Protests 1109 95 100680, 1101 95 100740; Welding and material handling machines; functional units

HQ 960755 August 15, 2000 960755 PH/547613 KCC CATEGORY: Classification, Valuation TARIFF NO.: 7308.90.90; 8428.90.00; 8479.89.90; 8479.90.80; 8515.21.00; 8515.90.20; 8716.80.50 Port Director U.S. Customs Service 2"d & Chestnut Streets Philadelphia, PA 19106 RE: Protests 110995100680, 110195100740; Welding and material handling machines; functional units Dear Sir This is our decision on protests 110195100680 and 110195100740, against your classification under the Harmonized Tariff Schedule of the United States ("HTSUS") of certain welding and other machinery and the appraisement of value in the protested entries. In the preparation of this ruling, consideration was given to the submissions by counsel of May 14 and November 25, 1998, and December 8, 1999, and the arguments made in a meeting of protestant's counsel and representatives of this office on November 9, 1999. We regret the delay. FACTS: The merchandise is very completely described in packing lists that were referenced in the invoices and attached thereto. Because of confidentiality concerns, rather than describing each item, we are enclosing a spread sheet prepared by counsel for the protestant from these packing lists. We have reviewed the spread sheets for accuracy against the packing lists, and we have noted any errors. The LAW AND ANALYSIS section of this ruling addresses the merchandise, as described in the packing lists, in the order set out in the spread sheets. The merchandise was entered in nine entries on two different dates in 1991, with classification of most articles as "functional units" in subheading 8428.90.00, HTSUS, as other lifting or handling machinery, or subheading 8515.31.00, HTSUS, as machines and apparatus for arc welding of metals. After proper extensions of liquidation and the issuance of notices of rate and value advances on Customs Form 29, the entries were liquidated on July 21, and August 11,1995, with classification of most articles as individual units (e.g., parts of welding machines, switches, control panels, etc.). Treatment as functional units was not allowed. The value advance was stated to be for "design and development costs, net, pkd". According to an attachment to the Customs Form 29, the value advance applied only to merchandise classified in subheading 8428.90 and 7308.90, HTSUS, described respectively as "driving unit for transfer machine, transfer machine, unloader unit, lifter, pallet, carrier, material handling jig" and "safety fence, stay & pole, cable rack, etc." Counsel for the importer filed these protests on October 19 and November 13, 1995. In the protests and supplemental submissions, the protestant argues that all of the merchandise constitutes welding machinery or apparatus classifiable in subheading 8515.21, HTSUS. In protest 110195100704, the protestant also argues that certain of the machines (including articles that contribute to the activities thereof) should be classified as material handling equipment in subheading 8428.39 or 8428.90, HTSUS. The basis for both claims is stated to be Note 4, Section XVI, HTSUS, in that "all items are dedicated to and ultimately further the function of welding and constitute a group or collection of devices, materials, instruments, or appliances to be used for the particular function of welding." In its supplemental submissions, the protestant more fully describes the imported merchandise, emphasizing the "turnkey" nature of the imported articles. That is, each entry is stated to consist of a welding line or lines used to manufacture automobile body panels, with the lines being furnished on a kit basis, with the entire line being sold as one integrated unit. Citing Customs rulings and U.S. v. MannesmannMeer, Inc., 54 CCPA 24, C.A.D. 897 (1966), and other authorities, the protestant continues to argue that welding lines in the entries should be treated as functional units and classified in subheading 8515.21, HTSUS. The protestant refers to Customs position that there can be no incomplete functional units, and concedes that some of the articles of lines previously used by the manufacturer continue to be used alongside the newly imported articles (i.e., "certain items from the first generation of vehicle production were also used in conjunction with the second generation welding lines"). Also in regard to the issue of whether there can be an incomplete functional unit, the "automobile body assembly line", a socalled "macro" approach may be used. That is "all of the elements of the imported machinery, including safety fences, cable racks and similar items are necessary to the automated functioning of the lines [so] it is logical to combine all entries as a functional unit." Counsel also supplements the protests with explanations of some of the descriptions