CLA-2 RR:TC:MM 960165 HMC
Mr. Leigh A. Schmid
International Trade & Customs Services
KPMG
Box 10426 777 Dunsmuir Street
Vancouver, BC V7Y 1K3
Canada
RE: House Packages; Subheading 9406.00.40; Note 4 to Chapter 94;
Explanatory Note 94.06; Prefabricated Buildings of Wood; GRI
2(a); Explanatory Note (VII) to GRI 2(a); HQ 950312; NY 857348;
NY A88769, Affirmed.
Dear Mr. Schmid:
This is in response to your letter, dated January 17, 1997,
on behalf of Lindal Cedar Homes, Inc. ("Lindal"), requesting
reconsideration of New York Ruling Letter (NY) A88769, dated
November 25, 1996. In NY A88769, Customs held that house
packages manufactured by Lindal were not classifiable as
prefabricated buildings of heading 9406, Harmonized Tariff
Schedule of the United States (HTSUS), and that the materials in
the house packages would be classified separately under their
applicable subheadings of the HTSUS. In preparing this ruling,
consideration was also given to your supplemental submission,
dated August 13, 1997.
FACTS:
Lindal imports house packages to the United States and
markets them through a network of independent dealers. Lindal
supply customers with various catalogs that contain photographs,
layouts and detailed plans of the various models available, which
the customers use to select what they want for their homes. The
dealers help customers identify precise needs, and draw house
plans that comprise the basic blueprints for the future home.
When a customer orders a house, Lindal manufactures or
obtains the necessary materials in Canada based on the customized
plans, and packages them together for shipment to the United
States. According to the information provided, the parts are
pre-numbered to correspond with numbers on the plans for easy
identification and inventory.
A "Bill of Materials" lists all the parts contained in the
package. The list groups the various materials according to
which house component they belong, such as floors, walls and
roof. In addition, the package includes windows, doors, and
hardware, such as nails, screws, bolts, framing anchors, beam
hangers and caulking.
Lindal's house packages are intended for specific customers
and are delivered directly to the building site. At the building
site, an inventory verification check is conducted by the local
Lindal dealer to ensure that the package is complete. The buyer
or, more likely, a private contractor would then build the house
based on the house plans and materials included in the package.
Instruction manuals are provided to guide the builder through the
construction process.
ISSUE:
Whether the house packages are classifiable as prefabricated
buildings of wood under subheading 9406.00.40, HTSUS.
LAW AND ANALYSIS:
Merchandise is classifiable under the 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. Note 4 to
Chapter 94, HTSUS, states:
For the purposes of heading 9406, the expression
"prefabricated building" means buildings which are
finished in the factory or put up as elements, entered
together, to be assembled on site, such as housing or
worksite accommodation, offices, schools, shops, sheds,
garages or similar buildings.
GRI 2(a) states that any reference in a heading to an
article shall be taken to include a reference to that article
incomplete or unfinished, provided that, as entered, the
incomplete or unfinished article has the essential character of
the complete or finished article. It shall also include a
reference to that article complete or finished (or falling to be
classified as complete or finished by virtue of this rule),
entered unassembled or disassembled.
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 Notes should always be consulted. See T.D. 89-80, 54 Fed.
Reg. 35127, 35128 (Aug. 23, 1989). EN 94.06, at page 1706,
states that
[prefabricated buildings], which can be designed for a
variety of uses, such as housing, worksite,
accommodation, offices, schools, shops, sheds, garages
and greenhouses, are generally presented in the form
of:
- complete buildings, fully assembled, ready to use;
- complete buildings, unassembled;
- incomplete buildings, whether or not assembled,
having the essential character of prefabricated
buildings.
Neither Note 4 to Chapter 94 nor the ENs explain the meaning
of the expression "finished in the factory or put up as
elements." A tariff term that is not defined in the text of the
HTSUS or the ENs is construed in accordance with its common and
commercial meaning. Nippon Kogaku (USA)Inc. v. United States, 69
CCPA 89, 673 F.2d 380 (1982). Common and commercial meaning may
be determined by consulting dictionaries, lexicons, scientific
authorities and other reliable sources. C.J. Tower & Sons v.
United States, 69 CCPA 128, 673 F.2d 1268 (1982). The term
"finished" is defined in Webster's II New Riverside University
Dictionary 423 (1988) as "[t]o arrive at or reach the end of."
The term "put up" is defined as "[t]o erect: build." Based on
these definitions and Note 4 to Chapter 94, we believe that the
expression "finished in the factory or put up as elements refers
to structures built in factories.
The ENs identify three forms of shipping prefabricated
buildings to the United States. These buildings may be imported
(a) complete, fully assembled, ready to use, (b) complete but
unassembled or (c) incomplete, whether or not assembled, having
the essential character of prefabricated buildings. Thus, as
long as the imported merchandise is a prefabricated building or
has the essential character of such a building, it may be
imported as a whole or unassembled. Accordingly, we must
determine whether Lindal's house packages are finished
prefabricated buildings when imported to the United States.
