RR:IT:VA 545878 KCC
Port Director
U.S. Customs Service
10 Causeway Street, Room 63
Boston, Massachusetts 02222-1059
RE: Application for Further Review of Protest 0401-94-100369;
transaction value; Nissho Iwai; Synergy; clearly destined
for the United States; 402(b)(2)(B); related parties;
transfer price; circumstances of sales; HRL 545087; test
value; HRL's 543568, 545481, 545960, and 546052; 402(c);
transaction value of identical merchandise; commercial
level; lowest price; 402(c)(2); 152.104(d) and (e);
deductive value
Dear Port Director:
This is in regard to the Application for Further Review of
Protest 0401-94-100369 concerning various entries of heaters,
humidifiers and fans imported by Duracraft Corp. ("Duracraft")
appraised pursuant to transaction value of identical merchandise,
402(c) of the Tariff Act of 1930, as amended by the Trade
Agreements Act of 1979 ("TAA"), codified at 19 U.S.C. 1401a(c).
Additional comments submitted by counsel on December 15, 1995,
and February 29, 1996, and at a meeting on January 24, 1996, were
taken into consideration in rendering this decision. We regret
the delay in responding.
FACTS:
Duracraft Corp. ("Duracraft") develops, markets and
manufactures in the United States, Hong Kong, Taiwan, Thailand
and China consumer household products, such as humidifiers,
heaters and fans, primarily sold under the DuracraftR Tradename.
In China, Taiwan, Thailand and Hong Kong Duracraft products are
manufactured by independent manufacturers. The independent
manufactured products are invoiced to Duracraft by its wholly-owned foreign subsidiaries, Duracraft Hongkong Ltd. ("Duracraft
Hongkong") located in Hongkong, and Comfort Zone Ltd. ("Comfort
Zone") located in Thailand. Duracraft provides the independent
manufacturers with molds and dies for use in their production of
Duracraft products. Additionally, the invoice price of the
independent manufactured Duracraft products between Duracraft
Hongkong/Comfort Zone and Duracraft is higher that the invoice
price between the independent manufacturers and Duracraft
Hongkong/Comfort Zone. Additionally, Duracraft products are
manufactured in China at a production facility operated by
Duracraft Hongkong. These products are invoiced to Duracraft.
The products imported by Duracraft that are the subject of this
protest are those produced by the independent manufacturers which
are invoiced through Duracraft Hongkong/Comfort Zone, as well as
those which are produced by Duracraft Hongkong's China facility
and invoiced to Duracraft. In each case, Duracraft is the
importer.
Duracraft's products are sold throughout the United States
in all major retail channels of distribution such as, mass
merchants, home centers, drugstore chains, hardware chains,
catalog showrooms and major discount department stores.
Duracraft offers its major retail customers the opportunity to
purchase products FOB Far East in which case Duracraft Hongkong
or Comfort Zone would invoice the customer and receive payment.
Products purchased directly from Duracraft Hongkong/Comfort Zone
by unrelated U.S. buyers are invoiced at a price higher than
products purchased by Duracraft from Duracraft Hongkong/Comfort
Zone. Duracraft contends that the unrelated U.S. buyers higher
price is due to the fact that Duracraft assumes customer support,
advertising, sales solicitations and right of return obligations
in the same manner as if the customer purchased the product from
Duracraft's United States distribution centers.
For products manufactured by independent manufacturers, it
is your position that the basis of appraisement is transaction
value of identical merchandise pursuant to 402(c) of the TAA.
You state that no evidence was submitted to establish that the
sale from the independent manufacturers to Duracraft
Hongkong/Comfort Zone were bona fide sales for exportation to the
U.S. Additionally, you state Duracraft has failed to
substantiate that the related party sale is acceptable under
either the circumstances of sale or the test value approach.
Moreover, for products manufactured by Duracraft Hongkong's China
facility, you appraised the merchandise under transaction value
of identical merchandise pursuant to 402(c) of the TAA. For
both the independent manufactured products and Duracraft
Hongkong's China facility products, you contend that the
circumstances of the sale indicate that the relationship between
the related parties influenced the price, because sales to
unrelated U.S. buyers are at a higher price. Citing Headquarters
Ruling Letter (HRL) 543568 dated May 30, 1986, it is also your
position that Duracraft's proposed deductive test value is
unacceptable because it is not a test value previously accepted
by Customs. Thus, you appraised all of Duracraft's importations
under transaction value of identical merchandise at the same
commercial level pursuant to 402(c) of the TAA, on the basis of
the invoice price between Duracraft Hongkong/Comfort Zone and
unrelated U.S. buyers of identical merchandise.
