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 546273

Previous Ruling Next Ruling
HQ 546273





July 25, 1996

RR:IT:VA 546273 KCC

CATEGORY: CLASSIFICATION VALUATION

TARIFF No.: Various

Port Director
U.S. Customs Service
2nd & Chestnut Streets
Philadelphia, Pennsylvania 19106

RE: Application for Further Review of Protest 1101-96-100015; Cutting Line For Cut-to-Length and Rewinding machine; transaction value; international freight; insurance; HRLs 544538 and 543827; foreign inland freight; 19 CFR ?152(a)(5); T.D. 84-235; through bill of lading; U.S. inland freight; 19 CFR ?152.103(i)(1); IA 63/83( HRL 074909); HRL 085252; Franklin Industries, Inc.; Baldt Anchor, Chain & Forge Division of Boston Metals Co.; GRI 2(a); unfinished machine; note 4 to section XVI; functional unit; 19 CFR ?174.13(5); 9802.00.80; 19 CFR ?10.16(a), 10.16(b) and 10.24; HRL 555671

Dear Port Director:

This is in regard to the Application for Further Review of Protest 1101-96-100015, which concerns the appraisement of, tariff classification of, and applicability of subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), to a "Cutting Line For Cut-to-Length and Rewinding" machine.

FACTS:

The merchandise at issue is "Cutting Line For Cut-to-Length and Rewinding" machine imported by North American Stainless ("NAS"). It is a single machine that performs two separate functions: (1) it cuts (and then stacks) coils of steel to specific lengths; and (2) it rewinds coil that has been "skewed." Because of shipping problems with NAS's order, the merchandise was divided and shipped on two vessels which arrived at two different ports several days apart. The Philadelphia, Pennsylvania, importation entered into the U.S. on March 13, 1994, and the Norfolk, Virginia, importation entered into the U.S. on March 19, 1994. The two entries were filed by local brokers, but both entries were the product of NAS's national broker. The same invoice, which was coded to indicate which machine components were unladen in Philadelphia and Norfolk was used in both entries. The invoice describes the imported machine as "CUTTING LINE FOR CUT-TO-LENGTH AND REWINDING." The Philadelphia entry, which is the subject of this protest, contains a second corrected invoice ("corrected invoice") and a packing list with a more detailed description of the imported machine components as "PARTS of 'CUTTING LINE FOR CUT-TO-LENGTH AND REWINDING (Equipment)'...." From the coding, values and weights, it is clear that essentially half of the Cutting Line for Cut-to Length and Rewinding machine was imported through Philadelphia and half in Norfolk.

Even though components for the machine arrived at separate ports, the machine was entered by NAS, as if complete, in both ports under subheading 8461.50.80, HTSUS, which provides for other machine tools for sawing or cutting-off. NAS claims the merchandise is appraised under transaction value pursuant to Agreements Act of 1979 ("TAA"), codified at 19 U.S.C. ?1401a. NAS states that the price actually paid or payable for the imported merchandise as set forth on the commercial invoice includes costs which are to be excluded from transaction value. These costs are identified on the corrected invoice as:

"Mechanical Engineering and Miscellaneous" charges for "Training at destination and Assembly (Direction & Supervision), Start-up, Unloading and Loading procedures & reception" which were prorated between Philadelphia and Norfolk;
"Transportation and Insurance" charges for "Inland Transportation to spanish -- port, Sea transportation to U.S. Port; inland transportation in USA to NAS and Insurance" which were prorated between Philadelphia and Norfolk.

