HQ 545664: I.A. 32/94; marking duties; appraised value determined onliquidation; final appraised value; dutiable value; item 807TSUS; subheading 9802.00.80, HTSUS; 19 U.S.C. 1503.

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 545664

                          July 29, 1994

VAL CO:R:C:V 545664 LR

CATEGORY:  Valuation; Marking

District Director of Customs
Laredo, Texas

RE:  I.A. 32/94; marking duties; appraised value determined on
liquidation; final appraised value; dutiable value; item 807
TSUS; subheading 9802.00.80, HTSUS; 19 U.S.C. 1503.

Dear Madam:
          
     This is in response to a request for internal advice, dated
April 14, 1994, submitted by counsel on behalf of a U.S. importer
("the importer") and forwarded to us by your office through the
Customs Information Exchange.  The request deals with the correct
value on which marking duty and penalties are to be assessed in
the case of articles previously entered under item 807, Tariff
Schedules of the United States (hereinafter referred to as "807")
or subheading 9802.00.80, Harmonized Tariff Schedule of the
United States (hereinafter referred to as "9802.00.80").  This
issue arises in the context of an on-going penalty case.  
   
FACTS:

     A pre-penalty notice was issued to the importer in March,
1994, for proposed penalties under 19 U.S.C. 1592 and marking
duties under 19 U.S.C. 1304(f) relating to the importation of
certain articles entered under 807 or 9802.00.80.  The imports in
question were assembled by the importer's affiliates in Mexico
from U.S.-origin components.  The amount of the proposed penalty
and marking duties is based on the full value of the assembled
articles, including the value of the U.S. components.  The
importer believes that to the extent any penalties and/or marking
duties may be applicable to such imports, they should be based on
the dutiable value of the imports (exclusive of the value of
U.S.-origin parts and components).  Your position is that marking
duties should be based on the final appraised value, which
includes the value of any U.S.-origin components.  

ISSUE:  

     In the case of 807/9802.00.80 goods, whether marking duties
under 19 U.S.C. 1304(f) and penalties under 19 U.S.C. 1592 may be
assessed on a value which includes the value of the U.S.
components which are exempt from duty. 

LAW AND ANALYSIS:

A.  Marking Duties

     The starting point for any discussion regarding marking
duties must be section 304 of the Tariff Act of 1930, as amended
(19 U.S.C. 1304).  This statute requires imported articles to be
marked to indicate their country of origin to the ultimate
purchaser in the U.S. and provides for the assessment of marking
duties when imported articles are not properly marked. 
Merchandise which is not legally marked is subject to a 10
percent ad valorem marking duty.  Specifically, 1304(f) states
that:

     there shall be paid upon such article a duty of 10 per
     centum ad valorem, which shall be deemed to have accrued at
     the time of importation, shall not be construed to be penal,
     and shall not be remitted wholly or in part nor shall
     payment thereof be avoidable for any cause.  Such duty shall
     be levied, collected, and paid in addition to any other duty
     imposed by law and whether or not the article is exempt from
     the payment of ordinary customs duties. (emphasis added).

     The regulations implementing most of the provisions of the
marking statute are contained in Part 134, Customs Regulations
(19 C.F.R. Part 134).  Section 134.2, Customs Regulations,
provides that "articles not marked as required by this part shall
be subject to additional duties of 10 percent of the final
appraised value ... as provided in 19 U.S.C. 1304(f) (emphasis
added)."  

     Section 159.46(a), Customs Regulations, states that 
"the marking duty prescribed by section 304(f), Tariff Act of
1930, as amended, shall be assessed upon the dutiable value as
defined in section 503, Tariff Act of 1930, as amended."
(emphasis added).

     Section 503 (19 U.S.C. 1503) entitled Dutiable Value
provides:

     Except as provided in section 1502(c) of this title
     (relating to reliquidation on the basis of authorized
     correction of errors) or section 1562 of this title
     (relating to withdrawal from manipulating warehouses), the
     basis for the assessment of duties on imported merchandise
     subject to ad valorem rates of duty or rates based upon or
     regulated in any manner by the value of the merchandise,
     shall be the appraised value determined upon liquidation, in
     accordance with section 1500 of this title or any adjustment
     thereof made pursuant to section 1501 of this title. 
     Provided, however, that if reliquidation is required
     pursuant to a final judgment or order of the United States
     Court of International Trade which includes a reappraisement
     of imported merchandise, the basis for such assessment shall
     be the final appraised value determined by such court.

     (Section 1500 provides for appraisement, classification, and
liquidation procedures; section 1501 provides for voluntary
reliquidation by Customs within 90 days).  

