OT:RR:CTF:EMAIN H326274 JRG / UBB
Center Director
Machinery Center of Excellence and Expertise
P.O. Box 3130
Laredo, TX 78044-3130
RE: Application for Further Review of Protest No. 3801-21-107713; Tariff classification of aluminum extrusion line; Accounting for international freight expenses in valuation
Dear Director:
This is our decision regarding an Application for Further Review (AFR) of Protest 3801-21-107713, filed by counsel on October 27, 2021, behalf of International Extrusions, Inc. (Protestant). The Protest and AFR concern the classification of a 2500 MT Alumnium Press (Press), a Handling System, and a Gas Billet Furnace (Furnace) as machines and components that comprise an aluminum extrusion line under the Harmonized Tariff Schedule of the United State (HTSUS). The AFR was forwarded to this office for consideration.
FACTS:
Entry No. 788-1712468-4 contained the Press, Handling System, and Furnace to construct an aluminum extrusion line for converting aluminum logs into parts for motor homes. The subject entry was one of three shipments containing the aluminum extrusion line's components with the other two containing an Automatic Line for Ageing and Packing (Automatic Line) and various accessories[1], respectively. The Press, Handling System, and Furnace comprise 56.3% of the aluminum extrusion line and 66% of its value. The Furnace also includes a Hot Logs Shear and the Handling System is comprised of the following:
a. Lead Out Table and Roller Table;
b. Cooling System;
c. Hot Flying Saw;
d. Double Puller;
e. Transfer Belts;
f. Cooling Kevlar Belts;
g. Strecher Feeding Belts;
h. Stretcher, Ton 60;
i. After Stretcher Table;
j. Saw Feeding Roller Table;
k. Final Cutting Saw;
l. Cutting to Length Table; and
m. Electrical Equipment.
On October 18, 2019, subject entry was entered under 8428, HTSUS, which covers "Other lifting, handling, loading or unloading machinery (for example, elevators, escalators, conveyors, teleferics)." On April 30, 2021, the subject entry was liquidated under 8462, HTSUS, covering "Machine tools (including presses) for working metal by forging, hammering or die-stamping; machine tools (including presses) for working metal by bending, folding, straightening, flattening, shearing, punching or notching; presses for working metal or metal carbides, not specified above."
On October 27, 2021, Protestant filed the instant Protest and AFR. Protestant does not dispute the Press was properly classified under 8462, HTSUS, but asserts the Handling System and Furnace should have been separately classified under 8428, HTSUS, as previous detailed, and 8417, HTSUS, for "Industrial or laboratory furnaces and ovens, including incinerators, nonelectric, and parts thereof," respectively, because the components do not comprise a functional unit that has the essential character of a complete or finished aluminum extrusion line. Protestant maintains the Press, Handling System, and Furnace could not have the essential character of an aluminum extrusion line without the Automatic Line, evinced by the automatic line accounting for 24% of the aluminum extrusion line's value and 43.7% of its size as well as its role in ageing and cooling the extruded aluminum. Protestant further contends the Handling System and Furnace constitute functional units themselves, under Note 4 to Section XVI, HTSUS, and, as such, should be classified separately. Finally, Protestant argues that, if the Press, Handling System, and Furnace are classified together, subheading 8479.81.00, HTSUS, or, alternatively, subheading 8479.89.94, HTSUS, would be appropriate because there is no one purpose that serves as the principal purpose of an aluminum extrusion line.
ISSUE:
Whether the Press, Handling System, and Furnace should be classified together and, if so, whether the items should be classified under heading 8462, HTSUS, or heading 8479, HTSUS.
