CBP Ruling H237458

HQ H237458 July 11, 2013 OT:RR:CTF:VS H237458 KSG John J. Galvin, Esq. Galvin & Mlawski 245 Fifth Avenue Suite 1902 New York, NY 10016 Dear Mr. Galvin: This is in response to your letter dated January 8, 2013, requesting a binding ruling on behalf of Brown-Forman Corporation (“BF”), on the proper appraisement of imported over-proof bulk vodka. You also submitted a letter dated May 10, 2013, which we have considered. FACTS: Currently, BF imports bottled 80 proof Finlandia Vodka, a brand wholly owned by BF through its subsidiary, Finlandia Vodka Worldwide Ltd. It is produced under contract in Finland by Altia Corporation, an unrelated State-owned company. Finlandia is distilled from six-row barley at Altia’s distillery in Koskenkorva, Finland. The production involves more than 200 distillation steps using a continuous multi-pressure distillation system resulting in a 96% alcohol by volume neutral spirit. After distillation, the 192 proof vodka is transported to a plant in Rajamaki for dilution with water by adding 1.4 liters of water to every liter of the 192 proof bulk vodka and bottling. You state that the price currently paid by BF for the bottled 80 proof vodka is $3.77/proof per liter. The prospective imports would consist of 192 proof bulk vodka produced in the identical manner as described above up to the point of dilution and bottling. However, the bulk undiluted 96% alcohol will be imported by BF on consignment. In the U.S., the imported bulk vodka will be diluted and bottled. ISSUE: What is the proper basis of appraisement of the imported bulk vodka? 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. 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. You state that transaction value would not be available because the goods are imported on consignment. We agree. When imported merchandise cannot be appraised on the basis of transaction value, it is appraised in accordance with the remaining methods of valuation, applied in sequential order. 19 U.S.C. 1401a(a)(1). The alternative bases of appraisement, in order of precedence, are: the transaction value of identical or similar merchandise (19 U.S.C. 1401a(c)); deductive value (19 U.S.C. 1401a(d)); computed value (19 U.S.C. 1401a(e)); and the “fallback” method (19 U.S.C. 1401a(f)). 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 being appraised. See 19 U.S.C. 1401a(c). The definition of a good that would be considered “similar” is “merchandise produced in the same country and by the same person as the merchandise being appraised and is like the merchandise being appraised in characteristics and component materials and commercially interchangeable with the merchandise being appraised.” 19 CFR 152.102(h)(1). You argue that the imported bulk vodka is not identical to the imported diluted and bottled vodka, which we also agree with. You contend that the bulk undiluted vodka should be appraised using the transaction value of similar goods using the cost of bottled 80 proof Finlandia vodka as a similar good. You argue that the goods are similar because they are classified in the same tariff provision, both meet the definition of distilled spirits, and are both used for consumption as vodka. In Headquarters Ruling Letter (“HRL”) 545755, dated May 18, 1995, CBP considered whether certain “super pack” asparagus, selected from the top 17% of the summer season asparagus grown, was similar to Hidalgo summer season asparagus for the purposes of appraisement using transaction value of identical or similar merchandise. CBP ruled that the super pack asparagus was similar to other Hidalgo summer season asparagus. It was subject to the same weather, transportation distance, the same nutritional value, the same fungal and bacterial problems and the same consumer appeal. There was no documentation to show that the asparagus in question was required to be of a higher grade than the other summer season asparagus. In your letter dated May 10, 2013, you cite to HRL 545999, dated December 12, 1995, which refers to the Statement of Administrative Action accompanying the 1979 Trade Agreements Act, that adjustments to the value of similar merchandise under transaction value can only be made for differences in commercial level and quantities. CBP stated in HRL 545999 that the TAA does not permit adjustments to be made to the transaction value of identical or similar merchandise for any other reason. Since adjustment may only be made for commercial level and quantity, no adjustment can be made to account for the difference in proof. Accordingly, transaction value for identical or similar goods is not available as a basis of appraisement. 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). 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). Because the imported goods are not being resold in the United States, they cannot not be appraised under the deductive value method. Computed value should be used as a basis of appraisement of the imported undiluted bulk vodka. HOLDING: The imported undiluted bulk vodka cannot be appraised based on the transaction value of identical or similar merchandise by using the appraisement of 80 proof vodka. 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, Chief Valuation & Special Programs Branch