Duracraft claims that, for the independent manufactured
products invoiced through Duracraft Hongkong/Comfort Zone, the
transaction between the independent manufacturers and Duracraft
Hongkong/Comfort Zone is the basis for determining the price
actually paid or payable. Thus they argue, these transactions
should be appraised on the basis of the price paid the
independent manufacturer plus additions, where applicable, for
production assists. Citing Nissho Iwai American Corp. v. United
States, 16 C.I.T. 86, 786 F. Supp. 1002, reversed in part, 982
F.2d 505 (1992), and Synergy Sport International, Ltd. v. United
States, Slip Op. 93-5 (CIT Jan 12, 1993), Duracraft states that
the sale of these products were negotiated at arm's length, free
from any nonmarket influences, and involving goods clearly
destined for the United States. Duracraft submitted invoices
from independent manufacturers relating to the entries at issue
and a worksheet identifying the transactions and applicable
assists.
For Duracraft Hongkong manufactured products, Duracraft
states that the invoice price between Duracraft Hongkong and
Duracraft is an acceptable transfer price for transaction value.
Additionally, with regard to the independent manufactured
products, if Customs decides that the transaction between
Duracraft Hongkong/Comfort Zone and Duracraft determines the
price actually paid or payable, then Duracraft claims that the
Duracraft Hongkong/Comfort Zone and Duracraft invoice price is
also an acceptable transfer price for transaction value.
Duracraft contends that an examination of the circumstances of
the sale of the imported merchandise indicates that the
relationship between Duracraft Hongkong/Comfort Zone and
Duracraft did not influence the price actually paid or payable.
Duracraft submits that the difference between the price that
Duracraft Hongkong/Comfort Zone sell to unrelated U.S. buyers and
the price at which the identical products are sold to Duracraft
is due to the different levels of commercial sale and due to the
fact that Duracraft performs activities which benefit the
unrelated buyer sales. Duracraft states that these activities
include:
1. Service obligations such as marketing support,
warranties etc.;
2. Payment of commissions to independent sales
representatives on sales by the related party
subsidiaries to unrelated buyers;
3. Support of the "right to return program" which allows
Duracraft retail customers to return unsold inventory
at the end of the season; and
4. Cooperative advertising, product liability insurance,
logistics, etc.
For these services, Duracraft states that Duracraft
Hongkong/Comfort Zone pay Duracraft a commission on their sales
to unrelated U.S. buyers. However, no evidence of a commission,
i.e., written agreement, invoices, etc., is available. Duracraft
records the commissions as non-operating income and reduces its
intercompany payable account balance with Duracraft Hongkong.
Duracraft submits that for 1993, the year in which the majority
of entries under protest were made, the commission represented 8%
of Duracraft Hongkong/Comfort Zone gross sales to unrelated U.S.
buyers. Duracraft states that for Duracraft Hongkong
manufactured products in many instances the price differential
between the related party invoice and the unrelated party invoice
approximates the commission percentage of 8%. Duracraft did not
perform this price differential analysis on the independent
manufactured products which are invoiced through Duracraft
Hongkong/Comfort Zone. Thus, citing HRL 545087 dated December 7,
1993, Duracraft contends that the transfer price between the
related parties is acceptable for transaction value.
Additionally, Duracraft states that Duracraft Hongkong and
Duracraft negotiate prices in a manner consistent with industry
practices and calculated to ensure recovery of all costs plus a
reasonable profit. To support this contention, Duracraft
submitted audited financial statement from Duracraft Hongkong to
show that Duracraft Hongkong establishes its prices at an amount
adequate to ensure recovery of all costs plus a profit reasonable
and representative of the industry. Furthermore, Duracraft
contends that an examination of the deductive test value
indicates that the test value closely approximates the related
party invoice price. Duracraft submitted deductive value
calculations for our review. In either situation, Duracraft
contends that the related parties relationship did not influence
the price actually paid or payable and, thus, transaction value
is the appropriate method of appraisement.
