RR:IT:VA 548167 EM
Port Director
Denver Service Port
4735 Oakland Street
Denver, CO 80239
RE: Protest No. 3307-02-100018 and Application for Further Review;
Appraisement of Composite Items; Reasonable Ways and Means; Section 402(f)
Dear Port Director:
This letter is in response to Protest 3307-02-100018 and application for further review, dated May 9, 2002, timely filed by Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP, on behalf of World Class International, Inc.
The protest concerns four separate entries of combination calculator/clock items including batteries. The importer of record entered the merchandise under HTSUS 8470.10.0040. Customs reclassified the merchandise under HTSUS 9105.91.40. Customs then appraised the entries, assessed the corresponding duties, and liquidated the entries. The Protestant objects to the liquidation of these entries on the grounds that Customs incorrectly appraised the merchandise.
FACTS:
World Class International, Inc. (hereinafter “Protestant”) is the importer of record for the four entries under this protest. The four entries consisted of calculator/clock combination items including batteries (hereinafter “goods”). The goods were purchased as complete units. In the Protest and Application for Review, the Protestant acknowledges that, pursuant to the purchase, it is “unaware of the actual cost or value of the battery.”
Donex Company, Ltd. (hereinafter “Exporter”), the shipper and seller of the goods, described the goods as “World Time Alarm Clock[s] with base” on the invoices and packing lists. The Protestant entered the goods under HTSUS 8470.10.0040, a duty free classification for calculators. This classification does not account for the dual function of the goods, as both a calculator and a clock.
Given the dual function, Customs reclassified the goods under HTSUS 9105.91.40. Under this heading, the calculator/clock base is dutiable at a rate of 3.9%. Additionally, under HTSUS 9105.91.40, the batteries, included with each calculator/clock base, are subject to separate duty rate of 5.3%. The Protestant does not challenge the classification of the goods.
You proceeded to appraise the goods. According to the Customs Protest and Summons Information Report (hereinafter “CF 6445A”), the basis of appraisement was “Other” pursuant to Section 402(f) of the TAA as amended, codified 19 U.S.C. 1401a. In the CF 6445A, the Import Specialist explained the methods used to appraise the goods subsequent to their re-classification:
Goods were valued using “reasonable ways and means” to determine the appropriate value of the goods. The shipper and the seller, Donex Intl, is related to the importer ; therefore transaction value could not be used to appraise the goods. By means of a CF-28, dated 11-20-01,a request for proof of insurance was requested for the shipment (attached). The policy indicated that the importer valued the goods at 237,782.00 against the loss or damage during transit. Customs valued the goods at $240,910 after appraising the batteries at .10 cents each plus 7% for the profit margin.
The Import Specialist, in consultation with the NIS, appraised the batteries at $.10 each and added the general profit mark-up of 7%. He then added this value for the batteries to the entered value. The Import Specialist explained that the sum of the manufacturer’s price for the items and his independent assessment of the value of the batteries represents an amount that closely approximates the amount listed by the manufacturer for the insured value of the items during shipping.
The Protestant alleges that the 3.9 % duty imposed on the total value of the goods, as reported by the manufacturer, includes the value of the calculator/clock base and the value of the batteries. The Protestant objects to the formulation of a separate value for the batteries ($.10 each + 7% for the profit margin) that was also subject to a 5.3% rate of duty. The Protestant states that this approach constitutes a double valuation of the batteries, at a rate of 3.9% and a rate of 5.3%. The Protestant claims that this is an improper method of appraisement for the batteries and, subsequently, objects to the value advance that resulted therefrom.
ISSUE:
Whether the imported merchandise was properly appraised under Section 402(f)?
LAW AND ANALYSIS:
The preferred method of appraising merchandise imported into the United States is transaction value pursuant to 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. 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. The term “price actually paid or payable” means:
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.
19 U.S.C. 1401a(b)(4).
Transaction value is an acceptable basis of appraisement only if, inter alia, the buyer and seller are not related, or if related, the relationship did not influence the price actually paid or payable, or the transaction value of the merchandise closely approximates certain "test values," e.g., the deductive or computed value of identical or similar merchandise determined pursuant to actual appraisements of imported merchandise. §402(b)(2)(B) of the TAA.
In the instant case, the Protestant and the Exporter are related, but no information has been presented as to whether the relationship influences the price actually paid or payable. However, due to the circumstances of this case, we do not have to reach a determination as to whether one of the related party tests was met.
