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1 st Level CHAPTER Notes These Notes are also described as “LEGAL” Notes: Exclusions where the Chapter Note will list specific goods that are note classifiable within that chapter and will refer such items to other tariff headings. Inclusions where the Chapter Note will: a. Define the goods or materials, or a range of goods or materials, and b. Explain what specific heading the goods or materials will be classified. With inclusions the notes will point to specific goods or materials that will remain classified within the chapter by virtue of: • Its make-up, as in main constituent material, or • It’s specific function, or • It is specifically named. 202
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2 nd Level CHAPTER Notes Sub-heading Notes are also Legal Notes: They appear after certain Chapter Notes and in the same way, serve as an explanation for some reason. However, they are confined solely to the subheading to which they refer. 204
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Additional CHAPTER Notes ‘Additional Notes’ appear after the legal Chapter and Subheading Notes. For the best example, see Additional Notes 1 and 2 to Chapter 84. These notes are not part of the harmonised system and are designed to emphasis and expound (expand on) the local meaning of certain products relating to local subheadings in terms of local law. 206
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Important Note to SECTIONS and CHAPTER Notes • For tariff classification, get into the habit of always double-checking a tariff heading no matter how obvious it may seem. • Always consult the Section and Chapter Notes especially when there is the slightest element of doubt. If still in doubt, then consult the Explanatory Notes. • Classification in the harmonised system is determined first and foremost by reference to the texts of the 4 digit headings and the Section and Chapter Notes all of which have equal legal status. • Remember the section and chapter headings have no legal bearing and only serve as a guide. • If doubt still persist, then it would be advisable to apply for a “firm ruling” by means of a Tariff Determination application with the Commissioner’s Office for Customs & Excise. A TDN (Tariff Determination Number) will be issued for the “ruling”. 208
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Other Uses for the Section & Chapter Notes (Tariff Classification) For the best example of how to use the Section and Chapter Notes, let’s refer back to the Notes covering Section XVI (16), Chapters 84 and 85. • Note 3 and 4 explains that upon importation and the clearance of machines and components that can be fitted or joined together, where the whole will thus perform a specific function, should be classified within the context of what that function would be, i.e. an assembly line. • Additional Note 1 explains the concept of a “staged consignment”, where a machine or plant is to be imported in stages, and where you can apply to Customs for the classification of the latter as one unit, therefore one tariff heading and code for a specific period, PROVIDED that the machine or plant exceeds 500 ton, or 500 cubic meters. 210
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LESSON 3 212 Applied (Critical) Knowledge Steps to HS Tariff Classification & Case Study
Lesson 3 Applied Knowledge Component Critical Application Steps to Establish the Tariff Correct Classification Customs TDN Application (Tariff Determination) Case Study: Applying the GIR in a Progressive Order
Steps to Establish the Tariff Correct Classification The 6 Tariff Classification Steps: • Step 1 – Gathering of Information (more info the better) • Step 2 – Pose 5 Specific Questions • Step 3 – Consult the Alphabetical Index • Step 4 – Consult the Customs Explanatory Notes & Section & Chapter Notes • Step 5 – Match the Tariff Heading with the specifics as indicated in the Explanatory Notes • Step 6 – Identify Item Qualifiers (level 2 sub-headings) and Item Specifics (Level 3 sub-headings) How to apply them, on next slides… 214
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Tariff Classification Steps 1 and 2 How to use the 6 Tariff Classification Steps: Step 1 – Gathering of Information • Gather information from the various Books or Notes, also known as Literature, explaining the commodity in technical terms. Step 2 – Pose 5 Specific Questions • Question 1: What exactly is my Commodity? • Question 2: What does my Commodity consist of (make-up of the article)? • Question 3: What is the function of the commodity? • Question 4: What other qualifications pertains to the commodity (i.e. Nature, size, quantity, weight, presentation, etc.) • Question 5: Is there any other technical information I need (i.e. descriptive literature, other profession input)? 216
