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When the taxman battled Pooh and Barbie
December, 23rd 2006

A grinning zebra, a genial frog, a colourful ant and so on are among `the Coolest Plush Riders' on, the site of Processed Plastic Company (PPC), a wholly-owned division of J. Lloyd International.

The company was founded in 1948 as a manufacturer of low-end plastic toy vehicles. In 1965, PPC had purchased Tim Mee Toy and became `the largest manufacturer of small army men figures in the US so far selling over 1.5 billion'. On offer now are toys in many categories such as `Ride-Ons, Spring & Summer, Storage Units, Vehicles & Playsets, Mini Figures, Doll Accessories, and Banks'.

The company's strength has been in `plastic preschool vehicles', one learns. `They are rugged toys for rugged play!' declares the company. But some of the toys landed up in the court recently. These were `Pooh backpack,' `Barbie backpack,' and `Barbie beach bag' meant for children.

Here is a description of `the subject merchandise', as one gathers from the text of the `US Court of Appeals for the Federal Circuit' judgment dated December 21. "The front, back, and side panels of the backpacks consist of polyvinyl chloride plastic sheeting while the bottom consists of a plastic mesh. The backpacks are about eleven inches high, nine inches wide, and three-and-a-half inches deep, and include imprints of the respective `Pooh' and `Barbie' characters."

Meet Pooh and Barbie

Read about `Pooh the Bear' and the history of `Winnie the Pooh' on "Edward `Winnie-the-Pooh' Quazar Bear or sometimes referred to as Pooh, is a fictional bear created by A. A. Milne," says Wikipedia. "The hyphen was later dropped when Walt Disney Productions adapted the Pooh stories into a series of Winnie the Pooh featurettes which became one of the company's most successful franchises worldwide."

What about Barbie? She was born in 1959, when her mass-production officially began, narrates "Her birthday is on the 9th of March, as she was introduced to the buyers on the 1959 Toy Fair on that day. But of course, she didn't just come out of the blue. This is her story... "

Let's return to the PPC story, as recounted in the court verdict. "The beach bag is a vertical cylinder with polyvinyl chloride plastic sheeting forming the vertical surface. The bottom consists of a plastic mesh, and a woven cord serves as a drawstring closure for the top of the bag and as the carry strap. The beach bag is twelve inches high and nine inches in diameter. Processed placed an assortment of sand toys manufactured in the US in the backpacks and beach bag and then placed them in additional external packaging for retail sale."

When the company imported the goods in 1999, Customs officials classified the backpacks and beach bag under subheading 4202.92.45, which encompasses travelling bags, knapsacks and backpacks, and similar containers. This classification, as per the Harmonized Tariff Schedule of the United States (HTSUS), attracted a 20 per cent ad valorem duty.

PPC was aghast. It appealed before the US Court of International Trade, the trial court, protesting the decision of Customs, asserting that the backpacks and bag are properly classifiable under subheading 9503.70.00. This classification is for "other toys; reduced-size (`scale') models and similar recreational models, working or not; puzzles of all kinds; parts and accessories thereof: other toys, put up in sets or outfits, and parts and accessories thereof," and is duty-free.

At the trial court, though, Processed was not able to prove the `play value' of the merchandise at issue, the `sine qua non' of a `toy'. Imported backpacks met the dictionary definition of `backpack', the trial court had observed. And summary judgment had gone in favour of the government. Appealing against it was PPC, before the Court of Appeals for the Federal Circuit.

Processed argued that because the word `toy' is not defined by the HTSUS, `toys' are "articles whose principal use is amusement, diversion, or play, rather than practicality," as in the Minnetonka Brands case. Any utilitarian aspects of the merchandise are incidental to its amusement qualities and the merchandise satisfies the multi-factor test of Minnetonka, said PPC. Arguing against the company, the government's counsel said that `play value' is the dominant factor in determining whether a product should be classified as a toy. Amusement value of the merchandise cannot be incidental to the utilitarian aspects, said the government. "Processed's advertising focuses on the utility of the backpacks and beach bag to transport the sand toys sold with the backpacks and bag and to transport other small personal children's items," reasoned the government. Lastly, the government's assertion was that the heading "travelling bags... backpacks... and similar containers" for 4202 is far more specific than the heading "Other toys" for 9503.

The heading 4202 begins thus: "Trunks, suitcases, vanity cases, attach cases, briefcases, school satchels, spectacle cases, binocular cases, camera cases, musical instrument cases, gun cases, holsters and similar containers; travelling bags, toiletry bags, knapsacks and backpacks, handbags, shopping bags, wallets, purses, map cases, cigarette cases, tobacco pouches, tool bags, sports bags, bottle cases, and similar containers, of leather or of composition leather, of sheeting of plastics, of textile materials, of vulcanised fibre or paperboard, or wholly or mainly covered with such materials or with paper... "

Toys at the receiving end

It may be queer to equate children's bags with cigarette cases and suitcases, but that is the way it ended for PPC. The company had submitted its advertisement for the merchandise, where it had stated, "[i]t's a beachy day, and a great way to begin your adventure." Not pertinent, said the court. Processed submitted an affidavit of its Vice-President of Engineering, which said, "The merchandise was primarily designed to provide amusement and diversion for children by giving them a clear plastic beach toy which they could use as a sand and water sieve and in which they can insert and remove small, lightweight objects."

But the court said that the statement was `insufficient to raise a genuine issue of material fact'. This statement is not supported by any study as to the actual use of the bags or any showing that the bags themselves were marketed primarily as play items, noted the court. "Play uses appear incidental to the merchandise's utilitarian functions of transporting the included sand toys and helping to drain them of sand and water (rather than the functional use being incidental to the play value)," reasoned the court. Processed argued that the merchandise cannot be classified as a "backpack" under heading 4202 because it can only carry a weight of three pounds without being deformed. But the government said that there was no weight or structural integrity requirement specified for heading 4202.

The company argued if the backpacks and beach bag may be treated as accessories to the sand toys. But the court said that the bags may be suitable for transport of the sand toys, but the bags do not directly affect or enhance use of the sand toys in the way required in order to be classified as accessories. "Thus, there is no `direct' relationship between the items, and the backpacks and beach bag are thus not accessories to the sand toys." Conclusion, therefore, was to classify the imported `Pooh' and `Barbie' backpacks and `Barbie' beach bag under heading 4202.92.45 of the HTSUS.

A decision that PPC might want to grin and bear with, like its `plush riders'.


Doctor: "Don't tax yourself too much!"

Patient: "I claim rebate, doctor."

D. Murali

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