DRA-2-01-CO:R:C:E 220900 BC
Chief, Liquidation Branch
U.S. Customs Service
Southeast Region
909 S.E. First Avenue
Miami, Florida 33131-2595
RE: Your memorandum of September 27, 1988 (DRA-1-0-C:L PTH),
regarding "manufacturing or production" for drawback
purposes.
Dear Mr. Hill:
This responds to the above referenced memorandum concerning
manufacturing for drawback purposes. It is the opinion of this
office, based on the information available, that no
"manufacturing or production" for drawback purposes is evident.
FACTS:
Your office received a general drawback contract submitted
under TD 83-123, pertaining to situations involving multiple
products and relative values. The drawback claimant imports
stand-alone food processing machines, such as flourers,
applicators, formers, predusters, batterers, fryers, filters,
etc. These are converted into integrated food processing systems
by a connecting procedure, according to the customer's
specifications. In this connecting procedure, the machines are
attached and, to facilitate the attachment, parts of the machines
are removed. Also, air motors are substituted for electric
motors to permit cleansing with steam.
The claimant omitted a description of the connecting
process, the alleged manufacturing process. Yet, he asserted
that this procedure is a manufacture for drawback purposes and
that the removed parts are by-products. Your referenced
memorandum rejected these assertions.
LAW AND ANALYSIS:
The instant set of facts falls within the category of
"assembly" cases. Customs has held that assembly is a
manufacture for drawback purposes in some situations, depending
on the facts and circumstances involved. In CSD 80-58, Customs
ruled that a "manufacture or production" occurred where imported
eyeglass frames were fitted with domestic lenses. The ruling
referred to the general rule that a manufacture or production
changes or transforms an article into a new and different article
having a distinctive character or use (Anheuser-Busch v. U.S.,
207 U.S. 556). The ruling then stated the following: "The
requirements that a manufactured article have a different
character or use are satisfied when an imported article which is
not suited for commercial use is further manufactured into one
that is suited for commercial use." (Emphasis added.) An
eyeglass frame has no commercial use apart from becoming part of
eyeglasses which have a commercial use.
A similar case, CSD 79-39, involved the importation of
watch movements in watch casings, the removal of the movements
from the casings for testing and adjustment, the return of the
movements to the casings which were then tested for water
resistance, the attachment of metal bracelets and the boxing of
the finished products. On the basis of the general rule, Customs
ruled that a manufacture took place; that is, a new and different
article was produced: "The end product is a watch, whereas the
imported articles were watch parts. The watch is a new and
different article. It has a specific name, character and use
different from its component parts unassembled or only partly
assembled."
The rule of the prior case, CSD 80-58, would also apply to
the facts of CSD 79-39. The watch movements and casings, by
themselves, prior to manufacture, are not suited for commercial
use. After the manufacture, they are suited for commercial use
in the form of watches. This is essentially what CSD 79-39
proposes when it states that the finished product has a specific
character and use different from the unassembled component parts.
This also is the meaning of the general rule which states that a
new and different article with a distinctive character and use
must emerge.
All three "rules" involve an examination of the
relationship between the parts and the finished products. On the
facts here, the parts are stand-alone, independently functional
machines which have commercial identities and uses of their own.
They could be, and may well be, sold as single units. Their
identities and uses remain the same after the assembly
procedure. The finished products perform a function which is
essentially the same as that performed by the parts individually.
It cannot be said that the finished product has a specific
character and use different from its component parts unassembled.
All that has changed is the form of the machines. For example,
what was before a former, a batterer and a fryer is, after the
assembly, a former, batterer and fryer connected together. The
United States Court of Customs and Patent Appeals held that a
change in form alone, where the merchandise before the process is
the same as that after the process, is not sufficient in some
circumstances to evidence a "manufacture or production" for
drawback purposes. United States v. Samuel Dunkel & Co., 33 CCPA
60, CAD 317.
Based on the foregoing, it is our belief that there has not
been a change or transformation into a new and different article
with a distinctive character and use. Consequently, there has
not been a manufacture or production process sufficient to
qualify this operation for manufacturing drawback.
The foregoing addresses the alleged manufacturing process
generally as an assembly. This pertains to the connecting of the
various machines together to form an integrated unit. The
claimant's letter of June 21, 1988 describes another part of the
procedure as the deletion of output and input conveyors and the
substitution of air motors for electric motors. These specific
activities are in the nature of disassembly and repair which,
Customs has held, do not constitute manufacturing for drawback
purposes. (CSD 79-79). Therefore, neither the connection (or
assembly) nor the specific procedures described above qualify the
process in question for manufacturing drawback.
In view of the fact that the machines are altered somewhat
from their condition upon importation, by the modification and
deletions required to change their form from stand-alone machines
to integrated machines, it is concluded that same condition
drawback under 19 U.S.C. 1313(j) is inapplicable. Section
1313(j) requires that the imported merchandise not be used in the
United States prior to exportation in an other than incidental
operation (19 U.S.C. 1313(j)(4)).
Here, CSD 82-7 is instructional. In that case, television
sets had to be adjusted prior to exportation, not just tested or
cleaned, or subjected to any other mere incidental operation. As
a consequence of the adjustment, the sets exported were not in
the same condition as when imported, and same condition drawback
was inapplicable.
On the facts of the instant case, it is clear that the
machines are subjected to more than an incidental operation.
Because the machines have to be adjusted to accommodate the
connecting procedure, they are no longer in the same condition as
when imported. Consequently, same condition drawback is
inappropriate. However, to the extent that the manufacturer can
show that machines are not subject to this adjustment, and are
thus in the same condition upon exportation, same condition
drawback is permissible.
Regarding the parts that are removed from the machines in
the connecting procedure, same condition drawback is inapplicable
because these parts were imported as parts of wholes and would
presumably be exported as components or as parts of different
wholes. In addition, these parts are not by-products because
such products, for drawback purposes, must result from a
manufacturing process. There is no manufacturing here, so there
are no by-products. However, even assuming arguendo that there
is a manufacturing process on these facts, the removed parts
would probably not qualify as by-products. (CSD 83-5).
Therefore, in that scenario, as well as under the instant facts,
filing a drawback claim under TD 83-123 is not appropriate.
HOLDING:
Where various stand-alone, commercially and functionally
independent machines are merely connected together to form a
larger unit comprised of these machines operating in concert, and
where the identity and function of these machines remains the
same after the connecting procedure and the only change produced
is in the form of the machines, there has not been a "manufacture
or production" for manufacturing drawback purposes under 19 USC
1313(a) and (b), but there has been process sufficient to exceed
the limits of "incidental operation" under the same condition
drawback provision of 19 USC 1313(j).
Sincerely,
John Durant, Director
Commercial Rulings Division