United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 1997 HQ Rulings > HQ 544784 - HQ 546479 > HQ 545878

Previous Ruling Next Ruling
HQ 545878





July 31, 1996

RR:IT:VA 545878 KCC

CATEGORY: VALUATION

Port Director
U.S. Customs Service
10 Causeway Street, Room 63
Boston, Massachusetts 02222-1059

RE: Application for Further Review of Protest 0401-94-100369; transaction value; Nissho Iwai; Synergy; clearly destined for the United States; ?402(b)(2)(B); related parties; transfer price; circumstances of sales; HRL 545087; test value; HRL's 543568, 545481, 545960, and 546052; ?402(c); transaction value of identical merchandise; commercial level; lowest price; ?402(c)(2); ?152.104(d) and (e); deductive value

Dear Port Director:

This is in regard to the Application for Further Review of Protest 0401-94-100369 concerning various entries of heaters, humidifiers and fans imported by Duracraft Corp. ("Duracraft") appraised pursuant to transaction value of identical merchandise, Agreements Act of 1979 ("TAA"), codified at 19 U.S.C. ?1401a(c). Additional comments submitted by counsel on December 15, 1995, and February 29, 1996, and at a meeting on January 24, 1996, were taken into consideration in rendering this decision. We regret the delay in responding.

FACTS:

Duracraft Corp. ("Duracraft") develops, markets and manufactures in the United States, Hong Kong, Taiwan, Thailand and China consumer household products, such as humidifiers, heaters and fans, primarily sold under the DuracraftR Tradename. In China, Taiwan, Thailand and Hong Kong Duracraft products are manufactured by independent manufacturers. The independent manufactured products are invoiced to Duracraft by its wholly-owned foreign subsidiaries, Duracraft Hongkong Ltd. ("Duracraft Hongkong") located in Hongkong, and Comfort Zone Ltd. ("Comfort Zone") located in Thailand. Duracraft provides the independent manufacturers with molds and dies for use in their production of Duracraft products. Additionally, the invoice price of the independent manufactured Duracraft products between Duracraft Hongkong/Comfort Zone and Duracraft is higher that the invoice price between the independent manufacturers and Duracraft Hongkong/Comfort Zone. Additionally, Duracraft products are manufactured in China at a production facility operated by Duracraft Hongkong. These products are invoiced to Duracraft. The products imported by Duracraft that are the subject of this protest are those produced by the independent manufacturers which are invoiced through Duracraft Hongkong/Comfort Zone, as well as those which are produced by Duracraft Hongkong's China facility and invoiced to Duracraft. In each case, Duracraft is the importer.

Duracraft's products are sold throughout the United States in all major retail channels of distribution such as, mass merchants, home centers, drugstore chains, hardware chains, catalog showrooms and major discount department stores. Duracraft offers its major retail customers the opportunity to purchase products FOB Far East in which case Duracraft Hongkong or Comfort Zone would invoice the customer and receive payment. Products purchased directly from Duracraft Hongkong/Comfort Zone by unrelated U.S. buyers are invoiced at a price higher than products purchased by Duracraft from Duracraft Hongkong/Comfort Zone. Duracraft contends that the unrelated U.S. buyers higher price is due to the fact that Duracraft assumes customer support, advertising, sales solicitations and right of return obligations in the same manner as if the customer purchased the product from Duracraft's United States distribution centers.

For products manufactured by independent manufacturers, it is your position that the basis of appraisement is transaction value of identical merchandise pursuant to ?402(c) of the TAA. You state that no evidence was submitted to establish that the sale from the independent manufacturers to Duracraft Hongkong/Comfort Zone were bona fide sales for exportation to the U.S. Additionally, you state Duracraft has failed to substantiate that the related party sale is acceptable under either the circumstances of sale or the test value approach. Moreover, for products manufactured by Duracraft Hongkong's China facility, you appraised the merchandise under transaction value of identical merchandise pursuant to ?402(c) of the TAA. For both the independent manufactured products and Duracraft Hongkong's China facility products, you contend that the circumstances of the sale indicate that the relationship between the related parties influenced the price, because sales to unrelated U.S. buyers are at a higher price. Citing Headquarters Ruling Letter (HRL) 543568 dated May 30, 1986, it is also your position that Duracraft's proposed deductive test value is unacceptable because it is not a test value previously accepted by Customs. Thus, you appraised all of Duracraft's importations under transaction value of identical merchandise at the same commercial level pursuant to ?402(c) of the TAA, on the basis of the invoice price between Duracraft Hongkong/Comfort Zone and unrelated U.S. buyers of identical merchandise.