If Customs determines that transaction value of identical
merchandise is the proper method of appraisement, Duracraft
contends that an allowance should be made to reflect the fact
that unrelated U.S. buyers acquire the products at the retail
level, whereas Duracraft sources its product at the wholesale
level. Duracraft submitted a discussion of the difference in a
sale to a retailer versus a wholesaler by Dr. Bruce Pearlstein,
Director -Transfer Pricing and Economic Analysis of an audit
firm. Duracraft submits that the transaction value of the
identical merchandise should be reduced by 10.62% to reflect the
price at the same commercial level as the related party sales for
sales in 1993. Duracraft states that the 10.62% reflects the
percentage of Duracraft's costs in the United States associated
to the Duracraft Hongkong/Comfort Zone sales to unrelated U.S.
buyers. Duracraft's costs are for returns and allowances,
selling costs (commissions to sales representatives and other
selling costs), marketing costs, customer service costs, warranty
costs and general and administrative costs (product liability,
consumer liability, operation department/payroll). Additionally,
Duracraft claims that the prices selected as the transaction
value of identical merchandise were not the lowest values as
required by 402(c)(2) of the TAA. In support of this claim,
Duracraft submitted a worksheet and invoices to establish, where
appropriate, the lower price for various entered models than
Customs appraised value.
Additionally, due to unique engineering and design
requirements, Duracraft mandates that the independent
manufacturers of certain air cleaners and heaters utilize filters
and thermostats which are fully fabricated in the United States.
Duracraft did not claim the duty exemption available under
subheading 9802.00.80, Harmonized Tariff Schedule of the United
States (HTSUS), until it protested the subject entries. You
state that claim for subheading 9802.00.80, HTSUS, treatment for
the U.S. filters and thermostats has been supported by Duracraft
submitted manufacturers affidavits. Duracraft is to submit
assembler's declarations. Once these declarations arrive, your
office will review them for acceptability and determine whether
the products meet the requirements of subheading 9802.00.80,
HTSUS.
Moreover, Duracraft contests the appraisement of its air
cleaner, Model MX-83132 under 402(c) of the TAA. Duracraft
states that Model MX-83123 was and is not sold by Duracraft
Hongkong/Comfort Zone to any retailer customer; the only customer
is Duracraft. Thus, Duracraft states that there can be no
transaction value of identical merchandise. Moreover, Duracraft
states that transaction value of similar merchandise is
inappropriate because Model MX-83123 is not similar to any other
Duracraft products as the air cleaner is not commercially
interchangeable with nor does it possess the characteristics of
the fans, heaters and humidifiers which Duracraft markets and
sells.
ISSUE:
1. Whether the price between the independent manufacturers and
Duracraft Hongkong/Comfort Zone represents an acceptable
transaction value for the independent manufactured products.
2. Whether one of the tests for the acceptability of
transaction value in the related party transaction has been
met.
3. If transaction value pursuant to 402(b) of the TAA is
unacceptable, should Duracraft's imported merchandise be
appraised pursuant to 402(c) of the TAA with adjustments
for commercial level and, where appropriate, the lower
value?
4. What is the method of appraisement for Duracraft's air
cleaner, Model MX-83123?
LAW AND ANALYSIS:
The preferred method of appraising merchandise imported into
the United States is transaction value pursuant to 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. 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 certain enumerated additions specified in
402(b)(1) of the TAA.
1. Independent Manufactured Products
For transactions concerning independent manufactured
products, Duracraft contends that a three-tiered distribution
situation involving a U.S. purchaser (Duracraft), middleman
(Duracraft Hongkong/Comfort Zone), and primary-level seller (the
independent manufacturers) is in place. Thus, Duracraft reasons
that two sales take place, one between the independent
manufacturers and Duracraft Hongkong/Comfort Zone and the other
between Duracraft Hongkong/Comfort Zone and Duracraft. Duracraft
maintains that the bona fide sale for exportation takes place
between the independent manufacturers and Duracraft
Hongkong/Comfort Zone.
In Nissho Iwai American Corp. v. United States, 16 C.I.T.
86, 786 F. Supp. 1002, reversed in part, 982 F.2d 505 (1992),
and Synergy Sport International, Ltd. v. United States, Slip Op.
