HQ 544378: Application for Further Review of Protest No. 1001-7-009585 concerning dutiability of U.S. design fees included in buying agent's invoice price

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 544378

                       September 11, 1990

VAL CO:R:C:V  544378 DPS

CATEGORY:  Valuation


Area Director
JFK Airport

RE:  Application for Further Review of Protest No.
     1001-7-009585 concerning dutiability of U.S. design
     fees included in buying  agent's invoice price

Dear Sir:

     The subject protest and application for further review
concerns the issue of whether design fees included but not
specifically provided for in the buying agent's invoice price
of imported merchandise can subsequently be deducted from the
transaction value pursuant to section 402(b) of the Tariff
Act of 1930, as amended by the Trade Agreements Act of 1979
(19 U.S.C. 1401a(b); TAA), on the grounds that the design
fees were produced in the United States.

FACTS:

     The protestant importer, Argenti, Inc. ("Argenti")
imports ladies' wearing apparel from Hong Kong and other
locales in the Far East.  According to information provided
by the importer, Argenti utilizes a buying agent, Italade
Exports Limited ("Italade") in Hong Kong.  At the time of
shipment, Italade prepares and forwards to Argenti an
invoice covering the value of the merchandise plus Italade's
commission.  With respect to the entries under protest,
Argenti claims that the invoices include a design fee of
$0.60 per garment which was paid for designs created in the
United States by Mr. Pat Argenti (a party not related to
Argenti, Inc. the importer's counsel claims), and was
remitted in full by Italade to Mr. Argenti in the United
States.

     The subject protest requests that Customs reliquidate
the entries and appraise the merchandise at unit values that
exclude the design fee.  The information provided by
Argenti's counsel includes the following: (1) copies of
invoices from Italade, the buying agent, to Argenti, Inc.,
which set forth style numbers, quantities and unit prices
which the importer claims include a $0.60 per garment design
fee; (2) copies of a computer generated report reflecting
design fees payable on Italade Invoice No. I0924-86;  (3) a
design fee agreement between Italade Exports Limited and Pat
Argenti;  (4) a document which totals design
fees/commissions paid to Pat Argenti from August 1986 through
November 1986;  (5) documents stated to evidence payment
from Heng Seng Bank Ltd. in Hong Kong to Pat Argenti for said
design fees; and (6) miscellaneous other documents which
include copies of protests filed by Argenti.

ISSUE:

     Whether the cost for design work performed in the
United States, which is included in the buying agent's
invoiced price for the imported merchandise, but not
specifically provided for therein, can be deducted from the
transaction value of the imported merchandise subsequent to
importation into the United States.


LAW AND ANALYSIS:

     With respect to the design fees in question, the only
invoice that purports to include these charges, and the only
invoice provided to Customs, is an invoice from the buying
agent.  Information on that invoice includes style numbers,
price per unit and a five percent buying commission to
Italade.  Argenti argues that transaction value cannot be
based on an invoice from a bona fide buying agent that
includes non-dutiable charges, yet it has failed to provide
invoices from the actual manufacturers/sellers of the goods
at issue.  Counsel states that the importer is "merely asking
Customs to recognize that the manufacturers of the goods were
the sellers and that transaction value is properly determined
by the price paid to the sellers, not the buying agent."
At the time the protest was filed, the protestant provided no
documentation in the form of manufacturers or sellers
invoices, to support its claims about the price actually paid
or payable to the manufacturers/sellers.

     The importer argues that the language of the value
statute, specifically, section 402 (b)(1) supports its
position.  The relevant section defines "transaction value"
as follows:

          (b)(1)  The transaction value of imported
          merchandise is the price actually paid or
          payable for the merchandise when sold for
          exportation to the United States, plus amounts
          equal to-- ...

The "price actually paid or payable" is more specifically
defined in section 402(b)(4)(A) as:

               The total payment (whether direct or
               indirect...) made, or to be made, for
               imported merchandise by the buyer to, or
               for the benefit of, the seller.

     It is clear from the statutory language that in order to
establish transaction value one must know the identity of the
seller and the amount actually paid or payable to him.  As
stated in HRL 542141 (TAA #7), dated September 29, 1980,
"...an invoice or other documentation from the actual foreign
seller to the agent would be required to establish that the
agent is not a seller and to determine the price actually
paid or payable to the seller.  Furthermore, the totality of
the evidence must demonstrate that the purported agent is in
fact a bona fide buying agent and not a selling agent or an
independent seller."

