United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 2002 HQ Rulings > HQ 965204 - HQ 965276 > HQ 965276

Previous Ruling Next Ruling
HQ 965276




January 23, 2002

CLA-2 RR: CR: GC 965276 TPB

CATEGORY: CLASSIFICATION

TARIFF NO.: 9031.49.80

Mr. Erik D. Smithweiss
Grunfeld, Desiderio, Lebowitz & Silverman LLP 245 Park Avenue
New York, NY 10167-0002

RE: Pre-loaded Data; NY A86557 Revoked.

Dear Mr. Smithweiss:

This is in reference to NY A86557, issued to you on August 30, 1996, in response to your letter dated August 9, 1996, requesting classification of certain automatic data processing (“ADP”) data, also referred to as “software” under the Harmonized Tariff Schedule of the United States (“HTSUS”), on behalf of Basler Inc. We have had an opportunity to review that ruling and now find it to no longer reflects our view as to the recorded data that is permanently affixed to the hard drive. For the reasons stated below, this ruling revokes NY A86557.

Pursuant to section 625(c), Tariff Act of 1930, (19 U.S.C. 1625(c)), as amended by section 623 of Title VI (Customs Modernization) of the North American Free Trade Agreement Implementation Act, Pub. L. 103-182, 107 Stat. 2057, 2186 (1993), notice of the proposed modification/revocation of recorded data on automatic data processing machines was published on October 31, 2001, in the Customs Bulletin, Volume 35, Number 44. Three comments were received on this proposal: two in favor and one opposed. See Final Modification/Revocation in the February 6, 2002 Customs Bulletin, vol. 36 no. 6, for discussion of comments not addressed below.

In the comment that opposed the revocations/modifications, a commentor claims that Customs is overlooking some previous rulings classifying unrecorded magnetic disks. However, HQ 086624, dated May 4, 1990, HQ 085367, dated December 19, 1989 and HQ 088125, dated

February 12, 1991, all dealt with separately imported hard disk platters which were yet to be installed into a hard disk drive. As such they remain classified in heading 8523, HTS, when entered separately.

The commentor claims that the essence of the article does not change merely because the media is incorporated as part of another article, that the hard disks are included as “media” in the ENs to headings 8523 (85.23(4)) and 8524 (85.24(8)), HTS, and that Note 6 to chapter 85, HTS, requires that media be classified under headings 8523 and 8524, HTS, when the media is imported with the apparatus for which it is intended.

However, as stated below, the disks at issue are permanently affixed inside of a hard disk drive, which in turn is mounted inside of an automatic data processing machine. Removal of the hard disk platters from the machine at this point would render them inoperable. For that reason, the disk platters are subsumed into the system, and are no longer within the scope of Note 6 to chapter 85, HTS. Further, imported merchandise is to be classified with reference to its condition as imported (see United States v. Citroen, 223 U.S. 407, 32 S.Ct. 256, 56 L.Ed. 486 (1911) and cases cited; United States v. Lo Curto & Funk, 17 CCPA 342, T.D. 43777 (1929); United States v. Baker Perkins, Inc. et al., 46 CCPA 128, 131, C.A.D. 714 (1959); The Carrington Co. et al., v. United States, 61 CCPA 77, C.A.D. 1126, 496 F.2d 902 (1974); Olympus Corp. of America v. United States, 72 Cust. Ct. 176, C.D. 4538 (1974). In this case, the imported merchandise consists of ADP machines. ADP machines are provided for under heading 8471, HTS.

Also, the commentor claims that the proposed modifications/revocations would violate Decision 4.1 concerning the valuation of carrier media bearing software to data processing equipment. We disagree. Decision 4.1 was adopted in 1984 by the Committee on Customs Valuation of the General Agreement of Tariffs and Trade (now the World Trade Organization (“WTO”) Committee on Customs Valuation). It sanctioned the practice under the WTO Valuation Agreement of valuing carrier media bearing data or instructions (software) for use in data processing equipment either inclusive or exclusive of the value of the software recorded on carrier media. As set forth in T.D. 85-124 (software decision), consistent with Decision 4.1, the U.S. values imported carrier media bearing software only on the cost or value of the carrier medium itself.

The proposed modifications/revocations are not contrary to the software decision. Consistent with its terms, Customs applies the software decision only to imported carrier media bearing software. Currently, the decision applies to recorded data installed on the hard disk of an ADP machine because the hard drive/software (i.e. carrier media bearing software) is separately classified from the ADP machine. As such, recorded data installed on the hard disk falls within the scope of the software decision. However, under the proposed modifications/revocations, T.D. 85-124 would not apply because recorded data installed on the hard disk of an ADP machine would no longer be classified separately from the ADP machine. Therefore, the imported product is the ADP machine, not the carrier medium bearing software, and outside the scope of the software decision.

FACTS:

According to your letter, the merchandise consists of an L4 “label inspection system” and accompanying proprietary software. The L4 label inspection system is used during the manufacture of compact disks (“CDs”) to inspect the label affixed to the CD for errors or other defects. If an error is discovered, the L4 notifies a host computer, which either removes the CD with the defective label from the assembly line, or shuts down the assembly if a repetitive defect is found. The L4 has the following principal components: 1) control computer, 2) control panel, 3) signal converter, and 4) sensor unit.

