CLA-2-RR:CR:GC 967364 IOR
Tariff No.: 8507.80.80 HTSUS
Field Director
Regulatory Audit
Customs and Border Protection
2350 N. Sam Houston Pkwy E
Suite 1000
Houston, TX 77032
Re: Internal advice; additional batteries with portable ADP units withdrawn from FTZ
Dear Sir:
This is in response to your internal advice request submitted to the Office of Regulations and Rulings, by memorandum dated September 8, 2004, regarding the classification of an additional battery packaged with a portable ADP unit, under the Harmonized Tariff Schedule of the United States (HTSUS). Our decision takes into consideration your submission, which includes an August 6, 2004 submission made by counsel for Dell, Inc. Initially, the information contained in the August 6, 2004 submission was claimed to be privileged and confidential, however, that claim was withdrawn by letter dated October 25, 2004. Our decision follows a December 20, 2004 teleconference between representatives for Dell, and staff of the General Classification Branch of the Office of Regulations and Rulings.
FACTS:
The importer, Dell, Inc. (“Dell”), imports and enters notebook computers from Malaysia. Each imported notebook contains one battery encased in the notebook housing (hereinafter the notebook with encased battery is referred to as “notebook”). After entry for consumption, the notebooks are admitted into a foreign trade zone (“FTZ”) in domestic status. Within the FTZ, the notebook is unpacked, and placed into a larger box with other items ordered by the purchaser for use with the notebook. These other items could include operational manuals, a power adapter, and any additional items the customer has purchased. Some customers purchase an additional battery for the notebook. In some cases the advertised price of a notebook includes the additional battery. Even in those cases, where the listed price includes an additional battery, if the customer does not want to purchase the additional battery, it can be deleted from the order and the price is adjusted accordingly, and the customer can choose other features of the advertised laptop. In order to fill a customer order, the ordered items are pulled and placed in a box. Every order is boxed upon order. There are no prepackaged goods ready to be shipped without subsequent repacking. The boxed merchandise is then withdrawn from the FTZ and shipped to the customer. The importer states that revenue from the sale is not recognized until the notebook and other components are shipped from the FTZ.
The additional batteries are imported and are not entered for consumption in the U.S. and are admitted into the FTZ in non privileged foreign status. According to the importer, the additional battery is used as an additional power source by customers that need longer battery life than that supplied by the primary battery encased in the notebook. The additional battery is designed to fit into the same battery slot as the primary battery, and cannot be used with other types of Dell laptops, with other brands of laptops, or with any other equipment. The importer also sells the batteries admitted into the FTZ individually.
The notebooks entered for consumption, prior to their admission into the FTZ, upon entry are classified under subheading 8471.30.00, HTSUS, as “[a]utomatic data processing machines and units thereof…: Portable digital automatic data processing machines, weighing not more than 10 kg, consisting of at least a central processing unit, a keyboard and a display.” The batteries withdrawn individually from the FTZ are classified under subheading 8507.80.80, HTSUS, as “[e]lectric storage batteries, including separators therefore, whether or not rectangular (including square); parts thereof: Other storage batteries: Other.”
The rate of duty for the batteries withdrawn individually, is higher than that for the ADP machines.
ISSUE:
What is the correct classification under the HTSUS of the additional battery withdrawn from the FTZ and entered for consumption packed in a box with the notebook.
LAW AND ANALYSIS:
Merchandise is classifiable under the HTSUS in accordance with the General Rules of Interpretation (GRIs). The systematic detail of the HTSUS is such that most goods are classified by application of GRI 1, that is, according to the terms of the headings of the tariff schedule and any relative Section or Chapter Notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs 2 through 6 may then be applied in order.
The HTSUS subheadings under consideration are as follows:
8471 Automatic data processing machines and units thereof…:
8471.30.00 Portable digital automatic data processing machines, weighing not more than 10 kg, consisting of at least a central processing unit, a keyboard and a display………………….
8507 Electric storage batteries, including separators therefore, whether or not rectangular (including square); parts thereof:
Other storage batteries:
8507.80.80 Other…………………………………………………………..
The Harmonized Commodity Description And Coding System Explanatory Notes (EN’s) constitute the official interpretation of the Harmonized System. While not legally binding on the contracting parties, and therefore not dispositive, the EN’s 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 EN’s should always be consulted. See T.D. 89 80, 54 Fed. Reg. 35127, 35128 (Aug. 23, 1989).
The entered merchandise to be classified, is the notebook and the additional battery. Whether the merchandise withdrawn from an FTZ is treated as an entirety, is dependent on whether or not it is a set. If the merchandise is a set, it is an entirety and is not segregated according to domestic status merchandise and foreign merchandise. See C.S.D. 82-29; HQ 554935, dated April 10, 1989.
Portable automatic data processing (“ADP”) machines, with an incorporated battery, such as in the facts, herein, are prima facie classified by GRI 1, under heading 8471, HTSUS, as ADP machines, specifically in subheading 8471.30, HTSUS, as “Portable digital automatic data processing machines.” In the case of the subject notebook, the battery encased in the laptop is part of the ADP machine. The additional battery is prima facie classified under heading 8507, HTSUS, as “[e]lectric storage batteries.”
