HQ 545172: Appraisement of garments; price actually paid or payable

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 545172
                                
                           May 6, 1993

VAL CO:R:C:V 545172 ILK

CATEGORY: Valuation

           
             
                    
            
                        

RE:  Appraisement of garments; price actually paid or payable 

Dear             :

     This is in response to your letter of November 19, 1992
(hereinafter referred to as the "request"), in which you request
a ruling regarding the appraisement of merchandise imported by
xxxxxxx (hereinafter referred to as the "importer"), for which
the invoice price does not include any fabric costs.

FACTS:

     The importer's unrelated factory in Hong Kong purchased
fabric from an Italian mill unrelated to the importer at a CIF
price.  The fabric was found to be unacceptable due to color
shade and in settlement the factory was able to recover from the
Italian mill the entire CIF price paid for the fabric.  The mill
preferred to leave the fabric in Hong Kong, for the factory to
dispose of, due to the expense that would have been involved in
returning the fabric to Italy.  As a result, the factory owned
the fabric without having incurred any cost.  The importer agreed
to purchase approximately 650 garments for importation into the
U.S. for sale in its "sell off" stores.  The factory will invoice
the importer for its complete cost (including costs, profit,
overhead, etc.) in producing the garments, which will not include
any fabric cost.   

     It is your position that the merchandise should be appraised
under transaction value.

ISSUE:

     Whether the absence of material costs in an arms-length
transaction precludes appraisement under transaction value.

LAW AND ANALYSIS:

     The preferred method of appraisement is transaction value
which is defined by  402(b)(1) of the Tariff Act of 1930, as
amended by the Trade Agreements Act of 1979 (TAA, 19 U.S.C.
1401a(b)) as "the price actually paid or payable for the
merchandise when sold for exportation to the United States..."
plus certain additions specified in  402(b)(1) (A) through (E).

     Section 402(b)(2)(A) describes the circumstances under which
transaction value can be used to appraise merchandise:

     (i)  there are no restrictions on the disposition or
     use of the imported merchandise by the buyer other than
     restrictions that...;

     (ii) the sale of, or the price actually paid or payable
     for, the imported merchandise is not subject to any
     condition or consideration for which a value cannot be
     determined with respect to the imported merchandise;

     (iii) no part of the proceeds of any subsequent resale,
     disposal, or use of the imported merchandise by the
     buyer will accrue directly or indirectly to the seller,
     unless an appropriate adjustment therefor can be made
     under paragraph (1)(E); and

     (iv) the buyer and seller are not related, or the buyer
     and seller are related but the transaction value is
     acceptable, for purposes of this subsection, under
     subparagraph (B).

None of the foregoing circumstances preclude appraisement under
transaction value in this case, therefore the merchandise can be
appraised under transaction value which is based on the price
actually paid or payable for the imported merchandise.  The term
"price actually paid or payable" is defined in TAA  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.

     The additions specified in  402(b)(1)(A)-(E) must be made to
the price actually paid or payable in determining the transaction
value of imported merchandise.  Of those, only (D) is potentially
applicable here with respect to the fabric, as it provides that
"the value, apportioned as appropriate, of any assist" shall be
added to the price actually paid or payable.  An assist is
defined in  402(h)(1)(A) in relevant part as: 

     ...any of the following if supplied directly or
     indirectly, and free of charge or at reduced cost, by
     the buyer of imported merchandise for use in connection
     with the production or the sale for export to the
     United States of the merchandise:

          (i) Materials, components, parts, and similar
     items incorporated in the imported merchandise...

     Although the fabric was supplied free of charge, it was not
supplied by the importer, the "buyer" here, or a party related to
the buyer.  Therefore the value of the fabric is not required to
be added to the price actually paid or payable as an assist.  In
this case, the merchandise should be appraised under transaction
value, based upon the invoice price of the imported merchandise,
plus any additions required to be added pursuant to
 402(b)(1)(A)-(E).

HOLDING:

     Under the circumstances for this particular transaction,
where all parties are clearly unrelated, the imported merchandise
for which material was obtained at no cost to the seller and for
which the invoice price does not reflect any cost for such
material, can be appraised under transaction value.  Where the
material was not provided directly or indirectly by the buyer,
the value of such material is not required to be added to the
price actually paid or payable as an assist.


                                   Sincerely,


                                   John Durant, Director
                                   Commercial Rulings Division