United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 1998 HQ Rulings > HQ 545902 - HQ 546674 > HQ 546231

Previous Ruling Next Ruling
HQ 546231

February 10, 1997



Port Director
U.S. Customs Service
P.O. Box 3130
Laredo, TX 78044

RE: Internal Advice concerning applicability of transaction value and reduction of current duty liability to account for prior overpayments; Related party transactions; HRLs 545618, 545242, 545578

Dear Director:

This is in response to your memorandum dated December 12, 1995, requesting internal advice on behalf of [********] (importer). Your inquiry concerns the appropriate method of appraisement of frozen broccoli/cauliflower and mushrooms in jars as well the importer's request to reduce its current duty liability to account for prior overpayments on assists. In accordance with our letter to counsel dated January 8, 1997, we have granted confidential treatment to the names and addresses of the parties to the transaction as well as specific pricing figures contained on the submitted invoices. The bracketed portion of this ruling will be excised from the public version. On September 4, 1996, our office met with the importer and counsel concerning the matter. We regret the delay in responding.


The importer d.b.a. [********] imports frozen broccoli/cauliflower and mushrooms in jars from its wholly-owned You explain that your office had been appraising the importations based on transaction value, in accordance with 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.

You state that invoices submitted to your office reflect transfer, or estimated, prices based on an "export invoice pricing policy" including direct costs, fixed costs, interest expense, foreign exchange financing gains and losses, and up to five percent maquila profit. Amounts would be pre-paid to the Mexican operation based on the product shipped and the transfer price reflected on the commercial invoice. The transfer prices vary as actual costs are computed and actual shipping volume is produced. Exporter A adjusts its prices on a quarterly basis and submits them to the importer with final calculations of total value and costs computed at the close of the accounting period. At that point, the importer presents to Customs a final valuation summary. The summary includes actual production costs, values declared, pricing sheets, statement of earnings, declaration of assists and duties due.

Counsel has explained that the prices set by the Mexican exporters for the various product lines fluctuate. The various prices are added together and an average price is obtained. The valuation summary reflects the total shipments of the particular line and the average price of the product. Because assists provided to the Mexican exporters are carried on the U.S. books and not reflected on the invoices presented to Customs, amounts for duties due on the assists have been tendered to Customs along with the valuation summary, as previously agreed with your office.

In December, 1994 the importer informed your office that due to an accounting error on the exporter's part, the values declared on all the 1993 invoices had been overstated. You explain that the applicable entries had been liquidated beyond ninety days. Nevertheless, in early 1995, the importer requested that Customs offset the duty overpayment for its 1993 entries against the outstanding amount due for the assists declared in the 1993 valuation summary and to credit the remaining difference in the overpayment to amounts owed based on the 1994 valuation summary. Counsel provides that in the present matter, the importer does not seek to "offset" the duty liability of one period with overpayments from another period, but rather is concerned with total liability for the same entries. However, counsel submits that because reconciliations are based on arbitrarily determined time frames, principles of equity and fairness dictate that Customs "credit" the importer's future entries for the amount of its alleged overpayment.

Furthermore, in early 1995, counsel filed a prior disclosure advising that the manner in which payments were made from the importer to exporter A no longer was on an invoice to invoice basis as previously communicated to Customs. Counsel explained that although the importer historically had effected payment by wire transfers to exporter A to cover specific consumption entries, over the past few years the importer had been making monthly transfers in response to the exporter's requests for funds to cover monthly operating expenses and not to cover specific consumption entries. The wire cash transfers would be reconciled on a monthly and calendar-year basis against the value of the shipments represented by the consumption entries.

In response to Customs' requests for proof of payment concerning two 1993 entries, the importer presented copies of its internal/accounting records (including wire transfers) indicating that the amounts transferred from the importer to exporter A in 1993 were consistent with the value for exporter A's 1993 shipments, as reflected in the 1993 valuation summary. As requested, counsel also has submitted documentation including journal registers, invoices, proof of payment, and lists of suppliers indicating that the Mexican operations purchase the seeds, fertilizers, insecticides, etc. and, therefore, that the products do not constitute assists. Additionally, counsel responded to your request that the importer reconcile the 1993 figures shown on the valuation summary against the entry summaries.


Whether transaction value is the appropriate method of appraisement and whether Customs has the legal authority to reduce an importer's previous or current duty liability to account for prior overpayments which neither were petitioned nor protested by the importer or has the authority to collect additional amounts on such entries.


1. Appraisement under Transaction Value

The preferred method of appraising merchandise imported into the United States is transaction value pursuant to section 402(b) of the TAA. 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 amounts for the enumerated statutory additions. The term "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."

Consistent with these definitions, the price actually paid or payable must exist at the time merchandise is sold for exportation to the United States. Specifically, section 152.103(a)(1), Customs Regulations (19 CFR ?152.103(a)(1)) provides that:

In determining transaction value, the price actually paid or payable will be considered without regard to its method of derivation. It may be the result of discounts, increases, or negotiations, or may be arrived at by the application of a formula, such as the price in effect on the date of export in the London Commodity Market. The word "payable" refers to a situation in which the price has been agreed upon, but actual payment has not been made at the time of importation....

