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