DRA-2-01-RR:IT:EC 226802 IOR
Allan R. Sutter
J.W. Hampton, Jr. & Co., Inc.
15 Park Row
New York, NY 10038
RE: Carbon molecular sieve; Pressure swing adsorption
units; 19 U.S.C. 1313(a); 19 U.S.C. 1313(b);
Drawback; Manufacture or production; Assembly; Agent;
Subcontractor
Dear Mr. Sutter:
This is in response to a ruling request submitted on behalf
of BOC Gases Div of BOC Group Inc. ("BOC"), by letter dated March
6, 1996 (and follow up information by letter dated April 11,
1996).
FACTS:
BOC and Airco Gases (both div of BOC Group Inc.) import
carbon molecular sieve ("sieve") from Japan. The sieve is
classified under Harmonized Tariff Schedule of the United States
subheading 3802.10.0000 for entry purposes. Subheading
3802.10.0000 provides for: "Activated carbon; activated natural
mineral products; animal black, including spent animal black:
Activated carbon." The sieve comes packed in drums of about
150kg. each, and each shipment has a unique lot number which is
marked on each drum. In an April 8, 1996 telephone conversation
with a member of the Entry and Carrier Rulings Branch you
described the sieve as being a media in a loose, granular form.
The sieve is taken to the BOC Central Inventory Warehouse in West
Chester, Pennsylvania where it is received and the unique lot
number is recorded. You assert that for manufacture and order
and all identification purposes sieve is considered a "part" and
has a unique part number.
BOC is the designer and manufacturer of pressure swing
adsorption ("PSA") units which are sold domestically and
internationally. According to the BOC Gases PSA brochure which
you provided, in the Technical Specs section, the PSA systems
produce gaseous, noncryogenic nitrogen from compressed air on the
user's premises, and the sieve is a "key" to the productivity of
the nitrogen generators. The physical process of building the
PSA unit is done by either of two subcontractors hired by BOC.
BOC provides all the components for the process, including the
sieve. One of the last steps in building the PSA unit is the
addition of the sieve. After receiving specified quantities of
sieve from the BOC Central Inventory Warehouse the subcontractor
manually fills the PSA units with the prescribed amounts of
sieve. The sieve is added in its condition as imported. The
actual vessel dimensions vary with the differing model numbers,
but each vessel is filled to roughly the same proportions of
sieve and inert material. Generally, a BOC quality assurance
representative monitors this procedure and records the lot
numbers from the drums of sieve used onto a Quality Assurance
Report for the particular PSA units. A mat is placed on top of
the sieve, and 3/4" ceramic balls are placed on top of the mat to
hold the sieve and mat in place. A flange connection is then
bolted on top of the vessel, with a gasket between it and the
vessel, to make the connection airtight. BOC then tests the
performance of each unit at the subcontractor's site.
The role the sieve plays in the functioning of the PSA is
critical. According to BOC, the sieve is "by far the most
important part of the fill as it provides the separation between
the oxygen and the nitrogen, and without [the sieve] the unit
would not function at all." The sieve makes up roughly 80% of
the bed volume. The inert material which makes up about 20% of
the total bed volume provides for support of the bed while
allowing distributed gas flow. According to the BOC Gases PSA
brochure, p. 8, the PSA system works by selective adsorption:
Here, compressed air is passed through a vessel filled
with a bed of carbon molecular sieve. Oxygen is
preferentially adsorbed into the sieve, while nitrogen
passes unadsorbed through the bed and is delivered as
the product gas.
ISSUE:
Whether the subject process constitutes a "manufacture or
production" within the meaning of 19 U.S.C. 1313 (a) and (b).
LAW AND ANALYSIS:
19 U.S.C. 1313, as amended by section 632(a) of the North
American Free Trade Agreement (NAFTA) Implementation Act of 1993,
provides in pertinent part that (a) "[u]pon the exportation...of
articles manufactured or produced in the United States with the
use of imported merchandise..., the full amount of duties paid
upon the merchandise so used shall be refunded as drawback, less
1 per centum of such duties..." and (b) "[i]f imported duty-paid
merchandise and any other merchandise...of the same kind and
quality are used in the manufacture or production of
articles...there shall be allowed upon the exportation..., of any
such articles..., an amount of drawback equal to that which would
have been allowable had the merchandise used therein been
imported ...."
