HQ 544469: Decision on Application for Further Review of Protest No. 3001-6-000149

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                                   HQ 544469
                                   August 20, 1990

VAL CO:R:C:V  544469 ML

Category: Valuation

District Director
Seattle, Washington

RE:  Decision on Application for Further Review of Protest
     No. 3001-6-000149

Dear Sir:

     This protest was filed against your decision in the
liquidation of various entries made by Kitamura Machinery of
U.S.A., Inc., a machine tool importer.  The merchandise was
manufactured in Japan by Kitamura Machinery Co., Ltd.  The
merchandise was appraised pursuant to section 402(d) of the
Tariff Act of 1930, as amended by the Trade Agreements Act of
1979 (19 U.S.C. 1401a(d); TAA).

FACTS:

     The imports in question are machining centers and other
machine tools.  These machine tools were manufactured in Japan by
Kitamura Machinery Co., Ltd. (hereinafter referred to as the
"manufacturer") and consigned to Kitamura Machinery of U.S.A.,
Inc. (hereinafter referred to as the "importer").  The
manufacturer shipped the merchandise either to the importer who
warehoused, serviced, and set a final price for the goods to be
charged to the ultimate purchasers in the United States, or to an
unrelated distributor.  After selling the merchandise at the
final price, the distributor deducted an 18% commission and
remitted the remaining 82% of the price to either the
manufacturer or the importer.  In the latter case, the importer
then remits the 82% to the manufacturer who then pays the
importer a 3% commission.  If the 82% was sent from the
distributor to the manufacturer directly, the manufacturer still
sends 3% of the final price to the importer.

ISSUES:

     (1)  Whether transaction value of identical, or of similar
merchandise or deductive value is the proper method for the
appraisement of the merchandise?

     (2)  Whether the commissions paid are those which are
usually paid in connection with sales in the United States and
would, therefore, be deductible under deductive value?

     (3)  Whether the costs associated with the international
shipment of merchandise were in fact deducted?

     (4)  Whether the actual costs associated with transportation
and insurance are deductible with respect to shipments of
merchandise from the place of importation to the place of
delivery in the United States?

LAW AND ANALYSIS:

     The first issue involves whether the transaction value of
identical, or of similar merchandise or deductive value should be
used to appraise the entries.  The fact that the imported
merchandise is consigned rather than sold is not in and of itself
a sufficient basis for denying the use of transaction value of
identical or similar merchandise pursuant to section 402(c)(2).
(See Headquarters Ruling Letter 544361 EK, dated August 22, 1986)
Section 402(c) of the TAA 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.  The relevant portion of section 402(c) states the
following:

          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...Section 402(c)(2).

     Of course, it is necessary that sufficient information be
available in order for Customs to make any adjustment that may
be needed pursuant to section 402(c)(2).  If Customs is not
satisfied that the relevant information is available, the use of
transaction value of identical or similar merchandise for
appraisement purposes is not proper and will be disallowed.  In
the instant case, the importer submitted a "computer runout" as
evidence of sales of identical or similar merchandise sold to an
unrelated buyer in the United States and exported at or about the
time of exportation of the merchandise under protest.  We do not
believe this evidence to be persuasive as each machine was
different and contained numerous additional features.

     Deductive value is the next basis of appraisement to be
used, unless the importer designated, at entry summary, computed
value as the prefered method of appraisement.  Under section
402(d)(2)(A)(i) and (ii), deductive value is the price at which
the merchandise is sold in the condition as imported at or about
the date of importation of the merchandise being appraised, sold
in the greatest aggregate quantity at or about such date, or
before the close of the 90th day after the date of such
importation.  The unit price at which merchandise is sold in the
greatest aggregate quantity is the unit price at which such
merchandise is sold to unrelated persons, at the first
commercial level after importation.  The sales price at that
level is then reduced by amounts specified under section
402(d)(3)(A) of the TAA of 1979.

