Philipp Overseas, Inc. v. United States

• Decision Date: 29 May 1980
• Docket Number: C.D. 4859,Court No. 78-7-01253.
• Parties: PHILIPP OVERSEAS, INC., Plaintiff, v. UNITED STATES, Defendant.
• Court: U.S. Court of Customs and Patent Appeals (CCPA)

496 F. Supp. 273

84 Cust. Ct. 200

PHILIPP OVERSEAS, INC., Plaintiff, v. UNITED STATES, Defendant.

C.D. 4859; Court No. 78-7-01253.

United States Customs Court.

May 29, 1980.

Barnes, Richardson & Colburn, New York City (E. Thomas Honey and John J. Galvin, New York City, of counsel), for plaintiff.

Alice Daniel, Asst. Atty. Gen., Washington, D. C., Joseph I. Liebman, Atty. in Charge, Field Office for Customs Litigation, and John J. Mahon, New York City, Trial Atty., for defendant.

NEWMAN, Judge:

INTRODUCTION

This action involves the proper tariff classification for certain stainless steel angles imported from Norway and entered at the port of New York in October and November 1977.

The merchandise was assessed with duty at the rate of 8.5 per centum ad valorem under item 609.86 of the Tariff Schedules of the United States (TSUS), as modified by T.D. 68-9, plus additional duties on the chromium and molybdenum content under items 607.01 and 607.02 respectively, pursuant to headnote 4, subpart B, part 2, schedule 6. Plaintiff claims that the angles are properly dutiable at the rate of 0.1 cent per pound plus 2 per centum ad valorem under item 609.82, TSUS, as modified by T.D. 68-9, plus the additional duties on the chromium and molybdenum content, which are not contested.

STATUTE INVOLVED

The pertinent statutory provisions in TSUS schedule 6, part 2, read:

                Angles, shapes, and sections, all the foregoing, of
                  iron or steel, hot rolled, forged, extruded, or drawn
                  or cold formed or cold finished, whether or not
                  drilled, punched, or otherwise advanced; sheet piling
                  of iron or steel
                     Angles, shapes, and sections
                         Hot rolled; or, cold formed and weighing
                          over 0.29 pound per linear foot
                           Not drilled, not punched, and not otherwise
                            advanced
                     *    *    *   *    *    *    *    *
                Claimed
                  609.82        Alloy iron or steel ..0.1 cent per
                                                        lb. + 2% ad
                                                        val. + additional
                                                        duties
                                                        (see headnote
                                                        4)
                            Drilled, punched, or otherwise advanced:
                     *    *    *   *    *    *    *    *
                Classified
                   609.86       Alloy iron or steel ..8.5% ad val. +
                                                         additional
                                                         duties (see
                                                         headnote 4)
                

THE FACTS¹

The imported articles are stainless steel angles² of various sizes. These angles are produced by heating a steel billet, and then transferring it from the furnace to a hot rolling mill where it is rolled into the shape of an angle. After coming off the rolling mill, the rolled stainless shape is cooled and cut to length, after which it is annealed by reheating to a temperature of at least 1000 degrees centigrade and cooled by quenching in water. To be commercially acceptable, the angles must then be straightened, since they are wavy after the rolling process (R. 17, 51, 84). After straightening, the angles are then pickled by dipping them into an acid solution to remove the crust or scale that formed because of the annealing process and to make the metal resistant to corrosion (R. 14-17, 31, 33-34, 50-51, plaintiff's exhibit 3).

It further appears that prior to annealing, the stainless steel shape (referred to as "hot rolled as rolled" (R. 16, 30)) has scale or rust, with no predictable hardness, tensile strength, yield point, elongation, ductility, or response to corroding action (R. 16, 50). Additionally, prior to annealing, the chromium has not properly bonded to the iron to produce a noncorrosive surface, and the annealing process is required to redistribute the chromium and the carbon to produce a proper union of the chromium with the iron in the metal (R. 14, 49-50). In short, the purpose of the annealing process is to create a uniform and predictable range of physical characteristics in the metal as well as create a corrosion resistant product (R. 14, 35, 50-51, 77);³ the purpose of the pickling process is to remove the annealing scale so as to give the stainless steel a uniform layer of chromium oxide on its "skin" and make it corrosion resistant (R. 52, 80, 82).

