VAL R:C:V 545869 EK
District Director
Detroit, Michigan 48226
RE: Protest No. 3801-4-104122
Dear Sir:
This is in response to the above-referenced protest and application for further review
regarding your decision in the valuation of merchandise sold by Cimco Refrigeration (seller). The
seller is protesting the valuation decision.
FACTS:
The seller provides services related to the design, manufacture, delivery and installation of
refrigeration equipment, including recreational and professional ice hockey arenas. The seller
contracted with Central Ohio Ice Rinks, Inc. (hereinafter referred to as buyer) to provide the
design and equipment for artificial ice equipment to be supplied and installed in a rink in Ohio.
The buyer agreed to pay one lump sum of $499,900 to cover all materials and services necessary
for the project, including on-site installation services provided by the seller. Pursuant to the
contract, the seller sold both Canadian and U.S. materials and provided services in both Canada
and the U.S. This price included duty and custom brokerage fees. The merchandise was
appraised pursuant to transaction value, section 402(b) of the Tariff Act of 1930, as amended by
the Trade Agreements Act of 1979 (TAA).
The final dutiable value was determined as follows:
$499,900.00 Total contract amount
- 11,845.00 Less state sales tax
- 4,878.77 Less duty, brokerage, processing fees
-----------------
$483,176.23 Adjusted contract amount
- 84,563.54 Less U.S. based shipments and services
- 29,410.77 Less Canadian installation
- 9,760.00 Less field supervision
- 7,424.00 Less field engineering
-------------------
$352,017.92 Total dutiable value
The seller is protesting Customs' decision to use the transaction value method of
appraisement and the decision to deny the deduction on the "mark-up" of the U.S. -sourced goods
and services.
ISSUE:
Whether there exists sufficient information to determine the price actually paid or payable
for the imported merchandise in order to appraise the merchandise pursuant to transaction value
and if so, whether an adjustment to transaction value should be made for a "mark-up" on U.S.-sourced merchandise and services.
LAW AND ANALYSIS:
Transaction value is defined in section 402(b) of the TAA as the "price actually paid or
payable when sold for exportation to the United States", excluding any of the
following, if identified separately from the price: "any reasonable cost or charge 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; or (ii) the
transportation of the merchandise after such importation". Sufficient information must be
available to make any additions or deductions from the price actually paid or payable. In addition,
in order to properly appraise merchandise under the transaction value method, sufficient
information must be available in order to properly determine the price actually paid or payable.
The seller claims that transaction value is not applicable because the price actually paid or
payable cannot be determined or quantified from the contract and payments. The total contract
price, i.e., $499,900, includes imported and non-imported merchandise and services. The seller
further argues that since the contract provided for a single lump sum price covering various
materials and services, there is insufficient information to determine the price actually paid or
payable.
We disagree with these claims. With regard to this contract, sufficient documentation and
evidence has been provided to determine the transaction value. From the initial contract price, the
proper deductions were specified and were taken off the price to determine the dutiable value. In
a submission dated January 13, 1994, called the "Columbus Chill Contract Summary", there is an
initial contract price with specified amounts for deductions to be made from the price. There are
breakdowns of specific U.S. based shipments and services as well as site supervision and
installation start up costs. The use of transaction value is proper in this case as there is sufficient
information upon which to make the appropriate deductions.
The seller claims that if transaction value is in fact applicable in appraising the
merchandise, then the seller's "mark-up", or essentially its profit on the U.S.-sourced goods and
services should be deducted from the price actually paid or payable by the buyer.
In TAA #59 dated March 4, 1983, the transaction in question involved one contract and
one total price for the design and supply of all components for chemical plants and pulp and paper
systems. The ruling held that transaction value was in fact applicable as a means of appraisement
and further stated that "[p]resumably, the price of the imported articles includes a proportionate
share of your engineering overhead and profit, and only that sum, if identifiable, would be
included in transaction value". In a subsequent reconsideration of TAA #59, C.S.D. 84-62 dated
January 3, 1984 (HQ Ruling 543226) modified TAA #59 and held that with regard to those set of
facts, transaction value was not applicable because the price actually paid or payable could not be
quantified for the Canadian-manufactured components. However, the principles outlined in TAA
#59 were not overruled.
In this case, as indicated above, transaction value is appropriate since the price actually
paid or payable can be quantified. The "mark-up" on the U.S.-sourced merchandise has been
identified separately by the seller. In deciding how to quote the final price to the U.S. purchaser,
the seller prepared an internal sales estimate which summarized the estimated breakdown of the
total contract price. The seller has provided a summary of the contract price which illustrates the
manner in which the seller calculates its profit and how it is proportionately applied to all costs in
the contract.
As indicated in TAA #59, the price actually paid or payable for the imported merchandise
should include a proportionate share of overhead and profit, and only that sum, if identified
separately. Here, the total price covers both imported and non-imported merchandise. The price
actually paid or payable should only include the proportionate share of overhead and profit
reasonably allocated to the imported merchandise. Given the documentation provided, it is our
conclusion that the "mark-up" has been separately identified and is reasonably allocated.
Therefore, a deduction from the price actually paid or payable for the "mark-up" on the U.S.
sourced goods and services is proper.
HOLDING:
The protest should be granted in accordance with the foregoing. In accordance with
Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised
Protest Directive, this decision should be mailed by your office 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 take steps to make the decision available to Customs personnel via the Customs
Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of
Information Act and other public access channels.
Sincerely,
John Durant, Director
Commercial Rulings Division