VAL RR:IT:VA 546231 LPF
Port Director
U.S. Customs Service
P.O. Box 3130
Laredo, TX 78044
RE: Internal Advice concerning applicability of transaction value
and reduction of current duty liability to account for prior
overpayments; Related party transactions; HRLs 545618, 545242,
545578
Dear Director:
This is in response to your memorandum dated December 12,
1995, requesting internal advice on behalf of [********]
(importer). Your inquiry concerns the appropriate method of
appraisement of frozen broccoli/cauliflower and mushrooms in jars
as well the importer's request to reduce its current duty
liability to account for prior overpayments on assists. In
accordance with our letter to counsel dated January 8, 1997, we
have granted confidential treatment to the names and addresses of
the parties to the transaction as well as specific pricing
figures contained on the submitted invoices. The bracketed
portion of this ruling will be excised from the public version.
On September 4, 1996, our office met with the importer and
counsel concerning the matter. We regret the delay in
responding.
FACTS:
The importer d.b.a. [********] imports frozen
broccoli/cauliflower and mushrooms in jars from its wholly-owned
Mexican subsidiaries, [********] (exporter A) and [********].
You explain that your office had been appraising the
importations based on transaction value, in accordance with
section 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.
You state that invoices submitted to your office reflect
transfer, or estimated, prices based on an "export invoice
pricing policy" including direct costs, fixed costs, interest
expense, foreign exchange financing gains and losses, and up to
five percent maquila profit. Amounts would be pre-paid to the
Mexican operation based on the product shipped and the transfer
price reflected on the commercial invoice. The transfer prices
vary as actual costs are computed and actual shipping volume is
produced. Exporter A adjusts its prices on a quarterly basis and
submits them to the importer with final calculations of total
value and costs computed at the close of the accounting period.
At that point, the importer presents to Customs a final valuation
summary. The summary includes actual production costs, values
declared, pricing sheets, statement of earnings, declaration of
assists and duties due.
Counsel has explained that the prices set by the Mexican
exporters for the various product lines fluctuate. The various
prices are added together and an average price is obtained. The
valuation summary reflects the total shipments of the particular
line and the average price of the product. Because assists
provided to the Mexican exporters are carried on the U.S. books
and not reflected on the invoices presented to Customs, amounts
for duties due on the assists have been tendered to Customs along
with the valuation summary, as previously agreed with your
office.
In December, 1994 the importer informed your office that due
to an accounting error on the exporter's part, the values
declared on all the 1993 invoices had been overstated. You
explain that the applicable entries had been liquidated beyond
ninety days. Nevertheless, in early 1995, the importer requested
that Customs offset the duty overpayment for its 1993 entries
against the outstanding amount due for the assists declared in
the 1993 valuation summary and to credit the remaining difference
in the overpayment to amounts owed based on the 1994 valuation
summary. Counsel provides that in the present matter, the
importer does not seek to "offset" the duty liability of one
period with overpayments from another period, but rather is
concerned with total liability for the same entries. However,
counsel submits that because reconciliations are based on
arbitrarily determined time frames, principles of equity and
fairness dictate that Customs "credit" the importer's future
entries for the amount of its alleged overpayment.
Furthermore, in early 1995, counsel filed a prior disclosure
advising that the manner in which payments were made from the
importer to exporter A no longer was on an invoice to invoice
basis as previously communicated to Customs. Counsel explained
that although the importer historically had effected payment by
wire transfers to exporter A to cover specific consumption
entries, over the past few years the importer had been making
monthly transfers in response to the exporter's requests for
funds to cover monthly operating expenses and not to cover
specific consumption entries. The wire cash transfers would be
reconciled on a monthly and calendar-year basis against the value
of the shipments represented by the consumption entries.
In response to Customs' requests for proof of payment
concerning two 1993 entries, the importer presented copies of its
internal/accounting records (including wire transfers) indicating
that the amounts transferred from the importer to exporter A in
1993 were consistent with the value for exporter A's 1993
shipments, as reflected in the 1993 valuation summary. As
requested, counsel also has submitted documentation including
journal registers, invoices, proof of payment, and lists of
suppliers indicating that the Mexican operations purchase the
seeds, fertilizers, insecticides, etc. and, therefore, that the
products do not constitute assists. Additionally, counsel
responded to your request that the importer reconcile the 1993
figures shown on the valuation summary against the entry
summaries.
ISSUE:
Whether transaction value is the appropriate method of
appraisement and whether Customs has the legal authority to
reduce an importer's previous or current duty liability to
account for prior overpayments which neither were petitioned nor
protested by the importer or has the authority to collect
additional amounts on such entries.
LAW AND ANALYSIS:
1. Appraisement under Transaction Value
The preferred method of appraising merchandise imported into
the United States is transaction value pursuant to section 402(b)
of the TAA. Section 402(b)(1) of the TAA provides, in pertinent
part, that the transaction value of imported merchandise is the
"price actually paid or payable for the merchandise when sold for
exportation to the United States" plus amounts for the enumerated
statutory additions. The term "price actually paid or payable,"
is defined in section 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...) made, or to be made, for the imported merchandise
by the buyer to, or for the benefit of, the seller."
Consistent with these definitions, the price actually paid or
payable must exist at the time merchandise is sold for
exportation to the United States. Specifically, section
152.103(a)(1), Customs Regulations (19 CFR 152.103(a)(1))
provides that:
In determining transaction value, the price actually
paid or payable will be considered without regard to
its method of derivation. It may be the result of
discounts, increases, or negotiations, or may be
arrived at by the application of a formula, such as
the price in effect on the date of export in the
London Commodity Market. The word "payable" refers to
a situation in which the price has been agreed upon,
but actual payment has not been made at the time of
importation....