93-5 (CIT Jan 12, 1993), the U.S. Court of Appeals for the
Federal Circuit and the Court of International Trade,
respectively, addressed the proper dutiable value of merchandise
imported pursuant to a three-tiered distribution arrangement
involving a foreign manufacturer, a middleman and a United States
purchaser. In both cases, the middleman was the importer of
record. In each case, the court held that the price paid by the
middleman/importer to the manufacturer was the proper basis for
transaction value. Each court further stated that in order for a
transaction to be viable under the valuation statute, it must be
a sale negotiated at arm's length, free from any nonmarket
influences, and involving goods clearly destined for the United
States.
We note that in the context of filing an entry, Customs Form
(CF) 7501, an importer is required to make a value declaration.
As indicted by the language of CF 7501 and the language of the
valuation statute, there is a presumption that transaction value
is based on the price paid by the importer. In accordance with
the Nissho Iwai and Synergy decisions and our own precedent, we
presume that transaction value is based on the price paid by the
importer. See, HRL 545144 dated January 19, 1994, HRL 545271
dated March 4, 1994, HRL 545360 dated May 31, 1994, and HRL
545648 (IA 10/94) dated August 31, 1994. In further keeping with
the courts' holdings, we note that in those situations where an
importer requests appraisement based on the price paid by the
middleman to the foreign manufacturer (and the importer is not
the middleman), the importer may do so. However, it will be the
importer's responsibility to show that such price is acceptable
under the standard set forth in Nissho Iwai and Synergy. That
is, the importer must present sufficient evidence that the
alleged sale was a bona fide "arm's length sale," and that it was
"a sale for export to the United States," within the meaning of
19 U.S.C. 1401a(b).
For purposes of this discussion, it is assumed that the
transaction between the independent manufacturers and Duracraft
Hongkong/Comfort Zone are bona fide sales. See, HRL 545967 dated
July 7, 1995, HRL 545612 dated May 25, 1995, and HRL 545709 dated
May 12, 1995, for discussions of the relevant criterion necessary
for a bona fide sale. Normally, Customs will presume that a
transaction between parties which are not related, within the
meaning of 402(g) of the TAA, is conducted at "arm's length."
See, HRL 545627 dated September 13, 1995, and HRL 545360 dated
May 31, 1994. In this case, Duracraft has stated that the
foreign manufacturers are independent. Thus, we assume that the
independent manufacturers are unrelated to Duracraft, Duracraft
Hongkong and Comfort Zone as defined by 402(g) of the TAA.
Therefore, the transactions between the independent manufacturers
and Duracraft Hongkong/Comfort Zone are considered "arm's length
sales."
However, we are of the opinion that insufficient evidence
was submitted to show that the independent manufactured goods
invoiced through Duracraft Hongkong/Comfort Zone to Duracraft
were clearly destined for the United States at the time of the
sale between the independent manufacturers and Duracraft
Hongkong/Comfort Zone. Approximately sixty-one (61) invoices
from six (6) different independent manufactures were submitted
for our examination by Duracraft. The majority of the invoices
do not indicate that the invoiced products were clearly destined
for the United States. These invoices indicated a sale to
Duracraft Hongkong with either no shipping terms designated or
showing a clearly designated local delivery in Hongkong. No
other evidence such as, purchase orders, bills of lading, or
other shipping documents, showing that the imported products were
clearly destined for the United States from the independent
manufacturers was provided. Accordingly, we find that the
evidence does not establish that the independent manufactured
products invoiced through Duracraft Hongkong/Comfort Zone to
Duracraft were clearly destined for the United States.
Therefore, if transaction value is acceptable it would be based
on the price paid by Duracraft, the importer. The transactions
between the independent manufacturers and Duracraft
Hongkong/Comfort Zone does not determine the price "actually paid
or payable" for the imported merchandise manufactured by the
independent manufacturers. Therefore, for the independent
manufactured products we must examine the transaction between
Duracraft Hongkong/Comfort Zone and Duracraft.
2. Independent Manufactured Products and Duracraft Hongkong
Manufactured Products
Thus, the Duracraft Hongkong/Comfort Zone and Duracraft
transactions at issue involve imported merchandise manufactured
by the independent manufacturers and by Duracraft Hongkong's
China facility. Imported merchandise is appraised under
transaction value only if the buyer and seller are not related,
or if related, the transaction value is deemed to be acceptable.
