HQ W563598 - Application for Further Review of Protest No. 5201-05-100127; Nondutiable Charges - United States International Trade Commision Rulings

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HQ W563598

December 6, 2006

VAL RR:CTF:VS 563598 DCC

CATEGORY: VALUATION

Port Director
U.S. Customs and Border Protection
903 S. America Way
Miami, FL 33312

RE: Application for Further Review of Protest No. 5201-05-100127; Nondutiable Charges

Dear Port Director:

This is in response to the Application for Further Review (“AFR”) of Protest No. 5201-05-100127, dated April 14, 2005, on behalf of [ ], the “Importer,” concerning the valuation of [ ], the “subject merchandise.” The Protest concerns two entries: Entry No. [ ] and Entry No. [ ]. Business proprietary information furnished in connection with the AFR will be accorded confidential treatment. Such information is designated by brackets, and will be redacted from the public version of this letter.

FACTS:

The subject merchandise was imported pursuant to a turn-key contract negotiated by the Importer; [ ], the related “Foreign Manufacturer”; and [ ], the U.S. customer. The contract price included the international shipment, domestic shipment, insurance, customs entry and duties, taxes and fees, post-importation services for installation of the merchandise at the U.S. customer’s facility, the cost of equipment purchased in the United States, as well as the costs of training the U.S. customer’s personnel in the use and maintenance of the customized good. For arranging the sale, the Importer receives a commission by the foreign supplier.

Previously, Customs and Border Protection (“CBP”) issued Headquarters Ruling Letter (“HRL”) 546858, dated June 2, 2000, regarding the proper method of appraisement of the subject merchandise. In that ruling, we determined that the Importer performed as an agent of the Foreign Manufacturer and payments made to the Importer were properly treated as selling commissions and therefore part of the price actually paid or payable under the transaction value method of appraisement. Furthermore, HRL 546858 stated that charges for post-importation services, international freight, customs duties and taxes, and any domestically-sourced materials should be excluded from the price.

Following issuance of HRL 546858, the Importer established new customs procedures to make adjustments to the entered value of the subject merchandise for the value of the nondutiable charges (“NDCs”). Under these procedures, the Importer uses estimated amounts for the NDCs at the time of importation, flags those entries, and later submits the actual amounts with a reconciliation entry. Prior to the implementation of these procedures, however, the Importer had two entries on which the Importer did not deduct any of its NDCs. The Importer filed this protest in order to deduct the claimed NDCs from the price actually paid or payable for these two entries.

The Importer provided several documents in support of its claim that the entered value should be adjusted to exclude the value of the NDCs. Although the Importer proved similar documents for both entries, we will discuss the documentation submitted for Entry No. [ ]. For this entry the Importer provided the following documents:

Amended contract, dated March 20, 2002, between [ ], the buyer, and [ ], the seller.

Revised commercial invoice, dated February 11, 2004, issued by [ ], the related Foreign Manufacturer. This document itemizes the total value of the second delivery, U.S.-sourced equipment, post-importation services, training, off-loading, project management fees, and charges for assembly services provided by third parties.

Calculation worksheets for CF 7501. This document describes by entry line item number the charges deducted from the total invoice value including post-importation services, domestic equipment, ocean freight and insurance, inland freight and insurance, terminal fees, broker fees, customs duty, merchandise processing fee, and harbor maintenance fee.

Packing list, dated February 11, 2004, prepared by the Foreign Manufacturer, which itemizes the list of articles in the second shipment.

Freight worksheet. This document, which was prepared by the Importer, identifies the charges by vessel for insurance, foreign port charges, ocean freight, U.S. port charges, broker charges, and U.S. inland freight.

Freight Invoice, dated January 30, 2004, which was prepared by the ocean freight company, describes various freight charges including for ocean freight, U.S. port charges (including unloading, cubic meter charge, and wharfage), additional transport charge for extra crane, U.S. freight charge, and U.S. port warehousing. This invoice also identifies adjustments made to reflect the cost of sea freight and port charges based on the actual rather than the estimated weight of the shipment. In addition to these charges, the freight invoice for Entry No. [ ] included additional charges for labor overtime and courier fees.

Post-importation Worksheet. This document describes charges for post-importation services and equipment provided by the Importer, Foreign Manufacturer, and unrelated third parties.

Invoices and accounting records for post-importation services and equipment. These documents describe the services and equipment provided by related and unrelated parties including the installation and commissioning of the subject merchandise and related equipment, rigging, project management, training, and site engineering and preparation.

ISSUE:

Whether the price actually paid or payable should exclude the claimed nondutiable charges for the following charges: international freight, post-importation services, domestically-sourced materials, customs broker fees, and customs duties and taxes.

LAW AND ANALYSIS:

Merchandise imported into the United States 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 United States” plus certain enumerated additions. 19 U.S.C. 1401a(b)(1).

