DRA-2-RR:IT:EC 227007 IOR
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,
International Trade Compliance
Division