In several decisions, Customs has provided that if the price
of the merchandise is not "fixed" at the time of exportation,
transaction value will not be found to exist. This was the case,
for instance, in HRL 545242, issued April 16, 1995, where the
price for the goods was arrived at pursuant to a methodology that
included an initial lump sum subject to adjustments. Because the
parties exercised control over adjustments to the price in
response to changing competitive pricing conditions, the pricing
methodology was not considered a "formula" within the meaning of
19 CFR 152.103(a)(1). Transaction value, therefore, was
eliminated as a basis of appraisement. See HRL 545618, issued
August 23, 1996, citing HRL 545242.
The instant case raises similar concerns because: 1) the
importer effects payments via lump sum monthly transfers in
response to the exporter's request for funds, without regard to
specific entries and 2) an aggregate average price, as opposed to
an entry specific price, is derived from the prices set by the
Mexican exporters which fluctuate based on actual costs and
shipping volume. Therefore, although such aggregate amounts are
reconciled against the entry summaries on a yearly basis, it is
not evident that the parties' export invoice pricing policy
represents a formula nor results in a fixed price for the
merchandise.
Furthermore, such a pricing methodology indicates that, in
any event, the transaction value between the related parties
would not be acceptable in accordance with 402(b)(2)(B). In
this case, evidence has not been provided concerning the
circumstances of sale between the related parties which would
indicate that their relationship did not influence the price
actually paid or payable nor that the transaction value closely
approximated certain test values. For these reasons, the
imported goods cannot be appraised on the basis of transaction
value and it would be appropriate to consider, in sequential
order, the alternate bases of appraisement: transaction value of
identical or similar merchandise (402(c)), deductive value
(402(d)), computed value (402(e)), and the "fallback" method
(402(f)). From the information and documentation submitted and
representations made by counsel as well as your office, it would
appear that resort to computed value would be necessary and
appropriate.
2. Reduction of Duty Liability
19 U.S.C. 1514 explains, in pertinent part, that the legality
of all orders and findings regarding the appraised value of
merchandise and the liquidation or reliquidation of an entry, or
modification thereof, is final and conclusive unless a protest is
filed within ninety days after notice of liquidation or
reliquidation.
In addition, 19 U.S.C. 1520 states that, "the Secretary of
the Treasury is authorized to refund duties . . . whenever it is
ascertained on liquidation or reliquidation of an entry that more
money has been deposited or paid as duties than was required by
law to be so deposited or paid . . . ."
However, with regard to reliquidation of an entry, section
1520 adds that, ". . . the appropriate customs officer may . . .
reliquidate an entry to correct . . . a clerical error, mistake
of fact, or other inadvertence not amounting to an error in the
construction of a law, adverse to the importer and manifest from
the record or established by documentary evidence . . . brought
to the attention of the appropriate customs officer within one
year after the date of liquidation or exaction. . . ."
It is our understanding that all the concerned parties agree
that over ninety days passed since notice of liquidation of the
1993 entries, and the importer did not file a protest within that
time. Accordingly, pursuant to section 1514, the liquidation of
the merchandise entered between 1993 is deemed final and
conclusive. Additionally, no evidence has been presented
indicating that at any time the importer brought a claim before
the port director for reliquidation due to clerical error,
mistake of fact, or other inadvertence under 19 U.S.C. 1520.
Moreover, even if a 520 claim had been appropriately raised, a
determination as to whether it amounted to an error in the
construction of a law still would be warranted.
Hence, Customs is without legal authority to reduce the
importer's duty liability by offsetting the importer's alleged
1993 overpayments against amounts which previously were, or
currently are, due for the 1993 and 1994 entries. See HRL
545578, issued September 13, 1994. This holds true regardless as
to whether such amounts, as provided by counsel, could be deemed
"credited" to the importer's future entries insofar as they
concern the liability for the same entries.
Support for this position is derived from the case of United
States v. Snuggles, Inc., Slip. Op. 96-141 (Ct. Int'l Trade,
decided August 20, 1996) concerning a request to offset
overpayments and underpayments within a single entry. The
Snuggles court reasoned that insofar as the defendant did not
file a protest requesting a correction of its overpayments and
failed to take the requisite steps to secure a correction,
Customs' decisions concerning value, classification, rate, and
amount must stand as final and conclusive with regard to those
importations.
Furthermore, Customs is without recourse under 19 U.S.C.
1501, providing for voluntary reliquidation, to collect
additional amounts allegedly owed for assists provided in
connection with the 1993 entries. We have no indication that
Customs effected a voluntary reliquidation within ninety days
from notice of liquidation to the importer. However, we note
that the issue as to whether Customs may require that such duties
be restored as a result of a 19 U.S.C. 1592 violation is beyond
the scope of this decision.
HOLDING:
Based on the evidence provided, appraisement cannot be based
on transaction value, but appropriately is based on an
alternative method such as computed value. Further, in
accordance with 19 U.S.C. 1514, Customs is without legal
authority to reduce the importer's 1993 overpayments against
amounts which previously were, or currently are, due either for
the 1993 entries only, or the 1993 and 1994 entries alike.
Customs likewise is without recourse, under 19 U.S.C. 1501, to
collect amounts allegedly owed for assists provided in connection
with the 1993 entries.
This decision should be mailed by your office to the internal
advice requester no later than sixty days from the date of this
letter. On that date 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
Division