The “price actually paid or payable” is defined in 19 U.S.C. 1401a(b)(4)(A) 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 . . . ) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.”

Furthermore, section 1401a(b)(3) provides that:

The transaction value of imported merchandise does not include any of the following, if identified separately from the price actually paid or payable . . . :

(A) Any reasonable cost or charge that is incurred for—
the construction, erection, assembly, or maintenance of, or the technical assistant (sic) provided with respect to, the merchandise after its importation into the United States; or
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, 19 C.F.R. 152.103(i).

In HRL 546858, we stated that charges for post-importation services, international freight, customs duties and taxes, and any domestically-sourced materials should be excluded from the price. It is your position that the documentation provided fails to substantiate the Importer’s claim for the various nondutiable charges. In particular, you note that the Importer failed to provide invoices that contained a detailed description of, specification of use, and breakdown of the components as required by 19 C.F.R. 141.90(c), which provides as follows:

(c) Value. The importer shall show in clear detail on the invoice or on an attached statement the computation of all deductions from total invoice value, such as nondutiable charges, and all additions to invoice value which have been made to arrive at the aggregate entered value. In addition, the entered unit value for each article on the invoice shall be shown where it is different from the invoiced unit value.

Based on a review of the record, we find that the information provided substantiates the Importer’s claimed deductions for nondutiable charges. Regarding freight and insurance costs, the Importer provided a spreadsheet that identifies the actual international and U.S. domestic freight and insurance charges that should be deducted from the price. The charges claimed for freight and insurance correspond to actual amounts contained in the freight and insurance invoices prepared by the ocean freight company for the subject merchandise.

Furthermore, counsel properly itemized the charges for post-importation services and domestically-sourced equipment that may be deducted from the U.S. customer’s price. Because the subject merchandise was imported in multiple shipments, the Importer apportioned the deductions for these charges based on the ratio of a particular shipment to the overall contract value. The revised spreadsheets entitled “Classifications for Customs Entry Form 7501” applied the revised apportioned rate to the contract value by line item to determine the net Customs value. Counsel provided invoices to substantiate the claimed charges for post-importation services and domestically-sourced materials.

Because these NDCs were spread over several shipments we find counsel’s method of apportioning these charges based on relative value reasonable. Finally, counsel provided worksheets based on information in the commercial invoices that clearly identify the amounts for customs duties, taxes, and fees that may be deducted from the price actually paid or payable.

To illustrate the calculations to determine the net customs value for each entry we reviewed the claimed deduction of the dollar-denominated services totaling [ ] and the euro-denominated services totaling [ ] for post-importation services for Entry No. [ ] (Attachment 6). This amount includes the following payments to unrelated vendors:

Vendor Description of Service Amount

Counsel provided commercial invoices from the vendors that substantiate each of these charges (Attachment 7).

In addition, counsel claimed deductions in the amounts of [ ] and [ ] for post-importation services provided by the Importer and Foreign Manufacturer (Attachment 6). These amounts include the following payments, denominated in euros, to related parties:

Related Party Description of Service Amount

Counsel also claimed deductions for post-importation service payments, denominated in dollars, that were paid to the Importer:

Related Party Description of Service Amount

Counsel submitted internal accounting records that substantiate the claimed deductions for post-importation services provided by the Importer and Foreign Manufacturer (Attachment 7).

In order to deduct the post-importation service charges from the entered value, counsel calculated the ratio of the dollar- and euro-denominated post-importation service charges over the total contract value of the subject merchandise (Attachment 6), as follows:

Total contract value [ ]

Total contract value [ ]

These ratios were then applied to the gross customs value on each invoice to determine the amount of the post-importation service charge for each shipment. The total contract value for this entry is [ ] (Attachment 4). The ratios were then applied to the total contract value, as follows:

Counsel converted the euro charge to dollars based on the exchange rate for the date of exportation, as follows:

Counsel added the amount for the dollar-based and euro-based post-importation service charges to determine the total post-importation service charges for this shipment, [ ] + [ ] = [ ]. The charges, along with the other non-dutiable charges, were then deducted from the Gross Customs Value to determine the Net Customs Value of [ ] (Attachment 4).

Finally, counsel divided the Net Customs Value by the Gross Customs Value to derive a ratio that could be applied to each component to determine the net customs value of each line entry, as follows:

Gross Customs Value [ ]

HOLDING:

The protest should be GRANTED. A review of the documentation substantiates the importer’s claim that nondutiable charges were included in the price actually paid or payable. Therefore, these charges are properly excluded.

In accordance with Section 3A11(b) of Customs Revised Protest Directive 099 35500-065, dated August 4, 1993, you are to mail this decision, together with Customs Form 19, to the Protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries 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 make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Myles B. Harmon, Director
Commercial & Trade Facilitation Division

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