You separately classified the components for the machine, entered in Philadelphia, under the following subheadings:
subheading 8462.29.00, HTSUS, which provides for other machine tools for working metal by bending, folding, straightening or flattening (including presses); subheading 8462.39.00, HTSUS, which provides for other machines tools for working metal by shearing (including presses), other than combined punching and shearing machines; subheading 8479.89.90, HTSUS, which provides for other machines and mechanical appliances having individual functions, not specified or included elsewhere in this chapter; subheading 8504.31.20, HTSUS, which provides for unrated electrical transformers, having a power handling capacity not exceeding 1 kVA; subheading 8537.10.90, HTSUS, which provides for other bases for electric control and the distribution of electricity, for a voltage not exceeding 1,000 V; and. subheading 8213.00.90, HTSUS, which provides for other scissors, tailors' shears and similar shears, valued over $1.75/dozen.

You appraised the merchandise pursuant to transaction value under ?402(b) of the TAA and excluded the "Mechanical Engineering and Miscellaneous" charges from the corrected commercial invoice. However, you did not allow deductions from the corrected commercial invoice for the freight costs and insurance.

The purchase agreement for the cutting line for cut-to-length and rewinding machine states that the terms of sale are C.I.F. (Incoterms 1990). The commercial invoice states that the terms of sale are C.I.F. Ghent, but does not provide any breakout of charges for freight and insurance. Additionally, the submitted corrected invoice does not list terms of sale, but does separately breakout costs for the above described "Mechanical Engineering and Miscellaneous" and "Transportation and Insurance." As an attachment to the protest, NAS submitted three freight forwarder's bills which show the port of origin as Bilbao, Spain and the destination port as Philadelphia. We note that the conditions for shipment on all three freight forwarder's bills are stated as "C&F." Additionally, one of the bills identifies a separate charge for U.S. inland freight costs from Philadelphia to Ghent.

Another NAS claim concerns the category of components listed on page 2 of the corrected invoice described as "Electrical Equipment & Electrical Engineering: - Direct current drives, alternating current, Drives automation equipment, Control Desks, motors, wiring - Transformer and distribution Center." NAS states that the value of servodrivers with the electrical cabinet and their spare parts, transformer & distribution center, motor's control center, shut-off center and isolation transformers were included in this category but that these components were not imported with the cut-to-length and rewinding equipment. NAS states that these components were manufactured in the U.S. and were supplied directly from the U.S. manufacturer to NAS. NAS states that the packing list does not indicate that these components were part of the shipment Additionally, NAS submitted signed statements from FAGOR, the foreign manufacturer, and itself stating that these components were not part of the shipment.

NAS also claims that the electric controlling systems for the "Strip Centering" and "Automatic Coil Centering" sections of the "Cutting Line" machine were manufactured in the U.S. by North American Manufacturing Co. of Cleveland, Ohio, and are eligible for preferential tariff treatment under subheading 9802.00.80, HTSUS. In support of this claim, protestant submits an assembler's declaration, endorsement by the importer, a copy of the invoice from the U.S. manufacturer of the components to the Spanish supplier, and a copy of the airway bill showing shipment of the U.S. components from Cleveland, Ohio, to Bilbao, Spain. In addition, the work performed on the components imported into Spain to complete the "Strip Centering Device on the Uncoiler" is described in a fax from FAGOR as follows:

The electronic control system and all its components are simply bolted onto the appropriate frames and gantries directly over the passing line of the strip, by means of ordinary metric fasteners such as screws, nuts and washers as required, using the drilled and tapped holes provided by the manufacturer of the components. The control box is then mounted in an accessible part of the machine.

The control box is then temporarily wired into the electrical circuit of the machine for testing purposes. The final electrical installation is carried out after the complete assembly of the machine at its destination. The hydraulic valves and manifold are supplied already mounted on a stand with all the plumbing complete. This assembly is placed on the bed frame of our machine and tied down using ordinary metric fasteners, through the holes provided on the valve stand.

This assembly is then connected to the hydraulic cylinder, by means of two flexible rubber hoses.

FAGOR further states that other components of the imported equipment are similarly mounted by means of metric fasteners.

We note that in a letter to you dated April 22, 1996, NAS has withdrawn from its protest the alleged "third mistake of fact or other inadvertence" concerning the allocation of value to merchandise which is the subject of this protest. Thus, this decision does not address that contention.

