VAL CO:R:C:V 544701 ILK
TO : Director, International Trade Compliance Division
FROM: : Director, Commercial Rulings Division
SUBJECT : Dutiability of contracted quality control and packing services; ENF 4-02.2 CO:R:IT:P 656745 CQ
This is in response to your request for review of documentation submitted on behalf of Randolph Slaughter Co. (hereinafter referred to as "petitioner") regarding the issue of the inclusion of the cost of administrative, supervisory and packing services paid to the seller in the price actually paid or payable. Subsequent to our receipt of the file, letters dated December 12, 1991, May 30, 1992 and November 24, 1992 were submitted on behalf of the petitioner, which provide additional information regarding services provided for the petitioner by a third party.
FACTS:
A penalty has been assessed against the petitioner for undervaluation based on a failure to declare costs incurred for contracted supervisory quality control and packing services. The petitioner had entered into contracts with Empacadora General Agricola Del Bajio (hereinafter referred to as the "seller") of Mexico to import asparagus. The contracts which are the subject of this penalty are for the years 1985 and 1986. Pursuant to the 1985 contract the importer agreed to pay to the seller a set price per carton of asparagus plus $1.00 per carton "for administrative and supervision services." Pursuant to the 1986 contract the importer agreed to pay the seller the set price per carton, plus $1.75 per carton "for administrative and supervision services and packing."
Invoicing for the foregoing administrative, supervisory and packing services was provided for in the contracts as follows:
6. Both parties agree that the seller will invoice each shipment at the price quoted and that a commercial invoice will accompany each shipment; the additional [$1.00 in 1985, $1.75 in 1986] can be invoiced by the seller at his convenience, but no more than once a month and no less than once a week.
The petitioner states that the seller did not provide any "administrative and supervision services," did not bill for such services, and thus the petitioner did not pay for such services. Other than the contract language, the petitioner alleges that there is no evidence that the services were billed for or paid for. The petitioner claims that Customs audited its records, and thus should be able to confirm that such administrative and supervision services were neither billed by the seller nor paid to the seller. However, we have not been able to establish that any audit was performed.
The petitioner states that instead of having the seller provide the "administrative and supervision services," it contracted with an American company, Lee Brands, Inc. (hereinafter referred to as "Lee Brands"), for quality control and packing supervision. The contract with Lee Brands is dated July 29, 1983 and was to remain in effect until canceled by mutual agreement. It is represented in a letter written on behalf of the petitioner dated March 27, 1991 that the petitioner and Lee Brands agree that the agreement was never cancelled and that it remained operative during 1985 and 1986.
The contract provided that Lee Brands would perform a number of services for a fee of 11% of the resale price of the asparagus. The services include the following:
...
2. Advance funds for harvesting and packing costs.
...
3. Furnish quality control to assure high quality pack.
...
8. Assistance given in the procuring of packing materials.
...
10. Assist in the setting up of the asparagus bunching line:...
B. Provide Empacadora G.A.B. with supervision to construct sorting and packing tables for sorting operation.
11. Furnish supervisor and several experienced bunched asparagus packers to train crew for packing. The crew and supervisors would be your expense but the separate quality control personnel would be provided by Lee Brands, Inc.
With respect to the services described in paragraph 11 of the contract, according to the petitioner's May 30, 1992 submission, in 1985 and 1986 no training expense was incurred, and the quality control service provided was included in the 11% service fee. In a letter on behalf of the petitioner, dated November 24, 1992, it is represented that the quality control and packing supervision services were performed by Lee Brands only in 1983, and not in 1985 or 1986.
According to the entry summaries and seller invoices, duty was paid only on the invoice price of the asparagus.
The petitioner claims that no payment for the administrative, supervisory and packing services was ever made to the seller because those services were never provided by the seller. However, it is the petitioner's position that even if the payments for administrative, supervisory and packing services had been made to the seller they are not dutiable, because such services are not included in transaction value pursuant to §402(b)(1) of the Trade Agreements Act of 1979 (TAA), either as "packing costs" or "assists." The petitioner also takes the position that payments to Lee Brands for administrative and quality control services are not dutiable.