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Tariff Classification Steps 3 and 4 How to use the 6 Tariff Classification Steps, continued… Step 3 – Consult the Customs Product Listing as per the Alphabetical Index • Consult the Alphabetical Index (Product Listing) pertaining to the commodity and identify the Chapter, Tariff Heading and / or Code being referred to. Be mindful of the Customs “language” (terminology) to lookup specific items. Step 4 – Consult the Customs Explanatory Notes • By utilizing the Explanatory Notes, look up the Chapter being referred to and look for specifics under the Notes to see whether the commodity is in fact included in, or excluded from the Section and its related Chapter. 218
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Tariff Classification Steps 5 and 6 How to use the 6 Tariff Classification Steps, continued… Step 5 – Match the Tariff Heading in the Explanatory Notes with the specifics as indicated in the Explanatory Notes • Lookup the Tariff Heading in the Explanatory Notes and proceed to read the Explanatory Notes specific to that Chapter, Tariff Heading and commodity. Make sure you also consult the Section and Chapter Notes. Step 6 – Identify Item Qualifiers (level 1 sub-heading range & level 2 subheadings) and Item Specifics (Level 3 sub-headings) • By utilizing the Tariff Book, (a) lookup the Tariff Heading in Schedule 1 Part 1, (b) identity the Subheading Range for “item qualifiers”, then (c) the applicable Subheading for “item specifics” as contemplated under the SubHeadings and / Tariff Codes. 220
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Tariff Classification – Still Unsure? • If still unsure, if in any doubt, DO NOT TAKE A CHANCE! • Rather approach Customs for a Tariff Determination (Tariff Ruling aka TDN). • This will protect you from paying the incorrect duty rate at the time of importation. • You may oppose a Customs Determination if you feel it is incorrect. • Tariff Determinations are dealt with on the next slides, “Tariff Determination (TDN) Applications” 222
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Tariff Determination (TDN) Applications 224 External Policy on TDN (SE-FS-25) : https://www.sars.gov.za/wp-content/uploads/Ops/Policies/SEFS-25-Tariff-Determination-External-Policy.pdf
What is a Tariff Determination & TDN? Section 47(9)(a) of the Customs Act 91 of 1964 refers to: • The Commissioner may in writing determine the tariff heading, tariff subheadings or items of any Schedule under which any imported goods or goods manufactured in the Republic shall be classified. • The acceptance by any Customs officer of a bill of entry or the release of any goods as entered shall be deemed not to be any such determination. Also, Section 47 (9)(c): • The Commissioner may publish any such determination by notice in the Gazette And Section 47 (9)(d) reflects: • The Commissioner may whenever he deems it expedient amend any such determination or withdraw it and make a new determination 225
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Reasons Leading to Tariff Classification Disputes Tariff disputes can arise through: • General tariff applications via TDNs to Customs, • Or as a result of Customs Stops where Customs disputed the Tariff Heading and Code used upon clearance of the goods, • Or through Customs inspections of Importer or Exporter’s Books, • Or inspections of Clearing Agent’s / Customs Broker’s Books. 227 Customs: You must pay more! Importer: No, actually you owe me a refund! Customs: We’ll see…
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Resolving Tariff Classification Disputes Use the “tools” immediately available to you, the same ones you use for a tariff classification! • The route to follow in order to resolve such disputes is to ask for a firm ruling on the item or goods by means of a TDN application via the Commissioner’s Office and to give as much information as possible to Customs about the nature / make-up of the item or goods, where it is used in a specific industry, how it is used, etc.. (Refer to TDN Applications) • The Customs Explanatory Notes are especially useful in resolving disputes where agents or importers / exporters can refer to specifics taken from the Explanatory Notes. 229
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Application for a Tariff Determination (TDN) Tariff Determinations are done on a Form DA314 and only SARS completes TDN forms in all respects. To apply, a commodity description must comply with both of the following two criteria: i. It must be sufficient in all respects to enable the correct classification of that commodity. ii. It must create a clear picture of the commodity to anybody who has not seen not seen it, literature, or samples 231
