CLA-2 RR:CR:GC 960434 TPB
8524.99.40
Joseph A. DiSalvo
Liquidation and Protest Branch
U.S. Customs Service
Building 77 JFK Int’l Airport
Jamaica, NY 11430
RE: Protest # 1001-96-104676; Quantel Image Processing Systems; ADP
Machines.
Dear Mr. DiSalvo:
This is our decision on Protest 1001-96-104676, filed by counsel for Quantel against your classification under the Harmonized Tariff Schedule of the United States (“HTSUS”), of an Image Processing and Manipulation System (“IPAMS”) imported by Quantel, Inc. (“Quantel”). The entries were liquidated March 15, 1996, and this protest timely filed on June 13, 1996. In preparing this ruling, consideration was given to several supplemental submissions from counsel.
FACTS:
The merchandise at issue consists of Image Processing and Manipulation Systems (“IPAMS”) that are imported from the United Kingdom by Quantel. These systems are marketed to the broadcast industry, video post production industry and print industry that need to store, manipulate and process vast amounts of images and text, in both still and motion media.
The systems are identified by their product names below. The groups are divided between those that include pen and tablets as part of the system, and those that do not.
Group 1 Group 2
Systems that include tablets Systems that do not include tablets
• Henry • Picturebox
• The Combo • Clipbox
• Paintbox
• Editbox
• Newsbox
• Hal
• Graphics Paintbox
• Printbox
In its condition as imported, the merchandise is in the form of systems consisting of separate units. The units containing the central processors (“CPUs”), together with any external hard disk units are referred to as “mainframes” by Quantel. The CPUs use either single or dual Motorola MC68040 microprocessors. All of the imported systems include the following units:
A CPU with internal hard disk drive (system and application software as ordered by Quantel, are included)
Additional internal or external hard disk drives (may include additional application software)
A keyboard input device
A rat input device (This has the appearance of a mouse but has buttons that act as context sensitive function keys. Allows the operator to utilize both hands for increased speed.)
The systems in Group 1 above were imported with optional hardware:
A pen and tablet input device (“tablet”)
The Picturebox systems (Group 2) were imported with:
A control unit input device (special purpose keys and light emitting diode (“LED”) readouts
The Paintbox systems were imported with:
A “Grip” unit input device
None of the systems are imported with a monitor or with any other output units.
The IPAMS systems were classified under heading 9017, HTSUS at liquidation.
ISSUE:
What is the proper classification of the IPAMS, tablets and software?
LAW AND ANALYSIS:
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. GRI 6 permits the comparison of same-level subheadings within the same heading, in part by application of Rules 1 through 5, applied by appropriate substitution of terms.
The Harmonized Commodity Description and Coding System Explanatory Notes (ENs) constitute the official interpretation of the Harmonized System at the international level. While not legally binding, 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 HTSUS. Customs believes the ENs should always be consulted. See T.D. 89-80, 54 Fed. Reg. 35127, 35128 (Aug. 23, 1989).
The HTSUS provisions under consideration are as follows:
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:
Records, tapes and other recorded media for sound or other similarly recorded phenomena, including matrices and masters for the production of records, but excluding products of chapter 37:
Drawing, marking-out 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:
ADP machines are defined in Note 5(A)(a) to Chapter 84, HTSUS, which states as follows:
5. (A) For purposes of heading 8471, the expression “automatic data processing machines” means:
(a) Digital machines capable of (1) storing the processing programs and at least the data immediately necessary for execution of the program; (2) being freely programmed in accordance with the requirements of the user; (3) performing arithmetical computations specified by the user; and, (4) executing, without human intervention, a processing program which requires them to modify their execution, by logical decision during the processing run;
Although they contain several additional printed circuit assemblies (“PCAs”) for interfacing with professional video and audio signals as well as accelerating processing functions for video editing and effects, the IPAMS, as imported, still meet the terms of Note 5(A)(a)(1-4). Quantel indicates that they are digital machines that contain main memory for storing the program and necessary data required to execute the program Note 5(A)(a)(1). The CPU microprocessors are capable of performing arithmetical computations as specified by the user Note 5(A)(a)(3).
Quantel claims that there are no software or hardware blocks that would prevent these systems from being programmed by the user. Thus the IPAMS are freely programmable, in that their architecture is based upon an open system design. The devices are capable of running with two operating systems: a) a non-proprietary Java virtual machine, which is under license from Sun Microsystems, Inc.; or b) a proprietary real-time scheduler; written using a non-proprietary standard Pascal compiler. The systems can operate freely programmable Java applications as well as Java applications written by third party programs. These factors satisfy Note 5(A)(a)(2). Finally, through various Java programs, the systems are capable of executing, without human intervention, processing programs which require them to modify their execution, by logical decision during the processing run Note 5(A)(a)(4). For these reasons, the IPAMS can be considered ADP machines for tariff purposes.
Notwithstanding, Note 5(A) is subject to Note 5(E) to Chapter 84. Note 5(E) states as follows:
Machines performing a specific function other than data processing and incorporating or working in conjunction with an automatic data processing machine are to be classified in the headings appropriate to their respective functions, or, failing that, in residual headings.
The IPAMS are commercially known as video editing machines. Nonlinear video editing is defined in Alan Freedman’s, The Computer Glossary (Ninth Ed.), as follows:
Storing video in the computer for editing. It is much easier to edit video in the computer than with earlier analog editing systems. Today’s digital nonlinear editing systems provide high-quality post-production editing on a personal computer. However, lossy compression is used to store digital images, and some detail will be lost.
Depending on the purpose for the video presentation, output is either the final video turned back into analog or an edit decision list (EDL) that describes frame sources and time codes in order to quickly convert the original material into the final video in an editing room. For commercial production, the latter allows editing to be done offline rather than in a studio that costs several hundred dollars per hour. Prior to digital, a system using several analog tape decks was considered a nonlinear video editing system.
The Computer Glossary also provides a definition for a video editor, which provides as follows:
A dedicated computer that controls two or more video tape machines. It keeps track of frame numbers in its own database and switches the recording machine from playback to record. The video editor reads SMPTE time codes provided on professional tape formats.
Another definition of video editing, which can be found on the general information website, www.webopedia .com, provides as follows:
The process of manipulating video images. Once the province of expensive machines called video editors, video editing software is now available for personal computers and workstations. Video editing includes cutting segments (trimming), re-sequencing clips, and adding transitions and other special effects.
http://www.webopedia.com/TERM/V/video_editing.html
As noted above, although the IPAMS contain specialized PCAs and software for use with video editing, these systems are not restricted to this one specific function. The IPAMS are also used for design graphics and special effects, audio editing and control, audio or image copying, coloring, complex image compositing, text creation and manipulation and drawing. In our opinion, these functions carry the IPAMS beyond being dedicated controllers for video tape machines. Combined with the fact that there are no proprietary hardware or software blocks on the IPAMS to prevent the user from loading and/or running other programs, these machines fall outside of the scope of Note 5(E) to Chapter 84, HTSUS.
GRI 2(a) states in part that incomplete or unfinished articles are to be classified as complete or finished if, as imported, they have the essential character of the complete or finished article. The IPAMS are imported without any type of output devices such as monitors or printers, and thus cannot be considered “systems.” Therefore, they would be considered “incomplete” machines or systems. Units are defined by Note 5(B) to the HTSUS. In this case, the CPU and the external hard drives meet the conditions of Note 5(B). The Keyboards and tablets are subject to Note 5(D).
Heading 9017 HTSUS, provides for drawing, marking-out 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; and parts and accessories thereof. One of the functions of the IPAMS is to draw. This is accomplished through use of a tablet, which is included with the systems identified in Group 1 of the Facts section. The tablet in this case would be covered by Note 5(D) to chapter 84, which provides as follows:
Printers, keyboards, X-Y coordinate input devices and disk storage units which satisfy the conditions of paragraph (B)(b) and (B)(c) above, are in all cases to be classified as units of heading 8471.
The tablets meet the criteria in Note 5(B)(b) and (B)(c) and therefore consideration under heading 9017 is not warranted, as the Note directs us to classify these devices in heading 8471.