The control panel has a hard disk which is pre-loaded with the manufacturer’s proprietary data, or “software.” The “software” is specifically designed for the L4 system. The control computer is a PC compatible computer operating in MS/DOS. Using the L4 “software,” the computer controls the inspection process, evaluates data and exchanges data with the host machine.

ISSUE:

What is the classification of the recorded data on the hard disk drive?

LAW AND ANALYSIS:

Classification under the HTSUS is made in accordance with the General Rules of Interpretation (“GRIs”). GRI 1 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative Section or Chapter Notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs may then be applied.

The Harmonized Commodity Description and Coding System Explanatory Notes (“ENs”) constitute the official interpretation of the Harmonized System at the international level. While neither 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.

Note 6 to Chapter 85 states that:

Records, tapes and other media of heading 8523 or 8524 remain classified in those headings, whether or not they are presented with the apparatus for which they are intended.

Previously, Customs has interpreted Note 6 to Chapter 85, HTSUS, to include data that comes pre-loaded on the hard disk drive of an ADP and required that it be broken out and separately classified (see HQ 956962, dated September 13, 1994; HQ 960259, dated November 12, 1997; HQ 958808, dated May 15, 1996; HQ 957981, dated July 9, 1997; HQ 959651, dated July 9, 1997; NY E86558, dated September 14, 1999; NY E83923, dated July 26, 1999). Because there was no substantive reasoning or analysis as to this classification, Customs apparently assumed that the hard disk platters that are integrated into the hard disk drive that is installed in the central processing unit are the applicable “media” under the provision and that the hard disk drive itself is the “apparatus for which they are intended.”

Customs has established that hard disk platters that are incorporated into a hard disk drive of an ADP are not separately classified because they become part of the drive itself, which is specifically provided for under heading 8471 (see HQ 083588, dated September 22, 1989; NY 807998, dated March 17, 1995). In HQ 954361, dated November 2, 1993, Customs classified hard disk drive assemblies under heading 8471.93, HTSUS, and did not separately classify the unrecorded media contained within the assemblies. Compare this treatment with HQ 953168, dated March 31, 1993, in which Customs classified separately presented hard disks, or platters, under heading 8523, HTSUS.

Because the inclusion of platters into a hard disk drive is a permanent process, they become incorporated and subsumed into the disk drive under a new classification, unlike floppy disks, diskettes CD-ROMs and other media which are clearly removable, separate and distinct from the “apparatus from which they are intended.“ Thus, hard disk platters, whether recorded or unrecorded, that are incorporated into hard disk drives are not media of either heading 8523 or 8524, HTSUS, and thus fall outside of the scope of Note 6 to Chapter 85, HTSUS.

In NY A86557, Customs held that data that comes pre-loaded on the hard disk drive of the computer was within the scope to Note 6 of Chapter 85 and had to be broken out and classified separately from the system. As explained above, it is now Customs view that such recorded data is subsumed into the system and is classified with the data processing machine.

In your letter, you indicated that you believed that the L4 system would be classified as an optical measuring of checking instrument under subheading 9031.49.80, HTSUS. It is not required that recorded media on the hard drive of this system be separately classified, as Customs no longer believes that Note 6 to Chapter 85 applies to this type of recorded media. Thus the software on the hard disk drive of the L4 system would be classified with that system.

Although it has no bearing on Customs new view on the classification of this type of recorded data, Customs notes that on January 1, 2002, the language of Note 6 to Chapter 85 will be changed to read as follows:

6. Records, tapes and other media of heading 85.23 or 85.24 remain classified in those headings when presented with the apparatus for which they are intended.

This Note does not apply to such media when they are presented with articles other than the apparatus for which they are intended.

Also changed will be the Explanatory Note to Chapter 85, General, (B) Parts. The following addition will be made to Part “(B)” on page 1443:

(B) MEDIA PRESENTED WITH APPARATUS FOR WHICH THEY ARE INTENDED (Chapter Note 6)

Records, tapes and other media of heading 85.23 or 85.24 remain classified in those headings when presented together with the apparatus for which they are intended (e.g., a video cassette presented with a video cassette player). This Note does not apply, however, when the media are presented together with articles other than the apparatus for which they are intended (e.g., materials for use in instructing children in mathematics consisting of an instructional video cassette, an instructional workbook and a small calculating machine). When the media are presented with articles other than the apparatus for which they are intended, the following classification principles should be applied: (1) If the media and the other articles make up a set put up for retail sale under General Interpretative Rule 3 (b), the set should be classified by application of that Rule; or (2) If the media and the other articles do not make up a set put up for retail sale under General Interpretative Rule 3 (b), then they should be classified separately in their own appropriate headings.

HOLDING:

For the reasons stated above, data, or “software” entered on hard disk drives incorporated into the L4 system will be classified with that system.

Effect on other Rulings:

NY A86557 is revoked. NY A86557 no longer reflects Customs’ view of Legal Note 6 to Chapter 85, HTSUS.

Sincerely,

John Durant, Director

Previous Ruling Next Ruling

See also: