Degussa Corp. v. U.S.

• Decision Date: 26 November 2007
• Docket Number: No. 2007-1020.,2007-1020.
• Citation: 508 F.3d 1044
• Parties: DEGUSSA CORPORATION, Plaintiff-Appellee, v. UNITED STATES, Defendant-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

508 F.3d 1044

DEGUSSA CORPORATION, Plaintiff-Appellee, v. UNITED STATES, Defendant-Appellant.

No. 2007-1020.

United States Court of Appeals, Federal Circuit.

November 26, 2007.

Frederic D. Van Arnam, Jr., Barnes, Richardson & Colburn, of New York, New York, argued for plaintiff-appellee. With him on the brief was Eric W. Lander. Of counsel was Rufus E. Jarman, Jr.

Bruce N. Stratvert, Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, of New York, New York, argued for defendant-appellant. With him on the brief were Peter D. Keisler, Acting Attorney General, Jeanne E. Davidson, Director, of Washington, DC; and Barbara S. Williams, Attorney in Charge, International Trade Field Office, of New York, New York. Of counsel on the brief was Chi S. Choy, Office of Assistant Chief Counsel, International Trade Litigation, United States Customs and Border Protection, of New York, New York.

Before SCHALL, Circuit Judge, CLEVENGER, Senior Circuit Judge, and MOORE, Circuit Judge.

MOORE, Circuit Judge.

The United States Customs Service (Customs) classified Degussa Corporation's (Degussa) surface-modified silicon dioxide products under Heading 3824 of the Harmonized Tariff Schedule of the United States (HTSUS), thereby making them subject to a five percent ad valorem tax. The United States Court of International Trade held that the subject products are properly classified under Heading 2811 of the HTSUS, which provides for "Silicon dioxide: Other" and are not subject to a duty tax. See Degussa Corp. v. United States, 452 F.Supp.2d 1310 (C.I.T.2006). The government appealed. We conclude that because Degussa's products contain certain impermissible impurities, they are not properly classified under Heading 2811 of the HTSUS, but rather under Heading 3824, as determined by Customs. Therefore we reverse the judgment of the Court of International Trade.

BACKGROUND

The products at issue are surface-modified silicon dioxide.¹ Silicon dioxide (SiO2) has a basic tetrahedral structure, where four oxygen atoms surround a central silicon atom ("silicon dioxide" is also known as "silica"). The SiO2 stoichiometry of silica requires that each oxygen atom must be shared by silicon atoms in two tetrahedra. Because silicon atoms on the surface of natural, unmodified silicon dioxide are surrounded only by two, not four oxygen atoms, they are highly strained and react with water molecules present in the air to form silanol groups (Si-OH). The resultant surface of natural, unmodified silica contains both siloxane (O-Si-O) groups and silanol groups. The silanol groups on the surface of the silica cause the natural, unmodified silica to be hydrophilic (i.e., water-attractive).

The surface modification of silica in Degussa's products is a result of reacting silicon dioxide with certain silanes or silicone oil. The resultant surface comprises hydrocarbon moieties bonded to the silica surface and silanol groups. Depending on the silane used, the number of residual silanol groups on the treated silica surface is reduced by 30% to 70% as compared to the number of silanol groups on the untreated silica surface. In contrast to unmodified silica, the surface-modified silica is hydrophobic (i.e.water-repellent). This surface modification does not affect the bulk properties of the silica but it does change the surface, and concomitantly the moisture absorption (or wettability) of the particle. The Court of International Trade found the hydrophobic nature of the surface-modified particles "allows the particles to be incorporated into certain organic solvents and polymers faster and easier than hydrophilic [particles]." Degussa, 452 F.Supp.2d at 1315.

Customs classified the product in question under Chapter 38, which specifically excludes "separate chemically defined compounds." HTSUS Chapter 38 Note 1(a). Degussa appealed the Custom's classification, asserting that its surface-modified silica is properly classified under Chapter 28, which includes "separate chemically defined compounds, whether or not containing impurities." HTSUS Chapter 28 Note 1(a). For its part, the government argued that Degussa's products were not properly classified under Chapter 28 because they did not contain permissible "impurities" within the meaning of Chapter 28 Note 1(a). The government noted the provision of the Explanatory Note to Chapter 28 Note 1 stating that when substances from the manufacturing process "are deliberately left in the product with a view to rendering it particularly suitable for specific use rather than for general use, they are not regarded as permissible impurities...." The government argued that the carbon containing moieties in Degussa's products were "deliberately incorporated in, and left in, the products, with the view to rendering them particularly suitable for specific use." That use was to render the product hydrophobic.