In this situation, the Duracraft Hongkong and Comfort Zone are
wholly owned subsidiaries of Duracraft and, thus, are related
pursuant to 402(g)(1) of the TAA. 402(b)(2)(B) of the TAA
provides that transaction value between related parties is
acceptable only if an examination of the circumstances of the
sale indicates that the relationship between the parties does not
influence the price actually paid or payable or, if the
transaction value of imported merchandise closely approximates
the transaction value of identical or similar merchandise in
sales to unrelated buyers in the U.S. or the deductive or
computed value for identical or similar merchandise.
Under the circumstances of sales approach, if the parties
buy and sell from one another as if they were unrelated,
transaction value will be considered acceptable. Thus, if the
price is determined in a manner consistent with normal industry
pricing practice, or with the way the seller deals with unrelated
buyers, the price actually paid or payable will be deemed not to
have been influenced by the relationship. Furthermore, the price
will not be influenced if it is shown that the price is adequate
to ensure recovery of all costs plus a profit that is equivalent
to the firm's overall profit realized over a representative
period of time in sales of merchandise of the same class or kind.
Statement of Administrative Action, reprinted in Customs
Valuation under the Trade Agreements Act of 1979, Department of
the Treasury, U.S. Customs Service (October 1981) at 54;
152.103(j)(2), Customs Regulations (19 CFR 152.103(j)(2)).
Based on the evidence, we cannot find that the circumstances
of sale indicate that the relationship between the parties did
not influence the price actually paid or payable. Duracraft
submits that the difference between the price that Duracraft
Hongkong/Comfort Zone sell to unrelated U.S. buyers and the price
at which the identical products are sold to Duracraft is due to
the different levels of commercial sale and due to the fact that
Duracraft performs activities which benefit the unrelated party
sales. For these services, Duracraft Hongkong/Comfort Zone pay
Duracraft an alleged commission on their sales to unrelated U.S.
buyers. Although no evidence of a commission, i.e., a written
agreement and commission invoices, is available, we will address
Duracraft's position. Duracraft submits that for 1993 the
commission represented 8% of such sales to unrelated U.S. buyers.
Additionally, in many instances Duracraft states that the price
differential between the related party invoice and unrelated
party invoice approximates the commission percentage of 8%. We
note that Duracraft only performed this analysis for products
manufactured by Duracraft Hongkong and did not perform this
analysis on the independent manufactured products which are
invoiced through Duracraft Hongkong/Comfort Zone to Duracraft.
Relying on HRL 545087, Duracraft contends that the transfer price
between the related parties is acceptable for transaction value.
In HRL 545087, a U.S. subsidiary of a foreign seller
purchased merchandise from the related seller for its own account
and acted as an agent in transactions between the foreign seller
and unrelated U.S. customers. In comparing the prices in the
related and unrelated transactions, HRL 545087 determined that
the only difference in the price in the two types of sales was
the commissions paid to the U.S. subsidiary in the sales between
the foreign seller and the unrelated U.S. buyers. Thus, HRL
545087 held that the relationship did not affect the price
actually paid or payable, and transaction value was the
appropriate basis of appraisement between the related parties.
In this case, Duracraft submits that, in many instances, the
price differential between the related party invoice and the
unrelated party invoice approximates the 8% commission
percentage. However, Duracraft admits that 8 models do not
approximate the 8% commission percentage and that its analysis
does not take into account the independent manufactured products.
Additionally, Customs examination conducted in early 1994
indicates that the price differential ranges from 20% to as high
as 42%. We do not find that the price differential closely
approximates the commission and, therefore, we do not find HRL
545087 is instructive in this case. Thus, it does not appear
that the price between the related parties was determined in a
manner consistent with the way the price was determined between
Duracraft Hongkong/Comfort Zone and the unrelated U.S. buyers.