The record also establishes that the annealing and pickling processes are an integral and vital part of the manufacture of the imported stainless steel angles; and that prior to those processes, the products of the rolling mill are semifinished, lacking in predictable properties and not commercially acceptable as stainless steel angles (R. 16, 17, 21, 37, 52, 53-54, 78-79, 81).⁴

Finally, the record shows that while drilling and punching are mechanical operations, annealing is a thermal process, and pickling is a chemical process (R. 57). Other forms of "mechanical operations" performed on angles are bending and forming (R. 18), and mitering corners for knitting angles together with plates to make welded assemblies (R. 57).

OPINION

In construing the Tariff Schedules "all parts of the statute must be read together and all relevant headnotes are to be considered in determining Congressional intent". Lyons Export & Import, Inc. v. United States, 59 CCPA 142, 146, C.A.D. 1056, 461 F.2d 830 (1972). Here, the centerpiece of the dispute is headnote 1, part 2 of schedule 6, which reads:

* * * Unless the context requires otherwise, the provisions of this part apply to the products described by whatever process made (i. e., whether rolled, forged, drawn, extruded, cast or sintered) and whether or not such products have been subjected to treatments to improve the properties or appearance of the metals or to protect them against rusting, corrosion or other deterioration. These treatments include annealing, tempering, case-hardening and similar heat-treatments or nitriding; descaling, pickling, scraping, scalping and other processes to remove oxidation scale and crust; * * Emphasis added.

It is evident from the foregoing headnote, that the products classifiable under item 609.82, TSUS, may be subjected to annealing and pickling "unless the context of item 609.82 requires otherwise".

Defendant maintains that the words in the superior heading to item 609.82, "not otherwise advanced" fall within the exclusionary language in headnote 1, part 2, schedule 6, "unless the context requires otherwise"; that the imports were "otherwise advanced" by reason of having been subjected to annealing and pickling; that therefore the merchandise is excluded from item 609.82 and is properly dutiable under item 609.86.

Plaintiff, on the other hand, urges that notwithstanding annealing and pickling, the merchandise was "not otherwise advanced" within the purview of the superior heading to item 609.82, TSUS; and hence headnote 1, supra, is applicable to the merchandise classifiable under item 609.82.

There is no dispute that the imports were neither drilled nor punched, and defendant does not claim that the straightening operation constituted an "advancement" of the angles. Consequently, the issue is narrowed to determining whether the annealing and pickling operations (which are expressly allowed by headnote 1, supra, "unless the context requires otherwise") exclude the merchandise from classification under item 609.82 by reason of the language "not otherwise advanced" in the superior hearing.

Plaintiff argues that the annealing and pickling processes were essential, integral and continuous operations in the production of the stainless steel angles, and that without such processes commercially acceptable stainless steel angles could not have been produced. Accordingly, plaintiff insists that annealing and pickling did not constitute "advancements" within the purview of the statute.

It is well settled that no step in the creation of an article is at the same time an "advancement" of the article. United States v. Baron Tube Co. et al., 47 CCPA 69, 71, C.A.D. 730 (1960); Commercial Shearing & Stamping Company v. United States, (Guadalupe Industrial Supply Company, Inc., Party-in-Interest), 65 Cust.Ct. 91, 105, C.D. 4060, 317 F.Supp. 750 (1970), aff'd, 59 CCPA 203, C.A.D. 1067, 464 F.2d 1048 (1972). Moreover, "manipulations after rolling, incident to making the rolled shape merchantable and fit for shipment, do not constitute `advance' within the congressional intent". American Mannex Corp. v. United States, 56 Cust.Ct. 31, 36, C.D. 2608 (1966). Accord, E. Dillingham, Inc., et al. v. United States, 61 Cust.Ct. 33, C.D. 3522 (1968).

Since the imported angles were composed of stainless steel intended for corrosion resistant service, commercially acceptable angles of the type imported could not be produced without annealing and pickling. Plainly, then, the "hot rolled as rolled" angles, which lacked predictable physical qualities and corrosion resistance, were merely semifinished products.⁵ Hence, applying the rationale of the above—cited cases, annealing and pickling were steps in the creation of commercially acceptable angles, and thus should not be considered as "advancements" within the purview of the statute.

Defendant argues that annealing and pickling should be considered as "advancements", since those treatments were unnecessary to produce angles of "Alloy iron or steel". However, defendant ignores the fact that the specific type of alloy steel of which the imports were composed (stainless types 304 and 316) required the annealing and pickling operations to be commercially acceptable. Moreover, the fact that the imports were in the shape of angles after leaving the hot rolling mill does not override the more important consideration that the imports would not have been commercially acceptable angles without the annealing and pickling operations. This aspect of the case is especially pointed up by the admission of defendant's witness Thomas that he had never encountered a single order for nonannealed and...