preferred method of appraisement, 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). 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 five enumerated statutory additions.

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, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise . . .) made, or to be made, for the imported merchandise by the buyer to, or for the benefit of, the seller."

The sale between the buyer and seller took place subject to the terms of the sales contract signed by both parties on December 5, 1992. That contract provides that title to the Dicemaster passes to the buyer upon the buyer completing the following purchase terms:
a.) Payment of $11,200 U.S. Funds for one Dicemaster 3 machine;
b.) Payment of 11,200 U.S. Funds for the right to supply the British Columbia Market with Diceabed Product ...
c.) Supplying to the Seller ... 2400 bales of Diceabed Product, free of charge and with pre-paid delivery to the Seller ...
d.) Purchasing all remaining Diceabed stock consisting of:
i.) 500 Diceabed sales bales at a price of $1.50 U.S. Funds per bale totalling $750 U.S. Funds, to be kept and sold in British Columbia:
ii.) 3800 Packaging bags at a price of $.30 U.S. Funds per bag totalling $1140 U.S. Funds.
e.) Payment of $210 U.S. Funds for one balance beam scale.

It is evident from a reading of the contract that the price actually paid or payable for the imported Dicemaster is made up of elements "a" through "e", quoted above. These elements constitute the form of payment, the consideration, in exchange for which for which title to the Dicemaster passes. In light of the fact that Customs has no authority to make deductions from the price actually paid or payable, the elements must be regarded as a whole when determining the purchase price of the merchandise. (See, HRL 544800 dated May 17, 1994 (royalty payments are part of the price actually paid or payable where description of compensation for imported merchandise in agreement between buyer and seller includes such royalty payments.)) Accordingly, no deductions should be made from the $26,000 value at which the merchandise was originally appraised. Moreover, in the future, it would be appropriate to include the amounts identified under subparagraphs "d" and "e" in the price actually paid or payable.

Because the contract has the effect of including each of the six elements in the price actually paid or payable, instead of making each element separate from an otherwise established purchase price, the limitation on the use of transaction value, as set forth under section 402(b)(2)(A)(ii) of the TAA, is not applicable.

HOLDING:

The purchase terms in the contract describe the form of payment for the imported merchandise, making up the price actually paid or payable for the merchandise. You are instructed to deny the protest in full.

In accordance with section 3A(11) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Lexis, Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director
Commercial Rulings Division

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