HQ 546363 - Internal Advice 17/96; transaction value; international freight; U.S. freight and duty; insurance; brokerage costs; sterilization costs; deductions from the price actually paid terms of sale; HRLs 544538, 543827 and 542467; Incoterms 1990; ?402(b)(4)(B); post importation rebates - United States International Trade Commision Rulings

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HQ 546363

July 15, 1997

RR:IT:VA 546363 KCC

CATEGORY: VALUATION

Port Director
U.S. Customs Service
P.O. Box 619050
DFW Airport, Texas 75261

RE: Internal Advice 17/96; transaction value; international freight; U.S. freight and duty; insurance; brokerage costs; sterilization costs; deductions from the price actually paid terms of sale; HRLs 544538, 543827 and 542467; Incoterms 1990; ?402(b)(4)(B); post importation rebates

Dear Port Director:

This is in regards to your memorandum dated April 25, 1996, requesting internal advice concerning the proper method of determining transaction value for surgical gloves imported by Regent Hospital Products ("the importer"). The surgical gloves were appraised under 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(b). We regret the delay in responding to your request.

FACTS:

The merchandise at issue is numerous entries of surgical gloves manufactured by LRC Hospital Products SDN BHD ("the manufacturer") in Malaysia. The surgical gloves are shipped directly from Malaysia to the consignee, SteriGenics, in Fort Worth, Texas. The consignee irradiates the surgical gloves and then ships them to the importer who is located in South Carolina. The surgical gloves are invoiced from the manufacturer to the importer's related supplier, New Bridge Street Invoicing Ltd., and then are invoiced from the supplier to the importer.

Entry of the surgical gloves was made by the importer under transaction value based on the invoice price from the related supplier. Sample supplier invoice #R1173 dated September 15, 1994, and #R1214-94 dated October 13, 1994, indicate that the purchaser is the importer and the consignee is SteriGenics. The invoices state that the terms of sale are "FROM PENANG TO FORT WORTH." An example of an invoice product description is "USA SUR S178 6.5 FILM (50PR)." Additionally, the invoices have an invoice "Sub-Total" followed by breakouts for "Carriage", "Insurance" and "Freight" for a "Total CIF charge". The "Total CIF charge" is then followed by a position for "Invoice Total." However, there are no costs listed next to the breakouts or "Total CIF charge." The same figure is listed in both the "Sub-Total" and "Invoice Total" positions. You appraised the surgical gloves under transaction value based on the "Invoice Total" on the supplier's invoices.

The importer contends that it purchased irradiated surgical gloves from the supplier and that the terms of sale are C.I.F. duty paid delivered which includes several non-dutiable charges. These non-dutiable charges are for international freight from Malaysia to the United States, insurance, U.S. duty, brokerage charges, irradiation charges and U.S. freight. The importer submitted sample invoices from the manufacturer to the supplier, #1173 dated September 15, 1994, and #1214 dated October 13, 1994, indicating that the purchaser is the supplier and the consignee is SteriGenics. An example of an invoice product description is "USA SUR S178 6.5 FILM (50PR)." These invoices indicated that the terms of sale are "SHIP CONDITION FOB+FREIGHT+INS" and show shipment from Penang, Malaysia through Singapore to Fort Worth.

The importer states that it is billed and pays various companies for U.S. duty, brokerage charges, irradiation charges and U.S. freight costs. The importer then bills the supplier for these charges. Thereafter, the supplier reimburses the importer via intercompany settlement. Samples of customs brokers bills indicating that the importer was charged for estimated duties, customs clearance service, ocean freight and handling, and container drayage and coordination were submitted. Additionally, samples of consignee's bills to the importer were submitted to show that the importer was charged for irradiation services and samples of U.S. transportation service bills were submitted to show that the importer was charged for U.S. transportation costs from the consignee to the importer after irradiation services. Finally, the importer submitted post importation intercompany transaction statements between itself and the suppler indicating that the importer billed the supplier for the above incurred charges, as well as a post importation intercompany settlement document. We note that no purchase orders, supply agreements or purchase contracts were submitted.

ISSUE:

Whether the evidence submitted establishes that deductions from the invoice price should be made for international freight from Malaysia to the United States, insurance, U.S. duty, brokerage charges, irradiation charges and U.S. freight in determining the price actually paid or payable for the surgical gloves?

LAW AND ANALYSIS:

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 transaction at issue is between the importer, Regent Hospital Products, and supplier, New Bridge Street Invoicing Ltd. These parties are related, therefore pursuant to ?402(b)(2)(B) of the TAA, transaction value is acceptable only if an examination of the circumstances of the sale indicates that the relationship between the importer and supplier manufacturers 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. This decision does not address the acceptability of transaction value.

The term "price actually paid or payable" is defined in

...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.

The importer contends that it purchased irradiated surgical gloves from the supplier and that the terms of sale are C.I.F. duty paid delivered which includes the following non-dutiable charges: international freight from Malaysia to the United States, insurance, U.S. duty, brokerage charges, irradiation charges and U.S. freight.