ISSUE:

1. Whether the evidence submitted establishes that the international freight, insurance, foreign inland freight, and U.S. inland freight charges are excluded from the price actually paid or payable in determining transaction value.

2. Whether a deduction should be made from the price actually paid or payable for the value of servodrivers with the electrical cabinet and their spare parts, transformer & distribution center, motor's control center, shut-off center and isolation transformers in determining transaction value.

3. Whether separate classification under the HTSUS of the components to the cutting line for cut-to-length and rewinding machine was proper.

4. Whether the United States-made components that are shipped to Spain for incorporation into the cut-to-length and rewinding equipment are entitled to subheading 9802.00.80, HTSUS, treatment when returned into the U.S.

LAW AND ANALYSIS:

1. Valuation

The preferred method of appraisement is transaction value which is defined by ?402(b)(1) of the TAA (19 U.S.C. ?1401a(b)) as "the price actually paid or payable for the merchandise when sold for exportation to the United States..." plus certain additions specified in ?402(b)(1) (A) through (E). The term "price actually paid or payable" is defined in ?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 from the country of exportation to the place of importation in the United States) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.

You excluded the "Mechanical Engineering and Miscellaneous" charges from the corrected commercial invoice. Thus, the costs at issue are the international freight costs from the country of exportation, Bilbao, Spain to Philadelphia, the Spanish and U.S. inland freight costs, and the insurance charges.

Transportation costs and insurance costs pertaining to the international movement of merchandise from the country of exportation, to the extent included in the price actually paid or payable, are to be excluded from the total payment made for imported merchandise appraised under transaction value. These costs are not the estimated costs, but the actual costs paid to the freight forwarder, transport company, etc.

In HRL 544538, issued December 17, 1992, Customs acknowledged that pursuant to ?402(b)(4)(A) the cost of international transportation is to be excluded from the price actually paid or payable for imported merchandise. However, Customs explained that in determining the cost of the international transportation or freight, it always looked to documentation from the freight company, as opposed to the documentation between the buyer and the seller which often contains estimated transportation costs or charges. In essence, Customs requires documentation from the freight company because the actual cost, and not the estimated charges, for the freight is the amount that Customs excludes from the price actually paid or payable. See also HRL 543827, issued March 9, 1987, in which Customs determined that the proper deduction from the price actually paid or payable for marine insurance was the amount actually paid to the insurance company by the seller, as opposed to the amount paid by the related importer/buyer; and HRL 542467 dated August 13, 1981.

As to the terms of sale for the subject merchandise, the documents submitted confuse rather than clarify the situation. The purchase agreement states that the terms of sale are C.I.F. (Incoterms 1990). The first commercial invoice states that the terms of sale are C.I.F. Ghent, but does not provide any breakout of charges for freight and insurance. The submitted corrected invoice does not list terms of sale, but does separately breakout costs for the above described "Mechanical Engineering and Miscellaneous" and "Transportation and Insurance." Also, in the "Transportation and Insurance" category none of the individual transportation or insurance costs is separately identified. Finally, the three freight forwarder's bills state that the terms of sale are "C&F."

Based on the evidence submitted, i.e., the purchase agreement, corrected commercial invoice and freight forwarders bill, it appears that the terms of sale are C.I.F. Normally, freight and insurance charges are included in the C.I.F. price for the goods. In this case, the corrected commercial invoice identifies that international transportation from the Spanish port to the U.S. and insurance are included in the invoice price for the imported merchandise. However, it does not separately identify these costs. NAS has provided documentation, the freight forwarder's bills, identifying the actual cost for the international transportation from Bilbao, Spain to Philadelphia. However, there is no evidence available which identifies the actual insurance costs. The only statement identifying the insurance cost is made in NAS's protest:

This [freight forwarder's bills] does not include insurance, which is listed on the [corrected] Commercial Invoice but not separated from the transport charges and at a very modest rate would be .15% x 110% of the CIF value or approximately: EPS515,082.

