VAL RR:IT:VA 548519 GG
Area Port Director
U.S. Customs and Border Protection
6269 Ace Industrial Drive
Cudahy, WI 53110
RE: Application for Further Review of Protest No. 3701-03-100023; Classification of Fused Silica; Dutiability of International Freight Charges; Sufficiency of Evidence of Freight Costs
Dear Sir:
This is in response to the aforementioned Protest and Application for Further Review, dated October 20, 2003. The protestant, Refractory Services Inc., is protesting the appraisement and classification of imported fused silica. Our decision follows.
FACTS:
The protestant made eleven entries of fused silica between August 7, 2002 and August 4, 2003. The shipments were sent from China to Canada by vessel and then by rail from Vancouver to Chicago. The entries liquidated on September 19, 2003. The protestant filed a timely protest on October 17, 2003, protesting decisions of U.S. Customs and Border Protection (“CBP”) as to the classification and appraisement of the fused silica. The facts relating to each distinct issue are set forth below.
Classification of fused silica
The merchandise consists of bags of fused silica of different mesh size ranging from 0 to 325. The product is submitted to a grinder before entry and reground to customer specification after entry. The merchandise was entered under subheading 7001.00.1000 of the Harmonized Tariff Schedule of the United States (“HTSUS”). Upon liquidation, CBP changed the classification to subheading 3207.40.5000, HTSUS, with an attendant higher rate of duty.
Appraisement of fused silica
All but one of the invoices accompanying these shipments indicate that the term of sale for the sales transactions which caused the fused silica to be exported to the United States is “CFR Chicago.” According to Incoterms 2000, the term “CFR” means “Cost and Freight,” whereupon the seller must pay the costs and freight necessary to bring the goods to the named port of destination. None of the original invoices, bills of lading, packing lists, and arrival notices/freight bills, reveals a separately itemized amount for international freight costs, other than certain unspecified nominal “handling charges” that appear on some of the arrival notices/freight bills. At the time of the filing of the entry summaries, estimated freight charges were placed in column 33 B. of the CBP Forms 7501, reflecting the fact that the actual charges were unknown. In accordance with General Statistical Note 1(b)(ii) of the Harmonized Tariff Schedule of the United States, the freight charges were not deducted from the price to arrive at the declared value because they were estimated, not actual, charges. Upon liquidation, the protestant protested the inclusion of the freight charges in the price actually paid or payable, submitting new invoices from the factory purporting to show, in addition to the price for the goods, the separate freight charges to Chicago.
ISSUE:
What is the applicable classification of the fused silica?
Whether the international freight charges are dutiable?
LAW AND ANALYSIS:
Classification
With respect to the classification of the imported fused silica, the following subheadings from the Harmonized Tariff Schedule of the United States (“HTSUS”) are relevant:
Prepared pigments, prepared opacifiers and prepared colors, vitrifiable enamels and glazes, engobes (slips), liquid lusters and similar preparations, of a kind used in the ceramic, enamelling or glass industry; glass frit and other glass, in the form of powder, granules or flakes;
Glass frit and other glass, in the form of powder, granules or flakes:
Ground or pulverized
Other
In Headquarters Ruling 964701, dated October 22, 2001, we stated, in pertinent part, the following:
The discrepancy occurs at the eight-digit level necessitating a GRI 6 analysis. It is the opinion of the Customs Service that the term “ground or pulverized” refers not only to the imported merchandise having been subjected to a process of grinding or pulverizing, but also, that the merchandise be imported in a state of having been ground or pulverized. A substance which has been ground or pulverized is generally in the state of a powder or of granules. The instant merchandise, by virtue of its condition as course flakes measuring approximately 160 microns is not imported in the state of having been ground or pulverized. Although the glass was processed through a machine referred to as a grinder, the imported product does not appear to have been ground or pulverized. This determination is consistent with rulings on similar substances used for the same purposes. (See Headquarters ruling letter (HQ) 962732, dated October 8, 1999, and New York ruling letter (NY) A88143, dated October 18, 1996).
Here, the imported merchandise consists of both large and small glass pieces and is reground after entry. It is therefore imported in a state of being other than ground or pulverized.