Customs must assess two separate duties on the goods. One rate of duty applies to the calculator/clock base and another rate of duty applies to the batteries. These duties cannot be properly assessed unless we have a separate value for each of these items. Under transaction value, the Protestant has not provided information sufficient to separately appraise the batteries and the calculator/clock base. The Protestant acknowledges that pursuant to the purchase it is “unaware of the actual cost or value of the battery.” The Protestant only provided a value representing the combined value of the calculator/clock base and the batteries. Based on the fact that the Protestant has not provided any other documentation such as invoices, contracts, or record-keeping demonstrating the value of the batteries, we cannot accept the transaction value of the goods as entered by the Protestant.
Accordingly, the use of transaction value is precluded for the goods, and we move to the succeeding alternate methods of appraisement pursuant to the hierarchy provided under 19 U.S.C. 1401a(b) through (e). We have insufficient information to determine whether the alternate methods set forth in those provisions would be acceptable. Therefore, we find that the merchandise was properly appraised under Section 402(f) of the TAA using a modified transaction value approach. This modified transaction value will allow use of the information supplied by the Protestant. Again, our finding is based on the assumption that the Protestant’s former pricing of the goods yields a price that meets one of the related party tests. We are not ruling on the acceptability of the price itself.
Under the modified transaction value approach, we find that the declared value of the goods was the price paid for the goods, including the batteries. Because the Protestant does not suggest any method to determine the value of the batteries alone, we defer to the reasonable ways and means employed by the import specialist within the meaning of Section 402 (f). In the CF 6445A, the import specialist indicated that the goods were appraised pursuant to Section 402(f) of the TAA as amended, codified 19 U.S.C. 1401a. Section 402(f)(1) concerns the value if other values can not be determined or used:
If the value of imported merchandise cannot be determined, or otherwise used for the purposes of this Act, under subsections (b) through (e), the merchandise shall be appraised for the purposes of this Act on the basis of a value that is derived from the methods set forth in such subsections, with such methods being reasonably adjusted to the extent necessary to arrive at a value.
The import specialist, when applying Section 402(f), relied on Section 500 of the TAA of 1930. Under Section 500 of the TAA of 1930, as amended, the appraising officer may:
fix the final appraisement of merchandise by ascertaining or estimating the value thereof, under section 1401a of this title, by all reasonable ways and means in his power, any statement of cost or costs of production in any invoice, affidavit, declaration, other document to the contrary notwithstanding....
19 U.S.C. § 1500(a) (emphasis added).
In this regard, the Statement of Administrative Action (SAA), which forms part of the legislative history of the TAA, provides in pertinent part:
Section 500 allows Customs to consider the best evidence available in appraising merchandise....[It] authorize (sic) the appraising officer to weigh the nature of the evidence before him in appraising the imported merchandise. This could be the invoice, the contract between the parties, or even the record keeping of either of the parties to the contract.
The Import Specialist used reasonable ways and means to appraise the value of the batteries. He determined the value of the battery in consultation with the NIS and then added a 7% profit mark-up. The import specialist claims that the 7% mark-up represents the profit margin in exchanges between the Protestant and the Exporter. It appears that neither the $.10 per battery value nor the 7% profit mark-up are in dispute. Where the Protestant offers no alternative means of appraising the batteries, we conclude that the method of appraisement applied by the port utilizes the best evidence for determining the value of the batteries within the meaning of Section 402(f).
The Protestant alleges that you improperly increased the appraised value of the goods when you failed to subtract the appraised value of the batteries from the total value before assessing the 3.9% duty rate for the calculator/clock base. We agree. Under Section 402(f), the modified transaction value approach logically requires that appraised value of the batteries should have been subtracted from the total price to determine the value of the calculator/clock base subject to the duty rate of 3/.9%.
It should be noted that the port retains the right to question, on future entries, whether the price between the related parties is acceptable for purposes of transaction value or a modified transaction value under Section 402(f).
HOLDING:
The protest should be granted. The goods should be appraised under a modified transaction value approach. The import specialist used reasonable ways and means to appraise the batteries under Section 402(f). However, the value of the batteries should be subtracted from the total price of the goods. A 3.9% rate of duty should be applied to the remainder of the total value of the goods. A 5.3% rate of duty should be applied to the value of the batteries, as calculated by the import specialist.
In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, [Subject: Revised Protest Directive], you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to mailing this decision.
Sixty days from the date of the decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.ustreas.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Virginia Brown, Chief
Value Branch