Therefore, for the reasons stated above, the IPAMS are properly classified under heading 8471. Because they are not imported with any output device, such as a monitor, the IPAMS cannot be classified as a “system,” and are thus classified under subheading 8471.50.8095, HTSUS, which provides digital processing units other than those of subheadings 8471.41 and 8471.49, whether or not containing in the same housing one or two of the following types of unit: storage units, input units, output units: other, other.
As all of the units are individually housed and not entered in the form of a system, they require separate classification. Therefore, the external hard disk drives are classifiable under subheading 8471.70.3000, which provides for magnetic disk drive units with a diameter exceeding 21 cm, other; keyboards are classified under subheading 8471.60.2000, which provides for keyboards; and the rat, tablet and grip are all classified under subheading 8471.60.9090, which provides for other input units.
In the 1995 HTSUS, subheading 8471.91 (the precursor to 8471.50) provided as follows: “[d]igital processing units, whether or not entered with the rest of a system, which may contain in the same housing one or two of the following types of units: storage units, input units, output units:” In the 1996 HTSUS, there was a change in the subheading and nomenclature. Subheading 8471.50 provided as follows: “[d]igital processing units other than those of subheadings 8471.41 and 8471.49, whether or not containing in the same housing one or more of the following types of unit: storage units, input units, output units:” Based on this change in the nomenclature, digital processing units that do not meet the terms of a subheading 8471.49 “system,” such as the merchandise before us, may be classified under heading 8471.50, HTSUS.
Note 6 to Chapter 85, HTSUS, provides that “[r]ecords, tapes and other media of heading 8523 or 8524 remain classified in those headings, whether or not they are entered with the apparatus for which they were intended.” The software in this case is imported in each mainframe or on external magnetic hard disk drives. Although the subject of the applicability of Note 6 to Chapter 85 and the treatment of data recorded on automatic data processing machines was addressed by this office in the Customs Bulletin dated February 6, 2002 (vol. 36, no. 6), at the time the IPAMS systems were imported, software imported on the hard disk drive of an ADP machine was broken out and separately classified. For this reason, the software for the IPAMS system is classifiable under heading 8524, HTSUS.
It is noted that our decision today agrees with a Harmonized System Committee decision. In HSC 24 in October 1999 (Annex H/18 to Doc. NC0160E2), the committee confirmed the classification of the “Media Composer 1000” digital video editor in heading 8471 by application of Note 5(A) to Chapter 84 and subheading 8471.49 (which provides for “systems”), by virtue of subheading Note 1 to Chapter 84. In essence, the Harmonized System Committee determined that The Media Composer 1000 was a freely programmable machine fulfilling all the conditions of Note 5 to Chapter 84, and that inserting software in an ADP machine permitting it to perform a specific task (e.g. drawing software) did not mean that this machine should be considered a machine with a specific function (a drawing machine in this case). Furthermore, the HSC found that by application of Note 6 to Chapter 85, the software was classifiable in heading 8524.
HOLDING:
The IPAMS meet the definition of an ADP machine as set forth in Note 5(A)(a) to Chapter 84, HTSUS, and are not within the scope of Note 5(E), therefore, they are classified under subheading 8471.50.8095,HTSUS, which provides for 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, other digital automatic data processing machines, digital processing units other than those of subheadings 8471.41 and 8471.49, whether or not containing in the same housing one or two of the following types of unit: storage units, input units, output units: other, other. The external hard drive is classifiable under subheading 8471.70.3000, HTSUS, which provides for 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, storage units, magnetic disk drive units: for a diameter exceeding 21 cm, other. The keyboard is classified under subheading 8471.60.2000, HTSUS, which provides for 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, input or output units, whether or not containing storage units in the same housing, other, keyboards. The rat, tablet and grip are all classifiable under subheading 8471.60.9090, HTSUS, which provides for 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, input or output units, whether or not containing storage units in the same housing, other, other, other, other, other. The software is separately classified by virtue of Note 6 to Chapter 85, and therefore classifiable under subheading 8524.99.40, HTSUS, which provides for records, tapes and other recorded media for sound or other similarly recorded phenomena, including matrices and masters for the production of records, but excluding products of chapter 37, other magnetic tapes, other, other, other.
For the reasons stated above, the protest should be ALLOWED. In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to mailing the decision.
Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Acting Director
Commercial Rulings Division