Internal Advice; deductibility of duties; 19 U.S.C. § 1401a(b)(3)(B).

HQ W547624 October 31, 2001 RR:IT:VA W547624 CC CATEGORY: Valuation Port Director U.S. Customs Service 2nd and Chestnut Streets Philadelphia, PA 19106 RE: Internal Advice; deductibility of duties; 19 U.S.C. § 1401a(b)(3)(B). Dear Sir or Madam: This is in response to your request for internal advice of December 3, 1999 (your file CLA-2-PD:TC:WLY), concerning the valuation of cheese imported by Western Dairy Products Inc. (hereinafter “Western Dairy”). We apologize for the delay in responding. FACTS: Western Dairy imports various cheese products that are subject to a tariff rate quota. In order to enter the merchandise at the in-quota rate, the importer of record must hold a valid license. For the merchandise at issue, entered in 1998, Western Dairy held a license. Western Dairy purchased the subject cheese from New Zealand Farms, U.S.A. (hereinafter “NZF”), to whom it is related. In response to a Customs Form (CF) 28, Western Dairy stated that this relationship did not affect the price paid or payable for the subject merchandise, and is similar to prices paid by unrelated parties. For the subject merchandise, the invoice contains a number of additions and deductions. You have included a copy of an invoice, which lists additions and deductions such as varietal premium, market adjustment, customer discount and commitment incentive. These additions and deductions to invoice price are explained in a document entitled NZF Pricing Policy, which you have submitted. The deduction at issue is called a “duty allowance.” The invoices that you submitted contain this deduction. The duty allowance is explained in NZF Terms and Conditions of Trade. It states that “[i]t is the Responsibility of the Buyer to arrange for the payment of Customs duties upon entry of the product into free circulation within the USA.” The document then lists a formula by which the duty allowance is calculated. Finally, it states “[a]ctual Customs duties payable could, therefore, be above or below the value of the Duty Allowance calculated using this method.”  The terms of sale are CIF. Although you acknowledge that insurance and freight can be legitimately deducted, you believe that duties, which are paid by the buyer in a CIF sale, cannot be deducted from the invoice price to arrive at the price actually paid or payable. Therefore, you ask whether the price actually paid or payable should include the amount for the “duty allowance” when the terms of sale are CIF. ISSUE: Whether the “duty allowance” may be deducted from the price actually paid or payable pursuant to 19 U.S.C. § 1401a(b)(3)(8). LAW AND ANALYSIS: As you know, imported merchandise is appraised in accordance with section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA: 19 U.S.C. § 1401a),and that the preferred method of appraisement is transaction valuation. Transaction value is the “price actually paid or payable for merchandise when sold for exportation to the United States,” plus five statutorily enumerated additions. When parties are related, section 402(b)(2)(8) of the TAA (19 U.S.C. § 1401a(b)(2)(8)) provides that transaction value is acceptable only if an examination of the circumstances of the sale indicates that the relationship between the buyer and seller did not influence the price actually paid or payable or if the transaction value of the imported merchandise closely approximates the transaction value of identical or similar merchandise in sales to unrelated buyers in the U.S. or the deductive or computed value for identical or similar merchandise. You have presented information that the buyer, Western Dairy, and the seller, NZF, are related. In addition, Western Dairy has stated that this relationship does not affect the price actually paid or payable and that the price paid by Western Dairy is calculated in the exact same way as the price paid by unrelated parties. Consequently, for purposes of this letter, we are assuming that the relationship does not affect the price actually paid or payable and that transaction value can be used to appraise the merchandise. 19 U.S.C. § 1401a(b)(3) provides the following: The transaction value of imported merchandise does not include any of the following, if identified separately from the price actually paid or payable and from any cost or other item referred to in paragraph (1): (B) The customs duties and other Federal taxes currently payable on the imported merchandise by reason of its importation, and any Federal excise tax on, or measured by the value of, such merchandise for which vendors in the United States are ordinarily liable. See also, 19 CFR § 152.103(i). We agree that the “duty allowance” cannot be deducted from the invoice price to arrive at transaction value. First, in order to deduct duties, the duties must be included in the price actually paid or payable in this case. There is nothing to deduct since duties are not part of the price actually or payable. In HRL 546037, dated January 31, 1996, the terms of sale were DDP, and, thus, included duties. The seller paid the duties, which were included in the price charged to the buyer. Since the value of the goods did not include these duties, we found them to be deductible pursuant to 19 U.S.C. § 1401a(b)(3)(B). In this case the terms of sale are CIF. The terms of sale do not include duties, and the seller does not pay duties. In fact, the NZF Terms and Conditions of Trade states that it is the buyer’s responsibility to pay duties. Duties are not included in the price paid by the buyer to the seller and, therefore, are not deductible pursuant to 19 U.S.C. § 1401a(b)(3)(B). Second, only actual U.S. duties may be deducted from the price actually paid or payable under the authority of 19 U.S. C. § 1401a(b)(3)(8). See, HQ 542524, dated July 15, 1981 (TAA No. 34); and HRL 546111, dated March 1, 1996. The NZF Terms and Conditions of Trade states that the duty allowance is derived from a formula and thus may not equal actual Customs duties. Since the duty allowance is not equivalent to the actual Customs duties, it cannot be deducted from the price actually paid or payable pursuant to 19 U.S.C. § 1401a(b)(3)(8). HOLDING: The “duty allowance” may not be deducted from the price actually paid or payable pursuant to 19 U.S.C. § 1401a(b)(3)(8). You are to mail this decision to the internal advice applicant 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 Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.ustreas.gov, by means of the Freedom of Information Act, and other methods of public distribution. Sincerely, Virginia L. Brown Chief, Value Branch