The Court of International Trade agreed with the government's description of Degussa's products. Degussa, 452 F.Supp.2d at 1315. The court ruled, however, that the conditions or exclusions set forth in the Explanatory Note to Heading 2811 pertaining specifically to "(M) Silicon Compounds" were the only conditions or exclusions that apply to Silicon compounds. In other words, the trade court effectively found that when there are specific explanatory notes directed to particular compounds (like "(M) Silicon Compounds" or "(A) Compounds of Fluorine" or "(B) Compounds of Chlorine") these specific provisions become the exclusive provisions that apply to these compounds and that they trump all of the general conditions (such as the impermissible impurities) even if the general conditions are in no way inconsistent with the specific ones. As a result, the trade court found that even though the hydrocarbon moieties were impermissible impurities as defined by the Explanatory Note to Chapter 28 Note 1, this did not remove the product from Chapter 28. Id. Instead, the trade court reasoned that because the hydrocarbon moieties were not within the exclusions set forth in the Explanatory Note to Heading 2811 pertaining specifically to silicon compounds, the product was still properly classified under Chapter 28. Id. At the same time, the court stated: "Here, the plaintiff has borne its burden of proving that the bulk and the essence of each of its powders at issue are silicone dioxide, a separate chemically-defined compound." Id. Thus, the court apparently disregarded the surface chemistry of the surface-modified silicon dioxide. Based upon its analysis, the Court of International Trade held the surface-modified silica is properly classified under the eo nomine Subheading 2811.22.50, entitled "Silicon dioxide: Other." Id. at 1316.

The government appealed. We have jurisdiction pursuant to 28 U.S.C. § 1295(5).

ANALYSIS

The meaning of a tariff term is a question of law, reviewable de novo by this court, while the determination of whether a particular product fits within that meaning is a question of fact, reviewable for clear error. Nat'l Advanced Sys. v. United States, 26 F.3d 1107, 1109 (Fed.Cir.1994).

I.

HTSUS General Rule of Interpretation 1 provides that, "for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes ...." HTSUS General Rules of Interpretation, R. 1 (1990). The section and chapter notes are integral parts of the HTSUS, and have the same legal force as the text of the headings. HTSUS Chapter 28 Note 1(a) provides: "Except where the context otherwise requires, the headings of this chapter apply only to: (a) Separate chemical elements and separate chemical defined compounds, whether or not containing impurities ...."

The Explanatory Notes for HTSUS Chapter 28 provide insight as to the meaning of "separate chemically defined compounds." Explanatory notes are not legally binding but may be consulted for guidance and are generally indicative of the proper interpretation of a tariff provision. Motorola, Inc. v. United States, 436 F.3d 1357, 1361 (Fed.Cir.2006).

Significantly, not all impurities in a compound qualify as impurities permissible within the meaning of Chapter 28 Note 1(a). The Explanatory Note for Chapter 28 Note 1 states:

The term "impurities" applies exclusively to substances whose presence in the single chemical compound results solely and directly from the manufacturing process (including purification). The substances may result from any of the factors involved in the process and are principally the following:

(a) Unconverted starting materials.

(b) Impurities present in the starting materials.

(c) Reagents used in the manufacturing process (including purification).

(d) By-products.

It should be noted, however, that such substances are not in all cases regarded as "impurities" permitted under Note 1(a). When such substances are deliberately left in the product with a view to rendering it particularly suitable for specific use rather than for general use, they are not regarded as permissible impurities.

Explanatory Notes at 261 (emphasis in original).

Moreover, the Explanatory Note for Chapter 28 Note 1 further states that "Such products with added water-repellents are, on the other hand, excluded [from Chapter 28] since such agents modify the original characteristics of the products." Explanatory Notes at 261 (emphasis in the original). The surface modification has changed the nature of the silica particle from hydrophilic (i.e.water-attractive) to hydrophobic (i.e. water-repellent). While Degussa argued during oral argument that its surface-modified silica is hydrophobic but not water-repellent, all of Degussa's own evidence contradicts this argument. In its literature, Degussa explains that the "R" in AEROSIL® R is taken from the word repellent and that the "R" should not be confused with the ® for "registered trademark." Degussa Corp., Technical Bulletin Fine Particles:...