LAW AND ANALYSIS:
A decision on classification and the rate and amount of duties chargeable is a protestable matter under 19 U.S.C. 1514(a)(2). The subject Protest was timely filed on October 27, 2021, within 180 days of liquidation of the entry, pursuant to 19 U.S.C. 1514(c)(3), with a supplemental submission being considered under 19 C.F.R. 174.28. Further Review of Protest No. 3801-21-107713 is properly accorded pursuant to 19 CFR 174.24(a), as the decision against which the protest was filed is alleged to be inconsistent with a U.S. Customs and Border Protection (CBP) ruling or decision with respect to the same or substantially similar merchandise. As justification for further review pursuant to 19 CFR 174.24(a), Protestant notes that in CBP Ruling Letter (HQ) 965790[2], dated October 25, 2002, CBP separately classified an extrusion press, handling system, and log heater oven because they were entered in separate shipments and no one shipment consisted of the individual components intended to contribute together to a clearly defined function, pursuant to Note 4 to Section XVI, HTSUS.
Tariff classification is governed by the principles set forth in the General Rules of Interpretation (GRIs) and, in the absence of special language or context which requires otherwise, by the Additional U.S. Rules of Interpretation (ARIs). GRI 1 provides that the classification of goods shall be "determined according to the terms of the headings and any relative section or chapter notes." If the goods cannot be classified solely based on GRI 1, and if the headings and legal notes do not otherwise require, GRIs 2 through 6 may be applied in order. GRI 2(a) states:
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.
Furthermore, Note 4 to Section XVI, which includes Chapter 84, states:
Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in chapter 84 or chapter 85, then the whole falls to be classified in the heading appropriate to that function.
The HTSUS headings and subheadings at issue are:
8462 Machine tools (including presses) for working metal by forging, hammering or die-stamping; machine tools (including presses) for working metal by bending, folding, straightening, flattening, shearing, punching or notching; presses for working metal or metal carbides, not specified above:
* * *
8479 Machines and mechanical appliances having individual functions, not specified or included elsewhere in this chapter; parts thereof:
Under Note 4 to Section XVI, HTSUS, the Press, Handling System, and Furnace are "intended to contribute together to a clearly defined function" of heading 8462, HTSUS, specifically "working metal" through aluminum extrusion. The term "working metal" is not defined or explicitly enumerated in the HTSUS. As a result, its correct meaning is its common, or commercial, meaning. See Rocknel Fastener, Inc. v. United States, 267 F.3d 1354, 1356 (Fed. Cir. 2001) ("To ascertain the common meaning of a term, a court may consult 'dictionaries, scientific authorities, and other reliable information sources' and 'lexicographic and other materials.'" (quoting C.J. Tower & Sons of Buffalo, Inc. v. United States, 673 F.2d 1268, 1271, 69 C.C.P.A. 128 (C.C.P.A. 1982))). Merriam-Webster Dictionary defines "metalworking," the noun describing the act of "working metal," as "the act or process of shaping things out of metal." Metalworking, Merriam-Webster, https://www.merriam-webster.com/dictionary/metalworking (last accessed June 14, 2024); accord Kristin Arzt, Metalworking 101: The Basics of Metalworking, thecrucible.org, https://www.thecrucible.org/guides/metalworking/ (last accessed June 14, 2024) (defining metalworking as "the process of forming and shaping metals to create useful tools, objects, equipment parts, and structures").
Aluminum extrusion is a form of "working metal" that involves heating aluminum billets and pushing the softened metal through a shaping die. See Aluminum Extrusion Process, Bonnell Aluminum, https://bonnellaluminum.com/tech-info-resources/aluminum-extrusion-process/ (last accessed Sept. 25, 2023). Once through the die, the billet is sheared, cooled, stretched, and sawed. Id. As such, the Press, Handling System, and Furnace fall squarely within heading 8462, HTSUS, as a "press[] for working metal," because, based on the previously detailed definition of "metalworking" and Note 4 to Section XVI, HTSUS, they are intended to contribute together to a clearly defined function of shaping aluminum billets into parts for motor homes via extrusion. Therefore, the Press, Handling System, and Furnace are appropriately classified in heading 8462, HTSUS, because it describes their intended, combined, clearly defined function in its entirety, unlike the "basket" heading 8479, HTSUS. See Cargill, Inc. v. United States, 28 C.I.T. 401, 409 (2004) (citing EM Indus., Inc. v. United States, 22 C.I.T. 156, 165 (1998)).
