CAFC Rules CIT Should Use "Principal Use" to Classify LCD Monitors

(In 2004, BenQ imported the monitors from China under duty-free HTS 8471.60.45 for ADP machines; CBP subsequently reliquidated them as video monitors under HTS 8528.21.70 (5%). BenQ filed a protest, which was deemed denied by CBP. BenQ then filed suit in the CIT. The CIT relied on HTS Ch. 84 Note 5(E) and heading 8471 Explanatory Notes (EN) to determine that, because the monitors could serve as a video monitor (a specific function other than data processing), they could not be classified under heading 8471. See ITT's Online Archives or 03/04/10 news, 10030435, for BP summary.)

Both BenQ & CBP Say CIT Erroneously Relied on Note 5(E) and HTS 8471 EN

Both BenQ and CBP argue that the CIT erred in relying on Note 5(E) to exclude the monitors from heading 8471 because the note applies in two distinct cases that BenQ's monitors do not meet: when monitors (1) incorporate an ADP machine and perform a specific function other than data processing; or (2) are presented with an ADP machine and intended to work in conjunction with the ADP to perform a specific function other than data processing.

CBP also concedes BenQ's argument that the CIT erroneously relied on the EN to heading 8471, which states that to be classified in heading 8471, a display unit of an ADP must be capable of accepting a signal only from the central processing unit of an ADP. BenQ argues this conflicts with the statutory language of Note 5(B)(a), which states that a unit can be classified in this heading if it is solely or principally used in an ADP system. In its ruling, the CIT had acknowledged that the ENs may conflict with Note 5(B), but chose not to govern on this issue.

BenQ Says Monitors Should be Classified Based on Note 3 "Principal Function"

BenQ argues that in classifying the monitors, the CIT should have determined their principal function, as required by Section XVI, Note 3. This note states that, unless the context otherwise requires, composite machines consisting of two or more machines that are fitted together to form a whole and other machines designed for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting only of that component or as being that machine which performs the principal function.

BenQ argues that Note 3 prevails over Note 5(B)(a) and the “principal use” analysis under ARI 1(a), because Note 5 relates to only one of the competing headings, whereas both Chapter 84 and Chapter 85 fall within Section XVI. Therefore, BenQ argues that the CAFC should perform a "principal function" analysis of its monitors and argues that the principal function is as an output (display) unit of an ADP system. Thus the monitors are classifiable as "units of ADPs" in heading 8471.

CBP Argues Should be Based on Note (5)B "Principal Use" Analysis

CBP argues that BenQ has admitted that its monitors are capable of connection to a video source, and therefore, the monitors fall under heading 8528. CBP also argues that BenQ has not established that the monitors should be classified in heading 8471 as units of ADP systems. CBP states that such units fall under Note 5(B)(a), which requires a "principal use" analysis pursuant to HTS Additional U.S. Rule of Interpretation (ARI) 1(a). Under ARI 1(a), CBP states BenQ was required and failed to produce evidence to establish (1) the class or kind to which the imported goods belong, and (2) the principal use of that class or kind at or immediately prior to the date of importation.

CBP also argues that the CIT correctly found Note 3 to be inapplicable and states that BenQ is seeking to use this note to extend heading 8471 beyond its statutory terms by rendering it an "actual use" provision as opposed to the "principal use" requirements for classification in Note 5(B).

CAFC Agrees CIT Use of Note 5(E) and ENs in Error, Rules Analysis Needed

The CAFC agrees that the CIT's reliance on Note 5(E) was erroneous because it is inapplicable to BenQ's monitors, which do not incorporate ADP machines but are separate and distinct units. The CAFC also states that the EN to heading 8471 contradicts Note 5(B)(a), which specifically provides for units that are principally, as opposed to solely, used in ADP systems. As a result, to determine if the monitors can be classified under heading 8471 as BenQ argues, the CAFC states an analysis under Note 5(B) must be undertaken.

Rules "Principal Use" Analysis Should be Used to Classify Monitors in this Case

The CAFC concludes that a "principal use" analysis pursuant to Note 5(B), which CBP requested, is the correct approach to determine classification and not a "principal function" analysis pursuant to Note 3, as requested by BenQ. The CAFC notes that even though both heading 8471 and heading 8528 fall within Section XVI, Note 5(B) is specifically directed to heading 8471, while Note 3 is of general application and includes a proviso indicating that it does not apply when the context otherwise requires. The CAFC notes that it is unclear whether a principal use analysis would require a different result in this case than a principal function analysis, but still concludes that a principal use analysis is the correct approach in this case.

Therefore, the CAFC rules to vacate the judgment of the CIT's classification of BenQ’s monitors as video monitors under subheading 8528.21.70, and remands the case to the CIT, which it states should conduct a principal use analysis to determine the correct classification of the monitors.

(The CAFC notes CBP argues that remand is not necessary because BenQ failed to provide any evidence regarding principal use, instead limiting its proof to a principal function analysis. However, the CIT expressly did not reach the issue of the adequacy of the evidence for either a principal use or principal function analysis, and therefore the CAFC declines to address this issue on appeal.)

¹The products at issue are Dell™ 2001 FP Flat Panel Color Monitors, flat-panel Liquid Crystal Display (LCD) monitors with screens measuring 20.1 inches on the diagonal. The monitors are equipped with five different types of connectors for receiving data: (1) a 15-pin D-sub analog video connector; (2) a DVI-D digital video connector; (3) an Svideo connector; (4) a composite connector; and (5) USB ports.

(Appeal Number 2010-1259, dated 05/27/11)