VAL CO:R:C:V 545264 CRS
District Director
U.S. Customs Service
Patrick V. McNamara Building
477 Michigan Avenue
Detroit, MI 48266
RE: AFR of Protest No. 3801-2-101415; classification; valuation;
parts of a friction roller conveyor system; rate advance; value
advance; Alyeska Pipeline Service Co., v. United States; C.S.D. 83-39; dutiability of foreign assembly, testing and dismantling
charges included in the price actually paid or payable
Dear Sir:
This is in reply to your memorandum of March 8, 1993, under
cover of which you forwarded an application for further review the
above-referenced protest, filed on April 23, 1992, by Edmund
Maciorowski, counsel for protestant Kuka Schweissanlagen & Roboter
GmbH. A further submission was made on December 1, 1992.
Following a meeting with members of my staff on June 29, 1993,
protestant made an additional submission in a letter dated
September 16, 1993. We regret the delay in responding.
FACTS:
The instant protest and application for further review
concerns rate and value advances issued against three entries of
merchandise imported through the port of Detroit, Michigan. The
protested entries were part of a contract between protestant and
Ford Motor Company involving a total of thirty-five entries filed
in Detroit and Baltimore, Maryland. The merchandise imported under
the thirty-five entries comprised all the components of a complete
friction roller conveyor system designed to supply chassis parts to
passenger vehicle assembly stations. The protestant is the
importer of record.
Classification
The protest concerns only three of the thirty-five entries
that together comprise the complete friction roller conveyor system
purchased by the protestant pursuant to its contract with Ford.
The three protested entries consist of certain components that form
part of the imported friction roller conveyor system. The first
entry consists of forty-three pre-cut length electric cables with
attached fittings used as control wiring to connect junction boxes
with control cabinets. The second entry consists of conveyor
segments with friction rollers. The third entry consists of: two
transformer-receivers, rated at less than 1 kva, used to transmit
assembly data to the main assembly line; an AC gearmotor for an
elevator used in the conveyor system; a steel frame, electric
motor, pallet carrier sled, and electric switch apparatus.
The protested merchandise was entered under item 664.10, TSUS,
as parts of conveyors, or in the case of the third entry, as an
entirety forming an elevator. However, all three of the entries
were liquidated under item 678.50, TSUS, as machines not specially
provided for, and parts thereof.
Classification of the merchandise under item 653.00, TSUS,
other structures of base metal, and under item 682.05, 682.20, or
682.25, TSUS, depending on horsepower, as generators, motors or
transformers, and under item 685.90, TSUS, as electrical switches,
and under item 688.18, TSUS, as insulated electrical conductors,
and under item 692.60, TSUS, are also under consideration.
The tariff items under consideration are as follows:
653.00 . . . other structures and parts of structures, all
the foregoing of base metal: [o]ther. . . .
Goods classifiable under this provision have a general,
column one rate of duty of 5.3 percent ad valorem.
664.10 Elevators, hoists, winches, cranes, jacks, pulley,
tackle, belt conveyors, and other lifting,
handling, loading, or unloading machinery, and
conveyors, all the foregoing and parts thereof not
provided for in item 664.06, 664.07, or 664.08. . .
.
Goods classifiable under this provision have a general,
column one rate of duty of 2.0 percent ad valorem.
678.50 Machines not specially provided for, and parts
thereof . . . .
Goods classifiable under this provision have a general,
column one rate of duty of 3.7 percent ad valorem.
Generators, motors, motor-generators, converters (rotary
or static), transformers, rectifiers and rectifying
apparatus, and inductors; all the foregoing which are
electrical goods, and parts thereof. . . .
682.05 Transformers: Rated at less than 1 kva. . . .
Goods classifiable under this provision have a general,
column one rate of duty of 6.6 percent ad valorem.
682.20 Motors: Of under 1/40 horsepower: Synchronous,
valued not over $4 each . . . .
Goods classifiable under this provision have a general,
column one rate of duty of 10.0 percent ad valorem.
682.25 Motors: Of under 1/40 horsepower: Other. . . .
Goods classifiable under this provision have a general,
column one rate of duty of 6.6 percent ad valorem.
685.90 Electrical switches, relays, fuses, lightning
arresters, plugs, receptacles, lamp sockets,
terminals, terminal strips, junction boxes and
other electrical apparatus for making or breaking
electrical circuits, for the protection of
electrical circuits, or for making connection to or
in electrical circuits; switchboards (except
telephone switchboards) and control panels; all the
foregoing and parts thereof. . . .
Goods classifiable under this provision have a general,
column one rate of duty of 5.3 percent ad valorem.
688.18 Insulated (included enameled or anodized)
electrical conductors, whether or not fitted with
connectors. . .: With fittings: Other: Other . . .
Goods classifiable under this provision have a general,
column one rate of duty of 5.3 percent ad valorem.
692.60 Vehicles (including trailers), not self-propelled,
not specially provided for, and parts thereof. . .
.
Goods classifiable under this provision have a general,
column one rate of duty of 3.2 percent ad valorem.
Value
Protestant also contends that the value advance issued against
one of the three subject entries was improper in that it reflected
the value of merchandise not covered by the protested entry. The
entry in question was filed on May 23, 1988, and covered forty-three cables forming part of a conveyor loop, which itself formed
part of the overall friction roller conveyor system. Other than
the protested entries, the equipment comprising this system was
entered through the port of Baltimore.
The friction roller conveyor system was imported pursuant to
a purchase order between the protestant and Ford dated October 1,
1986. The purchase order was subsequently modified by a "purchase
order amendment" dated October 28, 1988. The price of the friction
roller conveyor system according to the original purchase order and
the amendment included the cost of engineering, assembling, testing
and dismantling work incurred in Germany in the amount of
$8,467,406 (DM 14,011,018). However, these amounts were not
reflected on the invoice value of the imported merchandise.
The commodity specialist team in Detroit requested additional
value information from the protestant via a CF 28 dated August 28,
1988. A response to the inquiry was received under cover of a
letter from counsel dated August 2, 1989, and included a tender
check for additional duty due, as calculated by protestant, in the
amount of $61,380.00. However, protestant's calculation of
appraised value, upon which was based its tender of additional
duty, did not include costs related to engineering, assembling,
testing and dismantling. Accordingly, the commodity specialist
team issued a value advance to cover these amounts which related to
the purchase order contract as a whole rather than specifically to
the merchandise covered by the subject entry. The merchandise
imported under the subject entry was appraised under transaction
value based on the price actually paid or payable plus the amount
for foreign assembly, testing and dismantling charges.
ISSUES:
The issues presented are: (1) whether the three separate
entries are classifiable as an complete friction roller conveyor
system under the TSUS? (2) whether engineering, assembling, testing
and dismantling cost are part of the price actually paid or payable
such that they are included in transaction value; and (3) whether
the merchandise was properly the subject of the value advance.
LAW AND ANALYSIS:
Classification
The protestant claims that all of the entries are classifiable
as parts of conveyors under item 664.10, TSUS, and in the case of
the third entry, as an entirety forming an elevator. General
Headnote 10(ij) states as follows: "a provision for 'parts' of an
article covers a product solely or chiefly used as a part of such
article, but does not prevail over a specific provision for such
part." Based upon General Headnote 10(ij), any part which is
specifically provided for in an item will be classified there over
a parts provision.
The first entry consists of 43 electric cables with attached
fittings used as control wiring to connect junction boxes with
control cabinets. Electric cables with fittings are specifically
provided for under item 688.18, TSUS, as other insulated electrical
conductors, fitted with connectors. Based upon General Headnote
10(ij), the electric cables for the first entry are classifiable
under item 688.18, TSUS.
However, we agree with the protestant's claim in regards to
classifying the second entry consisting of conveyor segments with
friction rollers under item 664.10, TSUS, as parts of conveyors, in
the absence of a more specific tariff classification provision.
The protestant also claimed that the third entry constituted
an entirety as an elevator. The third entry consists of: two
transformer-receivers, rated at less than 1 kva, used to transmit
assembly data to the main assembly line; an AC gearmotor for an
elevator used in the conveyor system; a steel frame, electric
motor, pallet carrier sled, and electric switch apparatus. In KMW
Johnson, Inc. v. United States, 13 CIT 1079, 1082 (1989), the court
defined the doctrine of "entireties" by stating that:
if there are imported in one importation separate
entities, which by their nature are obviously intended to
be used as a unit, or to be joined together by mere
assembly, and in such use or joining the individual
identities of the separate entities are subordinated to
the identity of the combined entity, duty will be imposed
upon the entity they represent." [citations omitted]
In United States v. Baldt Anchor, Chain & Forge Division of
Boston Metals Co., 59 CCPA 122, C.A.D. 1051, 429 F.2d 1403 (1972),
and Franklin Industries, Inc. v. United States, 1 CIT 349, Slip Op.
81-55 (1981), the courts have held that to enjoy classification
under a single tariff item number all components necessary to the
completion of a particular article must be imported in the same
shipment. In order to constitute an entirety as an elevator, guide
rails and connectors are also needed with the items of the third
entry. Because these items were not imported with the third entry,
it cannot be classified as an entirety. Therefore, each of the
subject items must be separately classified.
In C.I.E. 1925/65 [abstracted as TD 56502(46)], it was
determined that gearmotors which consist of an electric motor with
an enclosed speed reducing gear system built as an integral unit,
are more than a motor and are therefore classified under item
678.50, TSUS, as machines not specially provided for elsewhere.
Based upon the above decision, we find that the gearmotor in the
third entry is classified under item 678.50, TSUS.
The 2 transformer-receivers, rated at less than 1 kva, are
specifically provided for in item 682.05, TSUS. The electric
motors in the third entry are specifically provided for under items
682.20 through 682.50, TSUS, depending on its horsepower. The
electrical switching apparatus are specifically provided for in
item 685.90, TSUS.
Schedule 6, Part 4 headnote 1(v) provides as follows: "This
part does not cover articles and parts of articles specifically
provided for elsewhere in the schedules." The steel frame is
provided for in Schedule 6, Part 3 under item 653.00, TSUS, as
other steel structures.
Applying General Headnote 10(ij) to the pallet carrier sled,
we find that it is classifiable in item 664.10, TSUS, as conveyor
parts, in the absence of a more specific tariff classification
provision.
Value
Merchandise imported into the United States is appraised in
accordance with section 402 of the Tariff Act of 1930, as amended
by the Trade Agreements Act of 1979 (19 U.S.C. 1401a; TAA). The
preferred method of appraisement under the TAA is transaction value
defined as "the price actually paid or payable for imported
merchandise when sold for exportation to the United States." 19
U.S.C. 1401a(b)(1).
Pursuant to section 402(b)(4) of the TAA the term "price
actually paid or payable" is defined as "the total payment (whether
direct or indirect...) made, or to be made, for imported
merchandise by the buyer to, or for the benefit of, the seller. 19
U.S.C. 1401a(b)(4). The Court of International Trade has held
that so long as a payment is made "to the seller in exchange for
merchandise sold for export to the United States, the payment
properly may be included in transaction value, even if the payment
represents something other than the per se value of the goods."
Generra Sportswear Company v. United States, 905 F.2d 377, 380 (Ct.
Int'l Trade 1990).
In the instant case the payments made by the buyer, Ford Motor
Company, to the seller, the protestant, included amounts for
engineering, assembling, testing and dismantling. These amounts
were part of the purchase order price for the entire friction
roller conveyor system. Accordingly, under Generra they are part
of the price actually paid or payable for the imported merchandise.
Nevertheless, counsel for protestant maintains that value
advance was improper to the extent that it reflected the value of
merchandise not covered by the protested entry. In support of this
position counsel cites Alyeska Pipeline Service Co., v. United
States, 10 CIT 510 (1986), 643 F.Supp.1128, reh'g granted, 11 CIT
931 (1987), 683 F.Supp. 817. In that case, Customs advanced the
value of a single entry to cover value advances relating to twenty-three other entries, including two which were not before the court.
Judge Watson stated:
The law does not permit the Customs Service to
assign to one entry the values of merchandise in other
entries or the duties owing on them. 19 U.S.C. 1500
provides for separate, unitary appraisement . . . .
It follows that the only proper value increase for
the entry in question would be one reflecting the value
of the merchandise covered by that entry and no other
merchandise.
Alyeska Pipeline, 10 CIT 510, 516. See also C.S.D. 83-39, 17 Cust.
B. & Dec. 794 (1983).
The facts in the instant case are similar to those in Alyeska
Pipeline in that one entry was advanced in value in order to
reflect a value increase in regard to merchandise imported under
other entries, i.e., the thirty-five entries that comprised the
complete friction roller conveyor system. It is therefore our
position that the value advance was improper to the extent that it
related to merchandise other than that covered by the entry that
was value advanced. Nevertheless, payments can be apportioned.
Chrysler Corporation v. United States, No. 88-03-00249, slip op. at
18 (Ct. Int'l Trade Sept. 22, 1993). However, the method of
apportionment must be reasonable and in accordance with generally
accepted accounting principles. In the instant case, that part of
the payments at issue (DM 14,011,018) that relates to the protested
merchandise should be apportioned over the entry in question.
HOLDING:
The protest should be allowed in part and denied in part in
conformity with foregoing. The payments at issue, totaling
$8,467,406 (DM 14,011,018), should be apportioned over the entry
that was advanced in value to the extent that they relate thereto.
The merchandise should be classified in the respective
provisions as more fully described above. Because reclassification
of the merchandise as indicated above would result in no net duty
reduction, you should deny the protest in full in regard to
classification issues.
In accordance with Section 3A(11)(b) of Customs Directive 099
3550-065, dated August 4, 1993, this decision, together with the
Customs Form 19, should be mailed by your office to the protestant
no later than sixty 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, Freedom of Information Act and other
public access channels.
Sincerely,
John Durant, Director
Commercial Rulings Division