Duracraft claims that, for the independent manufactured products invoiced through Duracraft Hongkong/Comfort Zone, the transaction between the independent manufacturers and Duracraft Hongkong/Comfort Zone is the basis for determining the price actually paid or payable. Thus they argue, these transactions should be appraised on the basis of the price paid the independent manufacturer plus additions, where applicable, for production assists. Citing Nissho Iwai American Corp. v. United States, 16 C.I.T. 86, 786 F. Supp. 1002, reversed in part, 982 F.2d 505 (1992), and Synergy Sport International, Ltd. v. United States, Slip Op. 93-5 (CIT Jan 12, 1993), Duracraft states that the sale of these products were negotiated at arm's length, free from any nonmarket influences, and involving goods clearly destined for the United States. Duracraft submitted invoices from independent manufacturers relating to the entries at issue and a worksheet identifying the transactions and applicable assists.

For Duracraft Hongkong manufactured products, Duracraft states that the invoice price between Duracraft Hongkong and Duracraft is an acceptable transfer price for transaction value. Additionally, with regard to the independent manufactured products, if Customs decides that the transaction between Duracraft Hongkong/Comfort Zone and Duracraft determines the price actually paid or payable, then Duracraft claims that the Duracraft Hongkong/Comfort Zone and Duracraft invoice price is also an acceptable transfer price for transaction value. Duracraft contends that an examination of the circumstances of the sale of the imported merchandise indicates that the relationship between Duracraft Hongkong/Comfort Zone and Duracraft did not influence the price actually paid or payable. Duracraft submits that the difference between the price that Duracraft Hongkong/Comfort Zone sell to unrelated U.S. buyers and the price at which the identical products are sold to Duracraft is due to the different levels of commercial sale and due to the fact that Duracraft performs activities which benefit the unrelated buyer sales. Duracraft states that these activities include:

1. Service obligations such as marketing support, warranties etc.;
2. Payment of commissions to independent sales representatives on sales by the related party subsidiaries to unrelated buyers;
3. Support of the "right to return program" which allows Duracraft retail customers to return unsold inventory at the end of the season; and
4. Cooperative advertising, product liability insurance, logistics, etc.

For these services, Duracraft states that Duracraft Hongkong/Comfort Zone pay Duracraft a commission on their sales to unrelated U.S. buyers. However, no evidence of a commission, i.e., written agreement, invoices, etc., is available. Duracraft records the commissions as non-operating income and reduces its intercompany payable account balance with Duracraft Hongkong. Duracraft submits that for 1993, the year in which the majority of entries under protest were made, the commission represented 8% of Duracraft Hongkong/Comfort Zone gross sales to unrelated U.S. buyers. Duracraft states that for Duracraft Hongkong manufactured products in many instances the price differential between the related party invoice and the unrelated party invoice approximates the commission percentage of 8%. Duracraft did not perform this price differential analysis on the independent manufactured products which are invoiced through Duracraft Hongkong/Comfort Zone. Thus, citing HRL 545087 dated December 7, 1993, Duracraft contends that the transfer price between the related parties is acceptable for transaction value.

Additionally, Duracraft states that Duracraft Hongkong and Duracraft negotiate prices in a manner consistent with industry practices and calculated to ensure recovery of all costs plus a reasonable profit. To support this contention, Duracraft submitted audited financial statement from Duracraft Hongkong to show that Duracraft Hongkong establishes its prices at an amount adequate to ensure recovery of all costs plus a profit reasonable and representative of the industry. Furthermore, Duracraft contends that an examination of the deductive test value indicates that the test value closely approximates the related party invoice price. Duracraft submitted deductive value calculations for our review. In either situation, Duracraft contends that the related parties relationship did not influence the price actually paid or payable and, thus, transaction value is the appropriate method of appraisement.

