CIT Says Parties Failed to Establish Fuel Cell Generator Part's Principal Function in Tariff Row

If the goods fit this description, they would slot under Harmonized Tariff Schedule heading 8405, barring classification under the government's preferred heading of 8503. HyAxiom is seeking classification under subheading 8405.10.00, free of duty, which covers "[p]roducer or water gas generators," while the U.S. is seeking classification under subheading 8503.00.95, which covers parts used solely or principally with electric motors, generators or generating sets.

Stanceu noted that due to note 2 to section XVI, the "government’s classification position can prevail only if the PC50 is not a good that is 'included in' heading 8405." The note says that parts included in most headings of chapter 84 or 85 that are suitable for use solely or principally with a particular kind of machine should be classified with that machine.

Note 3 to section XVI says "composite machines consisting of two or more machines fitted together to form a whole" are "to be classified as if consisting only of that component or as being that machine which performs the principal function." HyAxiom says this note requires a principal function analysis, while the U.S. said notes 2 and 3 are mutually exclusive.

The court rejected the government's position, holding that a "principal function analysis" is needed to find the correct heading for the goods. The government claimed note 3 doesn't apply because the PC50 is a part of the Model 400, which is a machine under the headings of chapter 84 or 85. Stanceu said that while the PC50 is a "part" and the Model 400 is a "machine," the PC50 is also a machine as defined by note 5 to section XVI, which defines "machine" as "any machine, machinery, plant, equipment, apparatus or appliance cited" in headings 84 or 85.

Stanceu clarified that this doesn't suggest "any part of a machine, however simple in structure, necessarily is a 'machine' for purposes of the notes to section XVI and note 5 in particular: that would be an unreasonably, and in this case unnecessarily, expansive interpretation of the note 5 definition." Instead, note 5 must be read to describe complex parts designed to perform "one or more defined functions." As the facts show, this is the case for the PC50, the decision said.

Establishing that an analysis as to whether the PC50's principal function is gas generation is needed, Stanceu attempted to conduct such an analysis, though he disagreed with both parties on the subject.

The court said that the product, once assembled as part of the Model 400, includes many functions, one of which is a steam methane reformer, which performs steam methane reactions to generate hydrogen-rich gas from purified steam and purified methane. The PC50 also has an integrated low temperature shift converter that purifies the natural gas input by removing sulfur compounds before the gas input enters the reformer while also processing the gas output of the reformer to make a gas usable by the "fuel cell stacks" on a completed Model 400.

The U.S. and HyAxiom disagreed on whether any gas generated by the PC50 is a "water gas" within the meaning of that term as used in heading 8405. The government wanted to limit the term "water gas" to a mixture of hydrogen and carbon monoxide made by passing air and steam over burning fuel, while HyAxiom said the PC50 produces a water gas, since the product adjusts the ratio of hydrogen and carbon monoxide in the water gas to generate a more hydrogen-rich, purified fuel gas for use in the fuel cell stacks.

Stanceu held that the court can't conclude from Explanatory Note 84.05 or from various dictionary definitions of the terms "producer or water gas generators" that the reformer makes a gas that is necessarily described by the term "producer gas" or "water gas."

While the gas has hydrogen and carbon monoxide, it isn't made by the process laid out in EN 84.05 or the common definitions of "producer gas" or "water gas," but "instead results from a steam reformation process conducted upon methane," the decision said. The gas generated by the integrated low temperature shift converter is "even less similar to a water gas," since it's undergone the steam reformation process and also a "water-gas shift reaction," which converts a mixture of carbon monoxide and water to carbon dioxide and hydrogen, the court said.

Ultimately, Stanceu held that the PC50 is "designed and configured to generate two types of gases that are not necessarily described as 'producer gases' or 'water gases' but that do not result in the exclusion of the PC50 from the scope heading 8405." The judge said the U.S. failed to offer an argument on the item's principal function, since it spent its briefing claiming that the good should be excluded from heading 8405 since it produces neither a water gas nor any other gas.

The court also rejected HyAxiom's principal function analysis, finding that the importer approached the topic "too narrowly," since it focused on the function of the reformer, which doesn't produce a finished gas as required by the fuel cell stacks. As a result, the court said it needs a factual determination on whether the PC50's gas generation function is its main function.

(HyAxiom Inc. v. United States, Slip Op. 24-98, CIT # 21-00057, dated 08/28/24; Judge: Timothy Stanceu; Attorneys: Christopher Loveland of Sheppard Mullin for plaintiff HyAxiom, Alexander Vanderweide for defendant U.S. government)