HQ 544620: Deductions From the Appraised Value for Freight Costs; Application for Further Review of Protest No. XXXX

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 544620

                                   December 23, 1991

VAL CO:R:C:V  544620 ML

CATEGORY:  Valuation

Area Director, JFK
New York, New York

RE:  Deductions From the Appraised Value for Freight Costs;
     Application for Further Review of Protest No. XXXX

Dear Sir:

     The protest was filed against your appraisement decision in
the liquidation of various entries made by Happy Kids Ltd.  The
wearing apparel was manufactured in China.  The protestant takes
issue with the method of determining transaction value on 46
importations.  The merchandise was appraised pursuant to
transaction value, section 402(b) of the Tariff Act of 1930, as
amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C.
1401a(b)).

FACTS:

     Happy Kids Ltd., (hereinafter referred to as the
"importer"), imported infants and girls cotton coveralls
manufactured in China and subject to quota.  The merchandise was
purchased C&F New York, to be shipped by ocean vessel.  Counsel
for the importer states that when it became apparent that the
quota from China would close, the importer and manufacturer
agreed to ship the merchandise by air.  Pre-paid airway bills by
the manufacturer were submitted in support of this claim.  In
consideration for the manufacturer's agreement to ship the
merchandise by air, the original purchase price was increased. 
The merchandise was entered in late March and April 1987, at the
final invoice price paid to the manufacturer, plus the cost of
assists, with a deduction for estimated costs for shipping the
merchandise by ocean freight.  Several of the air freight bills
submitted exceed the C&F invoice value.

     Your position is that the freight forwarder's pre-paid
airway bills are not correct and should not be used as a basis
for freight deductions.  You ask us to note, that when you
obtained freight bills from Japan Air Lines (JAL), the airline
which flew the merchandise from Hong Kong to New York, the
freight charges for air shipments numbered 4, 15, 16, 17, 18, &
25 were less than those charges which were shown on the freight
forwarder's airway bill for the same international freight. 
Officials for JAL stated that the face amount shown as prepaid on
their airway bills were not the amount actually received by the
airline.  Blank airway bills were given to the freight forwarder
who fills in all the information.  The freight forwarder then
paid the airline the face amount on it's bill and then the
airline rebates a percentage back to the freight forwarder.  You
ask us to note, that the freight forwarders' submitted affidavits
stating that the amounts represented on the airway bills were
correct and that no rebates were given.

     You conclude, that although an itemized charge for
international freight was included in the invoice price, the
commercial reality was that the prices for the shipments
resembled F.O.B. terms rather than C&F because it appeared that
the cost of international air freight was not included in the
renegotiated invoice price.  Therefore, since air freight was not
included in the invoice price, it did not form part of the "price
actually paid or payable" as there was no payment by the importer
to the seller for the air freight.  The only freight charge paid
by the importer, in your opinion, was the itemized freight charge
shown on the commercial invoice, and that charge was deducted
from the invoice at the time of entry.  Consequently, you would
allow no additional deduction for air freight.

     In contrast, the importer is of the opinion that the amount
shown on the freight forwarder's airway bill as prepaid should be
deducted as freight costs.  In support of this position, the
importer points to section 402(b)(4)(A) of the TAA, quoted above,
and Headquarters Ruling Letter (HRL) 542467, dated August 13,
1981.  In HRL 542467, we stated that it was the actual
transportation costs that we were seeking, rather than the amount
shown on the SCI, if that was not the true cost.  Counsel for the
importer concluded, therefore, that actual international freight
charges, as reflected in the freight forwarder's bill, must be
deducted.

ISSUE:

     Whether the transaction value of the imported merchandise
can be determined, and if so, was it the value of the invoice
prices, less the cost of freight as shown on a freight
forwarder's prepaid airway bill, plus the cost of assists.

LAW AND ANALYSIS:

     The method of appraisement used in connection with these
entries, transaction value, is defined in section 402(b) of the
TAA as the "price actually paid or payable for the merchandise
when sold for exportation to the United States," plus certain
enumerated additions.  In the instant case, there is no dispute 
that assists, as that term is defined in section 402(h) of the
TAA, were provided to the manufacturer and therefore, are added
to the "price actually paid or payable".  The "price actually
paid or payable" is defined in section 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.  (emphasis added)

     While we may be concerned about the procedures used in the
issuance of freight bills, we do not believe the resolution of
this issue is controlling with respect to the instant case. 
Freight costs pertaining to the international movement of
merchandise from the country of exportation are, to the extent
included in the price actually paid or payable, to be excluded
from the total payment made for imported merchandise appraised
under transaction value.  Here, proper documentation establishing
the actual freight costs to be excluded was submitted to Customs.

     Section 402(b)(2)(A) of the TAA limits the acceptability of
transaction value in a number of instances.  This section
provides, in relevant part:

          "The transaction value of imported merchandise
          determined under paragraph (1) shall be the appraised
          value of that merchandise for the purposes of this act
          only if...(ii) the sale of, or the price actually paid
          or payable for, the imported merchandise is not subject
          to a condition or consideration for which a value
          cannot be determined with respect to the imported
          merchandise." (emphasis added)

     In the instant case, the importer stated that the
merchandise was originally purchased for a C&F price, to be
shipped by ocean vessel, yet the price was renegotiated prior to
exportation resulting in a higher C&F price, to be shipped by
air.  As it turns out, the "renegotiated price" does not
represent a value for the goods and a value for the supposedly
included air freight costs.

     Section 402(b)(4)(A) of the TAA, in allowing for a deduction
from the total payment for the actual expenses incurred for
transportation, insurance and other services incident to the
international shipment of the merchandise, attempts to arrive at
essentially an FOB or ex-factory price for the goods subject to
appraisement.  In a C&F delivered price for imported merchandise,
the allowance for international freight costs represents the
adjustment necessary to calculate the price actually paid or
payable for the imported merchandise.

     In these situations in which an amount reflecting actual air
freight has not been included in the price actually paid or
payable, to make an adjustment for air freight would frustrate
the intent of Congress and lead to absurd results.  Consequently,
we are of the opinion that the imported merchandise is subject to
a condition or consideration for which a value cannot be
determined, as defined in section 402(b)(2)(A)(ii) of the TAA. 
Therefore, transaction value cannot be used.

     Since transaction value is inappropriate for use in
connection with the imported merchandise, the next statutorily
obtainable method of appraisement must be considered.

HOLDING:

     In light of the foregoing, transaction value is
inappropriate because the renegotiated C&F price, to be shipped
by air subjected the merchandise to a "condition... for which a
value cannot be determined with respect to the imported
merchandise," within the meaning of section 402(b)(2)(A)(ii) of
the TAA.

     The merchandise should be appraised using the next
statutorily obtainable method of appraisement.

     Accordingly, you are directed to deny the protest in a
manner consistent with the instructions set forth above.  In the
event that you are unable to obtain the information necessary to
appraise the merchandise in a manner consistent with the above,
you may have no alternative but to deny the protest in full.  A
copy of this decision should be attached to Customs Form 19 and
mailed to the protestant as part of the notice of action on the
protest.


                                   Sincerely,


                                   John Durant, Director