HQ 544689: Request for Reconsideration of Headquarters Letter Ruling 544516 (IA 17/90)

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 544689


                         August 26, 1991

VAL CO:R:C:V  544689 VLB

CATEGORY: Valuation

Jerry P. Wiskin, Esquire
Freeman, Wasserman & Schneider
90 John Street
New York, New York  10038


RE:  Request for Reconsideration of Headquarters Letter Ruling
     544516 (IA 17/90)

Dear Sir:

     This is in response to your letter dated March 26, 1991,
requesting reconsideration of a portion of Headquarters Letter
Ruling (HRL) 544516 issued January 9, 1991.  As you know we met
with members of your firm on August 15, 1991.

FACTS:

     You have asked for reconsideration of the third situation
that was addressed in HRL 544516.  In that situation, the
importer, General Electric Medical Systems (hereinafter referred
to as "GEMS"), paid the foreign manufacturer, Bildsystem, Ltd.
(hereinafter referred to as "Bildsystem") $224,375 to produce 25
Proview Systems.  However, after 15 Proview units had been
shipped, GEMS' marketing plan changed and it asked Bildsystem to
cancel production of the remaining units.  This resulted in a
balance of $89,750 remaining from the original $224,375 that GEMS
had paid to Bildsystem in advance of the production.

     Counsel for GEMS has indicated in prior submissions that
GEMS did not seek to have the cash advance refunded because it
wanted to retain Bildsystem's good will.  As explained in HRL
544516, "for bookkeeping purposes", GEMS recorded $38,750 of the
remaining amount as development costs for a system called the
"Proview Plus" and recorded $51,000 as a retroactive price
adjustment on 68 previously imported Proview units.  Counsel
contended that this "bookkeeping" treatment amounted to a
cancellation fee that GEMS paid to Bildsystem.
                              - 2 -

     We held in 544516 that GEMS had failed to establish that the
$89,750 was a cancellation fee that was not part of the "price
actually paid or payable" for the imported merchandise.  This was
based on the fact that there was no written notice of
cancellation, as required by the terms of the purchase agreement,
nor any evidence of a subsequent cost settlement between GEMS and
Bildsystem.

     You have attached three exhibits to your letter requesting
reconsideration which you contend establishes the factual basis
for establishing that the $89,750 was a cancellation payment. 
Exhibit "A" to the submission is a copy of an internal GEMS
memorandum dated October 6, 1987.  The memorandum contains a
discussion of the internal GEMS accounting treatment of the
$89,750.

     Exhibit "B" is a memorandum dated November 3, 1987, from
GEMS to Bildsystem outlining a two-step process for liquidating
the $89,750 balance.  The process involved Bildsystem sending
GEMS two invoices indicating the amounts were being applied to
different products.  However, each invoice was "for billing
purposes only".  

     Finally, Exhibit "C" consists of the two Bildsystem "for
billing purposes only" invoices and two Bildsystem Credit Notes
against the invoices.  All of these documents are dated November
4, 1987.  It should be noted that these invoices were in the file
that accompanied the original Request for Internal Advice, and
were considered when HRL 544516 was issued.


ISSUE:

     Whether GEMS has submitted sufficient information to
establish that the advance payment of $89,750 was a cancellation
payment.


LAW AND ANALYSIS:

     As stated in HRL 544516 the preferred method of appraisement
is transaction value pursuant to section 402(b) of the Tariff Act
of 1930, as amended by the Trade Agreements Act of 1979 (19
U.S.C. 1401a; TAA).  Transaction value is defined in section
402(b)(1) of the TAA as the "price actually paid or payable for
the merchandise when sold for exportation to the United States"
plus enumerated statutory additions.
                              - 3 -

     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."

     As you know, Customs has held that a payment from the buyer
to the seller for cancellation of a production order does not
constitute part of the price actually paid or payable for the
merchandise already imported when it has been established that
the payment is clearly a charge for termination and merchandise
is not imported to the U.S. as a result of the terminated
contract.  (See HRL 543088, dated June 28, 1983; HRL 543770,
dated October 23, 1985; HRL 544121, dated June 24, 1988.)

     In the present case, one sum, $224,375, was advanced to
Bildsystem for the production of the Proview units.  The new
documents that have been submitted, exhibits "A" and "B" do not
support GEMS' claim that $89,750 was paid for the right to cancel
the purchase agreement.  Rather, the evidence simply indicates
how GEMS internally handled the $89,750 balance.  GEMS internal
treatment of the balance does not convert the payments into
cancellation payments.  Thus, we affirm the holding in HRL 544516
that GEMS has failed to establish that the $89,750 was a
cancellation payment.


HOLDING:

     The holding in HRL 544516 that there is no authority to
deduct the $89,750 from the price actually paid or payable for
the imported Proview units is affirmed.




                              Sincerely,



                              John Durant, Director
                              Commercial Rulings Division