VAL CO:R:C:V 545187 LPF
District Director
U.S. Customs Service
P.O. Box 619050
1205 Royal Lane
Dallas/Fort Worth Airport
Dallas, TX 75261-0950
RE: Application for Further Review of Protest No. 5501-91- 100633; Deductive
Value; 19 U.S.C. 1401a(d)
Dear Sir:
This is a decision on an application for further review of a protest filed December 11,
1991, against your decision concerning the appraisement of wedding gowns. The entries were
liquidated on September 13, 1991. We regret the delay in responding.
FACTS:
The merchandise at issue was imported from Thailand by St. Pucchi, Inc. of Dallas, TX
between February and December, 1990. The importer shows and sells silk and polyester wedding
gowns designed and manufactured in Thailand by P. Rana Enterprises (P. Rana). U.S. purchasers
include bridal salons and speciality stores with the ultimate user selecting style, color, and
accoutrements before the gown is manufactured. Because majority ownership in both St. Pucchi
and P. Rana is vested with one individual, all concerned parties agree that the importer and
manufacturer are related pursuant to section 402(g) of the Tariff Act of 1930, as amended by the
Trade Agreements Act of 1979 (TAA), codified at 19 U.S.C. 1401a.
You submit that no funds are exchanged between St. Pucchi and P. Rana for specific
invoice amounts. Merchandise orders are placed with St. Pucchi by the U.S. purchasers, usually
by phone or buyer's purchase order. Order information is faxed daily to the manufacturer who
then makes the gown for exportation from Thailand. Finished wedding dresses are received by St.
Pucchi, examined, pressed, and shipped to the U.S. purchaser within five days. No inventory
stock is retained at the St. Pucchi store.
You further explain that company employees have stated to Regulatory Audit that they have no
authority or autonomy in the buying, pricing, or selling of the imported merchandise. In addition,
none of the St. Pucchi employees have the authority to write checks on the corporate account and
no credit was extended to U.S. purchasers without prior approval of the owner. Customer
complaints about quality or style of the dresses are referred to the manufacturer for resolution.
Based on counsel's letter dated April 29, 1994, and on our discussions with the cognizant
import specialist, it is our understanding that the concerned parties agree that deductive value,
pursuant to section 402(d) of the TAA, is the appropriate method of appraisement. You reduced
the price of the merchandise by an amount reflecting transportation and insurance costs as well as
customs duties in accordance with section 402(d)(3)(A)(ii), (iii), and (iv). Although, in
accordance with section 402(d)(3)(A)(i), you also reduced the price by the majority of St.
Pucchi's general expenses designated as "operating expenses," as well as for depreciation and
certain supply costs, the protestant submits that the price should be reduced by all such operating
expenses. The general expenses at issue as reflected in the Income Statement are as follows:
Expense Determination by District
Salaries & Wages portion allotted to (Employees) salesperson not deductible
Rent portion allotted for trade shows
not deductible
Taxes (Payroll) portion allotted to
salesperson not deductible
Travel entire amount not deductible
Advertising entire amount not deductible
Automotive Expense entire amount not deductible
Contract Services entire amount not deductible
ISSUE:
Whether, under deductive value, the expenses at issue properly are deducted from the
sales price of the merchandise.
LAW AND ANALYSIS:
Sections 402(a) through (f) of the TAA provide the hierarchy of methods used when
appraising imported merchandise. By agreement of the parties, the method of appraisement,
deductive value, is not at issue. Hence, we will confine our analysis to whether the appropriate
deductions were taken from the sales price of the merchandise.
When utilizing deductive value, merchandise is appraised based on the price at which it is
sold in the U.S. in the greatest aggregate quantity at or about the time of importation. Provided
the merchandise is not further processed, the unit price at which imported merchandise is sold in
the greatest aggregate quantity means the unit price at which it is sold to unrelated persons at the
first commercial level after importation. Section 402(d)(2)(B) of the TAA.
The price determined under section 402(d) is to be reduced by an amount equal to the
following:
(i) any commission usually paid or agreed to be paid,
or the addition usually made for profit and general
expenses, in connection with sales in the United States
of imported merchandise that is of the same class or
kind, regardless of the country of exportation, as the
merchandise concerned;
ii) the actual costs and associated costs of transportation
and insurance incurred with respect to international
shipments of the merchandise concerned from the country of
exportation to the United States;
iii) the usual costs and associated costs of transportation
and insurance incurred with respect to shipments of such
merchandise from the place of importation to the place of
delivery in the United States, if such costs are not
included as a general expense under clause (i);
iv) the customs duties and other Federal taxes currently
payable on the merchandise concerned 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....
Section 402(d)(3)(A)(i)-(iv). The deduction for profit and general expenses, to be taken as a
whole, shall be based on the importer's profits and general expenses, unless these are inconsistent
with those reflected in sales in the U.S. of imported merchandise of the same class or kind.
Section 402(d)(3)(B)(i); section 152.105(e)(1), Customs Regulations (19 CFR 152.105(e)(1).
The concerned parties agree with the reductions made to the price of the merchandise for
transportation and insurance costs as well as customs duties in accordance with section
402(d)(3)(A)(ii), (iii), and (iv). However, pursuant to section 402(d)(3)(A)(i), the protestant
submits that the price should be further reduced by the entire amount designated as "operating
expenses" in St. Pucchi's Income Statement.
In the instant case, it is our understanding that St. Pucchi's general expenses are consistent
with those reflected in sales in the U.S. of imported merchandise of the same class or kind. In
particular, based on the representations of the concerned parties, we presume that the expenses at
issue pertain only to the sale of the merchandise at the first commercial level after importation,
that is to bridal salons and speciality stores, as opposed to sales at other levels, that is to the
individual bride-consumer. To this extent, the expenses designated on St. Pucchi's Income
Statement as salaries and wages, rent, taxes, travel, advertising, automotive expense, and contract
services are deductible as "general expenses" from the unit price at which the merchandise is sold
to the unrelated U.S. purchasers.
Section 402(d)(3)(A)(i) only permits deductions for commissions or general expenses. In
our opinion, the salaries and wages attributable to salespeople do not represent commissions,
because a commission, unless shown otherwise, generally is a percentage of the money received
from the total paid to the agent responsible for the business. See Webster's Ninth New Collegiate
Dictionary, 265 (1990). However, these figures would be an element of "usual general expenses."
HOLDING:
The amounts designated in this protest as salaries and wages, rent, taxes, travel,
advertising, automotive expense, and contract services are, consistent with that provided above,
fully deductible as "general expenses" from the unit price at which the merchandise is sold to the
unrelated U.S. purchasers. You are directed to grant the protest in accordance with the
foregoing. A copy of this decision with the Form 19 should be sent to the protestant.
In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August
4, 1993, Subject: Revised Protest Directive, this decision 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 of 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 to the
public via the Diskette Subscription Service, the Freedom of Information Act and other public
access channels.
Sincerely,
John Durant, Director
Commercial Rulings Division