HQ 544693: Dutiability of Engineering Costs Associated With the Purchase of Color Picture Tube Manufacturing Equipment

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                            HQ 544693

                       September 10, 1991

CLA-2 CO:R:C:V  544693

CATEGORY:  Valuation

W.G. Carroll, Inc.
2 Whitaker Street
Suite 201
Savannah, Ga 31402

RE:  Dutiability of Engineering Costs Associated With the
     Purchase of Color Picture Tube Manufacturing Equipment

Dear Ms. Caldwell:

     This is in response to your letter dated April 1, 1991,
requesting a ruling on the dutiability of certain engineering
costs associated with the purchase of color picture tube
manufacturing equipment from ------------., Japan.

FACTS:

     You have submitted a sales contract between -------
-----------------s (USA), Inc., (hereinafter referred to as the
"buyer"), and a Japanese company, ------- Ltd., (hereinafter
referred to as the "seller"), outlining the terms and conditions
of the transaction as well as the list of equipment.  According
to clause 2-1 of the contract, the buyer's issuance to the seller
of purchase order sheets for equipment and the seller's return
acknowledgement of the purchase order sheets to the buyer will be
the actual execution of the contract.

     Clause 3-1 of the contract states that the price for the
"equipment" shall be $----------- on CIF ----------, S.C.,
buyer's plant site basis, with an additional $---------. for
dispatch of "engineers", as defined in clause 8.  Clause 3-2
provides that payments from the buyer to the seller shall be made
in U.S. dollars by telegraphic transfer to the seller's account
in -----, Japan.  Clause 5-3 states that title to "equipment" and
risk of damage to or loss of "equipment" shall pass to the buyer
when the "equipment" is delivered on board of vessels at Japanese
ports in accordance with the provisions of Incoterms 1980.

     Clause 7-2 provides for engineers to be sent from the seller
to the buyer after the installation and adjustment of the
"equipment" for inspecting the mechanical, electrical, and
systematic functions of the equipment for compliance with
specifications.

     Clause 8 of the contract states that the seller shall
dispatch approximately --- engineers for a period of ----0 man-
days to the buyer's plant to supervise the buyer's installation
and adjustment, tests of the equipment and to give guidance to
the buyer for the handling, operation and maintenance of both the
"equipment" of this contract and the equipment to be supplied
under another contract (not present in the file).  The seller
shall bear the air fare expenses for the engineers, while the
buyer will incur the costs for hotel accommodations.

ISSUE:

     Whether engineering costs associated with post-importation
services are part of transaction value.

LAW AND ANALYSIS:

     The buyer and seller are related parties as that term is
defined in section 402(g) of the Tariff Act of 1930, as amended
by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a(g)).
For the purposes of this prospective ruling request, we are
assuming, without deciding, that transaction value, the preferred
method of appraisement, will be the applicable basis of
appraisement given the relationship of the parties.  The
transaction value of imported merchandise is defined in section
402(b) of the TAA as "the price actually paid or payable for the
merchandise when sold for exportation to the United States," plus
certain enumerated additions.  The "price actually paid or
payable" is more specifically defined in section 402(b)(4)(A) 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) of the TAA provides:

     (3)  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):

          (A)  Any reasonable cost or charge that is incurred
          for-

               (i)  The construction, erection, assembly, or
               maintenance of, or technical assistance provided
               with respect to, the merchandise after its
               importation into the United States;...

According to clauses 7 & 8 in the submitted contract, the
engineering services to be provided by the seller to the buyer
are services to supervise the installation, adjustment, to
perform tests, and give guidance for the handling, operation and
maintenance of the equipment, and are of the type provided for in
section 402(b)(3)(A)(i) above.  Therefore, we are of the opinion
that payments for these services, if separately identified from
the price of the merchandise, would be deductible from
transaction value.  Please note, the reasonableness of any cost
or charge incurred is a decision that will be made by the
appraising officer at the port of entry.

HOLDING:

     Engineering costs associated with the purchase of equipment
from a related seller, if identified separately on the sales
invoice or on the purchase order sheets (which according to
clause 2-1 serve as the actual execution of the contract), are
not included in the transaction value of the imported
merchandise.  These costs are considered as incurred for "the
construction, erection, assembly or maintenance of, or the
technical assistance provided with respect to, the merchandise
after its importation into the United States."

                                   Sincerely,


                                   John Durant, Director
                                    Commercial Rulings Division