If Customs determines that transaction value of identical merchandise is the proper method of appraisement, Duracraft contends that an allowance should be made to reflect the fact that unrelated U.S. buyers acquire the products at the retail level, whereas Duracraft sources its product at the wholesale level. Duracraft submitted a discussion of the difference in a sale to a retailer versus a wholesaler by Dr. Bruce Pearlstein, Director -Transfer Pricing and Economic Analysis of an audit firm. Duracraft submits that the transaction value of the identical merchandise should be reduced by 10.62% to reflect the price at the same commercial level as the related party sales for sales in 1993. Duracraft states that the 10.62% reflects the percentage of Duracraft's costs in the United States associated to the Duracraft Hongkong/Comfort Zone sales to unrelated U.S. buyers. Duracraft's costs are for returns and allowances, selling costs (commissions to sales representatives and other selling costs), marketing costs, customer service costs, warranty costs and general and administrative costs (product liability, consumer liability, operation department/payroll). Additionally, Duracraft claims that the prices selected as the transaction value of identical merchandise were not the lowest values as required by ?402(c)(2) of the TAA. In support of this claim, Duracraft submitted a worksheet and invoices to establish, where appropriate, the lower price for various entered models than Customs appraised value.

Additionally, due to unique engineering and design requirements, Duracraft mandates that the independent manufacturers of certain air cleaners and heaters utilize filters and thermostats which are fully fabricated in the United States. Duracraft did not claim the duty exemption available under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), until it protested the subject entries. You state that claim for subheading 9802.00.80, HTSUS, treatment for the U.S. filters and thermostats has been supported by Duracraft submitted manufacturers affidavits. Duracraft is to submit assembler's declarations. Once these declarations arrive, your office will review them for acceptability and determine whether the products meet the requirements of subheading 9802.00.80, HTSUS.

Moreover, Duracraft contests the appraisement of its air cleaner, Model MX-83132 under ?402(c) of the TAA. Duracraft states that Model MX-83123 was and is not sold by Duracraft Hongkong/Comfort Zone to any retailer customer; the only customer is Duracraft. Thus, Duracraft states that there can be no transaction value of identical merchandise. Moreover, Duracraft states that transaction value of similar merchandise is inappropriate because Model MX-83123 is not similar to any other Duracraft products as the air cleaner is not commercially interchangeable with nor does it possess the characteristics of the fans, heaters and humidifiers which Duracraft markets and sells.

ISSUE:

1. Whether the price between the independent manufacturers and Duracraft Hongkong/Comfort Zone represents an acceptable transaction value for the independent manufactured products.

2. Whether one of the tests for the acceptability of transaction value in the related party transaction has been met.

3. If transaction value pursuant to ?402(b) of the TAA is unacceptable, should Duracraft's imported merchandise be appraised pursuant to ?402(c) of the TAA with adjustments for commercial level and, where appropriate, the lower value?

4. What is the method of appraisement for Duracraft's air cleaner, Model MX-83123?

LAW AND ANALYSIS:

The preferred method of appraising merchandise imported into the United States is transaction value pursuant to ?402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), codified at 19 U.S.C. ?1401a. ?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 amounts for certain enumerated additions specified in

1. Independent Manufactured Products

For transactions concerning independent manufactured products, Duracraft contends that a three-tiered distribution situation involving a U.S. purchaser (Duracraft), middleman (Duracraft Hongkong/Comfort Zone), and primary-level seller (the independent manufacturers) is in place. Thus, Duracraft reasons that two sales take place, one between the independent manufacturers and Duracraft Hongkong/Comfort Zone and the other between Duracraft Hongkong/Comfort Zone and Duracraft. Duracraft maintains that the bona fide sale for exportation takes place between the independent manufacturers and Duracraft Hongkong/Comfort Zone.