Although imported unassembled and without the Automatic Line, the Press, Handling System, and Furnace have the essential character of a completed aluminum extrusion line under GRI 2(a). The subject merchandise, in its condition as imported, performs all the requisite steps of aluminum extrusion: the Furnace heats the metal, the Press forces the metal through the die, and the Handling System facilitates the movement of billets as well as shears, cools, stretches and saws. The Automatic Line is not necessary to this process, it simply performs secondary functions, such as artificially ageing the extruded aluminum to the desired hardness and packing the finished product. See Aluminum Extrusion Process: A Detailed Breakdown, rapiddirect.com (Apr. 27, 2022), https://www.rapiddirect.com/blog/aluminum-extrusion-process/ (last accessed Sept. 25, 2023). Furthermore, the subject merchandise comprises over half the line and two-thirds of its value, further evincing the essential character of a completed aluminum extrusion line. See HQ 965635 (July 16, 2002). As a result, the Press, Handling System, and Furnace will be classified together as an aluminum extrusion line.
This conclusion is consistent with HQ 965790 (Oct. 25, 2002), where a complete aluminum extrusion press was entered in three separate shipments, but no individual shipment had the essential character of an extrusion press, and the components were classified separately. Importantly, the components of the extrusion's handling system were spread across the shipments so "[t]he facts . . . d[id] not establish that the components in any one shipment meet [GRI 2(a)'s and Note 4, Section XVI, HTSUS's] criteria." Id. The protest at issue, however, only disputes a single shipment containing a complete handling system, along with the Press and Furnace, giving the shipment the essential character of an aluminum extrusion line.
International Freight Expenses
According to the protest and AFR, the transportation cost listed in the quote provided by Extral was the total freight estimated for the shipment of the complete line (E220,000), with the actual cost incurred for the shipment containing the Press, Handling System, and Furnace being E131.947,80. The total entered value for the shipment was listed as $3,024,000.00. However, the invoice from Extral to Protestant noted that the total value for the shipment was $4,233,600.00 (including a down payment of $1,209,600 and a payment due at the time of shipment of $3,024,000.00). CBP issued a notice of action which, among other things, included a value advance of $1,209,000 added to the entered value to account for the down payment that was listed on the invoice but not included in the total reported value for the shipment. Per the notice of action, the total estimated value after the value advance was $4,233,600.
Protestant argues that as the value quoted by Extral included the estimated cost of international freight, the actual cost of freight for this shipment should be excluded from the dutiable value. In support of its position, Protestant has provided the following: the relevant sections of the quote provided by Extral for the anticipated cost of the extrusion line (Protestant, through counsel, confirmed that the quote was issued on May 15, 2019); the invoice issued by Esse Emme SRL, the transportation company engaged by Extral to ship the merchandise to Protestant; a bill of lading; proof of payment from Extral to Esse Emme SRL; and a supplementary invoice regarding a separate payment that was part of the bulk payment made by Extral to Esse Emme SRL, but not related to the merchandise and shipment in question.
The threshold question is whether expenses related to international freight are non-dutiable and may be deducted from the invoice price to arrive at the customs value.
Merchandise imported into the United States is appraised in accordance with section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a). The primary method of appraisement is transaction value, which is defined as "the price actually paid or payable for the merchandise when sold for exportation to the United States," plus amounts for certain statutorily enumerated additions to the extent not otherwise included in the price actually paid or payable. 19 U.S.C. 1401a(b)(1). If, for any reason, sufficient information is not available with respect to the additions to the price actually paid or payable, the transaction value of the imported merchandise is treated as one that cannot be determined. 19 U.S.C. 1401a(b)(1).
The term "price actually paid or payable" is defined as:
[T]he total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation in the United States) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.
