RR:IT:VA 546363 KCC
Port Director
U.S. Customs Service
P.O. Box 619050
DFW Airport, Texas 75261
RE: Internal Advice 17/96; transaction value; international
freight; U.S. freight and duty; insurance; brokerage costs;
sterilization costs; deductions from the price actually paid
or payable; actual costs; 402(b)(4)(A) and 402(b)(3);
terms of sale; HRLs 544538, 543827 and 542467; Incoterms
1990; 402(b)(4)(B); post importation rebates
Dear Port Director:
This is in regards to your memorandum dated April 25, 1996,
requesting internal advice concerning the proper method of
determining transaction value for surgical gloves imported by
Regent Hospital Products ("the importer"). The surgical gloves
were appraised under 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(b). We regret the
delay in responding to your request.
FACTS:
The merchandise at issue is numerous entries of surgical
gloves manufactured by LRC Hospital Products SDN BHD ("the
manufacturer") in Malaysia. The surgical gloves are shipped
directly from Malaysia to the consignee, SteriGenics, in Fort
Worth, Texas. The consignee irradiates the surgical gloves and
then ships them to the importer who is located in South Carolina.
The surgical gloves are invoiced from the manufacturer to the
importer's related supplier, New Bridge Street Invoicing Ltd.,
and then are invoiced from the supplier to the importer.
Entry of the surgical gloves was made by the importer under
transaction value based on the invoice price from the related
supplier. Sample supplier invoice #R1173 dated September 15,
1994, and #R1214-94 dated October 13, 1994, indicate that the
purchaser is the importer and the consignee is SteriGenics. The
invoices state that the terms of sale are "FROM PENANG TO FORT
WORTH." An example of an invoice product description is "USA SUR
S178 6.5 FILM (50PR)." Additionally, the invoices have an
invoice "Sub-Total" followed by breakouts for "Carriage",
"Insurance" and "Freight" for a "Total CIF charge". The "Total
CIF charge" is then followed by a position for "Invoice Total."
However, there are no costs listed next to the breakouts or
"Total CIF charge." The same figure is listed in both the "Sub-Total" and "Invoice Total" positions. You appraised the surgical
gloves under transaction value based on the "Invoice Total" on
the supplier's invoices.
The importer contends that it purchased irradiated surgical
gloves from the supplier and that the terms of sale are C.I.F.
duty paid delivered which includes several non-dutiable charges.
These non-dutiable charges are for international freight from
Malaysia to the United States, insurance, U.S. duty, brokerage
charges, irradiation charges and U.S. freight. The importer
submitted sample invoices from the manufacturer to the supplier,
#1173 dated September 15, 1994, and #1214 dated October 13, 1994,
indicating that the purchaser is the supplier and the consignee
is SteriGenics. An example of an invoice product description is
"USA SUR S178 6.5 FILM (50PR)." These invoices indicated that
the terms of sale are "SHIP CONDITION FOB+FREIGHT+INS" and show
shipment from Penang, Malaysia through Singapore to Fort Worth.
The importer states that it is billed and pays various
companies for U.S. duty, brokerage charges, irradiation charges
and U.S. freight costs. The importer then bills the supplier for
these charges. Thereafter, the supplier reimburses the importer
via intercompany settlement. Samples of customs brokers bills
indicating that the importer was charged for estimated duties,
customs clearance service, ocean freight and handling, and
container drayage and coordination were submitted. Additionally,
samples of consignee's bills to the importer were submitted to
show that the importer was charged for irradiation services and
samples of U.S. transportation service bills were submitted to
show that the importer was charged for U.S. transportation costs
from the consignee to the importer after irradiation services.
Finally, the importer submitted post importation intercompany
transaction statements between itself and the suppler indicating
that the importer billed the supplier for the above incurred
charges, as well as a post importation intercompany settlement
document. We note that no purchase orders, supply agreements or
purchase contracts were submitted.
ISSUE:
Whether the evidence submitted establishes that deductions
from the invoice price should be made for international freight
from Malaysia to the United States, insurance, U.S. duty,
brokerage charges, irradiation charges and U.S. freight in
determining the price actually paid or payable for the surgical
gloves?
LAW AND ANALYSIS:
The preferred method of appraisement is transaction value
which is defined by 402(b)(1) of the 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 transaction at issue is between the importer, Regent
Hospital Products, and supplier, New Bridge Street Invoicing Ltd.
These parties are related, therefore pursuant to 402(b)(2)(B) of
the TAA, transaction value is acceptable only if an examination
of the circumstances of the sale indicates that the relationship
between the importer and supplier manufacturers 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. This
decision does not address the acceptability of transaction value.
The term "price actually paid or payable" is defined in
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 from the
country of exportation to the place of importation in the
United States) made, or to be made, for imported merchandise
by the buyer to, or for the benefit of, the seller.
The importer contends that it purchased irradiated surgical
gloves from the supplier and that the terms of sale are C.I.F.
duty paid delivered which includes the following non-dutiable
charges: international freight from Malaysia to the United
States, insurance, U.S. duty, brokerage charges, irradiation
charges and U.S. freight.
Transportation costs and insurance costs pertaining to the
international movement of merchandise from the country of
exportation, to the extent included in the price actually paid or
payable, are to be excluded from the total payment made for
imported merchandise appraised under transaction value. These
costs are not the estimated costs, but the actual costs paid to
the freight forwarder, transport company, etc.
