CAFC Finds Motor Homes Not Classifiable as Goods Returned After Alterations, but Leaves Loose Ends
The U.S. Court of Appeals for the Federal Circuit on Jan. 5 affirmed a lower court ruling on the applicability of special duty provisions for goods returned after repairs or alterations in Canada or Mexico, though it declined to rule as broadly as the Court of International Trade did in its 2016 decision. The Federal Circuit agreed that cargo vans exported by Pleasure Way for conversion into motor homes don’t qualify for classification in subheading 9802.00.50 of the tariff schedule because the exported and imported articles are commercially different, but declined to weigh in on whether they share the same “essential characteristics” or “intended use.”
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The decision hung on the interpretation of 19 CFR 181.64, which sets the conditions for classification in subheading 9802.00.50. Goods qualifying for that subheading are dutiable only on the value of the repairs or alterations performed across the border. According to the regulation, to qualify for the special duty provision, the repairs or alterations must not destroy the essential characteristics of the exported articles, or create a new or commercially different good, nor can the exported goods be “incomplete for their intended use.”
CBP had ruled, that the imported motor homes were instead classifiable as motor homes in subheading 8703.33.00, dutiable at 2.5% on the full value of the vehicle. CIT upheld that classification in October 2016 (see 1610180059), finding Pleasure Way’s cargo vans converted into motor homes did not qualify for any of the three criteria in 19 CFR 181.64. The conversion into motor homes destroyed the essential characteristics of the cargo vans in that they could no longer carry cargo, creating a commercially different good, CIT said. Despite Pleasure Way’s argument that the intended use of the exported cargo vans was conversion into motor homes, the lower court held that the relevant intended use was whether the consumer’s use is as a motor home, for which the cargo vans were unsuitable, CIT said.
On appeal, CAFC agreed that the motor homes were commercially distinct from the cargo vans, precluding classification in subheading 9802.00.50. Pleasure Way gave the motor homes new names and sold them at a much higher price, marketing them as upscale leisure vehicles used for vacationing and recreation. “Overall, then, the likely use and consumer base for the [cargo] vans as exported were broadly different from those for the motorhomes imported into the U.S. after leaving Pleasure-Way’s Canadian conversion facility,” CAFC said. Pleasure Way had argued the motor homes were not commercially different because they were still identifiable as the van from which it was created, with the same vehicle identification number (VIN). But whether the goods are commercially different “depends on the commercial characteristics of the original and resulting goods, not whether one is still discernible in the other,” the appeals court said.
On the other hand, whether the cargo vans share the same essential characteristics or intended use presented “greater challenges” that the appeals court chose to leave alone. “We think it preferable, and here it suffices, to decide only the first issue -- more precisely, whether Pleasure-Way, in changing the vans into motorhomes, created a commercially different good,” CAFC said. Whether the goods share the same “essential characteristics” would turn on the relative importance of the vehicle as transport or a living space, while the intended use raises the question of whose intent counts, both of which are “less tractable than the ‘commercially different good’ inquiry,” it said.
(Pleasure-Way Industries vs. U.S., CAFC # 2017-1190, dated 01/05/18, Judges Taranto, Clevenger and Stoll)
(Attorneys: John Peterson for plaintiff-appellant Pleasure-Way Industries, Inc.; Marcella Powell for defendant-appellee U.S. government)