HQ 227007 - Assembly of computer ready multiple video cassette player rack system; 19 U.S.C. 1313(a); Anheuser-Busch v. United States; United States v. International Paint Co.; C.J. Holt & Co., Inc. v. United States; Ishimitsu v. United States; C.S.D. 79-40; C.S.D. 80-183; T.D. 77-126; HQ 220900 - United States International Trade Commision Rulings

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HQ 227007

November 8, 1996
DRA-2-RR:IT:EC 227007 IOR

CATEGORY: DRAWBACK

Guy Perego
Customhouse Broker, Inc.
961 Laurel Street
Suite 200
San Carlos, CA 94070

RE: Assembly of computer ready multiple video cassette player rack system; 19 U.S.C. 1313(a); Anheuser-Busch v. United States; United States v. International Paint Co.; C.J. Holt & Co., Inc. v. United States; Ishimitsu v. United States; C.S.D. 79-40; C.S.D. 80-183; T.D. 77-126; HQ 220900

Dear Mr. Perego:

This is in reference to your ruling request dated May 28, 1996, concerning an operation by your client On Command Video. You have asked whether the following operation would qualify for manufacturing drawback. You had previously submitted a ruling request for the same process, to which we responded with an information letter, HQ 226398, dated December 12, 1995, as insufficient information had been provided to us.

FACTS:

Video Cassette Players (VCP) are imported and undergo the following:

1) A screw is removed from the back of the VCP; 2) an Audio/Video (A/V) Combiner board is plugged into the audio and video output of the VCP, and is secured to the VCP by reinstallation of the screw previously removed; 3) an Infra Red (IR) cable is installed over the remote receiver area of the VCP and plugged into the A/V Combiner board;
4) the IR cable is taped to the VCP;
5) the VCP is installed into racks holding multiple VCPs; 6) the following connections are made between the rack and each VCP: a) a VCP control cable is plugged into the A/V Combiner board of the VCP; b) a power cable is plugged into the A/V Combiner board of the VCP; and c) a DC power cable is plugged into the VCP;

After the foregoing operation is completed, the VCP's undergo switch tests for frequency, audio and ratio, and system tests consisting of tapes being played in the VCPs. According to the December 6, 1995 telephone conversation between you and a member of the Entry and Carrier Rulings Branch, the VCPs are then exported as connected to and installed in the racks for use in connection with a computer which enables the system to play videos to be seen on multiple remote televisions.

The computer provides commands to each VCP, telling it to rewind, play, stop or fast forward. Each VCP has an address determined by which cable is connected to its control connector. The computer can therefore command each VCP to do different things as required, by sending the commands to a specific address. The interface to the VCP is through a small circuit board that is attached at the back of the VCP with a few screws as previously described. The VCP with the circuit board attached has a different part number than the VCP by itself.

ISSUE:

Whether the process described qualifies for manufacturing drawback under 19 U.S.C. ?1313(a).

LAW AND ANALYSIS:

Under title 19, United States Code, section 1313(a), drawback is authorized "[u]pon the exportation of articles manufactured or produced in the United States with the use of imported merchandise," upon compliance with the provisions in 19 U.S.C. 1313 and the Customs Regulations issued thereunder (19 CFR 191). Generally, in determining whether there has been a manufacture or production for drawback purposes, Customs has long used the criteria in the case of Anheuser-Busch v. United States, 207 U.S. 556 (1908). Under that case, a manufacture or production is considered to have occurred when the merchandise under consideration is changed or transformed into a new and different article having a distinctive name, character or use. Since then, in the case of United States v. International Paint Co., 35 CCPA 87, C.A.D. 376 (1948), it has been held that the fact that an exported product does not have a distinctive name different from the imported product does not preclude there being a manufacture or production for drawback purposes.

Your client's operation as described is an assembly operation. It is well established that assembly operations that result in a new and different product with a distinctive name, character or use constitute a manufacture or production for drawback purposes. See C.J. Holt & Co., Inc. v. United States, 27 Cust. Ct. 88 (1951). In Treasury Decision (T.D. 77-126), on whether an assembly of wrist watch parts constitutes a "manufacture or production," Customs cited Ishimitsu v. United States, 11 Ct. Cust. App. 186, T.D. 38963 (1921), in which the Court of Customs Appeals stated that in order to constitute a manufacture or production:

...it must appear that something has been produced so changed or advanced in condition from what it was before being subjected to the processing or treatment that whether of only one material or of more than one, it has attained a distinctive name, character or use, different from that originally possessed by the material or materials before being subjected to the manufacturing process.

In Customs Service Decision (C.S.D.) 80-183, we determined that the transformation of empty unsterilized glass vials into sterile injectables ready for use with hypodermic syringes constitutes a manufacture or production for purposes of drawback. The exported article was still a glass vial, however, with a different character and use, that of an injectable. In C.S.D. 79-40 we found that a manufacture took place in the case of importation of watch movements in watch casings, followed by the removal of the movements from the casings for testing and adjustment, the return of the movements to the casings which were then tested for water resistance, the attachment of metal bracelets and the boxing of the finished products. Customs ruled that a manufacture took place:

The end product is a watch, whereas the imported articles were watch parts. The watch is a new and different article. It has a specific name, character and use different from its component parts unassembled or only partly assembled.

In this case the exported article is a functional computer-ready rack of VCPs, with each VCP able to receive commands from a computer to perform whatever function is required. The VCP, as installed in the rack has a different part number than it does as an individual VCP, and would no longer be suitable for individual use, due to the cost and size of the rack, unless it is disconnected from and removed from the rack system. As such, we find that the computer-ready rack of VCPs is a new and different product with a distinctive name, character or use, different from that of its component parts, the individual VCPs. As with the watch in C.S.D. 79-40, the rack system has a character and use different from its component parts, the VCPs. As with the glass vials, in C.S.D. 80-183, while the VCPs are still VCPs, their being equipped with circuit boards, capable of being operated through a computer and installation into the rack system, gives them a different character and use. We conclude that the subject assembly constitutes a manufacture or production for purposes of obtaining drawback under 19 U.S.C. ?1313(a).

In HQ 220900, dated January 3, 1989, we determined that the conversion of various food processing machines, such as flourers, batterers, fryers, etc., into integrated food processing systems by a connecting procedure, was not a manufacture or production. We found that the identities and uses of the appliances remained the same after the assembly procedure and that the finished products performed the same function as the component parts had performed individually. The facts in the instant case are distinguishable from those in HQ 220900. In the instant case, unlike HQ 220900, the VCPs in the rack are used in a substantially different manner than the individual VCPs. The rack is suitable to accommodate simultaneous, numerous different viewing demands by virtue of being computer-ready, whereas one VCP can only accommodate one demand at a time. The use of the VCP is different as each individual VCP is rendered capable of receiving commands from a computer and to perform accordingly. The manner of operation is changed. The food processing appliance system on the other hand continues to perform the same functions as each individual appliance did before, and in the same manner. The finished product does not have a different name, character or use than its component parts.

HOLDING:

The process of altering a video cassette player with a circuit board, and installing it in and connecting it to a rack system with other video cassette players, enabling each video cassette player to be commanded to perform individual functions by a computer is a manufacture or production for purposes of 19 U.S.C. ?1313(a).

Sincerely,

Director,

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