In Headquarters Ruling Letter (HRL) 544538, issued December
17, 1992, Customs held that pursuant to 402(b)(4)(A) the cost
of international transportation is to be excluded from the price
actually paid or payable for imported merchandise. However,
Customs explained that in determining the cost of the
international transportation or freight, it always looked to
documentation from the freight company, as opposed to the
documentation between the buyer and the seller which often
contains estimated transportation costs or charges. In essence,
Customs requires documentation from the freight company because
the actual cost, and not the estimated charges, for the freight
is the amount that Customs excludes from the price actually paid
or payable. See also HRL 543827, issued March 9, 1987, in which
Customs determined that the proper deduction from the price
actually paid or payable for marine insurance was the amount
actually paid to the insurance company by the seller, as opposed
to the amount paid by the related importer/buyer; and HRL 542467
dated August 13, 1981.
As regards costs that are incurred after the merchandise has
been imported, 402(b)(3) of the TAA states that:
The transaction value of imported merchandise does not
include any of the following, if identified separately from
the price actually paid or payable and from any cost or
other item referred to in paragraph (1):
(A) Any reasonable cost or charge that is incurred for-...
(ii) the transportation of the merchandise after such
importation.
(B) The customs duties and other Federal taxes currently
payable on the imported merchandise 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.
See also, 152.103(i), Customs Regulations (19 CFR 152.103(i)).
The above cited statutory provision clearly states that the
transaction value of imported merchandise does not include any
reasonable cost or charge incurred for the transportation of
merchandise after importation and cost incurred for customs
duties of the imported merchandise that is identified separately
from the price actually paid or payable. The actual U.S. duties,
not the estimated duties, are excluded from the price actually
paid or payable.
In order to deduct the international freight, insurance,
U.S. duty, brokerage charges, irradiation charges and U.S.
freight, these costs must first be included in the price actually
paid or payable. From the evidence submitted it is unclear what
was included in the price actually paid or payable for the
imported merchandise. The importer contends that it purchased
irradiated surgical gloves from the supplier with the terms of
sale C.I.F. duty paid delivered. However, no purchase orders,
supply agreements or purchase contracts were submitted which
would provide conclusive evidence of the parties contractual
arrangement.
With regards to international freight and insurance, the
submitted invoices state that the terms of sale are from Penang,
the manufacturers place of business, to Fort Worth, Texas, the
consignee's place of business. Additionally, the invoices' "Sub-Total" and "Total CIF charge" amounts are the same and do not
provide separate identification of international freight and
insurance costs. Although the submitted invoices do not
separately identify the international freight and insurance
costs, the terms of sale on the submitted invoices appear to
include international freight and insurance. Thus, it appears
that the price actually paid or payable includes costs for
international freight and insurance. However, no evidence of
actual transportation and insurance costs was submitted. The
importer did submit invoices from the manufacturer to the
supplier which identify charges for international freight and
insurance separate from the price for the merchandise. However,
without evidence of the actual costs for international freight
and insurance from the freight forwarder, transport company,
etc., we are unable to deduct this cost from the total payment.
With regards to U.S. duty, brokerage charges, irradiation
charges and U.S. freight, we do not find any compelling evidence
that these costs are included in the price actually paid or
payable for the imported merchandise. As stated previously, no
purchase orders, supply agreements or purchase contracts were
submitted which would provide conclusive evidence of the parties
contractual arrangement. Additionally, invoices submitted
indicate the terms of sale are from Penang to Forth Worth which
appears to be a C.I.F. arrangement. Normally, duty, brokerage
charges and domestic freight costs are not included in C.I.F.
terms of sale. See, International Chamber of Commerce,
Incoterms, at 50 (1990). The evidence presented, i.e., invoices,
do not separately identify costs for duty, brokerage charges, and
domestic freight. Nothing submitted indicates that the price
actually paid or payable includes duty, brokerage charges, and
domestic freight. Thus, we can not deduct these costs from the
invoice price.
Moreover, without a purchase order, supply agreement or
purchase contract, the only evidence as to the type of
merchandise contracted for is the invoices. The invoices from
the supplier to the importer indicate that surgical gloves were
purchased, not irradiated surgical gloves. The only evidence
submitted that irradiated surgical gloves were purchased is a
statement by the importer's counsel in a March 4, 1996, letter
stating that "[t]he understanding between the importer and
supplier is that these gloves will be delivered in a sterilized
state." The invoices do not separately identify the cost of the
irradiation service from the total invoice price. Therefore, the
cost for irradiation will not be deducted from the invoice price.
The importer claims that the documents submitted show that
the supplier is the party paying for international freight,
insurance, U.S. duty, brokerage charges, irradiation charges and
U.S. freight. The importer is billed and pays for U.S. duty,
brokerage charges, irradiation charges and U.S. freight. It then
bills and is reimbursed by the supplier for these charges.
Samples of customs brokers bills, consignee's bills and U.S.
transportation service bills were submitted. Additionally, the
importer submitted post importation intercompany transaction
statements between itself and the suppler showing that the
importer billed the supplier for the above incurred charges, as
well as a post importation intercompany settlement document.
We acknowledge that the amount paid to the supplier was the
amount on the invoice presented to Customs. While it is clear
from the documents submitted that the importer was reimbursed by
the related supplier for additional charges, the rebates are
disregarded in determining the transaction value for the imported
merchandise. 402(b)(4)(B) of the TAA states:
Any rebate of, or other decrease in, the price actually
paid or payable that is made or otherwise effected
between the buyer and seller after the date of
importation of the merchandise into the United States
shall be disregarded in determining the transaction
value under paragraph (1).
HOLDING:
Based on the evidence presented, deductions from the invoice
price should not be made for international freight from Malaysia
to the United States, insurance, U.S. duty, brokerage charges,
irradiation charges and U.S. freight in determining the price
actually paid or payable for the surgical gloves.
The Office of Regulations and Rulings will take steps to
make this 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 60 days from the date of this decision.
Sincerely,
Acting Director
International Trade Compliance
Division