OT:RR:CTF:VS H010504 GG
Mr. Brian Kavanaugh
Trade Advisor
Deringer Logistics Consulting Group
1 Lincoln Blvd., Suite 225
Rouses Point, NY 12979
RE: Valuation;
Dear Mr. Kavanaugh:
This is in response to your ruling request, dated, March 14, 2007, made on behalf of Comair Airlines (“Comair”).
FACTS:
Comair imports used aircraft parts under subheading 9802.00.50, Harmonized Tariff Schedule of the United States, which it had previously exported for repair and/or rebuilding. Comair’s employees follow certain procedures when they initially ship a part to be repaired in a foreign country (typically Canada). To arrive at an export value, they access Comair’s internal system, TRAX, to look up the past cost of that actual part by serial number. If that information is not available, they will then attempt to access data on the last identical or similar part that was purchased. If the part has not been purchased before, they would next go into the aircraft supplier’s system and look up the price of a new item. If it cannot be found, the Comair employee will contact the aircraft supplier, and, if unavailable, the manufacturer of the part to obtain the value, in writing, of a new part. From that value the amount of the repair quote, if available, will be deducted to arrive at the export value. If there is no repair quote for a specific transaction, the average repair cost for an identical or similar item will be used for the estimated repair cost. The repair estimate would be deducted from the cost or replacement value to arrive at the export value.
Upon importation after repair, the repair vendor will indicate a value and if it was not equal to the full value used in the export calculation, Comair will verify the value with the vendor, or if the repair vendor is not the supplier of the part when new, that supplier. It is possible that the value may have risen or declined, and as the vendor or supplier would be in the best position to ascertain the correct value of the product, Comair will defer to them as to the proper value to use. Once verified, the entry documents, such as the commercial invoice and CBP Form 7501, will indicate the following: 1) next to the 9802 HTS reporting number, the value indicated in TRAX, or the vendor or supplier verified value, minus the actual repair cost; and 2) next to the actual Chapter 1 through 97 reporting number, the actual repair cost. (This arrangement reflects the fact that Chapter 9802 items require a dual HTS number.) The values on both lines would be added to arrive at the entered value. The following example is provided:
Value at export:
TRAX: $100.00 (cost of part when initially purchased)
Average
repair cost: $ 30.00 (identical or similar part)
Export value: $ 70.00
Value at import: (1)
Assume the value of the part has remained the same, but the actual repair cost was $20, instead of the estimated $30.
HTS 9802: $ 80.00 (adjusts export value upwards by $10)
Ch. 1-97 HTSUS: $ 20.00 (dutiable value)
Entered value: $100.00
Value at import: (2)
Assume the supplier reports the value of a new part has increased, to $110, and the actual repair cost was $20.
HTS 9802: $ 90.00
Ch. 1-97 HTSUS $ 20.00
Entered value: $110.00
ISSUE:
Whether the proposed methodology may be used to appraise the imported, repaired parts.
LAW AND ANALYSIS:
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 (TAA: 19 U.S.C. § 1401a). The preferred method of appraisement is transaction value, which is defined as the “price actually paid or payable for merchandise when sold for exportation to the United States,” plus five statutorily enumerated additions. 19 U.S.C. § 1401a(b)(1). In the current situation the repaired parts are not the subject of a sale between the repairers and Comair. Presumably Comair retains title and ownership of the parts while they are being repaired. The absence of a sale eliminates transaction value as a method to appraise the imported repaired aircraft parts.
When imported merchandise cannot be appraised on the basis of transaction value, it is appraised in accordance with the remaining methods of valuation, applied in sequential order. 19 U.S.C. § 1401a(a)(1). The alternative bases of appraisement, in order of precedence, are: the transaction value of identical or similar merchandise (19 U.S.C. § 1401a(c)); deductive value (19 U.S.C. § 1401a(d)); computed value (19 U.S.C. § 1401a(e)); and the “fallback” method (19 U.S.C. § 1401a(f)).
The transaction value of identical or similar merchandise is based on sales, at the same commercial level and in substantially the same quantity, of merchandise exported to the United States at or about the same time as that being appraised. (19 U.S.C. § 1401a(c)). We assume, because we have not been given any information indicating otherwise, that there are no sales of similar or identical merchandise made at or about the same time as the merchandise imported. If that is the case it will not be possible to appraise the repaired parts on the basis of transaction value of identical or similar merchandise.
Under the deductive value method, merchandise is appraised on the basis of the price at which it is sold in the U.S. in its condition as imported and in the greatest aggregate quantity either at or about the time of importation, or before the close of the 90th day after the date of importation. 19 U.S.C. § 1401a(d)(2)(A)(i)-(ii). This price is subject to certain enumerated deductions. 19 U.S.C. 1401a(d)(3). Though not explicitly stated, we assume that Comair uses the repaired parts in its own aircraft and does not sell them in the U.S. market to third parties. Consequently, the deductive value method is inapplicable.
