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HQ 226802




June 26, 1996

DRA-2-01-RR:IT:EC 226802 IOR

CATEGORY: DRAWBACK

Allan R. Sutter
J.W. Hampton, Jr. & Co., Inc.
15 Park Row
New York, NY 10038

RE: Carbon molecular sieve; Pressure swing adsorption units; 19 U.S.C. ?1313(a); 19 U.S.C. ?1313(b); Drawback; Manufacture or production; Assembly; Agent; Subcontractor

Dear Mr. Sutter:

This is in response to a ruling request submitted on behalf of BOC Gases Div of BOC Group Inc. ("BOC"), by letter dated March 6, 1996 (and follow up information by letter dated April 11, 1996).

FACTS:

BOC and Airco Gases (both div of BOC Group Inc.) import carbon molecular sieve ("sieve") from Japan. The sieve is classified under Harmonized Tariff Schedule of the United States subheading 3802.10.0000 for entry purposes. Subheading 3802.10.0000 provides for: "Activated carbon; activated natural mineral products; animal black, including spent animal black: Activated carbon." The sieve comes packed in drums of about 150kg. each, and each shipment has a unique lot number which is marked on each drum. In an April 8, 1996 telephone conversation with a member of the Entry and Carrier Rulings Branch you described the sieve as being a media in a loose, granular form. The sieve is taken to the BOC Central Inventory Warehouse in West Chester, Pennsylvania where it is received and the unique lot number is recorded. You assert that for manufacture and order and all identification purposes sieve is considered a "part" and has a unique part number.

BOC is the designer and manufacturer of pressure swing adsorption ("PSA") units which are sold domestically and internationally. According to the BOC Gases PSA brochure which you provided, in the Technical Specs section, the PSA systems produce gaseous, noncryogenic nitrogen from compressed air on the user's premises, and the sieve is a "key" to the productivity of the nitrogen generators. The physical process of building the PSA unit is done by either of two subcontractors hired by BOC. BOC provides all the components for the process, including the sieve. One of the last steps in building the PSA unit is the addition of the sieve. After receiving specified quantities of sieve from the BOC Central Inventory Warehouse the subcontractor manually fills the PSA units with the prescribed amounts of sieve. The sieve is added in its condition as imported. The actual vessel dimensions vary with the differing model numbers, but each vessel is filled to roughly the same proportions of sieve and inert material. Generally, a BOC quality assurance representative monitors this procedure and records the lot numbers from the drums of sieve used onto a Quality Assurance Report for the particular PSA units. A mat is placed on top of the sieve, and 3/4" ceramic balls are placed on top of the mat to hold the sieve and mat in place. A flange connection is then bolted on top of the vessel, with a gasket between it and the vessel, to make the connection airtight. BOC then tests the performance of each unit at the subcontractor's site.

The role the sieve plays in the functioning of the PSA is critical. According to BOC, the sieve is "by far the most important part of the fill as it provides the separation between the oxygen and the nitrogen, and without [the sieve] the unit would not function at all." The sieve makes up roughly 80% of the bed volume. The inert material which makes up about 20% of the total bed volume provides for support of the bed while allowing distributed gas flow. According to the BOC Gases PSA brochure, p. 8, the PSA system works by selective adsorption:

Here, compressed air is passed through a vessel filled with a bed of carbon molecular sieve. Oxygen is preferentially adsorbed into the sieve, while nitrogen passes unadsorbed through the bed and is delivered as the product gas.

ISSUE:

Whether the subject process constitutes a "manufacture or production" within the meaning of 19 U.S.C. ?1313 (a) and (b).

LAW AND ANALYSIS:

19 U.S.C. ?1313, as amended by section 632(a) of the North American Free Trade Agreement (NAFTA) Implementation Act of 1993, provides in pertinent part that (a) "[u]pon the exportation...of articles manufactured or produced in the United States with the use of imported merchandise..., the full amount of duties paid upon the merchandise so used shall be refunded as drawback, less 1 per centum of such duties..." and (b) "[i]f imported duty-paid merchandise and any other merchandise...of the same kind and quality are used in the manufacture or production of articles...there shall be allowed upon the exportation..., of any such articles..., an amount of drawback equal to that which would have been allowable had the merchandise used therein been imported ...."

In C.S.D. 79-40, Customs stated that "[m]anufacture or production is defined for drawback as the process or processes which, through labor and manipulation, change or transform an article or articles into a new and different article having a distinctive name, character or use." See, for example, Anheuser-Busch Brewing Association v. United States, 207 U.S. 556 (1907). It has been held that if an operation renders a commodity or article fit for use for which it was otherwise not fit, the operation falls within the "letter and spirit" of "manufacture." United States v. International Paint Co., Inc., 35 C.C.P.A. 87, C.A.D. 376 (1948).

In C.S.D. 84-52 it was held that the installation of a necessary component by noncomplex means in order to complete a larger apparatus constitutes a manufacture or production for drawback purposes. This decision was based on the United States Customs court holding in C.J. Holt & Co., Inc. v. United States, 27 Cust. Ct. 88, C.D. 1352 (1951), that the assembly of a tire onto a wheel, and the placing of that assembly into an automobile trunk, was a "manufacture or production" for purposes of the drawback manufacturing law. Assembly cases involve the importation of what can accurately be described as a part which is then used to make a different whole. In C.S.D. 80-58, the imported articles were plastic and metal eyeglass frames which were used to produce finished sunglasses. This was found to be a "manufacture or production" because imported parts were used to produce finished articles which were different from the imported frames. In C.S.D. 85-39, metal can ends were attached to metal can bodies to produce finished cans. The finished exported cans were different from the imported parts used in production. In HQ 223643, dated March 12, 1992, we determined that the insertion of a domestically purchased ballpoint ink cartridge and spring into the imported barrel, and screwing the imported taper onto the barrel is a "manufacture or production" for purposes of drawback.

In this case, imported sieve is filled into a PSA vessel, to produce an operational PSA unit. Before the sieve is filled into the PSA vessel, the PSA vessel cannot function to produce gaseous, noncryogenic nitrogen, and the PSA vessel is not suited to its commercial use without the sieve. After the sieve is filled into the PSA vessel, the filled PSA vessel is sold as a PSA unit and functions as such to produce gaseous, noncryogenic nitrogen. The filled PSA unit performs a function which is different than that performed by the sieve and the PSA vessel individually. The imported sieve is used to produce a finished article which is different from the imported part. Based on the available information, the described assembly constitutes a manufacture or production for drawback purposes.

We note that the manufacture is performed by subcontractors. The agency relationship for substitution drawback (19 U.S.C. 191.34(a)), which provide that "[i]f the owner of imported or domestic merchandise furnishes this merchandise to an agent in accordance with a contract between the two parties, and the agent manufactures from it articles for the owners account, the owner shall be considered as the user of the merchandise." Paragraph (b)(1) of this section states that an owner of merchandise who wishes to be considered a manufacturer pursuant to paragraph (a) of this section shall apply for drawback under subpart B (which provides for specific drawback contracts) of this part. Furthermore, this paragraph states that the proposal shall describe the agency arrangement and explain how the owner and agent together will comply with the drawback law and regulations. Each agent operating under this section must have a drawback contract covering the articles manufactured. 19 CFR 191.34(b)(2). When an agent produces for the principal's account, it must be under contract within the principal and agency relationship outlined in T.D. 55027(2) and T.D. 55207(1). T.D. 81-181 provides a sample drawback statement which may be used by agents operating under these T.D.'s to simplify the drawback procedure. As stated previously, each agent must have a drawback contract.

For direct identification drawback (19 U.S.C. ?1313(a)), the principal is not required to have a drawback authorization, however, the agent must apply for and receive a drawback contract before drawback is payable to the principal. See T.D. 78-342. Copies of the referenced T.D.'s are enclosed for your convenience.

HOLDING:

The subject sieve is eligible for drawback within 19 U.S.C. production for drawback purposes.

Sincerely,

Director,

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