ISSUE:
Whether payments for administrative and supervision and/or packing services made to the seller are included in the transaction value of the merchandise.
LAW AND ANALYSIS:
The preferred method of appraisement is transaction value which is defined by §402(b)(1) of the Trade Agreements Act of 1979, (19 U.S.C. 1401a(b)(2)) as "the price actually paid or payable for the merchandise when sold for exportation to the United States...." The term "price actually paid or payable" is defined in TAA §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. (emphasis added)
It has been the longstanding position of the Customs Service that all moneys paid to the foreign seller are part of the "price actually paid or payable" for the imported merchandise. See
Headquarters Ruling Letter (HRL) 542169 (TAA #6) dated September 18, 1980. Our position has recently been affirmed by the Court in Generra Sportswear Co. v. United States, 905 F.2d 377 (Fed. Cir. 1990). While Generra has been only recently decided, it reaffirmed our position.
In this case, pursuant to the TAA, if payments of $1.00 or $1.75, per carton, were made to the seller by the importer, they would be part of the price actually paid or payable, regardless of whether they were for administrative or supervisory services, or for packing services. The question of whether the amounts paid are assists is not reached.
The petitioner cites C.S.D. 90-77, TAA #52 dated
September 21, 1982, HRL 543551 (incorrectly cited as 543351) dated August 27, 1985, and HRL 542905 dated January 28, 1983. None of these cases are applicable here. The payments for administrative and quality control services and supervisory functions found not to be part of the transaction value in C.S.D. 90-77, were not payments made to the seller, as they are in this case. In TAA #52 and HRL 543551, the payments found not to be part of the price actually paid or payable, were not tied to the sale of any specific merchandise. In this case, the payments were to be $1.00 or $1.75 per carton of the imported merchandise, which payments are clearly tied to the sale of specific merchandise. In HRL 542905, it was ruled that fumigation charges paid to the seller are part of the price actually paid or payable for the imported merchandise.
With respect to the question of fact regarding whether the amounts of $1.00 and $1.75 were paid to the seller by the petitioner, we must consider the evidence available to us. It is provided in 19 U.S.C. §1500 as follows:
The appropriate customs officer shall, under rules and regulations prescribed by the Secretary-
(a) appraise merchandise by ascertaining or estimating the value thereof, under section 1401a of this title, by all reasonable ways and means in his power, any statement of cost or costs of production in any invoice, affidavit, declaration, other document to the contrary notwithstanding;
The 1985 and 1986 contracts between the petitioner and the seller provide that in addition to the set price per carton, the petitioner was to pay the seller $1.00 per carton "for administrative and supervision services" in 1985, and $1.75 per carton "for administrative and supervision services and packing" in 1986. The petitioner claims that these additional services were never provided by the seller, and thus not billed to the petitioner and not paid for by the petitioner. As evidence in support of this claim the petitioner provided Customs with a copy of the 1983 contract between the petitioner and Lee Brands. The petitioner represented that the services that were to be performed by the seller in 1985 and 1986 were performed by Lee Brands instead. However, most recently in the letter of November 24, 1992, written on behalf of the petitioner, it is represented that the quality control and packing supervision services were performed by Lee Brands in 1983 only, and not in 1985 or 1986. This returns us to the 1985 and 1986 contracts as evidence that the additional administrative and supervisory services were provided by the seller, and were paid for by the petitioner. There is no question that the merchandise was imported, thus the services in issue must have been provided by someone. The documentation submitted by the petitioner combined with the petitioner's representations regarding the documents support a finding that the contracted services were provided by the seller, and were paid for by the petitioner.
HOLDING:
Payments for administrative, supervision and/or packing services, made to the seller by the petitioner, are included in the price actually paid or payable and are included in the transaction value of imported merchandise.
John Durant