In C.S.D. 79-40, Customs stated that "[m]anufacture or
production is defined for drawback as the process or processes
which, through labor and manipulation, change or transform an
article or articles into a new and different article having a
distinctive name, character or use." See, for example, Anheuser-Busch Brewing Association v. United States, 207 U.S. 556 (1907).
It has been held that if an operation renders a commodity or
article fit for use for which it was otherwise not fit, the
operation falls within the "letter and spirit" of "manufacture."
United States v. International Paint Co., Inc., 35 C.C.P.A. 87,
C.A.D. 376 (1948).
In C.S.D. 84-52 it was held that the installation of a
necessary component by noncomplex means in order to complete a
larger apparatus constitutes a manufacture or production for
drawback purposes. This decision was based on the United States
Customs court holding in C.J. Holt & Co., Inc. v. United States,
27 Cust. Ct. 88, C.D. 1352 (1951), that the assembly of a tire
onto a wheel, and the placing of that assembly into an automobile
trunk, was a "manufacture or production" for purposes of the
drawback manufacturing law. Assembly cases involve the
importation of what can accurately be described as a part which
is then used to make a different whole. In C.S.D. 80-58, the
imported articles were plastic and metal eyeglass frames which
were used to produce finished sunglasses. This was found to be a
"manufacture or production" because imported parts were used to
produce finished articles which were different from the imported
frames. In C.S.D. 85-39, metal can ends were attached to metal
can bodies to produce finished cans. The finished exported cans
were different from the imported parts used in production. In HQ
223643, dated March 12, 1992, we determined that the insertion of
a domestically purchased ballpoint ink cartridge and spring into
the imported barrel, and screwing the imported taper onto the
barrel is a "manufacture or production" for purposes of drawback.
In this case, imported sieve is filled into a PSA vessel, to
produce an operational PSA unit. Before the sieve is filled into
the PSA vessel, the PSA vessel cannot function to produce
gaseous, noncryogenic nitrogen, and the PSA vessel is not suited
to its commercial use without the sieve. After the sieve is
filled into the PSA vessel, the filled PSA vessel is sold as a
PSA unit and functions as such to produce gaseous, noncryogenic
nitrogen. The filled PSA unit performs a function which is
different than that performed by the sieve and the PSA vessel
individually. The imported sieve is used to produce a finished
article which is different from the imported part. Based on the
available information, the described assembly constitutes a
manufacture or production for drawback purposes.
We note that the manufacture is performed by subcontractors.
The agency relationship for substitution drawback (19 U.S.C.
1313(b)) is addressed in Customs Regulations 191.34(a) (19 CFR
191.34(a)), which provide that "[i]f the owner of imported or
domestic merchandise furnishes this merchandise to an agent in
accordance with a contract between the two parties, and the agent
manufactures from it articles for the owners account, the owner
shall be considered as the user of the merchandise." Paragraph
(b)(1) of this section states that an owner of merchandise who
wishes to be considered a manufacturer pursuant to paragraph (a)
of this section shall apply for drawback under subpart B (which
provides for specific drawback contracts) of this part.
Furthermore, this paragraph states that the proposal shall
describe the agency arrangement and explain how the owner and
agent together will comply with the drawback law and regulations.
Each agent operating under this section must have a drawback
contract covering the articles manufactured. 19 CFR
191.34(b)(2). When an agent produces for the principal's
account, it must be under contract within the principal and
agency relationship outlined in T.D. 55027(2) and T.D. 55207(1).
T.D. 81-181 provides a sample drawback statement which may be
used by agents operating under these T.D.'s to simplify the
drawback procedure. As stated previously, each agent must have a
drawback contract.
For direct identification drawback (19 U.S.C. 1313(a)), the
principal is not required to have a drawback authorization,
however, the agent must apply for and receive a drawback contract
before drawback is payable to the principal. See T.D. 78-342.
Copies of the referenced T.D.'s are enclosed for your
convenience.
HOLDING:
The subject sieve is eligible for drawback within 19 U.S.C.
1313(a) and (b). The described process is a manufacture or
production for drawback purposes.
Sincerely,
Director,
International Trade Compliance
Division
Enclosures