CLA-2 RR:TC:MM 958577 RFA
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
Division