Without a separate identification of the insurance costs, we are unable to deduct this cost from the total payment. However, as NAS has provided evidence of the actual transportation cost from Bilbao, Spain to Philadelphia, this cost should be deducted from the total payment for the subject merchandise.

As to foreign inland freight charges incident to the international shipment of merchandise, Customs' regulations are found in ?152.103(a)(5), Customs Regulations (19 CFR which states:

(i) Ex-factory sales. If the price actually paid or payable by the buyer to the seller for the imported merchandise does not include a charge for foreign inland freight and other charges for services incident to the international shipment of merchandise (an ex-factory price), those charges will not be added to the price. (ii) Sales other than ex-factory. As a general rule, in those situations where the price actually paid or payable for imported merchandise includes a charge for foreign inland freight, whether or not itemized separately on the invoices or other commercial documents, that charge will be part of the transaction value to the extent included in the price. However, charges for foreign inland freight and other services incident to the shipment of the merchandise to the United States may be considered incident to the international shipment of that merchandise within the meaning of ?152.102(f) if they are identified separately and they occur after the merchandise has been sold for export to the United States and placed with a carrier for through shipment to the United States.
(iii) Evidence of sale for export and placement for through shipment. A sale for export and placement for through shipment to the United States under paragraph (a)(5)(ii) of this section shall be established by means of a through bill of lading to be presented to the district director. Only in those situations where it clearly would be impossible to ship merchandise on a through bill of lading (e.g., shipments via the seller's own conveyance) will other documentation satisfactory to the district director showing a sale for export to the United States and placement for through shipment to the United States be accepted in lieu of a through bill of lading....

The intent of the T.D. 84-235 was to permit foreign inland freight to be nondutiable where such charges are identified separately, and they occur after merchandise has been sold for export to the United States and placed with a carrier for through shipment to the United States. To ensure that the above criteria have been met Customs mandated that a "through bill of lading" be presented. "Through bill of lading" was defined in field instructions dated February 6, 1985, as "a contract, waybill, invoice, issued by one carrier or forwarder which controls the manner of shipment from the point or place of manufacture or origin to the U.S. port of importation or beyond (although the shipment may extend over two or more lines of connecting carriers), shows the origin and destination of the shipment, consignor and consignee, route of movement and applicable rate or rates." Without the evidence of a through bill of lading no deduction may be made for foreign inland freight charges.

Based on the evidence, i.e., the freight forwarder's bills, submitted, there is not a through shipment of the merchandise from the Spanish manufacturer in Mondragon to the United States. The freight forwarders bills show shipment from the Spanish port of Bilbao to Philadelphia. As such, there is no document which meets the definition of a "through bill of lading" as required by 19 CFR ?152.103(a)(5)(ii) and (iii). Without such evidence no deduction may be made for foreign inland freight charges.

With regard to the costs that are incurred after the merchandise has been imported, ?402(b)(3) of the TAA states that:

The transaction value of imported merchandise does not include any of the following, if identified separately from the price actually paid or payable and from any cost or other item referred to in paragraph (1):

(A) Any reasonable cost or charge that is incurred for-- (i) the construction, erection, assembly, or maintenance of, or the technical assistance provided with respect to, the merchandise after its importation into the United States; or (ii) the transportation of the merchandise after such importation.

See also, ?152.103(i)(1), Customs Regulations (19 CFR states that the transaction value of imported merchandise does not include any reasonable cost incurred for the transportation of the imported merchandise after its importation that is identified separately from the price actually paid or payable.

The corrected commercial invoice separately identifies the U.S. inland transportation from Philadelphia to Ghent. Additionally, the actual U.S. inland transportation cost is identified on the freight forwarder's bill. Therefore, the cost for U.S. inland transportation from Philadelphia to Ghent is excluded from the price actually paid or payable in determining transaction value.