In Nissho Iwai American Corp. v. United States, 16 C.I.T. 86, 786 F. Supp. 1002, reversed in part, 982 F.2d 505 (1992), and Synergy Sport International, Ltd. v. United States, Slip Op. 93-5 (CIT Jan 12, 1993), the U.S. Court of Appeals for the Federal Circuit and the Court of International Trade, respectively, addressed the proper dutiable value of merchandise imported pursuant to a three-tiered distribution arrangement involving a foreign manufacturer, a middleman and a United States purchaser. In both cases, the middleman was the importer of record. In each case, the court held that the price paid by the middleman/importer to the manufacturer was the proper basis for transaction value. Each court further stated that in order for a transaction to be viable under the valuation statute, it must be a sale negotiated at arm's length, free from any nonmarket influences, and involving goods clearly destined for the United States.

We note that in the context of filing an entry, Customs Form (CF) 7501, an importer is required to make a value declaration. As indicted by the language of CF 7501 and the language of the valuation statute, there is a presumption that transaction value is based on the price paid by the importer. In accordance with the Nissho Iwai and Synergy decisions and our own precedent, we presume that transaction value is based on the price paid by the importer. See, HRL 545144 dated January 19, 1994, HRL 545271 dated March 4, 1994, HRL 545360 dated May 31, 1994, and HRL 545648 (IA 10/94) dated August 31, 1994. In further keeping with the courts' holdings, we note that in those situations where an importer requests appraisement based on the price paid by the middleman to the foreign manufacturer (and the importer is not the middleman), the importer may do so. However, it will be the importer's responsibility to show that such price is acceptable under the standard set forth in Nissho Iwai and Synergy. That is, the importer must present sufficient evidence that the alleged sale was a bona fide "arm's length sale," and that it was "a sale for export to the United States," within the meaning of 19 U.S.C. ?1401a(b).

For purposes of this discussion, it is assumed that the transaction between the independent manufacturers and Duracraft Hongkong/Comfort Zone are bona fide sales. See, HRL 545967 dated July 7, 1995, HRL 545612 dated May 25, 1995, and HRL 545709 dated May 12, 1995, for discussions of the relevant criterion necessary for a bona fide sale. Normally, Customs will presume that a transaction between parties which are not related, within the meaning of ?402(g) of the TAA, is conducted at "arm's length." See, HRL 545627 dated September 13, 1995, and HRL 545360 dated May 31, 1994. In this case, Duracraft has stated that the foreign manufacturers are independent. Thus, we assume that the independent manufacturers are unrelated to Duracraft, Duracraft Hongkong and Comfort Zone as defined by ?402(g) of the TAA. Therefore, the transactions between the independent manufacturers and Duracraft Hongkong/Comfort Zone are considered "arm's length sales."

However, we are of the opinion that insufficient evidence was submitted to show that the independent manufactured goods invoiced through Duracraft Hongkong/Comfort Zone to Duracraft were clearly destined for the United States at the time of the sale between the independent manufacturers and Duracraft Hongkong/Comfort Zone. Approximately sixty-one (61) invoices from six (6) different independent manufactures were submitted for our examination by Duracraft. The majority of the invoices do not indicate that the invoiced products were clearly destined for the United States. These invoices indicated a sale to Duracraft Hongkong with either no shipping terms designated or showing a clearly designated local delivery in Hongkong. No other evidence such as, purchase orders, bills of lading, or other shipping documents, showing that the imported products were clearly destined for the United States from the independent manufacturers was provided. Accordingly, we find that the evidence does not establish that the independent manufactured products invoiced through Duracraft Hongkong/Comfort Zone to Duracraft were clearly destined for the United States. Therefore, if transaction value is acceptable it would be based on the price paid by Duracraft, the importer. The transactions between the independent manufacturers and Duracraft Hongkong/Comfort Zone does not determine the price "actually paid or payable" for the imported merchandise manufactured by the independent manufacturers. Therefore, for the independent manufactured products we must examine the transaction between Duracraft Hongkong/Comfort Zone and Duracraft.