Additionally, Duracraft states that Duracraft Hongkong and
Duracraft negotiate prices in a manner consistent with industry
practices and calculated to ensure recovery of all costs plus a
reasonable profit. To support this contention, Duracraft
submitted an audited financial statement from Duracraft Hongkong
to show that Duracraft Hongkong establishes its prices at an
amount adequate to ensure recovery of all costs plus a profit
reasonable and representative of the industry. Based on the
audited financial statement, Duracraft states that Duracraft
Hongkong made a profit consistent with the industry. Although
the audited financial statement may show that Duracraft Hongkong
recovered a profit, Duracraft has not shown that the profit was
equivalent to the profit realized over a representative period by
Duracraft Hongkong in sales of merchandise of the same class or
kind. Additionally, Duracraft has not provided evidence that
Duracraft Hongkong's profit is representative of the industry's
profit or evidence that the price between the related parties is
determined in a manner consistent with normal industry pricing
practice. Therefore, Duracraft has failed to establish that the
circumstances of sale indicate that the relationship between the
related parties did not influence the price actually paid or
payable.
Duracraft also contends that transaction value is acceptable
because it closely approximates a deductive test value.
Transaction value between related parties is acceptable if it
closely approximates, inter alia, the deductive or computed "test
value" for identical or similar merchandise. The term "test
value" refers to values previously determined pursuant to actual
appraisements of imported merchandise. Thus, for example, a
deductive value calculation can only serve as a test value if it
represents an actual appraisement of imported merchandise
determined pursuant to 402(d) of the TAA. See, HRL 543568 dated
May 30, 1986, HRL 545481 dated September 14, 1994, HRL 545960
dated August 16, 1995, and HRL 546052 dated October 27, 1995.
There are no previously determined deductive or computed values
with respect to merchandise imported by Duracraft. Consequently,
test values cannot be used to validate transaction value. Since
Duracraft has been unable to demonstrate that the relationship
with Duracraft Hongkong and Comfort Zone did not influence the
price actually paid or payable, transaction value is
inapplicable.
3. Transaction Value of Identical Merchandise and Adjustment
for Commercial Level
In instances where transaction value cannot be determined,
or cannot be used, 402(a)(B) and 402(a)(C) of the TAA provide
for appraisement under 402(c) of the TAA which defines the
transaction value of identical merchandise, or of similar
merchandise as the transaction value of imported merchandise that
is either identical or similar merchandise to that which is being
appraised and is exported to the United States at or about the
time that the merchandise being appraised is exported to the
United States. 402(c)(2) of the TAA states that:
Transaction value determined under this subsection
shall be based on sales of identical merchandise or
similar merchandise, as the case may be, at the same
commercial level and in substantially the same quantity
as the sale of the merchandise being appraised. If no
such sale is found, sales of identical merchandise or
similar merchandise at either a different commercial
level or in different quantities, or both, shall be
used, but adjusted to take account of any such
difference. Any adjustment made under this paragraph
shall be based on sufficient information. If in
applying this paragraph with respect to any imported
merchandise, two or more transaction values for
identical merchandise, or for similar merchandise, are
determined, such imported merchandise shall be
appraised on the basis of the lower or lowest of such
values.
In appraising the imported merchandise pursuant to
transaction value of identical merchandise, Duracraft claims that
the transaction value of the identical merchandise should be
adjusted for commercial level. Duracraft states that the
transactions selected represent sales by Duracraft
Hongkong/Comfort Zone to retailers who are unrelated to
Duracraft. Duracraft represents that it is a wholesaler and
acquires merchandise at the wholesale commercial level. Thus,
Duracraft states the values selected make no adjustment for the
fact that the selected sales were at the retail level, whereas
the merchandise imported by Duracraft was purchased at the
wholesale level. Duracraft submitted a discussion of the
difference in a sale to a retailer versus a wholesaler by Dr.
Bruce Pearlstein, Director -Transfer Pricing and Economic
Analysis of an audit firm. Duracraft submits that the
transaction value of the identical merchandise should be reduced
by 10.62% to reflect the price at the same commercial level as
the related party sales for sales in 1993. Duracraft states that
the 10.62% reflects the percentage of Duracraft's costs in the
United States associated to the Duracraft Hongkong/Comfort Zone
sales to unrelated U.S. buyers. Duracraft's costs are for
returns and allowances, selling costs (commissions to sales
representatives and other selling costs), marketing costs,
customer service costs, warranty costs and general and
administrative costs (product liability, consumer liability,
operation department/payroll).
