Dutiability of labels provided by importer

HQ W544790 March 1, 1992 VAL CO:R:C:V W544790 DPS CATEGORY: Valuation Ms. Denise Patterson
Payless ShoeSource, Inc. 3231 East 6th Street P.O. Box 1189 Topeka, Kansas 66601 RE: Dutiability of labels provided by importer Dear Ms. Patterson: This is in response to your letter of August 29, 1991, wherein you requested a ruling regarding Customs treatment of certain labels your company, Payless ShoeSource, Inc. (Payless) will be printing and distributing to the various foreign factories which supply Payless with product. FACTS : The importer, Payless, recently initiated a new label program that allows it to prelabel its product before it arrives at its distribution center and stores. The prelabeling program consists of four types of bar coded labels or tags which Payless will manufacture and distribute to its suppliers. The importer will be printing and distributing labels on a regular weekly cycle from its offices in Topeka. Payless will charge the factories $.01 per pair (of shoes) for the cost of the bar coded labels. Payless has instructed the factories to include the cost of the labels along with any increased labor costs that will result from affixing the labels in the price of the shoe. Payless shall pay duty on these costs which are included in the price of the shoes. Payless wants to make sure that the $.01 per pair that is added to the price by the factory is not added in again as an assist, because it is already included in the shoe price. Payless intends to collect the $.01 per pair via a deduction from its payments to the respective factories. Payless seeks a ruling that will allow it to make entry at the net invoice value, which includes the $.01 charge per pair for labels. It currently imports merchandise through the ports of Los Angeles, Norfolk, Jacksonville, Miami and Chicago. ISSUES: Whether the costs of the labels provided by the importer to its suppliers, which costs are to be assumed by the factories at the rate of $.01 per pair imported, then reflected in their invoices to the importer, are considered to be part of the transaction value of the imported merchandise. Whether for duty assessment purposes, the importer may utilize the invoice price which includes the cost of the labels, but for payment purposes deduct the cost of the labels it provided to the respective factories. LAW & ANALYSIS: For the purpose of this response, we are assuming that transaction value is the appropriate basis of appraisement. Transaction value is defined in section 402 (b) (1) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U. S.C. 1401 a (b) ; TAA) as the "Price actually paid or payable for the merchandise" plus amounts for the five enumerated statutory additions in §402 (b) (1) . The term "price actually paid or payable" means 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. §402 (b) (4) (A) of the Tariff Act of 1930 as amended by the TAA. Based on information provided by Payless, Payless will charge the factories $ .01 per pair for the labels. The price quoted to the buyers by the factories will include their cost of the labels along with any increased labor costs that will result from affixing the labels to the product. Payless then deducts $.01 per pair from all payments to the concerned factories. Under the circumstances presented here the cost of the labels is to be included in the invoice price from the factories. Provided that this cost is separately identified in the commercial invoice from the factory, there is no need to add their value to the price actually paid or payable again because it has already been included. In short, Customs will not assess duty on the cost of the labels twice. However, it should be noted that to the extent that the cost of the labels exceeds the $.01 charged, the additional amount would be added. Under authority of TAA No. 63, freight costs not passed on would be considered an assist. If the cost of the labels is not included as part of the price actually paid or payable for the imported footwear, then we must consider whether it constitutes one of statutory additions to the price actually paid or payable under transaction value. The five enumerated statutory additions under transaction value are set forth in §402 (b) (1) of the TAA are as follows: the packing costs incurred by the buyer with respect to the imported merchandise; any selling commission -incurred by the buyer with respect to the imported merchandise; the value, apportioned as appropriate, of any assist; any royalty or license fee related to the imported merchandise that the buyer is required to pay, directly or indirectly, as a condition of the sale of the imported merchandise for exportation to the United States; and the proceeds of any subsequent resale, disposal or use of the imported merchandise that accrue, directly or indirectly, to the seller. Upon review of the provisions set forth above, the question arises whether the labels provided by the importer, if not included in the price actually paid or payable, should be considered packing costs incurred by the buyer under subsection (A), or an assist under subsection (C) and added to the price actually paid or payable. The term "assist" is defined in section 402 (h) (1) (A) of the TAA as follows: 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 are necessary for the production of the imported merchandise. When the labels are effectively provided free of charge or at a reduced cost by Payless to the various factories and are deemed to be incorporated in the imported merchandise, the labels should be considered to meet the definition of an assist. Likewise, the labels could be considered to be packing materials pursuant to §402 (b) (1) (A) . The result is that the cost of the labels constitutes a statutory addition to the price actually paid or payable under §402 (b) (1) (A) or (C). Provided that the documentation submitted by the importer to Customs at the time of entry properly reflects the value of the imported merchandise and the subject labels, we would be satisfied that a proper appraised value is presented. However, the determination of the acceptability of the documentation submitted with the imported merchandise is left to the appraising officer at the port of entry in accordance with 19 U. S.C. section 1500 (section 500 of the Tariff Act of 1930 as amended by the TAA) . Section 500 authorizes the appraising officer to weigh the nature of the evidence before him in appraising the imported merchandise under the constraints of section 402. HOLDING: Under the circumstances of this case, the cost of the labels provided by Payless should be considered part of transaction value. These costs should be specifically reflected on the commercial invoice from the manufacturer, and duty assessed thereon. With regard to Payless's desire to pay the manufacturer's invoiced amounts, less the cost of the labels provided, please be advised that Customs may request documentation confirming prices and proof of payment as it relates to subject entries. Sincerely, John Durant, Director Commercial Rulings Division