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HQ 960165




September 18, 1997

CLA-2 RR:TC:MM 960165 HMC

CATEGORY: CLASSIFICATION

TARIFF NO.: Various

Mr. Leigh A. Schmid
International Trade & Customs Services
KPMG
Box 10426 777 Dunsmuir Street
Vancouver, BC V7Y 1K3
Canada

RE: House Packages; Subheading 9406.00.40; Note 4 to Chapter 94; Explanatory Note 94.06; Prefabricated Buildings of Wood; GRI 2(a); Explanatory Note (VII) to GRI 2(a); HQ 950312; NY 857348; NY A88769, Affirmed.

Dear Mr. Schmid:

This is in response to your letter, dated January 17, 1997, on behalf of Lindal Cedar Homes, Inc. ("Lindal"), requesting reconsideration of New York Ruling Letter (NY) A88769, dated November 25, 1996. In NY A88769, Customs held that house packages manufactured by Lindal were not classifiable as prefabricated buildings of heading 9406, Harmonized Tariff Schedule of the United States (HTSUS), and that the materials in the house packages would be classified separately under their applicable subheadings of the HTSUS. In preparing this ruling, consideration was also given to your supplemental submission, dated August 13, 1997.

FACTS:

Lindal imports house packages to the United States and markets them through a network of independent dealers. Lindal supply customers with various catalogs that contain photographs, layouts and detailed plans of the various models available, which the customers use to select what they want for their homes. The dealers help customers identify precise needs, and draw house plans that comprise the basic blueprints for the future home.

When a customer orders a house, Lindal manufactures or obtains the necessary materials in Canada based on the customized plans, and packages them together for shipment to the United States. According to the information provided, the parts are pre-numbered to correspond with numbers on the plans for easy identification and inventory.

A "Bill of Materials" lists all the parts contained in the package. The list groups the various materials according to which house component they belong, such as floors, walls and roof. In addition, the package includes windows, doors, and hardware, such as nails, screws, bolts, framing anchors, beam hangers and caulking.

Lindal's house packages are intended for specific customers and are delivered directly to the building site. At the building site, an inventory verification check is conducted by the local Lindal dealer to ensure that the package is complete. The buyer or, more likely, a private contractor would then build the house based on the house plans and materials included in the package. Instruction manuals are provided to guide the builder through the construction process.

ISSUE:

Whether the house packages are classifiable as prefabricated buildings of wood under subheading 9406.00.40, HTSUS.

LAW AND ANALYSIS:

Merchandise is classifiable under the HTSUS, in accordance with the General Rules of Interpretation (GRIs). GRI 1 states in part that for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes, and provided the headings or notes do not require otherwise, according to GRIs 2 through 6. Note 4 to Chapter 94, HTSUS, states:

For the purposes of heading 9406, the expression "prefabricated building" means buildings which are finished in the factory or put up as elements, entered together, to be assembled on site, such as housing or worksite accommodation, offices, schools, shops, sheds, garages or similar buildings.

GRI 2(a) states that any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as entered, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), entered unassembled or disassembled.

The Harmonized Commodity Description And Coding System Explanatory Notes (ENs) constitute the official interpretation of the Harmonized system. While not legally binding on the contracting parties, and therefore not dispositive, the ENs provide a commentary on the scope of each heading of the Harmonized System and are thus useful in ascertaining the classification of merchandise under the System. Customs believes the Notes should always be consulted. See T.D. 89-80, 54 Fed. Reg. 35127, 35128 (Aug. 23, 1989). EN 94.06, at page 1706, states that

[prefabricated buildings], which can be designed for a variety of uses, such as housing, worksite, accommodation, offices, schools, shops, sheds, garages and greenhouses, are generally presented in the form of:

- complete buildings, fully assembled, ready to use;

- complete buildings, unassembled;

- incomplete buildings, whether or not assembled, having the essential character of prefabricated buildings.

Neither Note 4 to Chapter 94 nor the ENs explain the meaning of the expression "finished in the factory or put up as elements." A tariff term that is not defined in the text of the HTSUS or the ENs is construed in accordance with its common and commercial meaning. Nippon Kogaku (USA)Inc. v. United States, 69 CCPA 89, 673 F.2d 380 (1982). Common and commercial meaning may be determined by consulting dictionaries, lexicons, scientific authorities and other reliable sources. C.J. Tower & Sons v. United States, 69 CCPA 128, 673 F.2d 1268 (1982). The term "finished" is defined in Webster's II New Riverside University Dictionary 423 (1988) as "[t]o arrive at or reach the end of." The term "put up" is defined as "[t]o erect: build." Based on these definitions and Note 4 to Chapter 94, we believe that the expression "finished in the factory or put up as elements refers to structures built in factories.

The ENs identify three forms of shipping prefabricated buildings to the United States. These buildings may be imported (a) complete, fully assembled, ready to use, (b) complete but unassembled or (c) incomplete, whether or not assembled, having the essential character of prefabricated buildings. Thus, as long as the imported merchandise is a prefabricated building or has the essential character of such a building, it may be imported as a whole or unassembled. Accordingly, we must determine whether Lindal's house packages are finished prefabricated buildings when imported to the United States.

