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HQ 546679




August 11, 1997

RR:IT:VA 546679 er
CATEGORY: VALUATION

Mr. Thomas Penksa
Consulting Services Department PBB Group
434 Delaware Avenue
Buffalo, NY 14202

RE: Request for a ruling regarding fill material provided free of charge to seller; assists.

Dear Mr. Penksa:

This is in response to your letter dated January 29, 1997, on behalf of your client, Accucaps Industries Limited (“Accucaps”), to the Chief, Special Products Branch of the National Commodity Specialist Division in New York regarding whether certain materials provided to Accucaps free of charge by their customers, are dutiable as an assist. Your letter was forwarded to this office under separate cover dated February 27, 1997, for reply. We regret the delay in responding.

FACTS:

The imported merchandise is human food supplements consisting of gelatin capsules filled with a variety of materials. Accucaps’ customers purchase some of the fill materials from outside sources, and provide them to Accucaps free of charge. Accucaps pays only for the costs associated with import and clearance in Canada.

After filling the capsules, Accucaps prepares an invoice for the U.S. customer indicating their charge for the encapsulating process, and a separate “assists” line item for the value of the fill material. The value of the fill material is a computation based on the amount of customer-provided material in each capsule, on each shipment, multiplied by the cost of the fill material, as noted on the invoice accompanying the fill material into Canada. According to the memorandum from the Special Products Branch in New York, the value of the fill material appearing on the Accucaps invoices appears to be based on the prices for the fill material, as stated on the invoice used to make entry into Canada. However, it is unclear if the value includes the cost of transporting the fill material to the place of production.

ISSUE:

Whether the fill material provided free of charge to Accucaps by its customers constitutes a dutiable additional to the price actually paid or payable for the imported merchandise, as an assist.

LAW AND ANALYSIS:

Merchandise imported into the U.S. is appraised in accordance with section 402 of the Tariff Act of 1930, as amended, by the Trade Agreement Act of 1979 (TAA; 19 U.S.C. 1401a). The preferred method of appraisement under the TAA is transaction value defined as the “price actually paid or payable for the merchandise when sold for exportation” to the U.S. plus certain enumerated additions, including assists.

Section 402(h)(1)(A) of the TAA provides, in pertinent part, that:
the term ‘assist’ means any of the following if supplied directly or indirectly, and free of charge or at reduced cost, by the buyer of imported merchandise for use in connection with the production or the sale for export to the United States of the merchandise:...

(i) Materials, components, parts, and similar items incorporated in the imported merchandise.

In the opinion of the Special Products Branch in New York, the customer-provided fill material is an assist, and its value should be included in the price actually paid or payable. We agree. As described above, the materials provided by Accucaps’ customers fit the definition of an assist. The fill material is provided free of charge by the buyer and is incorporated into the gelatin capsules.

As for determining the value of the assist to be added to the price actually paid or payable, section 152.103 of the Customs Regulations (19 CFR 152.103) provides the following:

(d) Assist. If the value of an assist is to be added to the price actually paid or payable, or to be used as a component of computed value, the port director shall determine the value of the assist and apportion that value to the price of the imported merchandise in the following manner:

(1) If the assist consists of materials, components, parts, or similar items incorporated in the imported merchandise, or items consumed in the production of the imported merchandise, acquired by the buyer from an unrelated seller, the value of the assist is the cost of its acquisition. If the assist were produced by the buyer or a person related to the buyer, its value would be the cost of its production. In either case, the value of the assist would include transportation costs to the place of production.

For purposes of this decision, we are assuming that the customers purchase the fill materials from unrelated parties, within the meaning of section 402(g) of the TAA. Based on the information provided, and as pointed out by the Special Products Branch in New York, the value of the fill material appearing on Accucaps’ invoices appears to be based on the prices paid for the material, as stated on the invoices used to make entry into Canada. It is not clear if this value includes the costs of transporting the material to the place of production, as required by section 152.103(d)(1)) of the Customs Regulations (19 CFR 152.103(d)(1)), quoted above. If not, the value of the assist should be increased accordingly. Accordingly, the value of the fill material must be added to the price actually paid or payable for the imported merchandise.

HOLDING:

As described above, the fill materials provided free-of-charge to Accucaps by its customers represents an assist and, accordingly, the value of the assist must be added to the price actually paid or payable for the imported merchandise..

Sincerely,

Acting Director,
International Trade Compliance Division

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