sound produced by a particular method. And there is no suggestion in the instant case that the organ section of the accordion unit is not an integral part of the instrument in terms of design and usage. Certainly, in the case of an accordion, any sound not derived from activation of reeds by means of a bellows can hardly be deemed the product of a piano accordion. Indeed, it is to be noted that the manufacturer in its instructional literature (exhibit 1) describes the accordion unit as an "electronic accomplishment" with full awareness of its limitations. So too, this court deems the imported accordion units when assembled with other units (which were not imported with it) to be electronic musical instruments as that term is used in item 725.47. The question of whether the imported articles were capable of being played as an electronic musical instrument in the condition in which they were imported does not appear to have been considered in C.D. 4019 although it was established in the record there that the imported electric guitars were sold separately from the amplifying system which formed part of the electronic system, and that the guitars themselves were not capable of producing sound. However, this question was at the core of the recent decision of our appeals court in C.A.D. 1131 when that court took the position that a capacity to produce the electronic sound at the time of importation is the sine qua non for classification of a musical instrument under item 725.47. In the instant case the trial demonstration was confined to an illustration of the conventional accordion, owing to the fact that the foot pedal unit which had been imported with the accordion unit was not in court. However, the demonstration without the use of the foot pedal serves to underscore testimony in the record which establishes the fact that without the foot pedal and an amplifier the accordion unit is incapable of producing electronic sound. Thus, from the standpoint of electronic sound the instant importations are on the same footing as were the organ parts in C.A.D. 1131, i.e., they are incomplete components in the production of electronic sound. In C.A.D. 1131 the court ruled that in the electronic musical system there involved sound was generated by the loudspeakers. In the instant case it would appear from the evidence that the electronic sound is also generated by the speaker system. In this connection the witness Nardoni testified on cross-examination (R. 27-28): Q. Well, I direct your attention to Plaintiff's Exhibit 2. I believe on the lower right-hand side there is a Universal Amplifier illustrated, is that right? A. Yes. Q. Do you normally sell that amplifier with the accordion?-A. Yes. If the user or buyer has an amplifier, he doesn't need another amplifier. This is an amplifier that we had made here in this country and that we market, but we think it compliments [sic] the particular instrument here. Exhibit 2 contains the following statements, among others, concerning the Universal amplifier mentioned in Mr. Nardoni's testimony: Designed to maximize the full frequency range and versatility of the ELECTROVOx accordion-combo. Two large, quality speakers produce rich, full tones with immediate and dependable response.... Hence, the speaker system by means of which the electronic organ sound is produced is housed in the amplifier which, of course, is external to the accordion unit. In this posture, it is clear, therefore, that in the condition in which imported the involved accordion units were incapable of producing electronic sound even with the accompanying foot pedal units. And since no amplifiers with speaker systems were imported with the accordion and foot pedal units, it follows that the imported articles could not properly be classified as electronic musical instruments under item 725.47 under the reasoning expressed in C.A.D. 1131. There is no question but that the evidence supports classification of the imported articles as piano accordions. In appearance and performance the accordion units resemble the ordinary, conventional piano accordion that one is accustomed to see and hear. And this image is not changed by the presence of the foot pedal unit whose function, insofar as the accordion is concerned, is to assist in enabling the accordionist, as an option, to amplify the reed-produced accordion sounds, termed electric accordion. This additional function, made possible by built-in electronic circuitry in the accordion unit, is compatible with the eo nomine provision for piano accordions in item 725.14 inasmuch as the foot pedal unit is designed and intended to be fitted into the accordion unit by way of its connecting cable. See Headnote 3 of Schedule 7, TSUS, Part 3, Subpart A. For the reasons stated, the court agrees with the plaintiff that the subject merchandise should have been classified under item 725.14. Plaintiff's claim is, therefore, sustained. Judgment will be entered herein accordingly. DECISIONS OF THE UNITED STATES CUSTOMS COURT Review (A.R.D. 321) UNITED STATES v. GEIGY CHEMICAL CORPORATION SANDOZ, INC. CIBA CHEMICAL & DYE CO. Chemicals UNITED STATES VALUE-USUAL PROFIT AND GENERAL EXPENSES The trial court properly predicated the deduction for the usual profit and general expenses under section 402(c) (1) of the Tariff Act of 1930, as amended (19 U.S.C. § 1401a (c) (1)), on the experience of the importer who had the largest share of the market, rather than on the experience of an importer who had the smallest share of the market. TRANSACTIONS BETWEEN RELATED PERSONS-SECTION 402(g) The appraiser misapplied section 402(g) of the Tariff Act of 1930, as amended (19 U.S.C. § 1401a (g)), in disregarding the profits and general expenses of the importers, where his action was predicated solely upon the importers' relationship to their Swiss suppliers. TRANSACTIONS BETWEEN RELATED PERSONS-USUAL PROFIT AND GENERAL EXPENSES Section 402 (g) of the Tariff Act of 1930, as amended (19 U.S.C. § 1401a (g)), does not authorize the appraiser to disregard transactions involving related persons unless, in addition