You cite two rulings in support of the contention that
Lindal's home packages are prefabricated buildings of heading
9406. In HQ 950312, dated December 31, 1991, Customs considered
merchandise very similar to Lindal's home packages. In that
ruling, Customs found that, since the shipment contained all
major parts of a home package, the imported merchandise had the
essential character of prefabricated buildings. In NY 857348,
dated November 9, 1990, Customs considered a standard package of
another Canadian exporter of custom-built homes. The merchandise
in that ruling consisted of 85 percent of ready to assemble
components and 15 percent of components which required trimming
and cutting. Customs held that these incomplete packages had the
essential character of prefabricated buildings. You provided an
analysis prepared by Lindal that shows that 94% of the wooden
parts contained in Lindal's packages are ready to use and do not
require trimming. You state that, as the house packages in the
foregoing rulings, Lindal's house packages include everything
necessary to build a house and, as such, they have the essential
character of prefabricated buildings.
In your brief, you state that the building materials in the
packages include prefabricated beams and trusses; prehung doors;
prefabricated, ready to install, sliding glass doors;
preassembled windows; and, other prefabricated parts. Such parts
are described as the flooring system (not including the
foundation); exterior walls (including siding and insulation);
interior walls framing; roof system (including framing,
insulation, shingles and flashing); interior doors; and, hardware
(including nails, screws, bolts, framing anchors, beam hangers
and caulking). You state that the wooden parts are not standard
lumber products that can be purchased separately in a lumber
store, rather they are shaped to exact dimensions required in the
house plans. The cutting and shaping of these materials is done
prior to importation and each part is numbered for ease of
assembly at the site. You also state that "even basic wall
components are cut in customized non-standard lengths of 85 5/8,
94 1/8 and 92 1/2 inches."
In the cited rulings, basic sections of a building were
imported to the United States. Only minor portions required
trimming or construction on site. The importation of the house
packages in sections was the critical factor in determining that
the merchandise was prefabricated buildings. The house packages
imported in sections displayed the core features of structures
built in a factory. They had the essential character of
prefabricated buildings. This is not the case here.
In this instance, the exhibits presented do not demonstrate
that Lindal imports prefabricated buildings. We have discerned
no evidence that the merchandise is imported in basic sections,
such as entire walls or trusses. Exhibit 19, a "Bill of
Materials," and your submission of August 13, 1997, list only
materials. They show that Lindal imports only pre-cut timber and
other pre-hung items. The materials are organized in groups,
such as walls, roofs, doors and windows for easy inventory at the
construction site. A chapter in the "Justus Construction Guide,"
Exhibit 17, called "Beginning Construction," and the chapters
that follow show that Lindal's houses must be constructed on
site. They explain the construction process for putting up
walls, electrical drilling, the roof and for other major sections
of a Justus model. Also, it describes field cuts that must be
done on parts, such as stairways and rafters. We thus believe
that Lindal's house packages do not display the core features of
structures built in factories. We find that the home packages
are not prefabricated, but a collection of materials needed in
the construction of a house. The materials in the house packages
do not have the essential character of prefabricated buildings.
Furthermore, we note EN (VII) to GRI 2(a) which states that
"articles presented unassembled or disassembled" means
articles the components of which are to be assembled either
by means of simple fixing devices (screws, nuts, bolts,
etc.) or by riveting or welding, for example, provided only
simple assembly operations are involved.
In this instance, we believe that the home packages are made
of parts that require complicated and time consuming assembly.
Exhibit 1, titled "Originals," shows that it takes approximately
seven months to build one of Lindal's houses. Also, Exhibit 18,
a blueprint for one of Lindal's models, shows detailed plans for
a construction of a house that can be better understood by a
professional builder. These exhibits demonstrate that there is a
need for more than simple assembly, typical of prefabricated
homes. Lindal's house packages are therefore not unassembled
prefabricated buildings, as defined by the ENs to GRI 2(a).
You note EN 94.06 that states that "[i]n the case of
buildings unassembled, the necessary elements may be presented
partially assembled (for example, walls, trusses) or cut to size
(beams, joists, in particular) or, in some cases, in
indeterminate or random lengths for cutting on the site (sills,
insulation, etc.)." You claim that EN 94.06 permits
classification of the house packages as prefabricated buildings
because only 6% of the materials must be trimmed on site. We
believe that, since the house packages are not unassembled
prefabricated buildings, this paragraph of EN 94.06 is
inapplicable. Furthermore, we find that since a prefabricated
building must be a building finished in the factory, the
merchandise cannot be materials that are simply pre-cut to size
and nothing more. Also, any cutting of indeterminate or random
materials on site is limited to circumstances when the
merchandise has entered the United States in sections and only
minor cutting is required. This is the situation addressed in NY
857348. We therefore find that Lindal's house packages are not
prefabricated buildings of heading 9406, HTSUS. The materials in
the house packages are separately classifiable. NY A88769 is
affirmed.
HOLDING:
Lindal's house packages are not provided for in heading
9406.00, HTSUS. The materials in the house packages are
separately classifiable.
Sincerely,
John Durant, Director
Commercial Rulings Division