OT:RR:CTF:VS H229800 KSG
Alan Goggins, Esq.
Barnes , Richardson & Colburn
475 Park Avenue South
New York, NY 10016
RE: Appraisement of used gas turbine parts
Dear Mr. Goggins:
This in in response to your request for a binding ruling submitted on behalf of Alstom Power, Inc., regarding the appraisement of used combustion gas turbine parts. The Entry Process & Duty Refunds Branch will respond separately to your questions regarding TIB’s.
FACTS:
Alstom Power, Inc. (“ AP”) is a major supplier of combustion gas turbines (“GT”), which are parts used in the power plant industry. These parts have defined useful operating life expectancies, not denoted in years but in equivalent operating hours (“EOH”). In many instances, parts used after 24,000 operating hours, known in the industry as one operating cycle, are imported from Canada or Mexico to AP for reconditioning so that they can be used for one more operating cycle.
AP states that the time frame between the original production of a GT part and its importation for reconditioning can vary between 2 and 11 years. AP also states that the creation of GT parts is often done in multiple European countries. For example, the base material or forgings may come from Germany, the machining may be done in Switzerland, the coatings may be applied in Italy, and final inspection may occur in Switzerland. Production costs will vary for any particular part depending on the supply chain used for that part. The parts operating in Mexico or Canada would not necessarily have passed through the U.S. and in most cases would have been sold assembled into a completed gas turbine unit and not as a part. The book value of the used parts is unknown since the parts are not owned by AP. Further, the parts may or may not be fully depreciated. Used GT parts are imported from Canada and Mexico, reconditioned in the U.S., and then exported back to customers in Mexico and Canada.
This request specifically involves the GT24 and GT11 models, which are known as “hot gas path” parts, because they have been directly exposed to gas products from combustion in a gas turbine engine. Not all hot gas path parts can be reconditioned. A physical inspection is necessary to determine whether or not the parts can be reconditioned depending on the wear caused by erosion, coating, thickness, surface condition, and dimensional stability. The physical inspection is performed in the U.S. and the decision to scrap or recondition is made at that time and recorded in an inspection database tool called R-DAS.
The entry that was given as an example was for a used set of blades. Typically, about 10 percent of the blades do not meet the reconditioning inspection and will need to be scrapped.
Counsel states that there is no sale involved for the used parts and the only basis of appraisement would be the fallback method as provided for in 19 U.S.C. 1401a(f). Counsel proposes to appraise the used parts by starting with the standard replacement cost of the pre-finished component value of the part, which is comprised of the raw materials of such parts formed in the shape that those materials ultimately will become (rough forging). Counsel proposes to apply a factor of 0.5 to account for the repair cost to arrive at an appraisement of the used parts.
ISSUE:
What is the proper appraisement of the used GT parts?
LAW AND ANALYSIS:
The preferred method of appraising merchandise imported into the United States is the transaction value method as set forth in section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (“TAA”), codified at 19 U.S.C. 1401a. 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 for five enumerated statutory additions. See 19 U.S.C. 1401a(b). In order for imported merchandise to be appraised under the transaction value method, it must be the subject of a bona fide sale between a buyer and seller, and it must be a sale for exportation to the United States. Since there is no sale in this case, transaction value cannot be used as a method of appraisement.
The transaction value of identical or similar merchandise is based on sales, at the same commercial level and in substantially the same quantity, of merchandise exported to the United States at or about the same time as that good being appraised. See 19 CFR 1401a(c). Since there is no sale in this case, this basis of appraisement cannot be used.
Under the deductive value method, merchandise is appraised on the basis of the price at which it is sold in the U.S. in its condition as imported and in the greatest aggregate quantity either at or about the time of importation, or before the close of the 90th day after the date of importation. See 19 U.S.C. 1401a(d)(2)(A)(i)-(ii). In this case, because the imported goods are not being resold in the United States, they cannot be appraised under the deductive value method.
The next method of appraisement is the computed value method. Under this method, merchandise is appraised on the basis of the materials and processing costs incurred in the production of imported merchandise, plus an amount for profit and general expenses equal to that usually reflected in sales of merchandise of the same class or kind, and the value of any assists and packing costs. See 19 U.S.C. 1401a(e)(1). Since AP states that the original cost information is no longer available and the parts may have been produced in more than one country by another party, there is insufficient information available to appraise the merchandise pursuant to the computed value method.