Chapter 84, Note 5, distinguishes between ADP machines which are described in Note 5(a), and ADP machines in the form of “systems consisting of a variable number of separate units,” which are described in Note 5(b). The ENs 84.71 state that the ADP machines covered by the heading are those that are “self-contained,” meaning all of the elements required for data processing are combined in the same housing, and those in the form of a system consisting of a variable number of separate units. The ADP machine at issue is one combining all of the elements in one housing. As the machine at issue is not a “system”, Note 5(b) is not applicable to the analysis.
GRI 3 is applicable because the merchandise is prima facie classifiable in more than one heading. GRI 3(a) provides in pertinent part: “[t]he heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only…of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.” Because the various items fall under separate headings in the tariff schedule, which headings describe only a portion of the subject merchandise, the headings are to be regarded as equally specific under GRI 3(a). Therefore, GRI 3(a) fails in establishing classification, and GRI 3(b) becomes applicable. GRI 3(b) provides that goods put up in sets for retail sale, shall be classified as if they consisted of the material or component which gives them their essential character.
The plain language of GRI 3(b), requires that the goods be “put up in a set for retail sale.” The issue is whether imported merchandise packaged individually per a retail customer order satisfies the plain language of GRI 3(b). We have previously addressed this issue in HQ 964209, dated September 14, 2001, issued to Dell. The facts in HQ 964209, were substantially similar with regard to the method of sale of the merchandise. The customer could order an ADP system, with or without any particular components. The ADP systems were “made-to-order.” We found that the goods failed to meet criterion (c), because the components were “put up” after the sales transaction was complete. The importer argues that in this case, because the purchaser’s credit card is not charged until after the merchandise has been shipped from the FTZ, the sale is not complete until the goods leave the FTZ, and the goods therefore were not put up for sale after the sales transaction was complete.
EN X to GRI 3, provides with respect to GRI 3(b), in pertinent part, as follows:
For the purposes of this Rule, the term "goods put up in sets for retail sale" shall be taken to mean goods which:
…
(c) are put up in a manner suitable for sale directly to users without repacking (e.g., in boxes or cases or on boards).
The language in the EN’s “in a manner suitable for sale directly to users” clarifies the term “retail” in the GRI. The term “put up” is defined as “a. to construct; erect. …d. to display; show….” Random House College Dictionary, p. 1075 (1973 ed.). Both the GRI and the EN use the term “for sale,” which term is defined as “offered to be sold; made available to purchasers.” Id., at p. 1162. The term “sale,” alone, is the complete transaction of property for money or credit. Id. Therefore, the language “put up for sale” refers to constructing or showing goods offered to be sold. Taken as a whole, criterion (c) requires that goods be constructed or shown in a manner suitable to be offered for sale directly to users without repacking. In this case, the offer for retail sale took place prior to the goods being “put up”. The goods were repacked after they were offered. The goods offered for retail sale were those listed as options for the notebook. The withdrawn goods were simply packaged by the importer in accordance with what was ordered by the retail purchaser. The merchandise withdrawn from the FTZ is subsequent to the offer of the goods for retail sale. At the time of withdrawal from the FTZ, the goods are no longer being offered for retail sale, but are packaged in accordance with the retail purchasers specific individual order. Therefore, because the goods are not “put up…for retail sale” the goods sold together in this case do meet criterion (c) of the ENs, for GRI 3(b).
The timing of the payment with respect to the withdrawal of the merchandise is not determinative of whether the goods “are put up in a set for retail sale.” In HQ 964209, it was stated that the goods were “put up” after the sales transaction was complete. A review of the file indicates that payment details were not provided, however, based on the details that were provided, that the merchandise was withdrawn from the FTZ as ordered by the ultimate user, the facts therein were identical to the facts in this case.
For the same reason, we do not find HQ 114229, dated February 2, 1998, instructive. The issue here is not whether the completed sale took place within the FTZ, but whether the goods are “put up in a set for retail sale.”
Because the subject merchandise is not a set under the plain language of GRI 3(b), and the remaining GRI’s are not applicable, each article must be classified separately under GRI 1. Of the articles entered, only the additional battery is imported foreign merchandise, therefore our holding is limited to that article. Further, because the entered merchandise is not classified under GRI 3(b), and there is no resulting inverted tariff, we do not address the issue of whether the additional battery qualifies for an inverted tariff.
Based upon the foregoing, we find that in accordance with GRI 1, the additional battery is classified under heading 8507, HTSUS, and specifically under subheading 8507.80.80, HTSUS, as “[e]lectric storage batteries, …whether or not rectangular (including square);…: Other storage batteries: Other.”
HOLDING:
Under the authority of GRI 1, the additional battery is classified in subheading 8507.80.8000, HTSUSA, as “[e]lectric storage batteries, …whether or not rectangular (including square);…: Other storage batteries: Other,” with a column one, general duty rate of 3.4%. Duty rates are provided for your convenience and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on the internet at www.usitc.gov.
Sincerely,
Myles B. Harmon, Director
Commercial Rulings Division