Valuation of Imported Gear Boxes; Extended Warranties; Price Actually Paid or Payable after Importation; Assists

HQ H253493 September 4, 2014 VAL-2 OT:RR:CTF:VS H253493 RSD CATEGORY: VALUATION Port Director U.S. Customs and Border Protection 1100 Raymond Boulevard Newark, NJ 07102 RE: Valuation of Imported Gear Boxes; Extended Warranties; Price Actually Paid or Payable after Importation; Assists Dear Port Director: This is in reference to a letter we received dated May 5, 2014, from counsel of Voith Turbo, Inc. (VTI), concerning the valuation of gear boxes imported from Germany. According to VTI’s counsel, your office sent a CBP Form 28 (CF28) Request for Information concerning “Undeclared Warranty Assists.” Subsequently, on April 14, 2014, VTI filed a prior disclosure with respect to classification and valuation issues. Because we have been informed by your office that there are entries with valuation issues presently pending before your port, we will treat counsel’s letter as a request for internal advice. FACTS: VTI purchased and imported gear boxes from a related party in Germany, Voith Turbo. The gear boxes were then resold to an unrelated U.S. manufacturer, which incorporated the gear boxes into transmission systems used for buses. VTI’s customer delivered the finished buses to a mass transit authority in the United States, after which VTI’s customer requested and was provided an extended warranty for the gear boxes. In a second transaction, VTI purchased an extended warranty for the gear boxes from Voith Turbo. VTI sold the extended warranty to its customer; and the customer in turn, provided the extended warranty to the mass transit authority. Counsel submitted a sample revised purchase order dated September 29, 2011, from one of VTI’s customers, Gillig LLC. (Gillig), to VTI for 30 gear boxes. Following the purchase order, VTI sent an order confirmation back to Gillig for the 30 gear boxes. The order confirmation states that the standard warranty for the gear boxes is “2 Year 150K Mile warranty, covering 10 percent parts and labor.” On November 11, 2011, VTI issued a purchase order to Voith Turbo for 15 gear boxes with the receipt dates of December 19, 2011 and January 19, 2012. Voith Turbo issued an invoice to VTI on December 16, 2011 for 9 gear boxes. Counsel submitted a CBP Form (CF) 7501 showing that an entry was made for the gear boxes imported into the U.S. on January 2, 2012. On January 11, 2012, VTI issued an invoice to Gillig for the gear boxes. On May 16, 2012, Gillig ordered a five year/300,000 mile extended warranty for 30 buses sold to the Utah Transit Authority that were placed in service between February 1, 2012 and March 15, 2012. The order identified the specific buses and transmission serial numbers of the Utah buses covered under the extended warranty. On June 19, 2012, VTI submitted a purchase order to Voith Turbo for the extended warranty on the gear boxes used for the Gillig/UT buses. VTI issued an invoice to Gillig/UT showing the amount owed for the extended warranty on September 18, 2012. ISSUES: I. Is the extended warranty on the gear boxes purchased by the importer from the manufacturer in Germany dutiable as an assist? II. Are the payments from the importer to the overseas manufacturer of the gear boxes for the extended warranty dutiable as part of the price actually paid or payable? LAW AND ANALYSIS: Merchandise imported into the United States is appraised in accordance with Section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. § 1401a). The preferred method of appraising merchandise imported into the United States is transaction value pursuant to section 402(b) of the Tariff Act of 1930. Section 402(b)(1) of the TAA provides, in pertinent part, that the transaction value of imported merchandise is the "price actually paid or payable for the merchandise when sold for exportation to the United States" plus enumerated statutory additions, including the value, apportioned as appropriate, of any assist. 19 U.S.C. 1401a(b)(1).  The "price actually paid or payable" is defined in section 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...) made, or to be made, for the imported merchandise by the buyer to, or for the benefit of, the seller." Transaction value is an acceptable basis of appraisement only if, inter alia, the buyer and seller are not related, or if related, an examination of the circumstances of the sale indicates that the relationship did not influence the price actually paid or payable, or the transaction value of the merchandise closely approximates certain “test values.” 19 U.S.C. §1401a(b)(2)(B); 19 CFR §152.103(l). While the fact that the buyer and seller are related is not in itself grounds for regarding transaction value as unacceptable, where CBP has doubts about the acceptability of the price and is unable to accept transaction value without further inquiry, the parties will be given the opportunity to supply such further detailed information as may be necessary to support the use of transaction value pursuant to the methods outlined above. Although the transactions under consideration are between related parties and no evidence has been presented to show that the price paid for the imported merchandise was not influenced by the relationship of the parties, and no information was furnished to show that the transaction value of the imported merchandise closely approximates certain “test values, we will nevertheless assume, only for the purposes of this decision, that transaction value is the applicable method for appraising the imported merchandise under consideration as the port has not questioned this aspect. Assists With regard to assists, Section 402(h)(1)(A) of the TAA provides, in pertinent part, as follows: The term 'assist' means any of the following if supplied directly or indirectly, and free of charge or at reduced cost, by the buyer of imported merchandise for use in connection with the production or the sale for export to the United States of the merchandise: (i) Materials, components, parts, and similar items incorporated in the imported merchandise.