in the packing lists. That is, "buffer" refers to "conveyors or material handling lines which are designed to store and delay the passing down of parts that were previously produced [and] are essentially holding patterns for parts and, as such, are really material handling equipment." Articles listed as "control panels" in the packing list are actually controllers for the robots, which include logic and programmable functions similar to the controllers referred to in another ruling, Headquarters Ruling Letter ("HRL") 962105 dated April 22, 1999. "Optical fiber cable" refers to such cable cut to size and terminated which is used "to connect the controllers to the robots, welding or material handling jigs." The electrical cables listed in the packing lists are used to provide the electricity to the articles and "valve units" "control the flow of air and water to the welding gun for cooling and related purposes." "Gauges" "are really checking fixtures (like patterns) which check the size and shape of parts produced" stated to be classifiable in subheading 8486.20.90, HTSUS. "Safety fences are argued to be part of the functional units for which they are used, under the socalled "macro" approach, in that the welding cannot be accomplished safely or in keeping with Government agency regulations without them, and would be practically impossible in any case. Control panels that "control more than one robot/welding jig/material handling jig" are argued to be part of a "macro" functional unit, although they are distinguished in the spread sheets from control panels that control only one function. Insofar as the value issue is concerned, the protestant submits that "a portion of the imported merchandise was subject to an improper and inapplicable valuation assessment." The protestant notes that the Customs Forms 29 stated that the values were advanced because of payment of research and development costs and states that it understands that "the averred payments are wholly unrelated to the specific merchandise comprising the subject entries." The Customs Forms 29 stated that the entries at issue were value advanced due to payments made for "research and development costs." The issue of whether research and development costs are part of the dutiable value of these imported components was the subject of HRL 544694 dated February 14, 1995. HRL 544694 concerned the protestant at issue here. Additionally, in HRL 544694 and this case, protestant was represented by the same Counsel. Therefore, the value issue has been fully reviewed and analyzed in HRL 544694. The value advanced to the entries at issue was made in conformity with the holding in HRL 544694 Which states that °[t]he payments in respect of the design and development costs at issue should be allocated to the imported components..." Therefore, the protests do not meet the criteria for an application for further review pursuant to § 174.24(c) and § 174.25(b)(2)(i), Customs Regulations (19 CFR § 174.24(c) and § 174.25 (b) (2)(i)). ISSUES: Whether the merchandise in the protested entries make up a functional unit, classifiable as electric welding machines and apparatus, in heading 8515, HTSUS. If the merchandise in the protested entries does not make up one functional unit, whether articles within the protested entries are classifiable as functional units. Whether the merchandise in the protested entries that may not be classified as functional units was properly classified. LAW AND ANALYSIS: Initially, we note that the protest was timely filed (i.e., within 90 days after but not before the notice of liquidation; see 19 U.S.C. 1514(c)(3)(A)) and the matter protested is protestable (see 19 U.S.C. 1514(a)(1), (2), and (5)). Protest 110195100704, although filed on the 93`d day after liquidation, was filed on the next working day after the holiday on which the 90th day fell (see 19 CFR 101.6(a); Customs Directive 099 3550065 dated August 4, 1993 (Revised Protest Directive), pages 67)). CLASSIFICATION Merchandise is classifiable under the Harmonized Tariff Schedule of the United States (HTSUS) in accordance with the General Rules of Interpretation ("GRIs"). GRI 1 states in part that for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes, and provided the headings or notes do not require otherwise, according to GRIs 2 through 6, taken in order. The Harmonized Commodity Description and Coding System Explanatory Notes ("Ens") constitute the official interpretation of the Harmonized System. While not legally binding on the contracting parties, and therefore not dispositive, the ENs provide a commentary on the scope of each heading of the Harmonized System and are thus useful in ascertaining the classification of merchandise under the System. Customs believes the ENs should always be consulted. See T.D. 8980, published in the Federal Register August 23, 1989 (54 FR 