CLA-2 CO:R:C:M 956490 RFA

John M. Peterson, Esq.
Neville, Peterson & Williams
80 Broad Street
Suite 3400
New York, NY 10004

RE: Software Programs; Computer Disks; Computer Mouse; Digitizer Unit; Software Manual; Adapters; Goods put up in sets for retail sale; Legal Note 6 to Chapter 85; GRI 3(b); EN X to GRI 3(b); HQs 950925, 951887, 952154

Dear Mr. Peterson:

This is in response to your letters of May 18 and August 1, 1994, on behalf of Microsoft Corporation, concerning the tariff classification of Microsoft "Mouse & Windows" retail set under the Harmonized Tariff Schedule of the United States (HTSUS).

FACTS:

The Microsoft "Mouse & Windows" retail set is entered in a sealed plastic wrap retail box, containing Microsoft "Windows 3.1" operating system computer software on 3.5 inch disks, a digitizer unit (commonly known as a computer "Mouse"), port adapters, instruction software, instruction manuals, advertising material, and warranty manuals.

According to the information provided, the "Windows 3.1" operating system permits a computer user to organize files and software installed in a personal computer (PC), and allows the PC to organize and execute other software programs. "Windows 3.1" software incorporates numerous operational and data files and functions. It allows users to open, modify, and save documents, transfer data between various applications, obtain on-line help and information concerning the use of the software, manage computer files and directories and organize documents for printing, either over isolated output devices or through networks. The software also includes numerous accessories designed to facilitate the use of the PC, including a calculator, calendar, card file, character map, clock, media player, note pad, paint brush, recorder, sound recorder, terminal and writing manager.

The Mouse is a small, hand-held plastic input hardware accessory featuring a serial port connector and cable. The Mouse incorporates a small tracker ball which makes contact with a "Mouse pad" or other flat surface. The tracker ball, in turn, furnishes information to light-emitting diode arrays within the Mouse which perform an orientation function. Working in conjunction with "driver" software (included within "Windows 3.1" operating system), the Mouse allows the user to position a cursor on the PC monitor screen. By depressing a switch on the Mouse, a user can transmit a signal to the PC's central processing unit (CPU), directing the CPU to execute a program or instruction.

The port adapter is designed to allow the Mouse to interface with computer input terminals other than those using a standard 9-pin terminal plug configuration.

ISSUE:

Whether the Microsoft "Windows" software and a computer Mouse sold in a sealed plastic wrap box are classified separately or as "goods put up in sets for retail sale" under the HTSUS?

LAW AND ANALYSIS:

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

The subject merchandise consists of: 3.5 inch disks which are provided for under heading 8524, HTSUS; a computer digitizer unit (or "Mouse") which is provided for under heading 8471, HTSUS; instruction manuals which are provided under heading 4901, HTSUS; printed advertising material which are provided for under heading 4911, HTSUS; and a terminal port adapter which is provided for under heading 8544, HTSUS. Because the merchandise is prima facie classifiable in more than one heading, we must apply the other GRI's.

GRI 3(a) provides in pertinent part:

[t]he 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.

Because the software, Mouse, and instructional manuals fall under separate headings in the tariff schedule which describe only a portion of the subject merchandise, the headings are to be regarded as equally specific under GRI 3(a). Therefore, GRI 3(a) fails in establishing classification, and GRI 3(b) becomes applicable. GRI 3(b) provides that goods put up in sets for retail sale, 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 Customs Cooperation Council's official interpretation of the HTSUS. While not legally binding, 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 Fed.Reg. 35127, 35128 (August 23, 1989). EN X to GRI 3(b), page 4, provides as follows:

[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. Therefore, for example, six fondue forks cannot be regarded as a set within the meaning of this Rule;

(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).

According to EN X to GRI 3(b), a set must consist of at least two different articles. The subject merchandise meets the first criteria because it consists of software, a Mouse, and instructional manuals which are prima facie classifiable in different headings. The subject merchandise also meets the third criteria of being put up in a manner suitable for sale directly to users, because it is packaged in a box and sealed with plastic wrap.

The only issue remaining is whether the articles meet the second criteria of being put up together to meet a particular need or carry out a specific activity. Microsoft "Windows 3.1" is an operating system software which allows users to open, modify, and save documents, transfer data between various applications, obtain on-line help and information concerning the use of the software, manage computer files and directories and organize documents for printing, either over isolated output devices or through networks. To operate the software program easily, the user operates the Mouse which positions a cursor on the PC monitor screen. By depressing a switch on the Mouse, a user transmits a signal to the CPU, directing it to execute a program or instruction. Because the Mouse is needed to use "Windows 3.1", we find that these articles are put up together to carry out the specific activity of utilizing the software operating system. The subject merchandise is a retail set because it meets all three criteria as set forth above. The essential character of the subject retail set is imparted by the software program because the reason the end-user purchases the set is for the ability to utilize the Microsoft "Windows 3.1" operating software program. See HQ 951887 (October 26, 1992).

Legal Note 6 to Chapter 85, HTSUS, states that: "[r]ecords, tapes and other media of heading 8523 or 8524 remain classified in those headings, whether or not they are entered with the apparatus for which they are intended." In classifying retail sets containing media of heading 8523 or 8524, HTSUS, Customs has interpreted the meaning of Legal Note 6 to Chapter 85, as requiring that software is to be broken out from a retail set and classified separately. See HQ 952154 (November 17, 1992); HQ 950925 (May 12, 1992). In these situations, the essential character of the retail sets, which contained the media of headings 8523 or 8524, HTSUS, were held to be other than the media. However, in the present case, the essential character of the retail set is the software. The end-user purchases the merchandise because of the software capabilities. Therefore, we find that Legal Note 6 to Chapter 85 allows for a retail set, whose essential character is the software, to be classified as software.

HOLDING:

The "Microsoft Mouse & Windows" retail set is classifiable under subheading 8524.90.40, HTSUS, which provides for: "[r]ecords, tapes and other recorded media for sound or other similarly recorded phenomena. . . : [o]ther: [o]ther. . . ." The column one, general rate of duty is 9.7 cents per square meter of recording surface.

Sincerely,

John Durant, Director
Commercial Rulings Division