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 Headquarters Ruling Letter (HRL) 544538, issued December 17, 1992, Customs held 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 regards 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-...

(ii) the transportation of the merchandise after such importation.

(B) The customs duties and other Federal taxes currently payable on the imported merchandise by reason of its importation, and any Federal excise tax on, or measured by the value of, such merchandise for which vendors in the United States are ordinarily liable.

See also, ?152.103(i), Customs Regulations (19 CFR ?152.103(i)). The above cited statutory provision clearly states that the transaction value of imported merchandise does not include any reasonable cost or charge incurred for the transportation of merchandise after importation and cost incurred for customs duties of the imported merchandise that is identified separately from the price actually paid or payable. The actual U.S. duties, not the estimated duties, are excluded from the price actually paid or payable.

In order to deduct the international freight, insurance, U.S. duty, brokerage charges, irradiation charges and U.S. freight, these costs must first be included in the price actually paid or payable. From the evidence submitted it is unclear what was included in the price actually paid or payable for the imported merchandise. The importer contends that it purchased irradiated surgical gloves from the supplier with the terms of sale C.I.F. duty paid delivered. However, no purchase orders, supply agreements or purchase contracts were submitted which would provide conclusive evidence of the parties contractual arrangement.

With regards to international freight and insurance, the submitted invoices state that the terms of sale are from Penang, the manufacturers place of business, to Fort Worth, Texas, the consignee's place of business. Additionally, the invoices' "Sub-Total" and "Total CIF charge" amounts are the same and do not provide separate identification of international freight and insurance costs. Although the submitted invoices do not separately identify the international freight and insurance costs, the terms of sale on the submitted invoices appear to include international freight and insurance. Thus, it appears that the price actually paid or payable includes costs for international freight and insurance. However, no evidence of actual transportation and insurance costs was submitted. The importer did submit invoices from the manufacturer to the supplier which identify charges for international freight and insurance separate from the price for the merchandise. However, without evidence of the actual costs for international freight and insurance from the freight forwarder, transport company, etc., we are unable to deduct this cost from the total payment.

With regards to U.S. duty, brokerage charges, irradiation charges and U.S. freight, we do not find any compelling evidence that these costs are included in the price actually paid or payable for the imported merchandise. As stated previously, no purchase orders, supply agreements or purchase contracts were submitted which would provide conclusive evidence of the parties contractual arrangement. Additionally, invoices submitted indicate the terms of sale are from Penang to Forth Worth which appears to be a C.I.F. arrangement. Normally, duty, brokerage charges and domestic freight costs are not included in C.I.F. terms of sale. See, International Chamber of Commerce, Incoterms, at 50 (1990). The evidence presented, i.e., invoices, do not separately identify costs for duty, brokerage charges, and domestic freight. Nothing submitted indicates that the price actually paid or payable includes duty, brokerage charges, and domestic freight. Thus, we can not deduct these costs from the invoice price.

Moreover, without a purchase order, supply agreement or purchase contract, the only evidence as to the type of merchandise contracted for is the invoices. The invoices from the supplier to the importer indicate that surgical gloves were purchased, not irradiated surgical gloves. The only evidence submitted that irradiated surgical gloves were purchased is a statement by the importer's counsel in a March 4, 1996, letter stating that "[t]he understanding between the importer and supplier is that these gloves will be delivered in a sterilized state." The invoices do not separately identify the cost of the irradiation service from the total invoice price. Therefore, the cost for irradiation will not be deducted from the invoice price.

The importer claims that the documents submitted show that the supplier is the party paying for international freight, insurance, U.S. duty, brokerage charges, irradiation charges and U.S. freight. The importer is billed and pays for U.S. duty, brokerage charges, irradiation charges and U.S. freight. It then bills and is reimbursed by the supplier for these charges. Samples of customs brokers bills, consignee's bills and U.S. transportation service bills were submitted. Additionally, the importer submitted post importation intercompany transaction statements between itself and the suppler showing that the importer billed the supplier for the above incurred charges, as well as a post importation intercompany settlement document.

We acknowledge that the amount paid to the supplier was the amount on the invoice presented to Customs. While it is clear from the documents submitted that the importer was reimbursed by the related supplier for additional charges, the rebates are disregarded in determining the transaction value for the imported merchandise. ?402(b)(4)(B) of the TAA states:

Any rebate of, or other decrease in, the price actually paid or payable that is made or otherwise effected between the buyer and seller after the date of importation of the merchandise into the United States shall be disregarded in determining the transaction value under paragraph (1).

HOLDING:

Based on the evidence presented, deductions from the invoice price should not be made for international freight from Malaysia to the United States, insurance, U.S. duty, brokerage charges, irradiation charges and U.S. freight in determining the price actually paid or payable for the surgical gloves.

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, Freedom of Information Act and other public access channels 60 days from the date of this decision.

Sincerely,

Acting Director
International Trade Compliance
Division

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