to the existence of a relationship, the amount representing an element of value does not reflect the usual market experience. Thus, Congress did not intend that the usual profit and general expenses deductible from the United States selling price pursuant to section 402 (c) (1) (19 U.S.C. § 1401a (c) (1)) be disregarded because a transaction was between related persons. TRANSACTIONS BETWEEN RELATED PERSONS-TRANSACTIONS DISREGARDED NOT LIMITED TO THOSE "IN THE MARKET UNDER CONSIDERATION" It is a fundamental fact that rigged prices in the export market may materially affect the importer's profits and general expenses (215) in the United States market. Hence, when United States value is the basis for appraisement, section 402(g) of the Tariff Act of 1930, as amended (19 U.S.C. § 1401a (g)), authorizes appraising officers to scrutinize export transactions between importers and their related supplier companies, and to disregard the importer's profit and general expenses as the proper allowances under section 402 (c) (1) (19 U.S.C. § 1401a (c) (1)), where the amounts thereof do not fairly reflect the usual amounts of those elements in sales in the United States. Therefore, the "transactions" which may be disregarded under section 402 (g) are not limited to those "in the market under consideration", as held by the trial court. SAME Although the "market under consideration" in section 402 (g) (1) of the Tariff Act of 1930, as amended (19 U.S.C. § 1401a (g) (1)), is the United States market when considering United States value (see Brown, Alcantar & Brown, Inc., et al. v. United States, 69 Cust. Ct. 249, A.R.D. 306, 348 F. Supp. 723 (1972)), such phrase refers to the immediately antecedent term in the statute, "sales", and not to the more remotely antecedent term, "transaction". Consequently, respecting section 402 (c) (1), the phrase "in the market under consideration" directed the appraiser's attention to profit and general expenses realized in sales in the United States market; but the phrase did not limit the transactions that could be disregarded to merely those in the United States market. SAME Where United States value is the basis for appraisement section 402 (g) of the Tariff Act of 1930, as amended (19 U.S.C. § 1401a (g)), embraces transactions between related persons in the United States market, and additionally includes transactions between related exporters and importers. The latter transactions may be disregarded (under appropriate circumstances) even though the elements of value to be considered, profit and general expenses, are realized in sales in the United States market. SAME Irrespective of section 402(g) of the Tariff Act of 1930, as amended (19 U.S.C. § 1401a (g)), appraising officers have inherent authority, indeed a duty, to consider the circumstances in all transactions between related persons and to disregard any transaction which is not a valid basis for determination of dutiable value. SAME While the appraiser had plenary authority to disregard export transactions between the importers and their Swiss suppliers, if he found the export prices were rigged, manipulated, or contrived to affect the United States value of the merchandise, the record fails to show that he in fact disregarded any such export transactions. APPLICATION FOR REVIEW OF REAPPRAISEMENT DECISION 11775 Reappraisement Nos. R66/10120-S, R65/16280 and R65/20992 Entered at New York, N.Y. Entry Nos. 863926, 1082619 and 1097215. [Affirmed.] Second Division, Appellate Term (Decided September 4, 1974) Carla A. Hills, Assistant Attorney General (Bernard J. Babb, trial attorney), for the appellant. Busby Rivkin Sherman Levy and Rehm (Saul L. Sherman of counsel) for appellee Geigy Chemical Corporation. Barnes, Richardson & Colburn (James S. O'Kelly, Hadley S. King and James H. Lundquist of counsel) for appellee Sandoz, Inc. George Bronz for appellee Ciba Chemical & Dye Co. Before FORD and NEWMAN, Judges; RAO, J., not participating NEWMAN, Judge: Appellant (defendant below) has filed an application for review of the decision and judgment of Watson, J. in Geigy Chemical Corporation et al v. United States, 70 Cust. Ct. 259, R.D. 11775, 358 F. Supp. 1275 (1973), wherein Judge Watson conducted a joint trial of three appeals for reappraisement, and sustained appellees' (plaintiffs below) claimed values. The imported merchandise, consisting of certain benzenoid dyestuffs, was exported from Switzerland by J. R. Geigy, S.A., Sandoz, Ltd., and Ciba, Ltd. during 1965, and imported by each of their whollyowned subsidiaries, appellees herein. The parties agree that the proper basis for appraisement is United States value, as defined in section 402 (c) of the Tariff Act of 1930, as amended by the Customs Simplification Act of 1956 (19 U.S.C. § 1401a (c)). The only elements of the appraised value in dispute are the statutory allowances for profit and general expenses pursuant to section 402 (c) (1).1 At the trial, appellees successfully claimed that the proper allowance for profit and general expenses should be 33.4% rather than 19.1%, which latter figure entered into the Government's appraisement. We affirm. THE RECORD An extensive stipulation of the parties is fully set forth in the opinion of the trial court (70 Cust. Ct. at pages 261-266) to which 1 Section 402 (c) (1) provides : "(c) UNITED STATES VALUE. For the purposes of this section, the United States value of imported merchandise shall be the price at the time of exportation to the United States of the merchandise undergoing appraisement, at which such or similar merchandise is freely sold or, in the absence of sales, offered for sale in the principal market of the United States for domestic consumption, packed ready for delivery, in the usual wholesale quantities and in the ordinary course of trade, with allowances made for (1) any commission usually paid or agreed to be paid, or the addition for profit and general expenses usually made, in connection with sales in such market of imported merchandise of the same class or kind as the merchandise undergoing appraisement;" 570-865-75-15 |