When merchandise cannot be appraised under the methods set forth in 19 U.S.C. 1401a(b)-(e), its value is to determined in accordance with the “fallback” method set forth in section 402(f) of the TAA. The fallback method provides that merchandise should be appraised on the basis of a value derived from one of the prior methods reasonably adjusted to the extent necessary to arrive at a value. See 19 U.S.C. 1401a(f) and 19 CFR 152.107. However, it may not be appraised, inter alia, on the basis of the price in the domestic market of the country of export, the selling price in the U.S. of merchandise produced in the U.S., minimum values, or arbitrary or capricious values. 19 U.S.C. 1401a(f);
19 CFR 152.108.
Under section 500 of the Tariff Act of 1930, as amended, 19 U.S.C. 1500(a) which constitutes CBP’S general appraisement authority, the appraising officer may “fix the final appraisement of 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 Statement of Administrative Action (SAA) which forms part of the legislative history of the TAA, provides in pertinent part:
Section 500 is the general authority for Customs to appraise merchandise.
It is not a separate basis of appraisement and cannot be used as such. Section 500 allows Customs to consider the best evidence available in appraising merchandise. It allows Customs to consider the contract between the buyer and seller, if available, when the information contained in the invoice is either deficient or is known to contain inaccurate figures or calculations….Section 500 authorize [sic] the appraising officer to weigh the nature of the evidence before him in appraising the imported merchandise. This could be the invoice, the contract between the parties, or even the recordkeeping of either of the parties to the contract.
In those transactions where no accurate invoice or other documentation is available, and the importer is unable, or refuses, to provide such information, then reasonable ways and means will be used to determine the appropriate value, using whatever evidence is available, again within the constraints of section 402.
Statement of Administrative Action, H.R. Doc. No. 153, 96th Cong., 1st Sess. at 2.
CBP has issued several rulings on the subject of imported used articles to be repaired in the U.S. In each case, the value was determined using the fallback method derived from a prior method, e.g. transaction value or computed value with reasonable adjustments to take into account the fact that the imported goods were imported to be repaired and were used goods.
For example, in Headquarters Ruling Letter (HRL) 548688, dated October 20, 2005, CBP allowed an importer to appraise imported power supplies in need of repair or recalibration by determining the current standard cost of new units, based on the cost of the parts, labor and other expenses associated with producing new units and then subtracting the average cost of repair. The company could not determine the original selling price. The average cost of repair was determined by totaling the actual repair cost of each unit for a given period and dividing this by the number of units repaired during the period.
In HRL 547877, dated January 23, 2002, CBP held that for equipment returned to the U.S. for repair, two deductions from the new sales price list were permitted: one for the repair and one for depreciation. The current list price was annually established by the company for each part which could be affected based on quantities ordered. Two factors were applied: one if a returned part was defective, and the other if the product was initially sold at discount and to account for depreciation.
In HRL 563470, dated June 12, 2006, CBP allowed an importer’s appraisement for goods needing repair which used the current list price and deductions for depreciation and the cost of repairs.
In the particular circumstances of this case, all “reasonable ways and means” must be used to appraise the merchandise, subject to the prohibitions in 19 U.S.C 1401a(f). As in the cases cited above, the original price is not known, so another reasonable method must be employed to appraise the goods. Further, a reasonable deduction to account for the fact that the goods are defective and in need of repair was allowed in the above cases. Counsel states that the 0.5 factor accounts for the fact that the parts imported for reconditioning have half or less than half of an expected life than new parts. We agree with counsel that this factor is reasonable given that their operating hours are tracked and will allow the parts to be used for at least one more operating cycle. Accordingly, pursuant to 19 U.S.C. 1401a(f), the method of appraisement proposed by counsel for the importer to use the standard replacement cost of the raw materials formed into the shape of the pre-finished component and to apply a factor of 0.5 to account for the value of the repair is a reasonable way and means to appraise the used parts.
HOLDING:
Pursuant to 19 U.S.C. 1401a(f), the method of appraisement proposed by counsel for the importer to use the standard replacement cost of the raw materials formed into the shape of the pre-finished component and to apply a factor of 0.5 to account for the value of the repair is a reasonable way and means to appraise the used parts.
A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy of this ruling, it should be brought to the attention of the CBP officer handling the transaction.
Sincerely,
Monika R. Brenner