35127, 35128). The 1991 HTSUS headings under consideration are as follows: 7308 Structures and parts of structures (for example, bridges and bridge sections, lock gates, towers, lattice masts, roofs, roofing frameworks, doors and windows and their frames and thresholds for doors, shutters, balustrades, pillars and columns) of iron or steel; plates, rods, angles, shapes, sections, tubes and the like, prepared for use in structures, of iron or steel 8428 Other lifting, handling, loading or unloading machinery (for example, elevators, escalators, conveyors, teleferics) 8471 Automatic data processing machines and units thereof; magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data, not elsewhere specified or included 8479 Machines and mechanical appliances having individual functions, not specified or included elsewhere in this chapter; parts thereof 8515 Electric (including electrically heated gas), laser or other light or photon beam, ultrasonic, electron beam, magnetic pulse or plasma arc soldering, brazing or welding machines and apparatus, whether or not capable of cutting; electric machines and apparatus for hot spraying of metals or sintered metal carbides; parts thereof Printed circuits 8537 Boards, panels (including numerical control panels), consoles, desks, cabinets and other bases, equipped with two or more apparatus of heading 8535 or 8536, for electric control or the distribution of electricity, including those incorporating instruments or apparatus of chapter 90, other  8540 Thermionic, cold cathode or photocathode tubes (for example, vacuum or vapor or gas filled tubes, mercury arc rectifying tubes, cathoderay tubes, television camera tubes); parts thereof 8544 Insulated (including enameled or anodized) wire, cable (including coaxial cable), whether or not fitted with connectors; optical fiber cables, made up of individually sheathed fibers, whether or not assembled with electric conductors or fitted with connectors 8716 Trailers and semitrailers; other vehicles, not mechanically propelled; and pats thereof 9017 Drawing, markingout or mathematical calculating instruments (for example, drafting machines, pantographs, protractors, drawing sets, slide rules, disc calculators); instruments for measuring length, for use in the hand (for example, measuring rods and tapes, micrometers, calipers), not specified or included elsewhere in this chapter; parts and accessories thereof 9029 Revolution counters, production counters, taximeters, odometers, pedometers and the like; speedometers and tachometers, other than those of heading 9015; stroboscopes; parts and accessories thereof Note 4, Section XVI, HTSUS, provides that: Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in chapter 84 or chapter 85, then the whole falls to be classified in the heading appropriate to that function. We will first address the protestant's socalled "macro" approach to the functional unit issue (i.e., treating all of the elements of the imported machinery as one functional unit intended to function as an "'automated"' automobile body assembly line"). One difficulty with this approach is that not all of the imported machinery was imported together. In applying Note 4, Section XVI, HTSUS, Customs has repeatedly noted that there are no Legal Notes or ENs that provide for incomplete functional units or parts of functional units. The fact that several machines, if imported together, would be classified under a single heading as a functional unit does not mean that the same would hold true if they were imported separately. (See, e.g., HRL 087077 dated March 27, 1991; HRL 950218 dated April 17, 1992; HRL 957326 dated July 17, 1995; HRL 961003 dated June 10, 1998; HRL 962105 dated April 22, 1999; and HRL 963027 dated September 9, 1999.) Further, in regard to this difficulty with this approach, as noted above, the protestant concedes that not all of the articles of the "'automated' automobile body assembly line" were imported in the protested entries. Some of the articles were previously used by the manufacturer and continued to be used alongside the newly imported articles. A second difficulty with the socalled "macro" approach is that Note 4, Section XVI, HTSUS, requires .the components purported to make up the functional unit to "contribute together to a clearly defined function covered by one of the headings in chapter 84 or chapter 85". An assembly line (whether or not automated and whether or not for automobile bodies) is not "a clearly defined function covered by one of the headings in chapter 84 or chapter 85.n We believe that the proper approach in a case such as this is represented by that taken in HRL 962105. That is, "robot systems, each consisting of a robot, with endofarm tooling for a specific service application", and a "controller with software containing instructions compatible with that service