Dutiability of incidental transportation costs; lease costs of tank cars held by U.S. customers

HQ W545554 June 30, 1994 VAL: CO:R:C:V W554554 DPS CATEGORY: Valuation Mr. Mario Madia Manager, Corporate Trade & Tariffs ICI Canada Inc. 90 Sheppard Avenue East Box 200 Station A North York Ontario M2N 6H2 RE: Dutiability of incidental transportation costs; lease costs of tank cars held by U.S. customers Dear Mr. Madia: This is in response to your ruling request of January 31, 1994, concerning Customs treatment of certain transportation related charges incurred after importation to the United States. We regret the delay in responding. FACTS: ICI Canada Inc. (ICIC) is a subsidiary of Imperial Chemical Industries PLC based in the United Kingdom. This request pertains to a business unit of ICIC known as ICI Forest Products (ICIFP) who is a manufacturer and distributor of chemicals used primarily in the pulp and paper industry. ICIFP operates three manufacturing facilities in Eastern Canada. Primary po1ts of entry for sales into the U.S. are: Houlton and Van Buren in Maine; Derby Line and Highgate Springs in Vermont; and Champlain and Massena in New York. The following products are sold by ICIFP to U.S. customers: Chlorine; Hydrochloric acid; and Sodium hydroxide. In the majority of cases, ICIC is the importer of record. ICIFP recently adopted a policy of invoicing its customers for incidental transportation costs which occur after the goods have been received by the customer. The products are shipped to U.S. customers primarily by rail in tank cars which are operated by ICIFP under a lease agreement. To create an incentive for customers to release the tank cars as soon as possible, a policy of charging for--extended possession of these tank cars beyond what is considered normal is being introduced. These charges are similar to demurrage charges imposed by transport companies. The policy involves charging the customer $50 U.S. per day after 30 free days for chlorine tank cars, and $50 U.S. per day after 15 free days for hydrochloric acid and sodium hydroxide tank cars. These charges are intended to reflect an estimate of the actual lease costs incurred by ICIFP for the period of time the tank car is held by a customer beyond the free period. The charges do not reflect transportation costs for the shipment of the goods. They will be invoiced separately from the goods. You indicate that the subject imported products are duty free, and because they qualify under the North American Free Trade Agreement, no user fees are payable. The sales in question are to non-related parties and the transaction value method is used for Customs purposes. ISSUE: Whether the subject charges reflecting lease costs of rail cars for the period of time the tank car is held by the U.S. customer beyond the free period, after the imported chemicals arrive in the U.S., are part of the "price actually paid or payable" of the imported merchandise. LAW AND ANALYSIS: For the purpose of this decision, we assume that transaction value is the proper basis of appraisement. Transaction value is defined in section 402(b)(l) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. 140la(b);TAA) as the "Price actually paid or payable for the merchandise" plus amounts for the five enumerated statutory additions in §402(b)(l). The "price actually paid or payable" is more specifically defined in §402(b)(4) as: "The total payment (whether direct or indirect...) made, or to be made, for imported merchandise by the buyer to or for the benefit of, the seller. Section 402(b)(3)(A)(ii) of the TAA provides that the transaction value of imported merchandise does not include any of the following, if identified separately from the price actually paid or payable: Any reasonable cost or charge that is incurred for-- (ii) the transportation of the merchandise after such importation. Based on the facts presented, the additional charge reflecting lease cost of rail cars for days beyond the free period, pertains to transportation related charges incurred after importation of the merchandise. Because these charges are to be separately identified from the price actually paid or payable for the imported merchandise, are incurred in the U.S. after importation, and are not fur the imported merchandise, they are not part of the transaction value of the imported merchandise. This position is consistent with Headquarters Ruling Letter (HRL) 543267, dated March 16, 1984. HOLDING: In accordance with the foregoing, the subject post-importation rail car lease costs are not part of the price actually paid or payable for the merchandise, and thus, not dutiable under the transaction value method of appraisement. Sincerely, John Durant, Director Commercial Rulings Division