2. Servodrivers with the Electrical Cabinet and their spare parts, Transformer & Distribution center, Motor's Control Center, Shut-off Center and Isolation Transformers

NAS maintains that the above components were not imported but their value was mistakenly included on page 2 of the corrected invoice in the category "Electrical Equipment & Electrical Engineering." In fact, NAS claims that these items were sourced domestically and not from the foreign manufacturer. Therefore, NAS contends that the value of these components should be deducted from the invoice price in determining transaction value. As evidence that the value of these components was mistakenly included in the invoice price, NAS submitted signed statements from itself and the foreign manufacturer attesting that these components were not part of the subject shipment. Additionally, NAS states that an examination of the packing list will show that none of these components is listed therein.

We do not find this evidence compelling. First, the description of the components on the packing lists is not conclusive. Also, other than the self-serving statements, no evidence such as purchase orders, was provided establishing that these items were sourced domestically. Finally, we find no evidence establishing that the servodrivers with the electrical cabinet and their spare parts, transformer & distribution center, motor's control center, shut-off center and isolation transformers were included in the category "Electrical Equipment & Electrical Engineering: - Direct current drives, alternating current, Drives automation equipment, Control Desks, motors, wiring - Transformer and distribution Center." Thus, we cannot exclude the value of components from the invoice price which we do not know were included in the invoice in the first place.

3. HTSUS Classification

NAS claims the Philadelphia and Norfolk entries were part of an "installment shipment" as defined in ?141.82, Customs Regulations (19 CFR ?141.82), because the entries were covered by a single contract, shipped from one consignor to one consignee and arrived at the port of entry within ten (10) consecutive days. Additionally, NAS claims that the entry subject to this protest constitutes a "separate entr(y) of (the) same shipment" as described in ?141.84(c), Customs Regulations (19 CFR 2(a), HTSUS, NAS also contends that the Philadelphia entry is an unfinished Cutting Line for Cut-to-Length Rewinding" machine, and, therefore, classified under subheading 8461.50.80, HTSUS.

In IA 63/83 (Headquarters Ruling Letter (HRL) 074909), dated November 5, 1984, we addressed a similar issue under the Tariff Schedules of the United States (TSUS). In this decision, we noted Customs obligation to classify and assess duty on merchandise in its condition as imported--that is, merchandise which arrives in the customs territory in the same shipment. We held that merchandise laden aboard separate trucks which arrived within the customs territory of the U.S. on the same day would be considered, for classification and appraisement purposes, as having arrived at the same time, or as comprising a single shipment. See also, Franklin Industries, Inc. v. United States, 1 C.I.T. 349 (1981) (wherein the U.S. Court of International Trade held that to enjoy classification under a single tariff item number all components necessary to the completion of a particular article must be imported in the same shipment); United States v. Baldt Anchor, Chain & Forge Division of Boston Metals Co., 59 CCPA 122, C.A.D. 1051, 429 F.2d 1403 (1972). This principle applies as well for purposes of classifying merchandise under the HTSUS. See, HRL 085252 dated September 29, 1989. Accordingly, the components for the Cutting Line Cut-to-Length and Rewinding machine, which arrived on different vessels, on different days and at different ports, cannot be considered as a single shipment for classification purposes.

According to a packing list contained in the file (and confirmed in a telephone conversation with the protestant), the Philadelphia shipment included an uncoiler, hydraulic panel (uncoiler), hydraulic panel (strip centering), hydraulic flexible pipes, anchor bolts, leveler protectors and leveler bridge top. It appears that a device called a "flying shear" was also a part of this shipment. There is no descriptive literature contained in the file describing this merchandise.

Thus, while the port's separate classification of the machine's components was correct, we are unable to confirm the correctness of the liquidated provisions. However, it seems clear that the Philadelphia shipment would not constitute a GRI 2(a), HTSUS, "unfinished" machine, which would require that the components for the machine be classified in the same provision as the complete machine (the complete machine is likely a note 4 to section XVI, HTSUS, "functional unit," and therefore, the Philadelphia shipment cannot be considered an "unfinished" machine). See, HRL 087077 dated March 27, 1991. As the protestant has failed to provide "[a] specific description of the merchandise affected by the decision as to which protest is made," the components are classified as liquidated and this portion of the protest is denied. See, ?174.13(5), Customs Regulations (19 CFR ?174.13(5)).