(ii) Tools, dies, molds, and similar items used in the production of the imported merchandise.(iii) Merchandise consumed in the production of the imported merchandise.(iv) Engineering, development, artwork, design work, and plans and sketches that are undertaken elsewhere than in the United States and arenecessary for the production of the imported merchandise. Furthermore, the TAA Statement of Administrative Action (SAA) and section 152.103(d)(1), Customs Regulations (19 C.F.R. 152.103(d)(1)), set forth the manner in which assists are to be valued. In particular, section 152.103(d)(1) states that: If the assist consists of materials, components, parts, or similar items incorporated in the imported merchandise, or items consumed in the production of the imported merchandise, acquired by the buyer from an unrelated seller, the value of the assist is the cost of its acquisition. If the assist were produced by the buyer or a person related to the buyer, its value would be the cost of its production. In either case, the value of the assist would include transportation costs to the place of production. When considering whether services provided by a buyer to a manufacturer located abroad constitute an assist, one must distinguish between those services that are completely unrelated to the production of the imported merchandise and those services necessary for the production of the imported merchandise. See Headquarters Ruling (HQ) 546782 (December 2, 1999). Generally, managerial and supervisory services performed abroad that relate to the direction and management of overall plant operations are not considered to constitute assists when paid for by a buyer of the merchandise because such services are not necessary or integral to the production of the imported merchandise. The extended warranty provided does not fall within any of the definitions of an assist provided in 19 C.F.R. 152.103(d)(1). For example, it is not a material, component, part or similar item incorporated in the imported merchandise; a tool, die, mold or similar item used in the production of the imported merchandise; or engineering, development, artwork, design work, or plans or sketches undertaken elsewhere than in the United States that are necessary for the production of the imported merchandise. The extended warranty also does not qualify as merchandise consumed in the production of the imported merchandise. Moreover, there is no indication that the extended warranty was provided by the buyer of the imported merchandise for free or at a reduced cost. Therefore, we find that the extended warranty is not an assist. II. Price Actually Paid or Payable Although the extended warranty is not an assist, we must still consider whether the payment for the extended warranty could be considered dutiable as a part of the “price actually paid or payable” for the imported merchandise. In HQ 545153, dated December 21, 1993, we noted that the warranty costs...attach to, and are an integral part of, the merchandise upon its importation. We further stated that it follows that the consideration paid for the merchandise, i.e., the "price actually paid or payable", must include all charges paid for any warranty which is a guarantee that the merchandise will be free from defects. Because the involved warranty under consideration in HQ 545153 attached to and was an integral part of the imported merchandise, we determined that the payment made for the warranty was part of the consideration paid for the merchandise. Thus, such charge was part of the "price actually paid or payable" and was dutiable under the transaction value basis of appraisement. Because the commercial invoice attached to the CF 7501 indicated that the warranty payment was included in the total price for the protested merchandise, the warranty costs in question formed an integral part of the merchandise upon importation, and we held that the cost of the warranty was part of the price actually paid or payable and dutiable under transaction value. However, in this case, the documents presented indicate that there were two separate transactions, one involving the sale of the imported gear boxes and a second subsequent separate transaction involving the purchase of an extended warranty. The purchase order for the merchandise indicates that following an order on September 29, 2011, from a U.S. customer, VTI entered into an agreement to purchase the imported gear boxes on November 11, 2011 from Voith Turbo in Germany. The CBP Form (CF) 7501 indicates that the entry for the imported merchandise was made on January 2, 2012. In a second transaction, VTI issued a purchase order for an extended warranty from Voith Turbo, the seller of the gear boxes on June 18, 2012. Hence, the extended warranty was purchased from the seller after the merchandise had already been imported into the U.S. and delivered to VTI’s customer. Therefore, we find that the payment for the extended warranty was not part of the price actually paid or payable for the imported merchandise, and would not be dutiable. HOLDING: The extended warranty is not an assist. Since the agreement to purchase the extended warranty was entered into after the transaction for the purchase of the merchandise had been completed and after the merchandise had been imported into the United States, it is not included in the price actually paid or payable of the imported gear boxes. Therefore, the payment for the extended warranty is not included as part of the dutiable value of the imported merchandise. This decision should be mailed by your office to the party requesting Internal Advice no later than 60 days from the date of this letter. On that date, 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, Monika R. Brenner, Chief Valuation and Special Programs Branch