CBSA Reasoning
&&The value for duty must be determined for the imported ingots. Dross, a by-product of SAI's manufacturing process in Canada is shipped to the USA and used to produce ingots.&&&&SAI is requesting that the valuation of the goods at issue be considered under section 53 of the Customs Act and has asked, what is the value of the dross and ingots?&&&&Under the Customs Act, the primary basis of determining the value for duty of imported goods is the transaction value method. In this case, transaction value method is not applicable since there is no sale for export of the imported goods (ingots) as SAI retains ownership of the goods.&&Section 47(2) of the Customs Act states:&&&&"47(2) Where the value for duty of goods is not appraised in accordance with subsection (1), it shall be appraised on the basis of the first of the following values, considered in the order set out herein, that can be determined in respect of the goods and that can, under sections 49 to 52, be the basis on which the value for duty of the goods is appraised:&&(a) the transaction value of identical goods that meets the requirements set out in section 49;&&(b) the transaction value of similar goods that meets the requirements set out in section 50;&&(c) the deductive value of the goods; and&&(d) the computed value of the goods."&&&&Based on the hierarchy of the valuation methods, SAI, must first consider the valuation of the goods at issue under sections 49 through 52 of the Customs Act.&&&&Under sections 49 and 50 of the Customs Act, the value for duty is based on a previously determined value that was established under the transaction value method for identical or similar goods. As there is not a previously established transaction value of identical or similar goods, these methods are not applicable.&&&&Under section 51 of the Customs Act, the value for duty is based upon a price per unit derived from a sale of goods after importation. As the imported ingots are used in the manufacturing of finished goods (i.e. pressurized cylinders, automobile parts) and are not for resale in their imported form (i.e. ingots), this method is not applicable.&&&&Under section 52 of the Customs Act, the value for duty is based upon the computed value which is the cost of producing the imported goods, plus an amount for profit and general expenses and any assists that are not reflected in the production costs. As there is insufficient information in respect of meeting the requirements under section 52, this method is not applicable.&&&&Section 53 of the Customs Act states:&&&&"Where the value for duty of goods is not appraised under sections 48 to 52, it shall be appraised on the basis of&&(a) a value derived from the method, from among the methods of valuation set out in sections 48 to 52, that, when applied in a flexible manner to the extent necessary to arrive at a value for duty of the goods, conforms closer to the requirements with respect to that method than any other method so applied; and&&(b) information available in Canada."&&&&The residual method under section 53 of the Customs Act, will be used to calculate the value of the "ingots". More specifically, a flexible application of the computed method whereby the following is included:&&(a) the value of the materials employed in producing the goods being appraised; and&&(b) the costs of production or other processing of the goods being appraised.&&&&Under the provisions of subparagraphs 52(3)(a) to (c) of the Customs Act, the following are considered to be included in the elements shown above and are therefore to be included in the computed value:&&(a) the packing costs and charges referred to in subparagraph 48(5)(a)(ii) the Customs Act.&&(b) the value of the goods and services referred to in subparagraph 48(5)(a)(iii) the Customs Act.&&(c) any costs, charges, and expenses incurred by the producer in respect of engineering, development work, art work, design work, plans, or sketches undertaken in Canada.&&&&To determine the value of the imported ingots, the value of dross (Type C assist) must be added. SAI states that the dross is considered an assist that is provided by the importer free of charge to the vendor to be used in the production of the imported ingots."&&&&Assists" is a term used to describe the goods and services that are provided free of charge or at a reduced cost by the purchaser for use in connection with the production of the imported goods as referred to in subparagraph 48(5)(a)(iii) of the Customs Act, and include:&&(A) materials, components, parts, and other goods incorporated in imported goods (e.g. buttons, zippers);&&(B) tools, dies, moulds, and other goods utilized in the production of imported goods (e.g. shoe laces, toy moulds);&&(C) any materials consumed in the production of the imported goods; and&&(D) engineering, development work, art work, design work, plans and sketches undertaken elsewhere than in Canada and necessary for the production of the imported goods.&&&&Sub-paragraph 4(1)(b)(i) of the Valuation for Duty Regulations further specifies that the "cost of transportation to the place where they are used in the production of the imported goods" is to be added to the value of the assist.&&&&Finally paragraph 6 of Memorandum D13-3-3, Transportation and Associated Costs, provides additional clarification that the cost of transportation "includes other costs associated with the transportation of the goods" and that "some of these costs are customs brokers' and freight forwarders' fees, export documentation fees, inspection charges…”.&&Therefore, the cost of transportation to get the assist to the manufacturer is to be added to the value for duty.&&In its National Customs Ruling (NCR) request letter, SAI proposed to establish a value for duty of ingots by:&&&&• reducing the total weight of the dross by 40% to account for estimated processing loss (poundage) during the recycling process at Scepter Inc.;&&• using the per pound price of aluminum on the London Metal Exchange (LME) index on the date of importation, minus an inferior quality factor of 0.45689 and then multiplying this amount by the reduced weight of the dross;&&• thus establishing a base price for the ingots (recycled dross) to be imported into Canada;&&• adding processing (recycling) fees from Scepter - price per pound; and&&• adding transportation of dross from Canada to Scepter Inc. located in the USA.&&SAI is proposing that an estimated 40% material is lost during the manufacturing of the ingots and should be deducted from the total weight of the dross for purposes of calculating the value for duty. Although there is an estimated 40% loss of material during the recycling process in the manufacturing of the ingots, the entire amount of the dross is an assist consumed by Scepter Inc. during this process. Since the material lost in processing was not subsequently resold, the 40% deduction cannot be taken.&&&&SAI has explained that the discount of 0.45689 is a factor to indicate the quality of the product. As per SAI "Dross is a low quality form of aluminum so they reduce the high quality aluminum pricing (established by the LME+MW pricing) by this '0.45689' factor." It was basically a factor difference used at the time of the 2018 contracted price for the dross and what the high quality aluminum price was at that time”.&&&&Accordingly, the value of the dross (Type C assist) is to be calculated by the importer using the price of aluminum on the LME index on the date that the dross is exported to Scepter Inc., minus an inferior quality factor of 0.45689, multiplied by the total weight of the dross exported to Scepter Inc.&&&&The value for duty for the ingots is to be determined under the residual method using the value of the assist, the transportation and associated costs for shipping the assist to Scepter Inc. and the processing fees charged by Scepter Inc.