4. Subheading 9802.00.80, HTSUS

Subheading 9802.00.80, HTSUS, provides a partial duty exemption for:

Articles assembled abroad in whole or in part of fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape, or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process, such as cleaning, lubricating and painting.

All three requirements of subheading 9802.00.80, HTSUS, must be satisfied before a component may receive a duty allowance. An article entered under subheading 9802.00.80, HTSUS, is subject to duty upon the full value of the imported article, less the cost or value of the U.S. components assembled therein, provided there has been compliance with the documentary requirements of ?10.24, Customs Regulations (19 CFR ?10.24).

?10.16(a), Customs Regulations (19 CFR ?10.16(a)), provides that the assembly operations performed abroad may consist of any method used to join or fit together solid components, such as welding, gluing or the use of fasteners, and may be preceded, accompanied, or followed by operations incidental to the assembly process. ?10.16(b), Customs Regulations (19 CFR ?10.16(b)), provides that operations incidental to the assembly process whether performed before, during, or after assembly, do not constitute further fabrication, and shall not preclude the application o the exemption. Operations specified in this provision as incidental to the assembly process include cutting to length of wire, thread, tape foil and similar products exported in continuous length.

We find that the operations performed in Spain which result in securely joining components together by fasteners are considered acceptable assembly operations pursuant to 19 CFR operations performed to create wooden venetian blinds including fitting component parts with screws were considered proper assembly operations or operations incidental to the assembly process.

Accordingly, since the record reflects that the documentary requirements under 19 CFR ?10.24 have been satisfied, the claim under subheading 9802.00.80, HTSUS, should be allowed for the components manufactured in the U.S. Additionally, these components are not assists pursuant to ?402(h)(1)(A) of the TAA. The components are manufactured in the U.S. by North American Manufacturing Co. ("NAM"), purchased by the foreign manufacturer and shipped to Spain as evidenced by NAM's invoice to the foreign manufacturer. Thus, there is no evidence that NAS, the buyer, supplied these components free of charge or at a reduced cost to the foreign manufacturer.

HOLDING:

Absent a through bill of lading, the charges for Spanish inland freight are considered part of the price actually paid or payable regardless of whether the costs were itemized separately on the commercial invoice. Accordingly, there is no authority to permit a deduction for the Spanish inland freight costs from the manufacturer to the port of exportation. Additionally, no deduction should be made for insurance. However, the actual costs for U.S. inland transportation from Philadelphia to Ghent and for the international transportation from Bilbao, Spain to Philadelphia are excluded from the price actually paid or payable in determining transaction value. Based on the evidence submitted, a deduction for the value of the servodrivers with the electrical cabinet and their spare parts, transformer & distribution center, motor's control center, shut-off center and isolation transformers is improper. You are instructed to GRANT-IN-PART and DENY-IN-PART this portion of the protest as directed.

The components for the Cutting Line Cut-to-Length and Rewinding machine, which arrived on different vessels, on different days and at different ports, cannot be considered as a single shipment for classification purposes. Separate classification of the machine's components was correct. Pursuant to 19 CFR ?174.13(5), the protestant has failed to provide "[a] specific description of the merchandise affected by the decision as to which protest is made." Thus, this portion of the protest is DENIED.

On the basis of the information provided, we find that the claim for subheading 9802.00.80, HTSUS, treatment should be granted since the cut-to-length and rewinding equipment was assembled in whole or in part of fabricated components which were exported from the U.S. in a condition ready for assembly, and they were not advanced in value or improved in condition abroad except by being assembled. You are instructed to GRANT this portion of the protest.

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: