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HQ 545664




July 29, 1994

VAL CO:R:C:V 545664 LR

CATEGORY: VALUATION MARKING

District Director of Customs
Laredo, Texas

RE: I.A. 32/94; marking duties; appraised value determined on liquidation; final appraised value; dutiable value; item 807 TSUS; subheading 9802.00.80, HTSUS; 19 U.S.C. 1503.

Dear Madam:

This is in response to a request for internal advice, dated April 14, 1994, submitted by counsel on behalf of a U.S. importer ("the importer") and forwarded to us by your office through the Customs Information Exchange. The request deals with the correct value on which marking duty and penalties are to be assessed in the case of articles previously entered under item 807, Tariff Schedules of the United States (hereinafter referred to as "807") or subheading 9802.00.80, Harmonized Tariff Schedule of the United States (hereinafter referred to as "9802.00.80"). This issue arises in the context of an on-going penalty case.

FACTS:

A pre-penalty notice was issued to the importer in March, 1994, for proposed penalties under 19 U.S.C. 1592 and marking duties under 19 U.S.C. 1304(f) relating to the importation of certain articles entered under 807 or 9802.00.80. The imports in question were assembled by the importer's affiliates in Mexico from U.S.-origin components. The amount of the proposed penalty and marking duties is based on the full value of the assembled articles, including the value of the U.S. components. The importer believes that to the extent any penalties and/or marking duties may be applicable to such imports, they should be based on the dutiable value of the imports (exclusive of the value of U.S.-origin parts and components). Your position is that marking duties should be based on the final appraised value, which includes the value of any U.S.-origin components.

ISSUE:

In the case of 807/9802.00.80 goods, whether marking duties under 19 U.S.C. 1304(f) and penalties under 19 U.S.C. 1592 may be assessed on a value which includes the value of the U.S. components which are exempt from duty.

LAW AND ANALYSIS:

A. Marking Duties

The starting point for any discussion regarding marking duties must be section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304). This statute requires imported articles to be marked to indicate their country of origin to the ultimate purchaser in the U.S. and provides for the assessment of marking duties when imported articles are not properly marked. Merchandise which is not legally marked is subject to a 10 percent ad valorem marking duty. Specifically, 1304(f) states that:
there shall be paid upon such article a duty of 10 per centum ad valorem, which shall be deemed to have accrued at the time of importation, shall not be construed to be penal, and shall not be remitted wholly or in part nor shall payment thereof be avoidable for any cause. Such duty shall be levied, collected, and paid in addition to any other duty imposed by law and whether or not the article is exempt from the payment of ordinary customs duties. (emphasis added).

The regulations implementing most of the provisions of the marking statute are contained in Part 134, Customs Regulations (19 C.F.R. Part 134). Section 134.2, Customs Regulations, provides that "articles not marked as required by this part shall be subject to additional duties of 10 percent of the final appraised value ... as provided in 19 U.S.C. 1304(f) (emphasis added)."

Section 159.46(a), Customs Regulations, states that "the marking duty prescribed by section 304(f), Tariff Act of 1930, as amended, shall be assessed upon the dutiable value as defined in section 503, Tariff Act of 1930, as amended." (emphasis added).

Section 503 (19 U.S.C. 1503) entitled Dutiable Value provides:

Except as provided in section 1502(c) of this title (relating to reliquidation on the basis of authorized correction of errors) or section 1562 of this title (relating to withdrawal from manipulating warehouses), the basis for the assessment of duties on imported merchandise subject to ad valorem rates of duty or rates based upon or regulated in any manner by the value of the merchandise, shall be the appraised value determined upon liquidation, in accordance with section 1500 of this title or any adjustment thereof made pursuant to section 1501 of this title. Provided, however, that if reliquidation is required pursuant to a final judgment or order of the United States Court of International Trade which includes a reappraisement of imported merchandise, the basis for such assessment shall be the final appraised value determined by such court.

(Section 1500 provides for appraisement, classification, and liquidation procedures; section 1501 provides for voluntary reliquidation by Customs within 90 days).

The importer claims that marking duty should be assessed on the "dutiable value" of the imported merchandise and that in the 807/9802.00.80 context, such "dutiable value" is exclusive of the value of U.S.-origin parts and components contained therein. In support of this position it cites E. Dillingham Inc. v. United States, 470 F.2d 629 (C.C.P.A. 1972), a case involving the eligibility of imported papermaker's felts under 807, and Customs Headquarters Letter 544254, dated February 16, 1989, an information letter regarding dutiable and appraised value.