     Section 402(b)(4)(B) addresses rebates or decreases in
the price actually paid or payable.  It states:

          Any rebate of, or other decrease in, the
          price actually paid or payable that is made or
          otherwise effected between buyer and seller
          after the date of the importation of the
          merchandise into the United States shall be
          disregarded in determining the transaction
          value under paragraph (1).

The language of section 402(b)(4)(B) requires that Customs
disregard rebates or decreases in the price actually paid or
payable subsequent to importation, thereby preventing a
recalculation of transaction value as the protestant has
requested here.

     Notwithstanding Customs legal position with regard to
section 402(b)(4)(B), here, the issue is one of fact.
Argenti argues that the design fee that was included in the
invoice price provided to Customs was not actually part of
the price actually paid or payable for the imported
merchandise because the design work was created in the United
States.  In further support of its arguments, Argenti cites
two Customs decisions, both of which address assist issues,
C.S.D. 82-151, 16 Cust. Bull. 987 (1982), where Customs held
that payments for design work performed in the United States
and furnished to the producer, without charge, by other than
the importer is not a dutiable assist as defined in section
402, Tariff Act of 1930, as amended by the TAA; and C.S.D.
81-64, 15 Cust. Bull. 862 (1980), where Customs held that if
the price actually paid or payable included charges for non-
dutiable services rendered abroad or in the United States,
and paid by the U.S. employer, no authority exists...to
remove them from the price actually paid or payable.  While
we recognize the concepts of these decisions, they are
applicable to the circumstances of this case only to the
extent that the statute does not give Customs the authority
to remove non-dutiable charges from the price actually paid
or payable.

     19 U.S.C. 1500 authorizes the appraising Customs
officer to consider the best evidence available in appraising
merchandise, and to weigh the nature of the evidence.  In
this case the only information provided was a buying agent's
invoice, and documentation concerning design fee payments to
Pat Argenti from the buying agent, who provided services to
Argenti, Inc., the importer.  For the purposes of this ruling
we have assumed that a bona fide buying agency exists.
However, this assumption in no way constitutes Customs
recognition of the existence of a bona fide buying agency in
this case.

     No invoices from the actual manufacturers were submitted
at the time of importation, nor with the protest papers filed
by counsel.  Only at a meeting with Headquarters attorneys in
August, 1990, did Argenti, through counsel, produce any
manufacturers invoices.  At that time, Argenti's counsel
produced manufacturers' invoices reflecting the price from
the seller to Italade (buying agent) with regard to seven
specific styles.  These seven invoices comprise only a small
sample of the garments exported by Italade to Argenti, which
are the subject of this protest.

     At the meeting with Headquarters personnel, Argenti's
counsel gave further assurances that payments for design
services went to Pat Argenti, individually, and in no way
benefitted the manufacturers/sellers in Hong Kong.


HOLDING:

     Section 402(b) of the Tariff Act of 1930, as amended by
the Trade Agreements Act of 1979 allows Customs to add
certain cost items to transaction value, but the statute does
not give us the authority to remove non-dutiable charges from
the price actually paid or payable.  Absent a clear showing
by the importer of the price actually paid or payable for the
merchandise, which entails the production of each and every
invoice from the manufacturers involved concerning every
style listed on Argenti's Commission (design fee) Report,
which are the subject of these protests, we have no choice
but to deny the protests.  Where the importer can show, with
manufacturers' invoices satisfactory to your office, the
price actually paid or payable to the seller, you are
directed to grant the protests, only with regard to those
items covered by manufacturers' invoices.  For those styles
where no manufacturers' invoices are produced, you are
directed to deny the protests.  The importer is entitled to a
refund of duty on the $.60 cent per garment design fee, only
on those garments where manufacturer's invoices are
presented.

     The amount of time the protestant and its counsel have
to supply you with the invoice documentation described herein
is left to your discretion, but in no case shall it exceed 30
calendar days from the date the protestant is advised of the
opportunity to provide this information.  One method of
advising the protestant of the opportunity to supply further
documentation is to provide a copy of this decision prior to
your issuance of a Form 19, Notice of Action.

     You are directed to grant in part, and deny in part the
subject protests in accordance with the decision set forth
above.   A copy of this decision should be attached to the
Form 19, Notice of Action, to be sent to the protestant upon
resolution of the matters addressed herein.



                              Sincerely,



                              John Durant, Director
                              Commercial Rulings Division