You cite two rulings in support of the contention that Lindal's home packages are prefabricated buildings of heading 9406. In HQ 950312, dated December 31, 1991, Customs considered merchandise very similar to Lindal's home packages. In that ruling, Customs found that, since the shipment contained all major parts of a home package, the imported merchandise had the essential character of prefabricated buildings. In NY 857348, dated November 9, 1990, Customs considered a standard package of another Canadian exporter of custom-built homes. The merchandise in that ruling consisted of 85 percent of ready to assemble components and 15 percent of components which required trimming and cutting. Customs held that these incomplete packages had the essential character of prefabricated buildings. You provided an analysis prepared by Lindal that shows that 94% of the wooden parts contained in Lindal's packages are ready to use and do not require trimming. You state that, as the house packages in the foregoing rulings, Lindal's house packages include everything necessary to build a house and, as such, they have the essential character of prefabricated buildings.

In your brief, you state that the building materials in the packages include prefabricated beams and trusses; prehung doors; prefabricated, ready to install, sliding glass doors; preassembled windows; and, other prefabricated parts. Such parts are described as the flooring system (not including the foundation); exterior walls (including siding and insulation); interior walls framing; roof system (including framing, insulation, shingles and flashing); interior doors; and, hardware (including nails, screws, bolts, framing anchors, beam hangers and caulking). You state that the wooden parts are not standard lumber products that can be purchased separately in a lumber store, rather they are shaped to exact dimensions required in the house plans. The cutting and shaping of these materials is done prior to importation and each part is numbered for ease of assembly at the site. You also state that "even basic wall components are cut in customized non-standard lengths of 85 5/8, 94 1/8 and 92 1/2 inches."

In the cited rulings, basic sections of a building were imported to the United States. Only minor portions required trimming or construction on site. The importation of the house packages in sections was the critical factor in determining that the merchandise was prefabricated buildings. The house packages imported in sections displayed the core features of structures built in a factory. They had the essential character of prefabricated buildings. This is not the case here.

In this instance, the exhibits presented do not demonstrate that Lindal imports prefabricated buildings. We have discerned no evidence that the merchandise is imported in basic sections, such as entire walls or trusses. Exhibit 19, a "Bill of Materials," and your submission of August 13, 1997, list only materials. They show that Lindal imports only pre-cut timber and other pre-hung items. The materials are organized in groups, such as walls, roofs, doors and windows for easy inventory at the construction site. A chapter in the "Justus Construction Guide," Exhibit 17, called "Beginning Construction," and the chapters that follow show that Lindal's houses must be constructed on site. They explain the construction process for putting up walls, electrical drilling, the roof and for other major sections of a Justus model. Also, it describes field cuts that must be done on parts, such as stairways and rafters. We thus believe that Lindal's house packages do not display the core features of structures built in factories. We find that the home packages are not prefabricated, but a collection of materials needed in the construction of a house. The materials in the house packages do not have the essential character of prefabricated buildings.

Furthermore, we note EN (VII) to GRI 2(a) which states that

"articles presented unassembled or disassembled" means articles the components of which are to be assembled either by means of simple fixing devices (screws, nuts, bolts, etc.) or by riveting or welding, for example, provided only simple assembly operations are involved.

In this instance, we believe that the home packages are made of parts that require complicated and time consuming assembly. Exhibit 1, titled "Originals," shows that it takes approximately seven months to build one of Lindal's houses. Also, Exhibit 18, a blueprint for one of Lindal's models, shows detailed plans for a construction of a house that can be better understood by a professional builder. These exhibits demonstrate that there is a need for more than simple assembly, typical of prefabricated homes. Lindal's house packages are therefore not unassembled prefabricated buildings, as defined by the ENs to GRI 2(a).

You note EN 94.06 that states that "[i]n the case of buildings unassembled, the necessary elements may be presented partially assembled (for example, walls, trusses) or cut to size (beams, joists, in particular) or, in some cases, in indeterminate or random lengths for cutting on the site (sills, insulation, etc.)." You claim that EN 94.06 permits classification of the house packages as prefabricated buildings because only 6% of the materials must be trimmed on site. We believe that, since the house packages are not unassembled prefabricated buildings, this paragraph of EN 94.06 is inapplicable. Furthermore, we find that since a prefabricated building must be a building finished in the factory, the merchandise cannot be materials that are simply pre-cut to size and nothing more. Also, any cutting of indeterminate or random materials on site is limited to circumstances when the merchandise has entered the United States in sections and only minor cutting is required. This is the situation addressed in NY 857348. We therefore find that Lindal's house packages are not prefabricated buildings of heading 9406, HTSUS. The materials in the house packages are separately classifiable. NY A88769 is affirmed.

HOLDING:

Lindal's house packages are not provided for in heading 9406.00, HTSUS. The materials in the house packages are separately classifiable.

Sincerely,

John Durant, Director
Commercial Rulings Division

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