Administrative Policy – Tariff Interpretation of "Functional Units"
Memorandum D10-13-2

Ottawa, March 28, 2014

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In Brief

The editing revisions made in this memorandum do not affect or change any of the existing policies or procedures.

This memorandum explains the interpretation of the Harmonized System (HS) principle for the classification of functional units as presented in Section XVI, Note 4 and Chapter 90, Note 3 of the Customs Tariff.

Table of Contents

Legislation

The legislation with respect to functional units reads:

(a) Section XVI, Note 4 (Chapters 84 and 85):

Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or Chapter 85, then the whole falls to be classified in the heading appropriate to that function.

(b) Chapter 90, Note 3:

The provisions of Note 4 to Section XVI also apply to this Chapter.

A brief explanation, with examples, of the scope of the above legal Notes is contained in the General Explanatory Note to Section XVI, Part (VII) Functional Units (Section Note 4), and also in the General Explanatory Note to Chapter 90, Part (IV) Multi-function or Composite Machines, Appliances, etc.; Functional Units (Chapter Note 3).

Guidelines and General Information

1. One of the background studies undertaken during the HS development concerned the classification of large-scale production facilities, including complete plants, and processing or control systems, all comprising machines and apparatus of various headings of Section XVI or Chapter 90, but imported under turnkey contracts or similar one-price contractual arrangements. The HS Committee concluded that if, from a commercial or economic standpoint, a plant or system may be marketed, ordered and presented (delivered) as a complete installation utilizable solely for one specific purpose, it was only logical to classify the whole in the single heading appropriate to that function, as a functional unit.

Statement of Policy

2. For the purpose of this policy, a functional unit is held to be:

An integral system, specially designed for a particular task, whose various components are designated to contribute together to a single, clearly defined purpose.

3. Auxiliary machines, appliances or apparatus which do not participate in, or contribute to, the clearly defined purpose or function of the whole are not considered to be components of a functional unit; rather, they are to be regarded as fulfilling supplemental or subsidiary roles and are thus classified in their own appropriate headings of Chapter 84, 85, or 90 or as the case may be. (See General Note 7 to Section XVI, and example 4, in part (VII) of the General Explanatory note to Section XI.)

4. Control panels, instrumentation or similar process control apparatus, such as automatic regulators, when presented (delivered) as components specified in a common contract for a functional unit are to be classified in the same heading as the unit. However, if presented separately, such panels are to be assigned to their own appropriate heading in accordance with the General Interpretative Rules.

5. Subsequent importations of components and parts thereof for a functional unit will be classified in the usual manner, that is in their own appropriate heading and thus do not necessarily follow the classification of the host unit.

6. Tariff classification as a functional unit will be affected when an importation satisfies the general description above and the following commercial and technical conditions apply:

7. The Canada Border Services Agency recognizes that present commercial and engineering practices with respect to sourcing, design, configuration (i.e., prefabricated modules), transportation, handling and on-site assembly of functional units does not affect its classification in one heading. Consequently, a functional unit presented in more than one consignment, regardless of whether or not such consignments originate in different countries, does not preclude classification in accordance with the HS Notes cited under the Legislation section above.

8. Separately presented machines, appliances or apparatus, to be integrated or combined with other domestically sourced or supplied components to form a functional unit, are to be classified in their own appropriate heading. Neither Section XVI, Note 4, nor Chapter 90, Note 3 applies in such cases.

9. Policies and procedures pertaining to the release and accounting of functional units will be in accordance with the instructions contained in Memorandum D17-1-13, Interim Accounting (Provisional Documentation).

10. Examples of functional units classified in accordance with this policy are included in the Appendix of this memorandum.

Additional Information

11. For certainty regarding the tariff classification of a particular good, importers may request an advance ruling. Details on how to make such a request are found in Memorandum D11-11-3, Advance Rulings for Tariff Classification.

12. For more information, within Canada call the Border Information Service at 1-800-461-9999. From outside Canada call 204-983-3500 or 506-636-5064. Long distance charges will apply. Agents are available Monday to Friday (08:00 – 16:00 local time/except holidays). TTY is also available within Canada: 1-866-335-3237.

Appendix

Functional Units

Example 1:

Gas Turbine Compression System of Heading No. 84.14

Purpose — To boost the pressure of natural gas through a pipeline

A.

Principle Components HS Heading Number
Gas turbine 84.11
Pipeline centrifugal compressor 84.14
Air intake system (for filtration) 84.21
Exhaust system (for emission and noise control) 84.21
Various control panels (i.e., fuel; lubricating oil; turbine speed control) 85.37

B.

Ancillary components
Gas turbine starter, i.e., electric motor or small low pressure turbine
Couplings
Step-up gearbox
Oil-cooling system

Example 2:

Bulk Storage System of Heading No. 84.77

Purpose — For the storage, conditioning and automatic delivery of a two-component (isocyanate/polyol resin) Urethane Foam

Principal components
23,000 litre isocyanate storage tank, c/w pumps, load cells, valves and piping;
30,000 litre polyol resin storage tank, c/w pumps, load cells, valves and piping;
1,500 litre-blended material storage tank, c/w pump and piping;
950 litre-agitated blend tank, c/w agitator, digital readout and printer, pumps and piping;
60 litre low-ratio additive tank, c/w pump, valves and piping;
combination heating/cooling system for environmental control of each tank room, c/w controls; and
dry air system to prevent moisture contamination of both base materials, c/w filters and regulators.

References

Issuing office:
Trade and Anti-dumping Programs Directorate
Headquarters file:
 4500-6
Legislative references:
Customs Tariff
Other references:
 D11-11-3, D17-1-13
Superseded memorandum D:
D10-13-2 dated April 3, 1992
Date modified: