VAL CO:R:C:V 545724 RSD
District Director
New Orleans District
423 Canal Street
Room 245
New Orleans, Louisiana 70310
RE: Appraisement of test run fees or charges paid to the foreign
seller of equipment; price actually paid or payable;
Dear Madam:
This is in response to your two memoranda dated July 18, 1994,
concerning applications for further review of protest numbers
200293101960 and 200293101961 filed by Nippondenso Tennessee, Inc.
on December 16, 1993. These protests concern the appraisement of
various types of production line machinery. The importer has also
filed protests on the classification of the merchandise, but you state
that you now agree with the importer's position. You have also
forwarded a submission from the importer's Customs Broker, V.
Alexander & Co., Inc., dated October 25, 1994.
FACTS:
Nippondenso Tennessee, Inc. ("NDTN") is a manufacturer of auto
parts and imported machinery for its manufacturing and assembly lines
from Japan. The individual machinery used at NDTN's facility in
Maryvile, Tennessee was manufactured to its specifications and plans,
either in house by NTDN's parent company, Nippondenso Co. Ltd. ("NDJ") of
Kriya, Japan or out sourced to unrelated vendors in Japan.
NDTN contracted for the machinery and equipment to be
incorporated into the U.S. line by submitting a purchase order to NDJ.
NDTN was billed at the time of the order only for the price of the
machinery and no other charges were specified. It subsequently paid
that price exclusive of any other charges.
In certain instances, NDJ tested the machinery and equipment
comprising an entire assembly line beyond the basic operational testing
typically provided to a part of any given piece of equipment or
machinery. The testing involved setting up and running the assembly line
before the machinery was exported to the United States. It was
conducted pursuant to a separate and subsequent agreement. Three
months to a year after the merchandise was exported to the United
States, NDTN received a debit note informing them of the charges for
this testing.
The test run charges were based on the actual cost of running the
individual unit of machinery in tandem as part of a line. The charges
for the testing were determined in a separate agreement by its
complexity and other factors, such as the number of man hours involved
in the test run. There was no set payment schedule or time limitation
for NDTN's payment. The test run charges did not appear on any Custom
documentation, since NTDN did not believe that they were dutiable. All
charges were paid subsequent to the importation of the merchandise.
ISSUE:
Whether charges paid to the seller for testing the imported
merchandise prior to exportation was part of the price actually paid
or payable?
LAW AND ANALYSIS:
The preferred method of appraisement is transaction value which
is defined by 402(b)(1) of the Tariff Act of 1930, as amended by the
Trade Agreements Act of 1979 (TAA, 19 U.S.C. 1401a(b)) as "the
price actually paid or payable for the merchandise when sold for
exportation to the United States..." plus certain additions specified
in 402(b)(1)(A) through (E). The term "price actually paid or
payable" is defined in TAA 402(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 international
shipment of the merchandise from the country of exportation to
place of importation in the United States or to be made, for
imported merchandise by the buyer to, or for the benefit of the
seller.
Customs has considered this question regarding testing before
and has held that where the buyer makes payments to the seller for tests
performed by the seller on the merchandise before it is exported, such
payments are part of the price actually paid or payable even if they
are post production tests. See HRL 544884, April 15, 1992.
This determination follows from the analysis articulated in
Generra Sportswear Co. v. United States, 905 F.2d 377, (Fed. Cir.
1990) in which the court held that Customs construction of section
1401a(b) that transaction value may include payments by the importer
for quota charges was permissible. The court determined that it
was reasonable for Customs to conclude that the entire payment for
"imported merchandise" was within subsection 1401a(b)(4)(A), and
noted that Congress did not intend for the Custom Service to engage in
extensive fact-finding to determine whether separate charges, all
resulting in payments to the seller in connection with the purchase of
imported merchandise, are for the merchandise or for something else.
The Federal Circuit further explained:
As long as the quota payment was 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.
The focus of transaction value is the actual transaction between
the buyer and the seller, if quota payments were transferred by
the buyer to the seller, they are part of transaction value. The
transaction value may encompass items other than the pure cost of
the imported merchandise is reflected in section 1401a(b)(3),
governing exclusions from transaction value.
Likewise, in this case, the test run charges were payments made
from the buyer to the seller in connection with imported merchandise.
Acordingly, they are part of price actually paid or payable of the
imported merchandise. The importer's argument that the test run
payments should not deemed to be an assist or a proceed need not be
addressed because the payments are dutiable as part of the price
actually paid or payable. Furthermore, the payments for the test runs
are not similar to interest because the tests related directly to the
goods to ensure that they were manufactured according to
specifications, while interest relates only to cost of financing the
purchase of goods not to the goods themselves.
HOLDING:
The amount paid by the buyer to the seller for post production
tests performed by the seller on the imported merchandise are part of
the price actually paid or payable and are includable in the
transaction value of the merchandise.
You are directed to deny the protest with respect to the valuation
issue raised. Because you agree with the importer's position on the
classification of the merchandise, you are directed to grant the
protest regarding the classification issues.
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, Lexis, the Freedom of Information Act and
other public access channels.
Sincerely,
John Durant, Director
Commercial Rulings Division