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HQ 545788




October 27, 1994

VAL CO:R:C:V 545788 LR

CATEGORY: CLASSIFICATION VALUATION

TARIFF NO.: 8524.23.20, 9027.30.40

District Director of Customs
San Francisco, California

RE: Application for Further Review of Protest 2809-94-100924; automatic data processing software; mass spectrometer; magnetic media

Dear Sir:

The above-referenced protest and application for further review is against your decision regarding the classification and valuation of automatic data processing (ADP) software imported by Fison Instruments, Inc. (protestant) on November 8, 1993 and liquidated by Customs on April 22, 1994. The protest was filed on July 12, 1994.

FACTS:

The imported merchandise consists of a mass spectrometer system, consisting of a mass spectrometer and magnetic media (floppy disk) with ADP software. It is our understanding, as confirmed by the concerned import specialist in San Francisco, California, that at the time of importation, the software and magentic media are actually one good. According to the commercial invoice submitted with the entry, the value of the mass spectrometer is XXX, the software, XXX, and the magnetic media, XXX. Protestant entered the magnetic media and software (total entered value, XXX) in subheading 8524.23.20, Harmonized Tariff Schedule of the United States (HTSUS) as an other magnetic tape recording of a width exceeding 6.5 mm, with a rate of duty of 9.7 cents per square meter of recording surface. Protestant entered the mass spectrometer (entered value, XXX) under subheading 9027.30.4080, HTSUS, as an electrical spectrometer, with a rate of duty of 4.9% ad valorem. The entry documents also show a charge of XXX for training and installation, identified as a non-dutiable charge (which presumably applies to the software).

Upon liquidation, Customs classified both the mass spectrometer and the software under subheading 9027.30.40, HTSUS, and applied the 4.9% rate of duty to the combined invoice value of the mass spectrometer and the software (XXX). Customs classified only the magnetic software media under subheading 8524.23.20, HTSUS, as an other magnetic tape recording of a width exceeding 6.5 mm, with a rate of duty of 9.7 cents per square meter of recording surface.

Although Customs appraised the merchandise based on the invoice values provided by protestant, protestant claims that it was improper for Customs to include the value of the software along with the value of the mass spectrometer when applying the 4.9% rate of duty. It claims that the 4.9% rate of duty should only be applied to the value of the mass spectrometer. It argues that the software should be classified with the media in subheading 8524.23.20, HTSUS, and that pursuant a GATT decision and T.D. 85-125, duty is to be assessed only on the value of the media. Protestant asks that the merchandise be appraised and classified as originally submitted to Customs.

ISSUE:

Whether Customs properly applied the 4.9% rate of duty applicable to merchandise classifiable under subheading 9027.30.40, HTSUS, to the combined value of the spectrometer and the software.

LAW AND ANALYSIS:

Merchandise imported into the United States is appraised in accordance with section 402 of the Tariff Act of 1930, as amended by the Trade Agreement Act of 1979 (TAA; 19 U.S.C. 1401a). The preferred method of appraisement is transaction value, which is defined as the "price actually paid or payable for merchandise when sold for exportation to the United States," plus certain enumerated additions. 19 U.S.C. 1401a(b)(1). For purposes of this ruling we assume that transaction value is the appropriate basis of appraisement as represented by the values on the commercial invoice. The dispute arises regarding the classification of the imported software and not the method of appraisement under 19 U.S.C. 1401a.

The Harmonized Tariff Schedule of the United States (HTSUS) provides that the classification of articles is governed by the General Rules of Interpretation (GRI's). GRI 1 states in pertinent part that "classification shall be determined according to the terms of the headings and any relative section or chapter notes..."

Protestant does not dispute the classification of the mass spectrometer under subheading 9027.30.40, HTSUS, as an electrical spectrometer, dutiable at the rate of 4.9% ad valorem. The dispute concerns only the classification of the software. Application of the 4.9% rate of duty under subheading 9027.30.40, HTSUS, to the combined value of the mass spectrometer and the software is proper only if the software is classifiable under this provision. It is not.

As provided in Chapter 85, note 6, HTSUS:

[r]ecords, tapes and other media of heading 8523 or 8524 remain classified in those heading, whether or not they are entered with the apparatus for which they are intended.

Based on this provision, the magnetic software media is separately classifiable from the mass spectrometer. See HQ 953383, February 19, 1993, and HQ 955053, October 4, 1993. Moreover, because the software and the magnetic media are actually one good at the time of importation, the magnetic media with the software is properly classified under subheading 8524.23.20, HTSUS, as an other magnetic tape recording of a width exceeding 6.5 mm, with a rate of duty of 9.7 cents per square meter of recording surface. (Even if the software and media were not actually one good at the time of importation, based on chapter 85, note 6, HTSUS, the software and the media would be classifiable under the appropriate provisions in heading 8523 or 8524, and not with the spectrometer in subheading 9027.30.40).

Having determined that the magnetic media with the software is classifiable under subheading 8524.23.20, HTSUS, Customs improperly applied the 4.9% rate of duty under subheading 9027.30.40 to the combined value of the mass spectrometer and the software. It should have been applied to the value of the spectrometer alone.

As indicated above, merchandise classified under subheading 8524.23.20, HTSUS, is dutiable at the rate of 9.7 cents per square meter of recording surface rather than an ad valorem rate. Therefore, it is unnecessary to address protestant's arguments that based on a GATT decision and T.D. 85-124, duty is to be assessed on the value of the media only and not the value of the software. The duty is the same regardless of the value of the magnetic media with software.

HOLDING:

Based on the above considerations, the merchandise was properly classified as entered. You are directed to grant the protest in full.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision 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, Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director

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