Refinery Units Classified According to 'Clearly Defined' Function Rather Than Overall Process, CBP Rules

Parts of two refinery units cannot all be classified under a tariff schedule provision for "distilling or rectifying plant," because not every subunit contributes to the "clearly defined function of distillation," CBP said in a recently released ruling. The ruling was issued in response to a request for a binding classification ruling by Marathon Petroleum Company.

Marathon requested the ruling regarding the potential modification of an atmospheric pipestill unit and a residue hydrotreater unit, both located within a refinery that is currently operating and located within a foreign-trade zone. Marathon said that each unit will be upgraded by adding new components and modifying existing components.

CBP concluded that the atmospheric pipestill unit was correctly classified under subheading 8419.40.00 as “Machinery, plant or laboratory equipment ... parts thereof: Distilling or rectifying plant." The atmospheric pipestill's components and subunits all contributed together to the function of distillation, CBP said, noting that although many subunits perform a supportive role in the process, the primary subunits are "designed as and operate as distillation machinery," and that other subunits all supported a corresponding distillation subunit.

In contrast, CBP found that all the subunits of the residue hydrotreater unit don't contribute to a clearly defined function of distillation. Instead, many of the components work together in the function of hydrocracking, which is a distinct chemical process from distillation, CBP said. Distillation relies primarily on evaporation and condensation, while hydrocracking utilizes catalysts to achieve a different stage of the oil refinery process.

The reactors, flash gas system, membrane, and recycle compressor of the residue hydrotreater unit were found to be properly classified under subheading 8419.89.95 as “Machinery, plant or laboratory equipment ... parts thereof: Other machinery, plant or equipment: Other: Other: Other,” while the rest of the subunits fell under subheading 8419.40.00, CBP said.

CBP said the American Petroleum Institute distinguishes distillation from cracking in its overview of the oil refinery process. The subunits of the residue hydrotreater that are used for cracking do not work together to contribute to the clearly defined function of distillation and cannot be classified under subheading 8419.40.00, CBP said.

Marathon argued that every subunit of the residue hydrotreater contributed to the function of distillation. Marathon had told CBP in a February conference that hydrocracking allowed Marathon to purchase lower grade crude oil because the process is able to further refine material that otherwise cannot be used. CBP disagreed, finding Marathon conflates "distillation" with the overall oil refining process.