2. Independent Manufactured Products and Duracraft Hongkong Manufactured Products

Thus, the Duracraft Hongkong/Comfort Zone and Duracraft transactions at issue involve imported merchandise manufactured by the independent manufacturers and by Duracraft Hongkong's China facility. Imported merchandise is appraised under transaction value only if the buyer and seller are not related, or if related, the transaction value is deemed to be acceptable. In this situation, the Duracraft Hongkong and Comfort Zone are wholly owned subsidiaries of Duracraft and, thus, are related pursuant to ?402(g)(1) of the TAA. ?402(b)(2)(B) of the TAA provides that transaction value between related parties is acceptable only if an examination of the circumstances of the sale indicates that the relationship between the parties does not influence the price actually paid or payable or, if the transaction value of imported merchandise closely approximates the transaction value of identical or similar merchandise in sales to unrelated buyers in the U.S. or the deductive or computed value for identical or similar merchandise.

Under the circumstances of sales approach, if the parties buy and sell from one another as if they were unrelated, transaction value will be considered acceptable. Thus, if the price is determined in a manner consistent with normal industry pricing practice, or with the way the seller deals with unrelated buyers, the price actually paid or payable will be deemed not to have been influenced by the relationship. Furthermore, the price will not be influenced if it is shown that the price is adequate to ensure recovery of all costs plus a profit that is equivalent to the firm's overall profit realized over a representative period of time in sales of merchandise of the same class or kind. Statement of Administrative Action, reprinted in Customs Valuation under the Trade Agreements Act of 1979, Department of the Treasury, U.S. Customs Service (October 1981) at 54;

Based on the evidence, we cannot find that the circumstances of sale indicate that the relationship between the parties did not influence the price actually paid or payable. Duracraft submits that the difference between the price that Duracraft Hongkong/Comfort Zone sell to unrelated U.S. buyers and the price at which the identical products are sold to Duracraft is due to the different levels of commercial sale and due to the fact that Duracraft performs activities which benefit the unrelated party sales. For these services, Duracraft Hongkong/Comfort Zone pay Duracraft an alleged commission on their sales to unrelated U.S. buyers. Although no evidence of a commission, i.e., a written agreement and commission invoices, is available, we will address Duracraft's position. Duracraft submits that for 1993 the commission represented 8% of such sales to unrelated U.S. buyers. Additionally, in many instances Duracraft states that the price differential between the related party invoice and unrelated party invoice approximates the commission percentage of 8%. We note that Duracraft only performed this analysis for products manufactured by Duracraft Hongkong and did not perform this analysis on the independent manufactured products which are invoiced through Duracraft Hongkong/Comfort Zone to Duracraft. Relying on HRL 545087, Duracraft contends that the transfer price between the related parties is acceptable for transaction value.

In HRL 545087, a U.S. subsidiary of a foreign seller purchased merchandise from the related seller for its own account and acted as an agent in transactions between the foreign seller and unrelated U.S. customers. In comparing the prices in the related and unrelated transactions, HRL 545087 determined that the only difference in the price in the two types of sales was the commissions paid to the U.S. subsidiary in the sales between the foreign seller and the unrelated U.S. buyers. Thus, HRL 545087 held that the relationship did not affect the price actually paid or payable, and transaction value was the appropriate basis of appraisement between the related parties. In this case, Duracraft submits that, in many instances, the price differential between the related party invoice and the unrelated party invoice approximates the 8% commission percentage. However, Duracraft admits that 8 models do not approximate the 8% commission percentage and that its analysis does not take into account the independent manufactured products. Additionally, Customs examination conducted in early 1994 indicates that the price differential ranges from 20% to as high as 42%. We do not find that the price differential closely approximates the commission and, therefore, we do not find HRL 545087 is instructive in this case. Thus, it does not appear that the price between the related parties was determined in a manner consistent with the way the price was determined between Duracraft Hongkong/Comfort Zone and the unrelated U.S. buyers.