     Under section 402(d)(3)(A), the price is reduced by amounts
equal to:

          (i) any commission usually paid or agreed to be
          paid, or the addition usually made for profit and
          general expenses, in connection with sales in the
          United States of imported merchandise that is of
          the same class or kind, regardless of the country
          of exportation, as the merchandise concerned;

          (ii) the actual costs and associated costs
          of transportation and insurance incurred with
          respect to international shipment of the
          merchandise concerned from the country of
          exportation to the United States;

          (iii) the usual costs and associated costs
          of transportation and insurance incurred with
          respect to shipments of the merchandise
          concerned from the place of importation to
          the place of delivery in the United States,
          if such costs are not included as a general
          expense under clause (i);

          (iv) the customs duties and other Federal
          taxes currently payable on the merchandise
          concerned 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 State are ordinarily
          liable,...

     The protestant asserts that the distributor purchased the
machinery from the importer at an "adjusted price" then sold the
goods to the ultimate purchaser at a "final price".  However,
under the facts submitted there does not appear to be a bona fide
sale between the importer and the distributor.  It is the
subsequent sale which takes place between unrelated parties which
must be looked to so that the deductive value of the merchandise
can be established.

     After the merchandise is sold to the ultimate U.S.
purchaser, the distributor deducts an 18% commission from the
final price paid, and remits the remainder to either the importer
or to the manufacturer.  When the manufacturer is given the
entire remainder, he later remits 3% to the importer.  Whether
these commissions are the type usually paid or agreed to be paid
in connection with sales in the United States of imported
merchandise that is of the same class or kind, regardless of the
country of exportation is a question of fact which shall be
determined by the appraising officer.

     As previously discussed, the first commercial level after
importation is the sales price from which any deductions will be
made.  Here, the first commercial level at which a sale took
place was the sale made to the United States purchaser, and it is
the commissions associated with that sale which are deducted from
the sales price.  If the 18% commission taken by the distributor
and the 3% remitted to the importer are the commissions which
directly relate to the sale and are usually paid for this type of
merchandise, then they will be deductible pursuant to section
402(d)(3)(A)(i).

     The protestant asserts that no deduction was made for the
actual costs associated with the international shipment of the
merchandise.  However, the actual costs with respect to the
movement of the merchandise from Japan to the United States were
deducted pursuant to section 402(d)(3)(A)(ii).  The importer
further contends that no deduction was made for the costs and
associated costs of transportation and insurance incurred with
respect to shipment of the merchandise from the port of Seattle
to the Kitamura U.S.A. warehouse as provided by section
402(d)(3)(A)(iii).  While the usual costs associated with U.S.
inland freight would be allowable, the importer has failed to
meet his responsibility to provide actual cost figures.  The
invoices state identical cost figures, regardless of whether the
merchandise is being shipped to the distributor or directly to
the importer's warehouse.

HOLDING:

     From the facts provided, it is our conclusion that the basis
of appraisement is deductive value, under section 402(d) of the
TAA, when the merchandise concerned is sold within 180 days after
the date of importation.  The base price being determined when
the merchandise is sold to unrelated persons at the first
commercial level after importation.  In the instant case, this
sale occurred when the United States purchaser purchased the
goods.  The commissions associated with this sale will be
deductible, if the appraising officer determines that the
commissions paid to the importer and the distributor are of the
type usually paid in connection with sales of this kind in the
United States.  Additionally, those costs associated with the
international shipment of the merchandise were appropriately
deducted from the price prior to the imposition of duties.  As no
information was submitted reflecting those costs actually
incurred for domestic inland freight, they will not be deducted.


     Accordingly, you are directed to grant this petition in part
and to deny this petition in part.  A copy of this decision
should be attached to Form 19, Notice of Action, to be sent to
the protestant.


                                   Sincerely,


                                   John Durant, Director
                                   Commercial Rulings Division