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Application for a Tariff Determination (TDN), continued The submission must include: • Application letter from Clearing Agent / Broker or client identifying commodity to be determined, • Correspondence relating to commodity (clearance documents, invoices, affidavits, statements, etc.), • Full motivation to be submitted in application letter, • Literature, if any, should be original, • Samples, submitted, must be fully identifiable, • If an analysis is required, a provisional payment should be lodged by the agent/importer to cover the cost of the analysis, either prior to submission or during determination process. 233
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Application for a Tariff Determination (TDN), continued The outcome of the application: • If the application results in a “finding” (correct Tariff Heading and Code), then Customs will issue a Form DA314. • The DA314 will contain a unique reference number, hence the numbered form is referred to as a Tariff Determination and Number (TDN). • The TDN is unique to that specific application only. • The TDN may be revised by Customs at any time after the 1st issue thereof. • Clients may dispute the outcome of a TDN, in which case a further motivation is required for Customs to reconsider. • Clients may apply for a TDN if not in agreement of a local Customs determination as a result of a Customs Stop. 235
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237 There are two extremely important facts to be considered also due to their importance on the “outcome” of the classification. The classification of goods by: • The first refers to classification by “default” (where more than one Rule may apply) , and • The second is the classification i.t.o. volume as in size, where the latter specifically applies in the case of setting up new industrial plants (factories) and / or the volume i.t.o. the packing of the goods for ease of shipment / transportation (Refer to “Section & Chapter Notes to Sch.1 Part 1”) Additional Notes to the Rules for Classification inclusive of the Section and Chapter Notes
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Practical Case Study 1 Applying the GIR in a Progressive Order: FUEL TANK, INCOMPLETE, FOR MOTOR VEHICLE 239 hs-compendium.pdf (wcoomd.org) https://www.customslegaloffice.com/global/what-is-general-rules-of-interpretation-gris/
240 The Inquiry (email) (Actual wording of email quoted directly) Subject: Unfinished Raw Toyota Quantum Fuel Tank Hi Vanessa, Here is a good one for you. This fuel tank we are busy developing, will be imported in its raw format – meaning this is not complete – it still short various components to assemble in order for it to function as a fuel tank. Is there any way we can declare it under an unfinished component, rather than a completed fuel tank? What documentation do we need to proof it is not complete? I thought you can maybe use your historical leads to assist us on the best accurate, cost effective way of declaring this. Kind Regards, Case Study – Applying the GIR in a Progressive Order (1)
241 Technical Information Supplied (copied directly from literature provided) Case Study – Applying the GIR in a Progressive Order (2) Country of Origin: Malaysia
242 What did the Importer try to avoid? CUSTOMS DUTY = 20% (General Rate Applies) The Importer was advised incorrectly by its Agent (see below)! Chapter 87 vs. Item Specific: What does it do? Chapter 73 vs. General Tanks: What is it made of? Look at the Diff. in Duty Rates! Case Study – Applying the GIR in a Progressive Order (3)
243 Applying the Rules (GIRs) Rule # Posing Specific Questions Obtaining Answers to Questions (1) Chapter (2) Tariff Heading (3) Sub-heading 1 ITO Chapter, what is this? A fuel tank for a car Chapter = 87 2A • Presentation? • Function? Read with Chapter 98 Note 8 - OE Specific: Unfinished & has essential character of finished item TH = 87.08 - Parts of motor vehicles of 87.01 to 87.05 3A More than one (1) TH? Presented as a tank and can apply to 2 THs, but most appropriate TH must apply (it has a part number and is most descriptive as a Vehicle Fuel Tank) • Chapter 73, S/H 7310.10 = Other Metal Tanks NO • Chapter 87, S/H 8708.9 = Other Automotive Parts & Accessories YES 6 What are terms of the Subheadings, item qualifiers & specifics? • What is the item qualifier? = Other • What is the item specific? = Other (not previously mentioned) • - - 8708.99 – Other • - - - 8708.99.90 – Other Parts, Other Case Study – Applying the GIR in a Progressive Order (4)