     The importer claims that marking duty should be assessed on
the "dutiable value" of the imported merchandise and that in the
807/9802.00.80 context, such "dutiable value" is exclusive of the
value of U.S.-origin parts and components contained therein.  In
support of this position it cites E. Dillingham Inc. v. United
States, 470 F.2d 629 (C.C.P.A. 1972), a case involving the
eligibility of imported papermaker's felts under 807, and Customs
Headquarters Letter 544254, dated February 16, 1989, an
information letter regarding dutiable and appraised value.  

     The importer also points to the language of section 1503
that the basis for assessment of duties shall be "the appraised
value determined upon liquidation".  Since liquidation is defined
in 19 C.F.R. 159.1 as "the final computation or ascertainment of
the duties or drawback accruing on an entry", it is argued that
the appraised value determined upon liquidation occurs in the
807/9802.00.80 context only after the value of U.S.-origin parts
and components has been excluded for purposes of duty assessment. 
With regard to the language of 19 C.F.R. 134.2, that articles not
marked as required "shall be subject to additional duties of 10
percent of the final appraised value" the importer indicates that
when read along with section 1503 and 19 C.F.R. 159.46(a), this
can only mean the dutiable value established upon liquidation.  
  
     We disagree with the importer's conclusion that marking duty
should be based on the dutiable value of 807/9802.00.80 goods,
exclusive of the value of the U.S. components and parts.  While
the term "dutiable value" is used in 19 C.F.R. 159.46(a) and the
title of 19 U.S.C. 1503, 159.46(a) specifies that in order to
determine "dutiable value" for the purpose of assessing marking
duties, we must look to how that term is defined in section 1503. 
As the language of that provision makes clear, the basis for the
assessment of duties on imported merchandise subject to ad
valorem rates of duty "shall be the appraised value determined
upon liquidation."  Since imported merchandise which is not
legally marked is subject to the assessment of a 10 percent ad
valorem marking duty, section 1503 mandates that it be based on
the appraised value determined upon liquidation and not on the
dutiable value upon which duties are to be assessed.  As
discussed below, in the context of 807/9802.00.80 goods, the
appraised valued determined upon liquidation includes the value
of the U.S.-origin components.   

     Subheading 9802.00.80 HTSUS (formerly item 807, Tariff
Schedules of the United States), provides for a partial duty
exemption for goods assembled abroad from U.S. fabricated
components.  An article entered under this tariff provision is
subject to duty upon the full value of the imported assembled
article, less the cost or value of such U.S. components upon
compliance with the documentary requirements of section 10.24,
Customs Regulations (19 C.F.R. 10.24)  As specified in the
tariff, the rate of duty for these articles is "the full value of
the imported articles, less the cost or value of such products of
the United States."  Rates of duty have no effect on the
appraised value of imported articles.  The fact that an article
is exempt from duty does not affect its appraised value
determined at liquidation.  

     Similarly, while 9802.00.80/807 goods are partially exempt
from duty, this fact does not affect the appraised value of the
assembled article.  See Section 10.18, Customs Regulations (19
C.F.R. 10.18) entitled Valuation of assembled articles, which
provides that as in the case of the appraisement of any other
imported merchandise, the full value of assembled articles
imported under subheading 9802.00.80, Harmonized Tariff Schedule
of the United States, is determined in accordance with 19 CFR
152.100 et seq. (pertaining to Customs valuation).  See also U.S.
Note 4(b), Chapter 98, Subchapter II, HTSUS, applicable to
9802.00.80 goods ("the duty, if any, on the imported article
shall be at the rate which would apply to the imported article
itself, as an entirety without constructive separation of its
components, in its condition as imported if it were not within
the purview of this subchapter.  If the imported article is
subject to a specific or compound rate of duty, the total duties
shall be reduced in such proportion as the cost or value of such
products of the United States bears to the full value of the
imported article").  This reduction in duty has no affect on the
appraised value of the imported assembled articles.  
     
     We also disagree with the importer's argument that the
language in section 1503 "appraised value determined at
liquidation" means the value upon which duties are to be
assessed, exclusive of the value of the U.S.-origin components. 
To the contrary, we believe this language means that decisions
regarding the appraised value shall be the latest determination
of value, i.e., at the time of liquidation, at which time the
amount of duty to be paid on such merchandise is fixed.  In other
words, for purposes of determining appraised value under section
1503, Customs should look to the appraised value determined at
liquidation and not to the entered value or some other
determination of value.  See 19 U.S.C. 1500 regarding
appraisement, classification, and liquidation procedures.  This
interpretation follows from the subsequent language in section
1503 which states that "if reliquidation is required pursuant to
a final judgment or order of the United States Court of
International Trade which includes a reappraisement of imported
merchandise, the basis for such assessment shall be the final
appraised value determined by such court" (emphasis added). 
"Appraised value upon liquidation" is used in the preceding
sentence to distinguish this from "final appraised value
determined by such court".  

     We also disagree with the importer that the Dillingham case
supports its position that marking duties should be based on the
dutiable value, excluding the value of the U.S.-origin
components.  That case concerned the issue of whether certain
importations of felts qualified for a partial duty exemption
under item 807.  After finding that the felts did so qualify, the
court concluded that appellant is entitled to deduct from the
full value of the felts the cost or value of the U.S. fabric
component, to obtain the dutiable value.  This conclusion
reflects the fact that, as discussed above, the rate of duty for
807 goods is the full value of the assembled article less the
value of the U.S. components.  Since the case did not involve the
assessment of marking duties, the court did not address what the
appraised value of the imported felts was pursuant to section
1503.  Similarly, the February 16, 1989 Headquarters letter did
not involve the question of marking duties in the context of
807/9802.00.80 entries and is not relevant to this discussion. 
In addition, this letter was not a ruling and has no precedential
value.
     
     Based on the above considerations, we conclude that marking
duty should be calculated on the appraised value of the assembled
goods, including the value of the U.S. components.  This
conclusion is consistent with the language of the marking statute
which provides that the specified marking duty shall be levied
"whether or not the article is exempt from the payment of
ordinary customs duties."  This language recognizes the fact that
the obligation to mark is separate from the obligation to pay
duties.  While an article may be entirely exempt from duty, it
may still be required to be marked in accordance with 19 U.S.C.
1304.  The same holds true with respect to an article which is
partially exempt from duty.  If not legally marked, 19 U.S.C.
1304(f) mandates assessment of marking duties on the appraised
value.  The fact that an imported article is totally or partially
exempt from the payment of ordinary customs duties should not
excuse the assessment of marking duty on the value of that
portion of the article which is exempt.  And 19 U.S.C. 1304(f)
does not.   

     This is especially true with regard to goods eligible for
importation under 807/9802.00.80.  As provided in 19 C.F.R.
10.22, the country of origin of such goods for marking purposes
is the country of assembly.  Assembled articles consisting
entirely or in part of U.S. fabricated components are subject to
the requirements of 19 U.S.C. 1304 and 19 C.F.R. 10.22.  The 
value of the U.S. fabricated components does not affect the
importer's marking obligations.  Therefore, the value upon which
the marking duty is assessed should not be reduced by the value
of the U.S. components.  

     Finally, this conclusion is consistent with a previous
Customs decision, C.I.E. 2/73, dated January 3, 1973, regarding
the same issue presented in this case, i.e., the correct value on
which marking duty is to be assessed under 19 U.S.C. 1304.  The
merchandise under consideration was tape cassette parts and tapes
of United States origin which were sent abroad for assembly, and
returned as completed tape cassettes.  The tape cassettes had an
appraised value of $3,922, of which $2,989 was free of duty under
item 807.00, TSUS, leaving a net dutiable value of $933.  Customs
held that the marking duty should be assessed against the total
appraised value of the merchandise ($3,922).  In reaching this
conclusion, the decision states:

     Section 134.2, Customs Regulation (formerly section
     11.8(k)), provides that the additional duty for failure to
     mark shall be 10 percent of "the final appraised value." 
     Item 807.00, TSUS, provides for duty upon "the full value of
     the imported articles, less the cost or value of such
     products of the United States."  Section 304(c)(now 304(f)),
     Tariff Act of 1930, as amended, provides that the specified
     marking duty shall be levied "whether or not the article is
     exempt from the payment of ordinary Customs duties."    

After reexamining this issue, we believe that C.I.E. 2/73 was
correctly decided.


B. Penalties

     With respect to the penalty issue raised in the instant
request for internal advice, counsel correctly states that both
title 19, United States Code, section 1592 and Customs Penalty
Guidelines (19 CFR Part 171, Appendix B) provide for assessment
and/or mitigation of penalties in non-revenue loss cases to be
predicated upon the dutiable value of the merchandise at issue. 
For the purpose of determining dutiable value in such penalty
action, Customs looks to the definition of dutiable value as set
forth in 19 U.S.C. 1503.  Inasmuch as section 1503 provides that
the dutiable value of the merchandise in question is, in fact,
equivalent in amount to the appraised value of the articles as
defined above, we reject counsel's claim that the dutiable value
excludes the value of any U.S. parts or components.  

HOLDING:

     In the case of 9802.00.80/807 goods, marking duty is
properly based on their appraised value, inclusive of the value
of any U.S. parts or components.  For purposes of 19 U.S.C. 1592,
the dutiable value of these goods also includes the value of any
U.S. parts or components.

     A copy of this decision should be furnished to counsel for
the importer.  The Office of Regulations and Rulings will take
steps to make this decision available to Customs personnel via
the Customs Rulings Module in ACS and the public via the Diskette
Subscription Service, Lexis, Freedom of Information Act and other
public access channels 60 days from the date of this decision.
                        
                                  Sincerely,
         


                                  John Durant, Director
                                  Commercial Rulings Division