application constitute a functional unit under Section XVI, Note 4, HTSUS, the whole, minus the software, being classified in the heading appropriate to that function." "[R]obot systems, each consisting of a robot without endofarm tooling, but with a "controller and software compatible with a specific service application do not constitute a functional unit under section XVI,_ Note 4, HTSUS." The General EN for Section XVI, (VII) Functional Units, states that: For the purposes of this Note, the expression "intended to contribute together to a clearly defined function" covers only machines and combinations of machines essential to the performance of the function specific to the functional unit as a whole, and thus excludes machines or appliances fulfilling auxiliary functions and which do not contribute to the function of the whole. The examples of functional units within the meaning of Note 4 include "pipes or hoses needed to connect" components of a functional unit (examples (1) and (4)). Similarly, in HRL 955566 dated April 20, 1994, and HRL 087694 dated November 14, 1990, respectively, Customs held cables for connecting components of a functional unit and a control panel for a functional unit to be classifiable with the functional units (i.e., "essential to the performance of the function", see above). On the basis of the foregoing, optical fiber cables, electrical cables, mat switches, switch units, and ground reactors listed in the packing lists as being for components that together make up functional units of Note 4, section XVI, HTSUS, are classifiable with those functional units. Similarly, the "valve units", stated to control the flow of air and water to the welding gun for cooling and related purposes and "welding timer[s]n and "position adjuster[s]" therefor are also classified with the functional units. As in HRL 962105, controllers for complete functional units (in the packing lists described as "control panel for [particular functional unit involved]") are classifiable with the functional unit, minus the software which is separately classified in heading 8524, pursuant to Note 6, Chapter 85, HTSUS. However, we believe that the safety fences and the "gauges" fulfill auxiliary functions, and are not classifiable with the components making up functional units. That is, although the safety fences may be very important and may, as the protestant states, be required by a Government agency, they do not actually contribute to the "function specific to the functional unit", they contribute to the safety of the operator, regardless of what the function is. Similarly, the "gauges" check the articles after the "function specific to the functional unit" is performed; they do not contribute to the performance of the function. In regard to the "material handling unit[s]", the liquidated classification of these articles was as other lifting and handling equipment of heading 8428, HTSUS, and the protestant does not contest this classification. EN 84.79, (I) Machinery of General Use (3), lists as an example of the articles included in heading 8479, HTSUS, "mechanical distributors for continuous presentation of work pieces in the same alignment ready for the working operation, not specialized for any particular industry." Customs has ruled that welding is a process and does not denote a "particular industry" for purposes of this provision (see HRL 957460, dated April 26, 1995). Therefore, work piece positioners not related to conveyors have been classified in heading 8479 (HRL 957460 and HRL 962105). Similarly, in this case, we conclude that the "material handling unit[s]" are "more akin by function to the cited description in [EN] 84.79" (see HRL 962105) than to the function of the conveyors of heading 8428, HTSUS. Customs has consistently held that functional units cannot be classified in heading 8479 because that heading does not describe any machine by a clearly defined function (see, e.g., HRL 958629 dated February 21, 1996, and HRL 962105). Thus, these articles and the components stated in the packing lists to be for them may not be classified together as functional units. defined function (see, e.g., HRL 958629 dated February 21, 1996, and HRL 962105). Thus, these articles and the components stated in the packing lists to be for them may not be classified together as functional units. However, treatment of the "buffers", described as "conveyors or material handling lines which are designed to store and delay the passing down of parts that were previously produced" (see above), is distinguished from that of the "material handling unit[s]". They are "more akin by function" to the function of conveyors of heading 8428 (see HRL 962105). They are classifiable in that heading. The "transfer machines", "loaders", and "unloading jigs" also, by their designation as such, appear to be "more akin by function" to th