244 Chapter 98 – Original Equipment Components • Chapter 98 refers to OE components supplied to MVMs • Note 8 to Chapter 98 defines articles that are, inter alia, shaped, including unfinished articles and having the essential character of automotive components, to be classified as such, specifically for Schedule 3 rebate purposes i.t.o. the APDP WHY IS THIS SO IMPORTANT? • Chapter 98 Note 8 tells us GIR 2A applies due to an unfinished article, but where the essential character of the item in this case, is identifiable as OE/OEC-specific. • GIR 6 tells us we thus have to apply GIR 2A first in order to classify within the correct Tariff Heading and Sub-Heading as contemplated in the Section & Chapter Notes (in other words, i.t.o. GIR 1 vs. Chapter 98 Note 8). Case Study – Applying the GIR in a Progressive Order (5)
245 Section XVII Notes for Chapters 86 – 89 • Chapter 98 Note 8 refers to OE components supplied to MVMs; however, taking it a step further, we MUST read the Section Notes for Section XVII also. • Note 3 defines “parts” and the classification thereof: (a) “References in Chapters 86 to 88 to "parts" or "accessories" do not apply to parts or accessories which are not suitable for use solely or principally with the articles of those Chapters. (b) A part or accessory which answers to a description in two or more of the headings of those Chapters is to be classified under that heading which corresponds to the principal use of that part or accessory.” INTERPRETATION: If a part was designed specifically for use with a specific item, in this case a fuel tank for a car, then it must be classified within the heading specific to parts for use with that item. Case Study – Applying the GIR in a Progressive Order (6)
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Practical Case Study 2 Buoyancy Compensator for Scuba Diving Incorrect Customs Ruling vs. Correct Ruling 247
248 International Customs Case Study – Incorrect Ruling INCORRECT RULING: Tabata USA Inc. (17 May 1999) vs. USA Customs Ruling 14 June 1999 • “The submitted sample is a B.C. Jacket (buoyancy compensator jacket) which is composed of a shell of woven 100% nylon fabric coated inside with polyurethane. The jacket is used for scuba diving and features woven polypropylene straps, a buoyancy compensator hose retainer, a rear adjustable buckle, strap and harness for air tanks, and a padded inner back for comfort. The jacket’s buoyancy compensator is adjustable and can be easily inflated and deflated. There is a wide adjustable cummerbund with hook and loop closure, an adjustable shoulder buckle with a quick-release feature, and two flap side pockets with hook and loop closure. The applicable subheading for the B.C. Jacket will be 6210.50.5055, Harmonized Tariff Schedule of the United States (HTS), which provides for ‘Garments, made up of fabrics of heading 5602, 5603, 5903, 5906 or 5907: Other women's or girls' garments: Of man-made fibers: Other...Other.” The duty rate will be 7.4% ad valorem. • This ruling is being issued under the provisions of Part 177 of the Customs Regulations (19 C.F.R. 177).” • Decision Revoked – 2001: Re-ruled, No. US 965106 – Nov 2001, covering WCO HS TH 9506.29
249 International Customs Case Study – Correct Ruling CORRECT RULING: Accord Customs Services (17 Jan 2002) vs. Customs USA Ruling 08 Feb 2002 (CLA-2-95:RR:NC:2:224 H87212) • “The sample merchandise consists of a jacket known as a buoyancy compensator for use in underwater or SCUBA diving. The jacket can be inflated by means of a mechanical inflation valve when the diver wishes to ascend or float on the surface. Air for this inflation is provided through a low-pressure hose that is connected to the SCUBA tank. When the diver wishes to descend, a manual deflation valve on the jacket releases air creating negative buoyancy. The sample is being returned with this letter. • The primary focus of the sample buoyancy compensator vest or “jacket” is to control buoyancy in all stages of underwater diving. Hence, it is classifiable as sport dive equipment in subheading 9506.29.0040, Harmonized Tariff Schedule of the United States (HTS), which provides for “Articles and equipment for general physical exercise, gymnastics, athletics, other sports…Water skis, surf boards, sailboards and other watersport equipment; parts and accessories thereof: Other, Other.” The rate of duty will be free. See Customs ruling HQ 965106 dated November 21, 2001.” • Note: USA Ruling No. 965106 invoked and refers to the previous case of 1999, re-ruled in 2001
PRACTICAL SESSION Determine which Rule of Interpretation you would use for the following imports: 1. Double bed has a built-in clock and radio. Would the article in question be classified as a clock if the clock were the most valuable component? 2. Would you classify remote controls imported together with CD players, in the same heading as the CD players. Which Rule applies? 3. Should the pallet on which an article arrives be cleared separately if it is not clearly re-useable? 250