HQ 0953859 - Protest No. 1704-93-100061; 8436.10.00; agricultural or horticultural purposes; dehydrator; actual use; Headings 8419 and 8436; EN 84.36; HQs 083930, 086883, 087076, 089936, 066323; 19 CFR 10.131 through 10.139; Appraised Value - United States International Trade Commision Rulings

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HQ 953859

February 25, 1994

CLA-2 CO:R:C:M 953859 RFA

CATEGORY: CLASSIFICATION

TARIFF NO.: 8419.89.50, 9817.00.50

District Director of Customs
1 East Bay Street
Savannah, GA 31401

RE: Protest No. 1704-93-100061; 8436.10.00; agricultural or horticultural purposes; dehydrator; actual use; Headings 8419 and 8436; EN 84.36; HQs 083930, 086883, 087076, 089936, 066323; 19 CFR 10.131 through 10.139; Appraised Value

Dear District Director:

The following is our decision regarding the request for further review of Protest No. 1704-93-100061, which concerns the classification and appraised value of a dehydrator under the Harmonized Tariff Schedule of the United States (HTSUS).

FACTS:

The subject merchandise is a Ziwex dehydrator, model 2000 DH, which converts waste by-products from the fish, meat, poultry, and pork industries into by-products for the feed and fertilizer industries. The raw material is entered into a agitator through which air is blown at a temperature of 700 degrees Celsius. Water is evaporated and as a result of the sudden dehydration, the raw material is broken down into small particles which are dried and screened.

The merchandise was entered on January 31, 1992, under subheading 8436.10.00, HTSUS, as other agricultural machinery. The entry was liquidated on October 30, 1992, under subheading 8419.89.50, HTSUS, as machinery, whether or not electrically heated, for the treatment of materials by a process involving a change of temperature. The protest was timely filed on January 28, 1993.

Classification of the merchandise under heading 9817.00.50, HTSUS, as machinery to be used for agricultural purposes, is also under consideration.

The subheadings under consideration are as follows:

8419.89.50: Machinery, . . .whether or not electrically heated, for the treatment of materials by a process involving a change in temperature such as heating, . . ., drying, evaporating, vaporizing . . .: [o]ther machinery, plant or equipment: [o]ther: [o]ther. . . .

Goods classifiable under this provision have a general, column one rate of duty of 4.2 percent ad valorem.

8436.10.00 Other agricultural, horticultural. . . machinery . . .: [m]achinery for preparing animal feeds

Goods classifiable under this provision have a general, column one free rate of duty.

9817.00.50 Machinery, equipment and implements to be used for agricultural or horticultural purposes. . . .

Goods classifiable under this provision have a general, column one free rate of duty.

At the time of entry, the imported merchandise was appraised on the basis of the invoice price of $375,000. The protestant seeks to have the dehydrator appraised based on a second invoice price of $120,000. The import specialist [IS] is of the opinion that the protestant has failed to show that the invoice price of the dehydrator was not $375,000. According to the IS, in a phone conversation with the protestant, the IS was told that the $120,000 is the cost of manufacture of the dehydrator, and that the correct CIF price is $375,000. No payment has been made by the protestant to the shipper.

The National Import Specialist [NIS] report concludes that transaction value is not an appropriate basis of appraisement as the dehydrator was consigned rather than sold for exportation to the United States. The NIS report found that appraisement on the basis of identical or similar merchandise, deductive or computed value was not appropriate because no information on identical or similar merchandise had been provided, no merchandise had been sold in the U.S., and no information on the computed value of the machine had been submitted. In the event that the merchandise is appraised pursuant to TAA 402(f), the NIS report recommends appraisement on the basis of the lower, $120,000, invoice price. The NIS has determined that the cost of purchasing a 5,000,000 BTU burner for installation in the dehydrator by the protestant is approximately $75,000 and therefore, taking into consideration the other expenses involved in the resale of the dehydrator, the lower invoice price does not seem unreasonably low.

ISSUE:

I. Does the dehydrator qualify for duty-free entry as agricultural or horticultural implements under the HTSUS?

II. Whether the imported merchandise was appraised appropriately under the circumstances presented?

LAW AND ANALYSIS:

CLASSIFICATION

Classification of merchandise under the HTSUS is in accordance with the General Rules of Interpretation (GRI's), taken in order. GRI 1 provides that classification shall be determined according to the terms of the headings and any relative section or chapter notes.

Heading 9817.00.50, HTSUS, grants duty free treatment for "[m]achinery, equipment and implements to be used for agricultural or horticultural purposes. . . ." This is an actual use provision. See HQ 083930 (May 19, 1989). To fall within this special classification, a three part test must be met. First, the subject merchandise must not be excluded from the heading under Section XXII, Chapter 98, Subchapter XVII, U.S. Note 2, HTSUS. Secondly, the terms of the headings must be met in accordance with GRI 1, which provides that classification is determined according to the terms of the headings and any relative section or chapter notes. Thirdly, the article must comply with the actual use provisions required under section 10.131 through, and including, 10.139, Customs Regulations (19 CFR 10.131 through 10.139). See HQ 086883 (May 1, 1990); HQ 087076 (June 14, 1990); HQ 089936 (November 15, 1991).

The first part of the test is to determine whether the dehydrator is excluded from heading 9817.00.50, HTSUS. To do this, we must first determine under which subheading it is classified. The importer states that the dehydrator is provided for under heading 8436, HTSUS, as other agricultural machinery. The Harmonized Commodity Description and Coding System Explanatory Notes (EN) constitute the Customs Cooperation Council's official interpretation of the HTSUS. While not legally binding, the ENs provide a commentary on the scope of each heading of the HTSUS and are generally indicative of the proper interpretation of these headings. EN 84.36, pages 1217- 1218, states that this:
heading covers machinery, not falling in heading 84.32 to 84.35, which is of the type used on farms . . . . However it excludes machines clearly of a kind designed for industrial use.

Th[is] heading does not cover: . . . [m]achinery and plant operating by processes involving a change of temperature (heading 84.19). . . .

According to the information submitted, the dehydrator makes by-products for the feed and fertilizer industries by processes involving a change of temperature. EN 84.36 specifically excludes machinery which operates by processes involving a change in temperature. Based upon EN 84.36, the dehydrator is excluded from classification under heading 8436, HTSUS.

Because the dehydrator is a machine which processes material by involving a change of temperature, it is classifiable under subheading 8419.89.50, HTSUS. This subheading is not excluded from classification in Heading 9817.00.50, HTSUS, by operation of Section XXII, Chapter 98, Subchapter XVII, U.S. Note 2.

The second part of the test calls for the dehydrator to be included within the terms of heading 9817.00.50, HTSUS, as required by GRI 1. The dehydrator must be "machinery", "equipment" or "implements" used for "agricultural or horticultural purposes". There is no question that the dehydrator is "machinery". The next determination to be made is what agricultural or horticultural pursuit is in question.

Under the Tariff Schedules of the United States (TSUS), the precursor to the HTSUS, Customs held that a processor, which converts waste into usable fuel gas and fertilizer, used in an agricultural environment by a farmer who directly benefits, is considered an agricultural pursuit within item 870.40, TSUS (the precursor provision to heading 9817.00.50, HTSUS). See HQ 066323 (July 30, 1981). Congress has indicated that earlier rulings must not be disregarded in applying the Harmonized Code. The conference report to the Omnibus Trade Bill states that on a case by case basis prior decisions should be considered instructive in interpreting the HTSUS, particularly where the nomenclature previously interpreted in those decisions remains unchanged and no dissimilar interpretation is required by the text of the HTSUS. H.Rep No. 100-576, 100th Cong., 2D Sess. 548 (1988) at 550.

The agricultural pursuit provision under HTSUS does not materially differ from item 870.40, TSUS. Therefore, we find that the dehydrator's production of usable animal feed or fertilizer if used in an agricultural environment, that is, one that directly benefits a farmer, is sufficiently related to the purpose of agriculture within the provision of heading 9817.00.50, HTSUS.

The importer must also meet the third requirement of the actual use provisions required under 19 CFR 10.131 through 10.139. Three conditions must be met to receive duty preferences for actual use. The three conditions required by 19 CFR 10.133 are:

(a) Such use is intended at the time of importation;

(b) The article is so used; and

(c) Proof of use is furnished within 3 years after the date the article is entered or withdrawn from warehouse for consumption.

"A showing of intent by the importer as to the actual use of imported merchandise shall be made by filing with the entry for consumption or. . . by entering the proper subheading of an actual use provision of the . . . HTSUS". 19 CFR 10.134. At the time of entry, the subject merchandise was entered for consumption under heading 8436, HTSUS, as other agricultural machinery for preparing animal feed. Even though the subject merchandise is precluded from classification under that heading, we find that the importer had the intent of entering the merchandise for the use of agriculture. However, the importer has not submitted further documentation to meet the other requirements of the Customs Regulations. If the importer complies with all of the actual use requirements of sections 10.131 through and including 10.139, Customs Regulations, then the dehydrator will be eligible for free entry under heading 9817.00.50, HTSUS.

APPRAISEMENT

Section 500 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1500) is the general authority for Customs to appraise merchandise. Section 500(a) states that the appraising officer shall, under rules and regulations prescribed by the Secretary:
appraise merchandise by ascertaining or estimating the value thereof, under section 1401a of this title, by all reasonable ways and means in his power, any statement of cost or costs of production in any invoice, affidavit, declaration, or other document to the contrary notwithstanding....

As noted in the Statement of Administrative Action:

Section 500 authorize [sic] the appraising officer to weigh the nature of the evidence before him in appraising the imported merchandise. This could be the invoice, the contract between the parties, or even the recordkeeping of either of the parties to the contract.

In this case, the information submitted by or on the behalf of the protestant does not provide a basis for finding that the imported merchandise was appraised incorrectly.

HOLDING:

The submitted merchandise is classifiable under subheading 8419.89.50, HTSUS, which provides for: "[m]achinery, . . .whether or not electrically heated, for the treatment of materials by a process involving a change in temperature such as heating, . . ., drying, evaporating, vaporizing . . .: [o]ther machinery, plant or equipment: [o]ther: [o]ther. . . ." Goods classifiable under this provision have a column one, general rate of duty of 4.2 percent ad valorem.

However, these articles may be eligible for free entry under heading 9817.00.50, HTSUS, upon compliance with the actual use requirements of sections 10.131 through and including 10.139, Customs Regulations.

Because reclassification of the merchandise as indicated above will result in the same rate of duty as claimed, you should grant the protest in full with regard to the classification issue.

Under the circumstances presented, the imported merchandise was appraised appropriately under the TAA. Therefore, you should deny the protest with regard to the value issue.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision, together with the Customs Form 19, should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Lexis, Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director
Commercial Rulings Division

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