The importer also points to the language of section 1503 that the basis for assessment of duties shall be "the appraised value determined upon liquidation". Since liquidation is defined in 19 C.F.R. 159.1 as "the final computation or ascertainment of the duties or drawback accruing on an entry", it is argued that the appraised value determined upon liquidation occurs in the 807/9802.00.80 context only after the value of U.S.-origin parts and components has been excluded for purposes of duty assessment. With regard to the language of 19 C.F.R. 134.2, that articles not marked as required "shall be subject to additional duties of 10 percent of the final appraised value" the importer indicates that when read along with section 1503 and 19 C.F.R. 159.46(a), this can only mean the dutiable value established upon liquidation.

We disagree with the importer's conclusion that marking duty should be based on the dutiable value of 807/9802.00.80 goods, exclusive of the value of the U.S. components and parts. While the term "dutiable value" is used in 19 C.F.R. ?159.46(a) and the title of 19 U.S.C. 1503, ?159.46(a) specifies that in order to determine "dutiable value" for the purpose of assessing marking duties, we must look to how that term is defined in section 1503. As the language of that provision makes clear, the basis for the assessment of duties on imported merchandise subject to ad valorem rates of duty "shall be the appraised value determined upon liquidation." Since imported merchandise which is not legally marked is subject to the assessment of a 10 percent ad valorem marking duty, section 1503 mandates that it be based on the appraised value determined upon liquidation and not on the dutiable value upon which duties are to be assessed. As discussed below, in the context of 807/9802.00.80 goods, the appraised valued determined upon liquidation includes the value of the U.S.-origin components.

Subheading 9802.00.80 HTSUS (formerly item 807, Tariff Schedules of the United States), provides for a partial duty exemption for goods assembled abroad from U.S. fabricated components. An article entered under this tariff provision is subject to duty upon the full value of the imported assembled article, less the cost or value of such U.S. components upon compliance with the documentary requirements of section 10.24, Customs Regulations (19 C.F.R. 10.24) As specified in the tariff, the rate of duty for these articles is "the full value of the imported articles, less the cost or value of such products of the United States." Rates of duty have no effect on the appraised value of imported articles. The fact that an article is exempt from duty does not affect its appraised value determined at liquidation.

Similarly, while 9802.00.80/807 goods are partially exempt from duty, this fact does not affect the appraised value of the assembled article. See Section 10.18, Customs Regulations (19 C.F.R. 10.18) entitled Valuation of assembled articles, which provides that as in the case of the appraisement of any other imported merchandise, the full value of assembled articles imported under subheading 9802.00.80, Harmonized Tariff Schedule of the United States, is determined in accordance with 19 CFR 152.100 et seq. (pertaining to Customs valuation). See also U.S. Note 4(b), Chapter 98, Subchapter II, HTSUS, applicable to 9802.00.80 goods ("the duty, if any, on the imported article shall be at the rate which would apply to the imported article itself, as an entirety without constructive separation of its components, in its condition as imported if it were not within the purview of this subchapter. If the imported article is subject to a specific or compound rate of duty, the total duties shall be reduced in such proportion as the cost or value of such products of the United States bears to the full value of the imported article"). This reduction in duty has no affect on the appraised value of the imported assembled articles.

We also disagree with the importer's argument that the language in section 1503 "appraised value determined at liquidation" means the value upon which duties are to be assessed, exclusive of the value of the U.S.-origin components. To the contrary, we believe this language means that decisions regarding the appraised value shall be the latest determination of value, i.e., at the time of liquidation, at which time the amount of duty to be paid on such merchandise is fixed. In other words, for purposes of determining appraised value under section 1503, Customs should look to the appraised value determined at liquidation and not to the entered value or some other determination of value. See 19 U.S.C. 1500 regarding appraisement, classification, and liquidation procedures. This interpretation follows from the subsequent language in section 1503 which states that "if reliquidation is required pursuant to a final judgment or order of the United States Court of International Trade which includes a reappraisement of imported merchandise, the basis for such assessment shall be the final appraised value determined by such court" (emphasis added). "Appraised value upon liquidation" is used in the preceding sentence to distinguish this from "final appraised value determined by such court".