In this case, we do find that the sales from Duracraft
Hongkong/Comfort Zone to Duracraft and to unrelated U.S. buyers
are at different commercial levels. Customs information
indicates that the unrelated U.S. buyers are retail
establishments such as, K-Mart, Thrift Drug, Lowe's, Fred Meyer,
Hechingers, Home Base, Roses and Target, and Duracraft is a
wholesale distributor. However, we do not find Duracraft's
proposed reduction of 10.62% persuasive. Duracraft calculated
the reduction figure by ascertaining its total costs as set forth
above and dividing that figure by the percentage of gross
Duracraft Hongkong/Comfort Zone sales to unrelated U.S. buyers.
Thus, Duracraft allocated its costs to the gross Duracraft
Hongkong/Comfort Zone sales to unrelated U.S. buyers which was
10.62% of Duracraft Hongkong/Comfort Zone sales to unrelated U.S.
buyers in 1993. We note that for 1993 Duracraft found that
50.75% of gross sales were allocated to Duracraft
Hongkong/Comfort Zone sales to unrelated, whereas in a letter to
Customs in Boston dated May 19, 1993, Duracraft stated that 76.5%
of Duracraft Hongkong sales were to unrelated U.S. buyers.
Additionally, it appears that, in ascertaining Duracraft's total
costs, Duracraft included amounts for returns, marketing,
advertising and commissions paid to independent sales
representatives, but it did not account for the commissions
Duracraft Hongkong/Comfort Zone paid Duracraft to offset these
expenses. Thus, we do not find that the 10.62% reduction figure
is appropriate. Although the sales from Duracraft
Hongkong/Comfort Zone to Duracraft and to unrelated U.S. buyers
are at different commercial levels, we note that any adjustments
for identical merchandise because of different commercial levels,
whether leading to an increase or decrease in the value, will be
made only on the basis of sufficient information, e.g., valid
price lists containing prices referring to different levels.
See, 402(c)(2) of the TAA, 152.104(d) ad (e), Customs
Regulations (19 CFR 152.104(d) and (e)). In this situation,
sufficient information to allow for an adjustment in commercial
level was not presented.
Additionally, Duracraft contends that the prices selected as
the transaction value of identical merchandise were not the
lowest values available. Duracraft states that it has provided
you with a worksheet and copies of invoices covering sales by
Duracraft Hongkong/Comfort Zone at prices less than those
selected as the transaction value of identical merchandise. You
indicate that these lower prices for identical merchandise will
be verified and an adjustment to the appraised value will be made
where appropriate.
4. Appraisement of Model MX-83123
Moreover, Duracraft contests the appraisement of its air
cleaner, Model MX-83132 under 402(c) of the TAA. Duracraft
states that Model MX-83123 was and is not sold by Duracraft
Hongkong/Comfort Zone to any retailer customer; the only customer
is Duracraft. Thus, Duracraft states that there can be no
transaction value of identical merchandise. Moreover, Duracraft
states that transaction value of similar merchandise is
inappropriate because Model MX-83123 is not similar to any other
Duracraft products as the air cleaner is not commercially
interchangeable with nor does it possess the characteristics of
the fans, heaters and humidifiers which Duracraft markets and
sells. You agree with Duracraft that appraisement of the air
cleaner, Model MX-83123, under 402(c) of the TAA is not
appropriate. Thus, Model MX- 83132 will be appraised at
deductive value pursuant to 402(d) of the TAA.
HOLDING:
Based on the evidence presented, the independent
manufactured goods were not clearly destined for the United
States and, thus, appraisement is not based on the price between
the independent manufacturers and Duracraft Hongkong/Comfort
Zone. Moreover, we find that the relationship between Duracraft
Hongkong/Comfort Zone and Duracraft did influence the price
actually paid or payable. Thus, the imported merchandise should
be appraised pursuant to 402(c) of the TAA with adjustments for
the lowest value where appropriate. Additionally, the air
cleaner, Model MX- 83132, should be appraised at deductive value
pursuant to 402(d) of the TAA.
You are directed to GRANT-IN-PART and DENY-IN-PART this
protest as set forth above. In accordance with Section 3A(11)(b)
of Customs Directive 099 3550-065 dated August 4, 1993, Subject:
Revised Protest Directive, this decision, together with the
Customs Form 19, 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 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 the public
via the Diskette Subscription Service, Freedom of Information Act
and other public access channels.
Sincerely,
Acting Director
International Trade Compliance
Division