HQ 545999 - Application for Further Review of Protest Number 2704-94-101617 - United States International Trade Commision Rulings

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HQ 545999

December 12, 1995
RR:IT:VA 545999 RSD

CATEGORY: VALUATION

Port Director
United States Customs Service
300 S. Ferry Street
Terminal Island, California 90731

RE: Application for Further Review of Protest Number 2704-94-101617

Dear Director:

This is in response to the memorandum from the former District Director for the Los Angeles District dated May 8, 1995, forwarding the application for further review of Protest No. 2704-94-101617, filed on behalf of the importer, P. Sanhen International USA, Inc., (hereinafter Sanhen) on June 3, 1994, by its attorney.

FACTS:

Sanhen is an importer of inexpensive bicycles, bicycle parts, and baby strollers. The merchandise at issue here is bicycles and bicycle parts. It buys the imported merchandise from Taiwan Rhodea Trading Co., sometimes referred to as T.R. Trading Co., Ltd. (hereinafter Rhodea). The President of Sanhen is Sandra Wu, and her father, Senchi Wu, is the manager of the company. Mr. Wu informed Customs that Sanhen obtains merchandise from a manufacturer, Double Tiger, but the invoicing and other services are performed by Rhodea. According to Mr. Wu, Double Tiger and Rhodea are the same company, and they are owned by a cousin. Sandra Wu told Customs that payment was not based on a per shipment basis, so it is impossible to track payments to specific entries.

The import specialists at the Los Angeles District found that Sanhen does not link payment to invoices and that the prices shown on the invoices were not firm. When the payments to Rhodea were compared to the invoices, it was determined that Sanhen remitted $30,016 more to Rhodea than the invoices showed for 1992. Accordingly, your office concluded that the transactions would not support appraisement of the merchandise under transaction value.

After examining a number of bicycles being exported from Taiwan from other suppliers, the import specialists decided to appraise the two models of bicycles based on the transaction value of identical or similar merchandise, under §402(c) of the Trade Agreements Act of 1979. The import specialists found two models sold by Shineyland to be similar to the two models being
imported by Sanhen. They were Shineyland's model 9012, similar to Rhodea's model 0l20 and Shineyland's model 1602, similar to Rhodea's model 0160. These models were appraised at higher values.

In appraising the remaining articles, the import specialists concluded that the entered values as shown on the invoices also could not serve as a basis for transaction value and determined that there was not sufficient information to appraise the merchandise based on the transaction value of similar or identical merchandise under §402(c). Similarly, there was not enough information to appraise under either deductive value in §402(d) or computed value in §402(e). Accordingly, the merchandise was appraised in accordance with the fall back method, §402(f).

ISSUE:

Whether the imported merchandise was properly appraised in the circumstances described above?

LAW AND ANALYSIS:

As you know, merchandise imported into the United States is appraised in accordance with section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA: 19 U.S.C. § 1401a). The preferred method of appraisement is transaction value, which is defined by §402(b)(1) as the "price actually paid or payable for merchandise when sold for exportation to the United States," plus certain enumerated additions specified in §402(b)(1)(A) through (E).

Transaction value of identical or similar merchandise refers to a previously accepted and adjusted transaction value of identical and similar merchandise which was exported at or about the same time as the goods being valued. Merchandise is not regarded as identical or similar unless it was produced in the same country as the merchandise being valued. See HRL 543628 dated November 4, 1995.

The Statement of Administrative Action explains that:

In those cases where a transaction value cannot be determined for the merchandise being appraised, the customs value will then be determined by proceeding sequentially through the succeeding provisions to the first such provision under which it can be determined. The first alternative is the previously accepted and adjusted transaction value of identical merchandise sold for export to the United States and exported at or about the same time as the goods being value. The second alternative is the previously accepted and adjusted transaction value of similar merchandise sold for export to the United States and exported at or about the same time as the goods being valued.