Under the computed value method, merchandise is appraised on the basis of the material and processing costs incurred in the production of imported merchandise, plus an amount for profit and general expenses equal to that usually reflected in sales of merchandise of the same class or kind, and the value of any assists and packing costs. 19 U.S.C. § 1401a(e)(1). No information on these various elements has been provided, making the computed value method also unavailable as an appraisement method.
When the value of imported merchandise cannot be determined under the methods set forth in 19 U.S.C. § 1401a(b)-(e), it may be appraised on the basis of a value derived from one of those methods, reasonably adjusted to the extent necessary to arrive at a value. This is known as the “fallback” valuation method. Certain limitations exist under this method, however. For example, merchandise may not be appraised on the basis of the price in the domestic market of the country of export, the selling price in the United States of merchandise produced in the U.S., minimum values, or arbitrary or fictitious values. 19 U.S.C. § 1401a(f); 19 CFR § 152.108.
Under section 500 of the Tariff Act of 1930, as amended, which constitutes CBP’s general appraisement authority, 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 is the general authority for Customs to appraise merchandise. It is not a separate basis of appraisement and cannot be used as such. Section 500 allows Customs to consider the best evidence available in appraising merchandise. It allows Customs to consider the contract between the buyer and seller, if available, when the information contained in the invoice is either deficient or is known to contain inaccurate figures or calculations…. Section 500 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 recordkeeping of either of the parties to the contract.
In those transactions where no accurate invoice or other documentation is available, and the importer is unable, or refuses, to provide such information, then reasonable ways and means will be used to determine the appropriate value, using whatever evidence is available, again within the constraints of section 402.
Statement of Administrative Action, H.R. Doc. No. 153, 96 Cong., 1st Sess., pt 2, reprinted in, Department of the Treasury, Customs Valuation under the Trade Agreements Act of 1979 (October 1981), at 67.
Section 152.107(b) of the CBP regulations (19 CFR § 152.107) provides:
Reasonable adjustments. If the value of imported merchandise cannot be determined or otherwise used for the purposes of this subpart, the imported merchandise will be appraised on the basis of a value derived from the methods set forth in §§ 152.103 through 152.106, reasonably adjusted to the extent necessary to arrive at a value. Only information available in the United States will be used.
Identical merchandise or similar merchandise. The requirement that identical merchandise, or similar merchandise, should be exported at or about the same time of exportation as the merchandise being appraised may be interpreted flexibly. Identical merchandise in any country other than the country of exportation or production of the merchandise being appraised may be the basis for customs valuation. Customs values of identical merchandise, or similar merchandise, already determined on the basis of deductive value or computed value may be used.
CBP has previously examined the appraisement of repaired or refurbished items, for example in Headquarters Ruling Letter (“HQ”) HQ 548618, dated November 23, 2005, HQ 548453, dated March 8, 2005, and HQ 544377, dated September 1, 1989. In all of these cases the repaired goods were appraised under the fallback method using books values recorded in the companies’ books that reflected the value of the repaired products, or, in the case of the most recent ruling, price quotes by reputable U.S. resellers for identical or similar repaired items. We do not have any information on either the availability of book values or prices at which identical or similar aircraft parts are resold in the United States. Therefore, we must determine if the appraisement method proposed by Comair otherwise reasonably fits within 19 U.S.C. § 1401a(f).
As noted by the ruling requester, another ruling, HQ 563470, dated June 12, 2006, has similarities to Comair’s situation. That case also involved the importation of aircraft parts, but with the major distinction that they were imported for the purpose of being repaired in the United States (as opposed to being imported in an already repaired state). CBP determined that those particular aircraft parts could be appraised under the fallback method, based on a formula proposed by the importer that used the current list price for a new part, reduced by the repair cost and depreciation, calculated on a yearly basis. In other words, the appraisement took into account the fact that the imported items were not in mint condition but required repair. In Comair’s case, which involves already repaired goods, it is proposed to have the parts appraised using an entered value that is, essentially, equivalent to the list price of a new part. The actual amount that was incurred to repair the part is segregated out to determine the dutiable value under HTS 9802. We find this proposed valuation method to be consistent with the one approved in HQ 563470. Accordingly, the imported repaired aircraft parts may be appraised using the described methodology under 19 U.S.C. § 1401a(f).
HOLDING:
The imported repaired aircraft parts may be appraised under the fallback method in accordance with the method desribed.
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs official handling the transaction.
Sincerely,
Monika R. Brenner
Chief, Valuation and Special Programs Branch