HQ 544247: Request for Reconsideration of Headquarters Ruling No. 544005

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 544247

                                  February 28, 1989


          CLA-2  CO:R:CV:V  544247 VLB

          CATEGORY: Valuation

          District Director of Customs
          Ogdensburg, New York  13669


          RE: Request for Reconsideration of Headquarters Ruling No. 544005


          Dear Sir:

                Reconsideration of Headquarters Ruling Letter (HRL) 544005
          issued on August 16, 1988, has been requested by the attorney
          concerned.  Additionally, clarification of the ruling has been
          requested by other interested parties.  The ruling stated that
          repair costs of imported precast concrete panels were identified
          separately in the contract from the price actually paid or
          payable for the merchandise.  Therefore, we concluded that the
          repair costs were not included in transaction value under section
          402(b)(3)(A)(i) of the Tariff Act of 1930, as amended by the
          Trade Agreements Act of 1979 (TAA).  The ruling also held that
          the estimated cost of repairs provided to Customs at the time of
          entry was the amount that should not be included in the
          transaction value.

                As we discussed in our prior ruling, Skobeton Quebec, Inc.
          (hereinafter referred to as "SQI"), entered into a contract with
          Pizzagalli Construction Company (hereinafter referred to as
          "PCC") to provide and erect precast concrete panels for a
          building being constructed in New York.  The original contract
          price for manufacturing, delivering and installing the panels was
          $550,000.

                The merchandise was imported one truckload at a time over
          several months.  Each truckload was subject to a separate
          consumption entry.  The parties' counsel indicated that the
          entered values were not based on separate transactions between
          SQI and PCC, but rather on the estimated proportion each entry
          represented of the total merchandise called for by the contract.

                The contract contained an estimate of $6,000 for repairs to
          the panels at the building site.  There were also estimated costs















                                        - 2 -

          for supervision, installation, hardware and water repellant,
          freight, brokerage, caulk, jockeying, state sales tax and duty.
          All of the actual costs exceeded the estimated costs.

                The contract had several change orders adding and
          subtracting amounts.  Customs appraised the contract under
          transaction value by starting with the original contract price,
          adding the amount of the first change order (furnishing
          materials) and then subtracting the amounts in three other change
          orders (dropping material and changing installation of flashing),
          arriving at a value of $599,300.40.

                Customs then deducted the actual cost of supervision,
          installation, caulk, jockeying, freight, brokerage and state
          sales tax.  Finally, the estimated cost of the repairs was
          deducted to arrive at the final dutiable value of the
          merchandise.

                As stated previously, our prior ruling concluded that
          repair costs were separately identified in the contract and were
          deducted properly under section 402(b)(3)(A)(i) of the Tariff Act
          of 1930, as amended by the Trade Agreements Act of 1979 (TAA)
          which reads as follows:

                The transaction value of imported merchandise does not
                include any of the following, if identified separately from
                the price actually paid or payable . . .:

                (A)     Any reasonable cost that is incurred for -- (i) the
                        construction, erection, assembly, or maintenance
                        of, or the technical assistance provided with
                        respect to, the merchandise after its importation
                        into the United States; . . . (emphasis added)


                In the documents submitted, it appears that the repairs
          involved included mending cracks, cleaning the concrete surfaces
          which had been stained or discolored and coating the exterior
          surfaces of the panels with clear damp proofing sealer.  The
          parties characterized these charges as repair costs.  However,
          the import specialist has advised us that these costs are
          incurred during the construction of the building.  Therefore, the
          costs are more appropriately considered as costs incurred after
          importation of the panels that were incidental to and necessary
          for the construction, erection and assembly of a building that
          was free of defects and acceptable to the owner.

                Therefore, we again conclude that these costs, separately
          identified in the contract, fall under section 402(b)(3)(A)(i) of
          the TAA.  Consequently, these costs are not included in
          transaction value.











                                        - 3 -

                Section 402(b)(3)(A)(i) of the TAA does not refer
          specifically to repair costs.  As a result, a question has arisen
          regarding Customs authority to adjust the transaction value for
          this item.  Generally, the consideration of the dutiability of
          repair costs must take into account 19 CFR 158.12(a) which sets
          forth limited conditions that entitles an importer to an
          allowance in value for damaged merchandise.  However, in the
          unique facts of this case, section 402(b)(3)(A)(i) of the TAA is
          applicable rather 19 CFR 158.12(a).

                Further, as discussed previously, Customs based
          appraisement of the merchandise on the original contract price
          along with the change orders to arrive at the value of the
          contract.  This is the actual value of the contract, i.e. the
          value incorporates actual changes in the original contract price
          and represents the starting point for ascertaining transaction
          value.  In the context of using the actual price adjustments to
          determine the price actually paid or payable, we agree that it is
          both logical, fair and in accordance with the valuation statute
          to deduct the actual costs to arrive at the final transaction
          value.  These are the costs that were incurred by the importer
          after importation for purposes of section 402(b)(3)(A)(i)of the
          TAA.

                  Please note, however, in those cases where appraisement
          is to be based on the initial contract price, any adjustment to
          the price actually paid or payable would have to be on the basis
          of estimated costs.

                As a result of this reconsideration, we reaffirm
          Headquarters Ruling 544005 to the extent that it held that the
          repair costs were not included in the transaction value of the
          merchandise.  We modify the ruling to the extent that it held
          that the estimated costs not the actual costs should not be
          included.


                                        Sincerely,



                                        Harvey B. Fox, Director
                                        Office of Regulations and Rulings