Hence, the fused silica is classified in subheading 3207.40.50, HTSUS, the provision for “[P]repared pigments, prepared opacifiers and prepared colors, vitrifiable enamels and glazes, engobes (slips), liquid lusters and similar preparations, of a kind used in the ceramic, enamelling or glass industry; glass frit and other glass, in the form of powder, granules or flakes: [G]lass frit and other glass, in the form of powder, granules or flakes: [O]ther.”
Appraisement
The preferred method of appraisement is transaction value, which is defined by section 402(b)(1) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (“TAA”; 19 U.S.C. § 1401a(b)) as the “price actually paid or payable for the merchandise when sold for exportation to the United States…” plus certain additions specified in § 402(b)(1)(A) through (E) of the TAA. The term “price actually paid or payable” is defined in § 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.
See also, § 152.102(f), Customs Regulations (19 CFR § 152.102(f)). The costs associated with freight and insurance are not the estimated costs, but the actual costs paid to the freight forwarder, transport company, etc. See, Headquarters Ruling Letter (“HRL”) 542206 dated March 23, 1981, HRL 544538 dated December 17, 1982, and HRL 542467 dated August 13, 1981. In HRL 546226 dated March 25, 1996, U.S. Customs and Border Protection (“CBP”) determined that if the actual costs are not available or cannot be verified, costs for international transportation and insurance will not be excluded from transaction value. See also Treasury Decision (“T.D.”) 00-20 and the informed compliance publication What Every Member of the Trade Community Should Know About Proper Deductions of Freight and Other Costs from Customs Value, March 2000.
T.D. 00-20 and the aforementioned informed compliance publication provide the following information about the sufficiency of evidence of actual freight costs:
[CBP] considers actual costs to constitute those amounts ultimately paid to the international carrier, freight forwarder, insurance company or other appropriate provider of such services. Commercial documents to and from the service provider such as an invoice or written contract separately listing freight/insurance costs, a freight/insurance bill, a through bill of lading or proof of payment of the freight/insurance charges (i.e., letters of credit, checks, bank statements) are examples of some documents which typically serve as proof of such actual costs. Other types of evidence may be acceptable.
The acceptability of other documentary evidence is at the discretion of the appropriate [CBP] official. Section 500(a) of the TAA, as amended (19 U.S.C. § 1500(a)), states that [CBP] shall, under rules and regulations prescribed by the Secretary –
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, or other document to the contrary notwithstanding.
As evidenced by the reference to § 500 in the Statement of Administrative Action (“SAA”), which forms part of the legislative history of the TAA, Congress recognized CBP’s authority to use reasonable ways and means to determine the appropriate value, using whatever evidence is available, within the constraints of § 402 of the TAA. Additionally Congress noted in the SAA that:
Section 500 allows [CBP] to consider the best evidence available in appraising merchandise . . . Section 500 authorize[s] the appraising officer to weigh the nature of the evidence before him in appraising the imported merchandise.
Thus, a [CBP] official has discretion in accepting various types of evidence to verify the amounts deducted for freight.
In the case at hand, the only documentation presented to establish actual freight costs are commercial invoices from the seller to Refractory Services, Inc., presented for the first time when the protest was filed. Unlike the original invoices that accompanied the entries, these new invoices purport to show the actual freight charges to Chicago. However, no bills or invoices from the carrier or freight forwarder have been submitted for CBP’s review. As stated in HRL 544538, supra, CBP has always looked to documentation from the freight company, not the documentation between the buyer and the seller, when determining actual freight charges. We do not find the new invoices by themselves to be convincing evidence of the actual freight costs. Consequently, the freight costs may not be deducted from the price actually paid or payable.
HOLDING:
The fused silica is classifiable under subheading 3207.40.50, HTSUS.
Insufficient evidence exists to establish the actual international freight costs. Consequently, the international freight costs may not be deducted from the price actually paid or payable.
As a result of these two holdings, you are directed to DENY the protest. In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2002, pp. 18 and 21), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to CBP personnel, and
to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Virginia L. Brown
Chief
Value Branch