19 CFR 152.104 provides that the transaction value of identical or similar merchandise shall be based on sales of identical merchandise or similar merchandise, as the case may be, at the same commercial level and in substantially the same quantity as the sales of the merchandise being appraised. If no such sale is found, sales of identical merchandise or similar merchandise at either a different commercial level or in different quantities or both, shall be used but adjusted to take account of any such difference. Any adjustment made under this paragraph shall be based on sufficient information e.g. valid price lists containing price referring to different level or quantities. In other words, the only adjustments that can be made to the transaction value of identical or similar merchandise are for differences in commercial level and quantities. The TAA does not permit adjustments to be made to the transaction value of identical or similar merchandise for any other reason.

We note that the circumstances involved in this case indicate that transaction value was properly rejected as the method of appraising the imported merchandise. The import specialists found that Sanhen's payments to Rhodea were not linked to the invoices and the prices shown on the invoices were not firm. For example, when payments to Rhodea were compared to the invoices, it was determined that Sanhen remitted $30,016 more to Rhodea than the invoices showed for 1992. In addition, Sandra Wu also informed Customs that the payments were made after merchandise had been sold and when they had enough money to make a payment. Customs also learned that Sanhen is responsible for remitting 15% of its annual net profit to Rhodea. The uncertainty regarding the payments in this case precluded appraisement of the merchandise under transaction value. See HRL 545622, dated April 28, 1994. In view of these considerations, we conclude that the district acted correctly in rejecting transaction value as a basis of appraisement.

Since transaction value could not be used for appraisement, the two bicycle models were appraised based on the transaction value of identical or similar merchandise under §402(c). However, the merchandise was not appraised properly. Upon review of the evidence submitted, it appears that adjustments were made for other than differences in commercial level and quantities. Under the TAA, there is no authority to appraise merchandise in this manner. We note, however, that had the bicycles been appraised correctly under §402(c), using the transaction value of the similar merchandise found by the import specialists, they would have been appraised at values greater than the values determined at liquidation.

The remaining merchandise was appraised under §402(f). We find that it was also improperly appraised because an improper adjustment was made to the invoice price. Section 402(f) provides that if the value of imported merchandise cannot be determined or otherwise used for the purposes of the TAA, under subsection (b) through (e), the merchandise shall be appraised for purposes of this Act on the basis of a value that is derived from the methods set forth in such subsections, with such methods being adjusted to the extent necessary to arrive at a value. In this case, the invoice price was adjusted by adding a percentage thought to be fair. Under §402(f) or otherwise, simply adding an arbitrary percentage to the invoice price is not a proper adjustment. There is no authority to appraise imported merchandise by such a method. Accordingly, the remaining merchandise must be reappraised in a manner consistent with the TAA. If transaction value of identical or similar merchandise cannot be found, then the merchandise should be appraised under §402(f) using a method derived from the transaction value of identical or similar merchandise adjusted in accordance with 19 CFR 152.107(b). That section provides that the requirement that identical or similar merchandise should be exported at or about the same time of exportation as the merchandise being appraised may be interpreted flexibly. It also provides that identical or similar merchandise produced in any country other than the country of exportation or production of the merchandise being appraised may be the basis for Customs valuation or that Customs values of identical or similar merchandise already determined on the basis of deductive or computed value may be used.

HOLDING:

The rejection of transaction value as the basis of appraisement in this case was correct. No authority exists to appraise the two bicycle models under §402(c) based on the transaction value of identical or similar merchandise utilizing the adjustments undertaken in this case. However, since reappraising the imported bicycles properly under § 402(c) would result in values higher than the liquidated values, you should deny the portion of the protest related to these two bicycle models. With respect to the remaining merchandise, the protest should be granted because Customs did not have authority to appraise the merchandise by adjusting the invoice price. The merchandise must be reappraised in a manner consistent with the TAA, but in no case should the reappraisement result in the merchandise being appraised at values higher than the values at which the entries were liquidated.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550-65, 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, ACS, and to the public via the Diskette Subscription, the Freedom of Information Act and other public access channels. Sincerely,

Acting Director

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