CLA-2 RR:TC:SM 559551 BLS
Port Director
511 N.W. Broadway
Portland, Oregon 97209
RE: Internal Advice Request 48/95; VTECH Communications Ltd.
Dear Madame:
This is in reference to a memorandum dated September 25,
1995, from your office, forwarding a request for internal advice
on behalf of VTECH Communications, Ltd. ("VTECH HK"), in
connection with the documentation requirements for cordless
telephones sent to Hong Kong for repairs and returned under
subheadings 9802.00.40 and 9802.00.50, Harmonized Tariff Schedule
of the United States (HTSUS).
FACTS:
VTECH US ("VTECH") imports cordless telephones from its
parent company, VTECH HK, and in turn sells the telephones to
wholesalers and retailers. Defective telephones are returned to
VTECH HK for repair. When the defective telephone products
subject to this internal advice were exported, VTECH submitted a
Certificate of Registration, CF 4455, to the Port Director
listing the export quantity model and part number by "lot
integrity number."
The defective telephones are entered into VTECH HK's general
repair inventory. Defective telephones are removed for repair
from inventory on a FIFO ("first-in, first-out") inventory basis.
Under this system, the first articles received at the repair
facility and placed into inventory are presumed to be the first
to be taken out of inventory, repaired, and returned to the U.S.
You state that newly manufactured phones are never substituted
for defective telephones. After the articles are repaired, the
serial number affixed to the model is changed by adding an "R" or
an "O" plus a two letter suffix. The "R" confirms that the
telephones have
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either been repaired or refurbished. The "O" confirms that the
telephones have been "advanced." (Counsel has orally advised
that "advanced" means improved in
condition in some manner, such as the addition of a second
telephone line.)
Repaired telephones are returned to VTECH through the port
of Portland, Oregon, either as a complete shipment or as part of
a shipment containing newly manufactured telephones. For U.S.
customs purposes, an export invoice is prepared by VTECH HK.
The export invoice for shipments containing repaired telephones
states "REPAIRED GOODS RETURNED - FREE OF CHARGE" and includes
the lot integrity number corresponding to the defective
telephones exported for repair. Newly manufactured telephones
shipped with repaired telephones are invoiced separately.
After return to the U.S., VTECH matches the repair lot
integrity and serial numbers assigned on the corresponding
Certificate of Registration. VTECH states that at all times, it
is able to identify the repaired telephones from newly
manufactured telephones by virtue of the serial number markings
on the models and the export documentation prepared by VTECH HK.
However, VTECH's counsel orally advises that the company is not
able to match the returning articles to a particular export
shipment.
ISSUE:
Whether, under the circumstances described above, the
methodology used to identify returned "repaired or altered"
telephone products is acceptable in determining whether the
articles are entitled to tariff treatment under subheadings
9802.00.40 and 9802.00.50, HTSUS.
LAW AND ANALYSIS:
Subheading 9802.00.40, HTSUS, provides a partial duty
exemption for articles returned to the U.S. after having been
exported to be advanced in value or improved in condition by
repairs or alterations made pursuant to warranty. Subheading
9802.00.50, HTSUS, provides the same partial duty exemption for
articles exported for repairs or alterations made other than
pursuant to a warranty. Such articles are dutiable only upon the
cost or value of the foreign repairs or alterations, provided the
documentary requirements of section 10.8, Customs Regulations (19
CFR 10.8), are satisfied.
Prior to modification of the documentation requirements set
forth in 19 CFR 10.8 effected by T.D. 94-47 (F.R. 25567 dated May
17, 1994), this provision required the filing of a Certificate of
Registration, CF 4455, with the district director (now port
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director) before exportation of the articles to be repaired.
The Certificate includes the quantity and description of the
articles being exported and the dates when, and ports where, the
articles were examined by Customs and laden aboard the exporting
carrier. The form also includes a statement to be signed by the
importer when the articles are returned that "[d]uty-free entry
is claimed for the described
articles...." The regulation also requires the importer to file
with Customs a declaration of the person who performed the repair
or alteration, stating "in substantially the following form" that
the:
"...articles herein specified are the
articles which, in the
condition in which they were exported from
the United
States, were received by me (us) on
, 19 , from
(name and address of owner
or exporter in the
United States)...."
This declaration also includes the "marks and numbers" relating
to the articles as well as a description of the articles. In
addition, 19 CFR 10.8 requires the filing of a declaration of the
owner, importer, consignee, or agent that "such articles were
exported from the United States for repairs or alterations
...from (port) on , 19
;... and that the "articles entered in their repaired or altered
condition are the same articles covered by the Certificate of
Registration."
The above documentation requirements (which existed at the
time the articles subject to this request were imported)
establish that the articles subject to this request that are
returned to the U.S. and entered under subheading 9802.00.40 or
9802.00.50, HTSUS, must be traced back to the export shipment
encompassing those specific imported articles. Those
requirements are designed to prevent, to the extent possible, the
substitution of new or remanufactured articles for the articles
that were exported from the U.S. for repairs or alterations.
The use of a FIFO inventory method does not satisfy the
importer's responsibility, under the above documentation
requirements, to establish that the "articles entered in their
repaired or altered condition are the same articles covered by
the Certificate of Registration." (Emphasis added.)
However, 19 CFR 10.8(j) provides that:
If the district director [port director] concerned is
satisfied because
of the nature of the articles, or production of other
evidence, that
the articles are imported under circumstances meeting
the
requirements of subheading 9802.00.40 [or 9802.00.50],
HTSUS,
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and related section and additional U.S. notes, he may
waive the
declaration [of the person who performed the repair or
alteration
and the declaration of the owner, importer, consignee
or agent].
Based on the information furnished by VTECH, repaired
telephones are readily
identifiable from newly manufactured telephones by virtue of the
serial number markings on the models and the export
documentation. As a result of these facts,
the potential for substitution of articles not entitled to
subheading 9802.00.40 or 9802.00.50, HTSUS, appears to be
minimal. You also believe that the methodology used by VTECH
for documenting repairs or alterations under subheading
9802.00.40 or 9802.00.50, HTSUS, for the entries in question is
acceptable. Under these circumstances, the specific
documentation requirements of 19 CFR 10.8 may be waived.
HOLDING:
Based on the information provided, we are satisfied that the
methodology employed by VTECH readily identifies the telephone
products as articles sent abroad for "repair or alteration" and
returned. Provided you find that the telephone products
otherwise satisfy the conditions and requirements of subheading
9802.00.40 or 9802.00.50, HTSUS, the articles are entitled to the
partial duty exemption under the appropriate provision. This
decision is specifically limited to the entries subject to this
request.
This decision should be mailed by your office to the
internal advice requester no later than 60 days from the date of
this letter. On that date, the Office of Regulations and
Rulings will take steps to make the decision available to Customs
personnel via the Customs Module in ACS and the public via the
Diskette Subscription Service, Freedom of Information Act and
other public access channels.
Sincerely,
John
Durant, Director
Tariff Classification Appeals Division