We also disagree with the importer that the Dillingham case supports its position that marking duties should be based on the dutiable value, excluding the value of the U.S.-origin components. That case concerned the issue of whether certain importations of felts qualified for a partial duty exemption under item 807. After finding that the felts did so qualify, the court concluded that appellant is entitled to deduct from the full value of the felts the cost or value of the U.S. fabric component, to obtain the dutiable value. This conclusion reflects the fact that, as discussed above, the rate of duty for 807 goods is the full value of the assembled article less the value of the U.S. components. Since the case did not involve the assessment of marking duties, the court did not address what the appraised value of the imported felts was pursuant to section 1503. Similarly, the February 16, 1989 Headquarters letter did not involve the question of marking duties in the context of 807/9802.00.80 entries and is not relevant to this discussion. In addition, this letter was not a ruling and has no precedential value.

Based on the above considerations, we conclude that marking duty should be calculated on the appraised value of the assembled goods, including the value of the U.S. components. This conclusion is consistent with the language of the marking statute which provides that the specified marking duty shall be levied "whether or not the article is exempt from the payment of ordinary customs duties." This language recognizes the fact that the obligation to mark is separate from the obligation to pay duties. While an article may be entirely exempt from duty, it may still be required to be marked in accordance with 19 U.S.C. 1304. The same holds true with respect to an article which is partially exempt from duty. If not legally marked, 19 U.S.C. 1304(f) mandates assessment of marking duties on the appraised value. The fact that an imported article is totally or partially exempt from the payment of ordinary customs duties should not excuse the assessment of marking duty on the value of that portion of the article which is exempt. And 19 U.S.C. 1304(f) does not.

This is especially true with regard to goods eligible for importation under 807/9802.00.80. As provided in 19 C.F.R. 10.22, the country of origin of such goods for marking purposes is the country of assembly. Assembled articles consisting entirely or in part of U.S. fabricated components are subject to the requirements of 19 U.S.C. 1304 and 19 C.F.R. 10.22. The value of the U.S. fabricated components does not affect the importer's marking obligations. Therefore, the value upon which the marking duty is assessed should not be reduced by the value of the U.S. components.

Finally, this conclusion is consistent with a previous Customs decision, C.I.E. 2/73, dated January 3, 1973, regarding the same issue presented in this case, i.e., the correct value on which marking duty is to be assessed under 19 U.S.C. 1304. The merchandise under consideration was tape cassette parts and tapes of United States origin which were sent abroad for assembly, and returned as completed tape cassettes. The tape cassettes had an appraised value of $3,922, of which $2,989 was free of duty under item 807.00, TSUS, leaving a net dutiable value of $933. Customs held that the marking duty should be assessed against the total appraised value of the merchandise ($3,922). In reaching this conclusion, the decision states:

Section 134.2, Customs Regulation (formerly section 11.8(k)), provides that the additional duty for failure to mark shall be 10 percent of "the final appraised value." Item 807.00, TSUS, provides for duty upon "the full value of the imported articles, less the cost or value of such products of the United States." Section 304(c)(now 304(f)), Tariff Act of 1930, as amended, provides that the specified marking duty shall be levied "whether or not the article is exempt from the payment of ordinary Customs duties."

After reexamining this issue, we believe that C.I.E. 2/73 was correctly decided.

B. Penalties

With respect to the penalty issue raised in the instant request for internal advice, counsel correctly states that both title 19, United States Code, section 1592 and Customs Penalty Guidelines (19 CFR Part 171, Appendix B) provide for assessment and/or mitigation of penalties in non-revenue loss cases to be predicated upon the dutiable value of the merchandise at issue. For the purpose of determining dutiable value in such penalty action, Customs looks to the definition of dutiable value as set forth in 19 U.S.C. 1503. Inasmuch as section 1503 provides that the dutiable value of the merchandise in question is, in fact, equivalent in amount to the appraised value of the articles as defined above, we reject counsel's claim that the dutiable value excludes the value of any U.S. parts or components.

HOLDING:

In the case of 9802.00.80/807 goods, marking duty is properly based on their appraised value, inclusive of the value of any U.S. parts or components. For purposes of 19 U.S.C. 1592, the dutiable value of these goods also includes the value of any U.S. parts or components.

A copy of this decision should be furnished to counsel for the importer. The Office of Regulations and Rulings will take steps to make this 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 60 days from the date of this decision.

Sincerely,

John Durant, Director
Commercial Rulings Division

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