Additionally, Duracraft states that Duracraft Hongkong and Duracraft negotiate prices in a manner consistent with industry practices and calculated to ensure recovery of all costs plus a reasonable profit. To support this contention, Duracraft submitted an audited financial statement from Duracraft Hongkong to show that Duracraft Hongkong establishes its prices at an amount adequate to ensure recovery of all costs plus a profit reasonable and representative of the industry. Based on the audited financial statement, Duracraft states that Duracraft Hongkong made a profit consistent with the industry. Although the audited financial statement may show that Duracraft Hongkong recovered a profit, Duracraft has not shown that the profit was equivalent to the profit realized over a representative period by Duracraft Hongkong in sales of merchandise of the same class or kind. Additionally, Duracraft has not provided evidence that Duracraft Hongkong's profit is representative of the industry's profit or evidence that the price between the related parties is determined in a manner consistent with normal industry pricing practice. Therefore, Duracraft has failed to establish that the circumstances of sale indicate that the relationship between the related parties did not influence the price actually paid or payable.

Duracraft also contends that transaction value is acceptable because it closely approximates a deductive test value. Transaction value between related parties is acceptable if it closely approximates, inter alia, the deductive or computed "test value" for identical or similar merchandise. The term "test value" refers to values previously determined pursuant to actual appraisements of imported merchandise. Thus, for example, a deductive value calculation can only serve as a test value if it represents an actual appraisement of imported merchandise determined pursuant to ?402(d) of the TAA. See, HRL 543568 dated May 30, 1986, HRL 545481 dated September 14, 1994, HRL 545960 dated August 16, 1995, and HRL 546052 dated October 27, 1995. There are no previously determined deductive or computed values with respect to merchandise imported by Duracraft. Consequently, test values cannot be used to validate transaction value. Since Duracraft has been unable to demonstrate that the relationship with Duracraft Hongkong and Comfort Zone did not influence the price actually paid or payable, transaction value is inapplicable.

3. Transaction Value of Identical Merchandise and Adjustment for Commercial Level

In instances where transaction value cannot be determined, or cannot be used, ?402(a)(B) and ?402(a)(C) of the TAA provide for appraisement under ?402(c) of the TAA which defines the transaction value of identical merchandise, or of similar merchandise as the transaction value of imported merchandise that is either identical or similar merchandise to that which is being appraised and is exported to the United States at or about the time that the merchandise being appraised is exported to the United States. ?402(c)(2) of the TAA states that:

Transaction value determined under this subsection 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 sale 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. If in applying this paragraph with respect to any imported merchandise, two or more transaction values for identical merchandise, or for similar merchandise, are determined, such imported merchandise shall be appraised on the basis of the lower or lowest of such values.

In appraising the imported merchandise pursuant to transaction value of identical merchandise, Duracraft claims that the transaction value of the identical merchandise should be adjusted for commercial level. Duracraft states that the transactions selected represent sales by Duracraft Hongkong/Comfort Zone to retailers who are unrelated to Duracraft. Duracraft represents that it is a wholesaler and acquires merchandise at the wholesale commercial level. Thus, Duracraft states the values selected make no adjustment for the fact that the selected sales were at the retail level, whereas the merchandise imported by Duracraft was purchased at the wholesale level. Duracraft submitted a discussion of the difference in a sale to a retailer versus a wholesaler by Dr. Bruce Pearlstein, Director -Transfer Pricing and Economic Analysis of an audit firm. Duracraft submits that the transaction value of the identical merchandise should be reduced by 10.62% to reflect the price at the same commercial level as the related party sales for sales in 1993. Duracraft states that the 10.62% reflects the percentage of Duracraft's costs in the United States associated to the Duracraft Hongkong/Comfort Zone sales to unrelated U.S. buyers. Duracraft's costs are for returns and allowances, selling costs (commissions to sales representatives and other selling costs), marketing costs, customer service costs, warranty costs and general and administrative costs (product liability, consumer liability, operation department/payroll).