In several decisions, Customs has provided that if the price of the merchandise is not "fixed" at the time of exportation, transaction value will not be found to exist. This was the case, for instance, in HRL 545242, issued April 16, 1995, where the price for the goods was arrived at pursuant to a methodology that included an initial lump sum subject to adjustments. Because the parties exercised control over adjustments to the price in response to changing competitive pricing conditions, the pricing methodology was not considered a "formula" within the meaning of 19 CFR 152.103(a)(1). Transaction value, therefore, was eliminated as a basis of appraisement. See HRL 545618, issued August 23, 1996, citing HRL 545242.

The instant case raises similar concerns because: 1) the importer effects payments via lump sum monthly transfers in response to the exporter's request for funds, without regard to specific entries and 2) an aggregate average price, as opposed to an entry specific price, is derived from the prices set by the Mexican exporters which fluctuate based on actual costs and shipping volume. Therefore, although such aggregate amounts are reconciled against the entry summaries on a yearly basis, it is not evident that the parties' export invoice pricing policy represents a formula nor results in a fixed price for the merchandise.

Furthermore, such a pricing methodology indicates that, in any event, the transaction value between the related parties would not be acceptable in accordance with ?402(b)(2)(B). In this case, evidence has not been provided concerning the circumstances of sale between the related parties which would indicate that their relationship did not influence the price actually paid or payable nor that the transaction value closely approximated certain test values. For these reasons, the imported goods cannot be appraised on the basis of transaction value and it would be appropriate to consider, in sequential order, the alternate bases of appraisement: transaction value of identical or similar merchandise (?402(c)), deductive value (?402(d)), computed value (?402(e)), and the "fallback" method (?402(f)). From the information and documentation submitted and representations made by counsel as well as your office, it would appear that resort to computed value would be necessary and appropriate.

2. Reduction of Duty Liability

19 U.S.C. 1514 explains, in pertinent part, that the legality of all orders and findings regarding the appraised value of merchandise and the liquidation or reliquidation of an entry, or modification thereof, is final and conclusive unless a protest is filed within ninety days after notice of liquidation or reliquidation.

In addition, 19 U.S.C. 1520 states that, "the Secretary of the Treasury is authorized to refund duties . . . whenever it is ascertained on liquidation or reliquidation of an entry that more money has been deposited or paid as duties than was required by law to be so deposited or paid . . . ."

However, with regard to reliquidation of an entry, section 1520 adds that, ". . . the appropriate customs officer may . . . reliquidate an entry to correct . . . a clerical error, mistake of fact, or other inadvertence not amounting to an error in the construction of a law, adverse to the importer and manifest from the record or established by documentary evidence . . . brought to the attention of the appropriate customs officer within one year after the date of liquidation or exaction. . . ."

It is our understanding that all the concerned parties agree that over ninety days passed since notice of liquidation of the 1993 entries, and the importer did not file a protest within that time. Accordingly, pursuant to section 1514, the liquidation of the merchandise entered between 1993 is deemed final and conclusive. Additionally, no evidence has been presented indicating that at any time the importer brought a claim before the port director for reliquidation due to clerical error, mistake of fact, or other inadvertence under 19 U.S.C. 1520. Moreover, even if a ?520 claim had been appropriately raised, a determination as to whether it amounted to an error in the construction of a law still would be warranted.

Hence, Customs is without legal authority to reduce the importer's duty liability by offsetting the importer's alleged 1993 overpayments against amounts which previously were, or currently are, due for the 1993 and 1994 entries. See HRL 545578, issued September 13, 1994. This holds true regardless as to whether such amounts, as provided by counsel, could be deemed "credited" to the importer's future entries insofar as they concern the liability for the same entries.

Support for this position is derived from the case of United States v. Snuggles, Inc., Slip. Op. 96-141 (Ct. Int'l Trade, decided August 20, 1996) concerning a request to offset overpayments and underpayments within a single entry. The Snuggles court reasoned that insofar as the defendant did not file a protest requesting a correction of its overpayments and failed to take the requisite steps to secure a correction, Customs' decisions concerning value, classification, rate, and amount must stand as final and conclusive with regard to those importations.

Furthermore, Customs is without recourse under 19 U.S.C. 1501, providing for voluntary reliquidation, to collect additional amounts allegedly owed for assists provided in connection with the 1993 entries. We have no indication that Customs effected a voluntary reliquidation within ninety days from notice of liquidation to the importer. However, we note that the issue as to whether Customs may require that such duties be restored as a result of a 19 U.S.C. 1592 violation is beyond the scope of this decision.


Based on the evidence provided, appraisement cannot be based on transaction value, but appropriately is based on an alternative method such as computed value. Further, in accordance with 19 U.S.C. 1514, Customs is without legal authority to reduce the importer's 1993 overpayments against amounts which previously were, or currently are, due either for the 1993 entries only, or the 1993 and 1994 entries alike. Customs likewise is without recourse, under 19 U.S.C. 1501, to collect amounts allegedly owed for assists provided in connection with the 1993 entries.

This decision should be mailed by your office to the internal advice requester no later than sixty days from the date of this letter. On that date the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.


Acting Director
International Trade Compliance

Previous Ruling Next Ruling