19 U.S.C. 1401a(b)(4)(A).
In Treasury Decision ("T.D.") 00-20, CBP reiterated its longstanding position that with regard to freight, insurance and other costs incident to international shipment, including foreign inland freight, the importer of record must deduct the actual costs for these charges from the price actually paid or payable in determining transaction value, if these costs are included in the price actually paid or payable. The notice advised that CBP considers actual costs to constitute those amounts ultimately paid to the international carrier, freight forwarder, insurance company or other appropriate provider of such services. Commercial documents to and from the service provider such as an invoice or written contract separately listing freight/insurance costs, a freight/insurance bill, a through bill of lading or proof of payment of the freight/insurance charges (i.e., letters of credit, checks, bank statements) are examples of some documents which typically serve as proof of such actual costs. Other types of evidence may be acceptable.
CBP has previously found that, in determining the cost of international transportation or freight, Customs looks to documentation from the freight company, as opposed to documentation between the buyer and seller which often contains estimated freight costs or charges. Documentation from the freight company is required because the actual cost for freight, and not the estimated charges, is the amount that is excluded from the price actually paid or payable in determining transaction value. HQ 545201 (January 27, 1995). See also HQ 546111 (March 1, 1996).
As stated in T.D. 00-20, deductions for transportation, insurance, and related services incident to the international shipment of the merchandise is appropriate only to the extent they are included in the price actually paid or payable. In the instant case, the invoice between Extral and Protestant (Exhibit A) that Protestant submitted with its entry indicates a "CIF" term of sale (CIF: Livonia, MI), meaning that the price includes international shipping. Protestant has also provided the invoice issued by Esse Emme SRL to Extral detailing the cost of international transportation for Genoa/Detroit (Exhibit E), as well as the bill of lading showing the port of loading as Genoa, the consignee as Protestant in Livonia, MI, and the shipper as Extral. The bill of lading shows freight prepaid at origin (Genoa). Finally, counsel for Protestant has provided proof of payment from Extral to Esse Emme SRL totaling E196,483.90. Counsel has explained that this is a bulk payment that includes transactions unrelated to the shipment under consideration in this case and has provided the unrelated invoices documenting the remainder of the payment. On the basis of the documents provided, it is possible to confirm that the cost of international freight was (E131,947.80, that it was included in the price actually paid or payable, and that payment was made by Extral for this amount. The shipment was exported on September 24, 2019, and the certified daily conversion rate on that date was 1.0999.[3] Thus, the total amount that may be excluded from the total estimated value after the value advance is $145,129.385.
HOLDING:
By application of GRIs 1 (Note 4 to Section XVI), 2(a) and 6, the Press, Handling System, and Furnace are properly classified under heading 8462, HTSUS, and specifically provided under 8462.91.40, which provides for, "Machine tools (including presses) for working metal by forging, hammering or die-stamping; machine tools (including presses) for working metal by bending, folding, straightening, flattening, shearing, punching or notching; presses for working metal or metal carbides, not specified above: Other: Hydraulic presses: Numerically controlled" The general, column one rate of duty is 4.4%.
Based upon the information provided, the importer may deduct expenses related to international freight, as set forth above.
You are instructed to DENY the Protest regarding the classification issue but GRANT the Protest regarding the valuation issue.
You are instructed to notify the Protestant of this decision no later than 60 days from the date of this decision. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to this notification. Sixty days from the date of the decision, the Office of Trade, Regulations and Rulings will make the decision available to CBP personnel and the public on the Customs Rulings Online Search System (CROSS) at https://rulings.cbp.gov/, or other methods of public distribution.
Sincerely,
Yuliya A. Gulis, Director
Commercial and Trade Facilitation Division
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[1] The specific accessories imported include: a hoist support, handrail, billet loader guide, accessories box, ageing oven roof, trays returning structure, and various trays.
[2] HQ W968223 classified the extrusion press under subheading 8462.91.80, HTSUS, the log heater under subheading 8417.10, HTUS, and the various constituent parts of the handling system under individual subheadings. Given the handling system was imported together in this case, the parts' classifications in HQ W968223 are not relevant to this AFR.
[3] https://www.federalreserve.gov/releases/h10/20190930/