In this case, we do find that the sales from Duracraft Hongkong/Comfort Zone to Duracraft and to unrelated U.S. buyers are at different commercial levels. Customs information indicates that the unrelated U.S. buyers are retail establishments such as, K-Mart, Thrift Drug, Lowe's, Fred Meyer, Hechingers, Home Base, Roses and Target, and Duracraft is a wholesale distributor. However, we do not find Duracraft's proposed reduction of 10.62% persuasive. Duracraft calculated the reduction figure by ascertaining its total costs as set forth above and dividing that figure by the percentage of gross Duracraft Hongkong/Comfort Zone sales to unrelated U.S. buyers. Thus, Duracraft allocated its costs to the gross Duracraft Hongkong/Comfort Zone sales to unrelated U.S. buyers which was 10.62% of Duracraft Hongkong/Comfort Zone sales to unrelated U.S. buyers in 1993. We note that for 1993 Duracraft found that 50.75% of gross sales were allocated to Duracraft Hongkong/Comfort Zone sales to unrelated, whereas in a letter to Customs in Boston dated May 19, 1993, Duracraft stated that 76.5% of Duracraft Hongkong sales were to unrelated U.S. buyers. Additionally, it appears that, in ascertaining Duracraft's total costs, Duracraft included amounts for returns, marketing, advertising and commissions paid to independent sales representatives, but it did not account for the commissions Duracraft Hongkong/Comfort Zone paid Duracraft to offset these expenses. Thus, we do not find that the 10.62% reduction figure is appropriate. Although the sales from Duracraft Hongkong/Comfort Zone to Duracraft and to unrelated U.S. buyers are at different commercial levels, we note that any adjustments for identical merchandise because of different commercial levels, whether leading to an increase or decrease in the value, will be made only on the basis of sufficient information, e.g., valid price lists containing prices referring to different levels. See, ?402(c)(2) of the TAA, ?152.104(d) ad (e), Customs Regulations (19 CFR ?152.104(d) and (e)). In this situation, sufficient information to allow for an adjustment in commercial level was not presented.

Additionally, Duracraft contends that the prices selected as the transaction value of identical merchandise were not the lowest values available. Duracraft states that it has provided you with a worksheet and copies of invoices covering sales by Duracraft Hongkong/Comfort Zone at prices less than those selected as the transaction value of identical merchandise. You indicate that these lower prices for identical merchandise will be verified and an adjustment to the appraised value will be made where appropriate.

4. Appraisement of Model MX-83123

Moreover, Duracraft contests the appraisement of its air cleaner, Model MX-83132 under ?402(c) of the TAA. Duracraft states that Model MX-83123 was and is not sold by Duracraft Hongkong/Comfort Zone to any retailer customer; the only customer is Duracraft. Thus, Duracraft states that there can be no transaction value of identical merchandise. Moreover, Duracraft states that transaction value of similar merchandise is inappropriate because Model MX-83123 is not similar to any other Duracraft products as the air cleaner is not commercially interchangeable with nor does it possess the characteristics of the fans, heaters and humidifiers which Duracraft markets and sells. You agree with Duracraft that appraisement of the air cleaner, Model MX-83123, under ?402(c) of the TAA is not appropriate. Thus, Model MX- 83132 will be appraised at deductive value pursuant to ?402(d) of the TAA.

HOLDING:

Based on the evidence presented, the independent manufactured goods were not clearly destined for the United States and, thus, appraisement is not based on the price between the independent manufacturers and Duracraft Hongkong/Comfort Zone. Moreover, we find that the relationship between Duracraft Hongkong/Comfort Zone and Duracraft did influence the price actually paid or payable. Thus, the imported merchandise should be appraised pursuant to ?402(c) of the TAA with adjustments for the lowest value where appropriate. Additionally, the air cleaner, Model MX- 83132, should be appraised at deductive value pursuant to ?402(d) of the TAA.

You are directed to GRANT-IN-PART and DENY-IN-PART this protest as set forth above. In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065 dated August 4, 1993, Subject: Revised Protest Directive, this decision, together with the Customs Form 19, 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 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, Freedom of Information Act and other public access channels.

Sincerely,

Acting Director
International Trade Compliance

Previous Ruling Next Ruling

See also: