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HQ 958577





April 24, 1996

CLA-2 RR:TC:MM 958577 RFA

CATEGORY: CLASSIFICATION

TARIFF NO.: 8527.32.00

Port Director of Customs
300 S. Ferry Street
Terminal Island, CA 90731

RE: Protest 2704-95-102750; Stereo Systems; Compact Disk Player; Equalizer; Stereo Tuner; Cassette Deck; Amplifier; Pre-Amplifier; Stereo Integrated Amplifiers/Tuners; Dual Stereo Cassette Decks/Compact Disc Players; Remote Controls; Flat Cables; "Goods Put Up In Sets For Retail Sale"; Composite Goods; GRI 3(b); Explanatory Note 3(b)(X); Incomplete or Unfinished Functional Units; Legal Note 4 to Section XVI; Headings 8520, 8527; HQs 958914, 957150, 950882, 950218, 087077

Dear Port Director:

The following is our decision regarding Protest 2704-95-102750, which concerns the classification of Denon Electronics stereo sound systems, models D500 and D700, under the Harmonized Tariff Schedule of the United States (HTSUS).

FACTS:

The subject merchandise are the Denon D-500 and D-700 audio sound systems which contain the following units: CD Auto Changer (compact disk player) Unit; Graphic Equalizer; Stereo Tuner; Double Auto-Reverse Cassette Deck; separate Pre-Amplifier and Amplifier units; and remote control units. The D-700 consists of 5 separate components: UDE700 equalizer unit; UTP700 Tuner/Preamp unit; UDCM700 CD auto changer unit; UDR700 cassette deck unit; and UPA700 amp unit. The D-500 consists of three separate components: UTE500 tuner/Preamp/equalizer unit; UDCM500 CD auto changer unit; and UPR500 amp/cassette deck unit. Both the D-500 and the D-700 are imported without their speakers. In each system, connection of the units is effected by a specially designed flat cable included with each system. There are no common "RCA type jacks" available to interconnect the stereo components. Because the stereo systems can send signals only through the flat cable, the stereo system components cannot be sold separately. The consumer must purchase the entire sound system.

Submitted sales literature describes the 2 sound systems' features based upon their individual components. Both the D-500 and D-700 graphic equalizer allows the user to create their own frequency response curves and store them. Both also include a 3-position Super Bass control for optimal bass response. The D-700 comes with a Digital Sound Processor (DSP) which can be used to vary the sound effects to suit the room and the music being played. FM and AM stations can be tuned in manually or automatically on the stereo tuner for both models. A quartz lock synthesizer prevents the broadcast signal from "wandering" during reception. The tuners also include a preset memory feature for up to 30 FM/AM stations and clock/timer features. The CD auto-changers contain a 3-disc carousel. Both systems include a double auto-reverse cassette deck with a full range of functions including logic controls for easy operation and uninterrupted playback of both sides of two cassettes.

After importation, the components of the D-500 and D-700 will be repackaged along with a 3-way speaker system, into a master carton ready for retail sale to the end-user.

In 1994, the merchandise was entered under subheading 8527.31.40, HTSUS, as functional units. The entry was liquidated on June 16, 1995, under subheading 8527.39.00, HTSUS, as other reception apparatus for radiobroadcasting, for the D-500, and under subheading 8543.80.95, HTSUS, as other electrical machines and apparatus not specified or included elsewhere, for the D-700, based upon the application of General Rule of Interpretation (GRI) 3. The protest was timely filed on September 7, 1995.

The 1994 subheadings under consideration are as follows:

8527: Reception apparatus for radiotelephony, radiotelegraphy or radiobroadcasting, whether or not combined, in the same housing, with sound recording or reproducing apparatus or a clock: Other radiobroadcast receivers, including apparatus capable of receiving also radio-telephony or radiotelegraphy:

8527.31.40: Combined with sound recording or reproducing apparatus: [o]ther: [c]ombinations incorporating tape players which are incapable of recording. . . .

Goods classifiable under this provision have a general, column one rate of duty of 3.7 percent ad valorem.

8527.32.00: Not combined with sound recording or reproducing apparatus but combined with a clock. . . .

Goods classifiable under this provision have a general, column one rate of duty of 6 percent ad valorem.

8527.39.00: Other. . . .

Goods classifiable under this provision have a general, column one rate of duty of 6 percent ad valorem.

8543.80.95: Electrical machines and apparatus, having individual functions, not specified or included elsewhere in this chapter . . . : [o]ther machines and apparatus: [o]ther:
[o]ther: [o]ther. . . .

Goods classifiable under this provision have a general, column one rate of duty of 3.9 percent ad valorem.

ISSUE:

Whether the Denon D-500 and D-700 stereo systems are classifiable as functional units, as "goods put up in sets for retail sale", as composite goods, or are the components classifiable separately under the HTSUS?

LAW AND ANALYSIS:

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

The protestant claims that the D-500 and D-700 are functional units as defined by Legal Note 4 to section XVI, HTSUS, which states that: "[w]here 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."

In HQ 958914, dated April 23, 1996, Customs determined that certain mini compact disc stereo systems imported without their speakers, cannot be classifiable as functional units because they are not "intended to contribute together to a clearly defined function covered by one of the headings in chapter 84 or chapter 85." Therefore, the mini compact disc stereo systems in HQ 958914 failed the test as set forth under Legal Note 4 to section XVI, HTSUS. Like the stereo system in HQ 958914, the D-500 and D-700 cannot be classified as a functional unit because its clearly defined function is not covered by one of the headings in chapter 84 or 85, HTSUS. We further note that the stereo systems imported without their speakers are incomplete. Customs has consistently held that incomplete or unfinished articles cannot be classified as unfinished functional units. See HQ 957150 (January 30, 1995); HQ 950218 (April 17, 1992); HQ 087077 (March 27, 1991).

Each of the stereo components in the D-500 and D-700 are prima facie classifiable in two or more headings. Therefore, classification under GRI 1 fails, and we must apply the other GRIs. GRI 3(a) states that if a product is classifiable in two or more headings by application of GRI 2(b), or for any other reason, then the
heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to . . . part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.

GRI 3(b) provides that "goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character." The Harmonized Commodity Description and Coding System Explanatory Notes (EN) constitute the official interpretation of the HTSUS. While not legally binding nor dispositive, 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. See T.D. 89-80, 54 FR 35127, 35128 (August 23, 1989). To determine what is a "set put up for retail sale", EN X to GRI 3(b), page 4, states that:

[f]or the purposes of this Rule, the term "goods put up in sets for retail sale" shall be taken to mean goods which:

(a) consist of at least two different articles which are, prima facie, classifiable in different headings;

(b) consist of products or articles put up together to meet a particular need or carry out a specific activity; and

(c) are put up in a manner suitable for sale directly to users without repacking (e.g., in boxes or cases or on boards).

The D-500 and D-700 consist of at least two different articles which are prima facie classifiable in different headings, and they are put up together to meet the particular need of audio entertainment. However, both systems fail to meet the third criterion because after importation, they are repackaged with speakers into a master carton before they are put up for sale to the public. See HQ 958914.

Because the mini compact disc stereo systems are not classifiable as functional units, or as "goods put up in sets for retail sale", the issue to be determined is whether the stereo systems are composite goods or whether each component must be separately classified. EN (IX) to GRI 3(b), page 4, states that:

For the purposes of this Rule, composite goods made up of different components shall be taken to mean not only those in which the components are attached to each other to form a practically inseparable whole but also those with separable components, provided these components are adapted one to the other and are mutually complementary and that together they form a whole which would not normally be offered for sale in separate parts.

Examples of the latter category of goods are:

(1) Ashtrays consisting of a stand incorporating a removable ash bowl.

(2) Household spice racks consisting of a specially designed frame (usually of wood) and an appropriate number of empty spice jars of suitable shape and size.

As a general rule, the components of these composite goods are put up in common packing.

The subject stereo systems consist of separable components (three or five units depending upon the model series) which are adapted one to the other (through the flat cable) and are mutually complementary and that together they form a whole which is not normally offered for sale as separate components. Because of the specially designed flat cable which connects the components to form a complete stereo system, consumers cannot purchase the components separately. Based upon all these factors, we believe that the subject stereos in their condition as imported, are composite goods under the application of GRI 3(b). See HQ 958914.

The D-700, consisting of 5 separate components (an equalizer unit, a tuner/preamp unit, a CD auto changer unit, a cassette deck unit, and an amp unit) is a composite good. The essential character of the D-700 and the D-500 are imparted by the tuner/preamp units which incorporate clocks. Therefore, the subject stereo systems are classifiable under subheading 8527.32.00, HTSUS, as reception apparatus for radiobroadcasting with a clock.

HOLDING:

Based upon the application of GRI 3(b), the D-500 and D-700 stereo systems are classifiable under subheading 8527.32.00, HTSUS, which provides for: "[r]eception apparatus for radiotelephony, radiotelegraphy or radiobroadcasting, whether or not combined, in the same housing, with sound recording or reproducing apparatus or a clock: [o]ther radiobroadcast receivers, including apparatus capable of receiving also radio-telephony or radiotelegraphy: [n]ot combined with sound recording or reproducing apparatus but combined with a clock. . .

Because reclassification of the merchandise as indicated above is the same or more than the liquidated rates, you should DENY the protest. 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, Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director
Tariff Classification Appeals

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