CLA-2 CO:R:C:S 556452 SER
District Director of Customs
Lincoln Juarez Bridge, Building 2
P.O. Box 3130
Laredo, TX 78044-3130
RE: Application for Further Review of Protest No. 2301-91-
100019; applicability of partial duty exemption for Saturn
gas producers; Press Wireless, Inc. v. U.S., Guardian
Industries, Inc. v. U.S., Dolliff & Co., Inc. v. U.S.; HRL
555741, 555443; 19 CFR 10.8(1); repairs
Dear Sir:
The above-referenced protest concerns your classification
and duty assessment of Saturn gas producers from Mexico.
Protestant claims that the articles at issue are eligible for a
partial duty exemption under subheading 9802.00.50, HTSUSA, a
claim which you have denied. Protestant also contends that the
appraised value of each of the gas producers should be reduced
from $18,000 to $13,000. A memorandum was submitted by Stein,
Shostak, Shostak & O'Hara on behalf of the protestant-- Solar
Turbines, Inc.
FACTS:
The Saturn gas producer contains four major repairable
components that are maintained as matched sets during the repair
operations. They are the air inlet housing, compressor stator
case, combustor housing and nozzle support case. The remaining
sections of the gas producer may be replaced with new components
or repaired and reused.
The actual operations in Mexico begin with the serialization
and marking of the four "essential identity" parts, followed by
the disassembly of the entire gas producer. The components are
then cleaned chemically, by grit blasting and then by hand. The
components are then inspected visually and by use of a
fluorescent penetrant.
At this stage, the non-essential components are either
scrapped and replaced with new parts, reused if they are in
adequate condition, or repaired. The repair operations beginn-2-
with machining surfaces to restore the components to their
original dimensions. Corroded threads are also machined to
restore them to their original condition. The repaired
components then undergo visual, fluorescent, and dimensional
inspection followed by painting to original specifications.
The final assembly operations begin with hand cleaning,
removal of any oil residues, and grit blasting. The serialized
parts are then matched and reassembled together and with the
other non-essential repaired, reused and/or replaced parts. A
final inspection, performance testing and, if needed, adjustments
are made, followed by a final cleaning and the addition of
preservatives before the gas producers are boxed and shipped to
the U.S.
ISSUE:
Whether the refurbished gas producers are entitled to the
partial duty exemption available under subheading 9802.00.50,
Harmonized Tariff Schedule of the United States Annotated
(HTSUSA).
LAW AND ANALYSIS:
Articles returned to the U.S. after having been exported to
be advanced in value or improved in condition by repairs or
alterations may qualify for the partial duty exemption under
subheading 9802.00.50, HTSUSA, provided the foreign operation
does not destroy the identity of the exported articles or create
new or different articles. Entitlement to this tariff treatment
is also precluded where the exported articles are incomplete for
their intended use prior to the foreign processing, Guardian
Industries, Inc. v. U.S., 3 CIT 9 (1982), or where the foreign
operation constitutes an intermediate processing operation, which
is performed as a matter of course in the preparation or the
manufacture of the finished articles. Dolliff & Company, Inc. v.
U.S., 455 F.Supp. 618 (CIT 1978), aff'd, 599 F.2d 1015, (Fed.
Cir. 1979). Articles entitled to this partial duty exemption 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.
Repairs are operations aimed at restoring articles to their
original condition, but cannot be so extensive as to destroy the
identity of the exported article or to create a new or different
article. Press Wireless, Inc. v. U.S., C.D. 4386, Cust. Ct. 102
(1941).
Section 10.8(1), Customs Regulations (19 CFR 10.8(1)),
concerns the dutiable value of foreign repairs or alterations and
provides, in part, that:n -3-
The cost or fair market value ... of the repairs or
alteration outside the United States ... shall be
limited to the cost or value of the repairs or
alterations actually performed abroad, which will
include all domestic and foreign articles furnished for
the repairs or alterations, but shall not include any
of the expenses incurred in this country whether by way
of engineering costs, preparation of plans or
specifications, and furnishing of tools or equipment
for doing the repairs or alterations abroad or
otherwise.
In Headquarters Ruling Letter (HRL) 555741 dated February
25, 1991, Customs ruled on a foreign repair operation which
involved the complete disassembly of the exported article and
replacement of some of the parts of the article. In that case
the concept of "essential identity" was raised to determine if
the particular article at issue became a new and different
article as a result of the repair operations. HRL 555741 stated
that:
This concept (essential identity) is employed under
[subheading 9802.00.50, HTSUSA] to insure that the
article imported is the same as the article exported,
and operates by identifying certain components parts of
an exported article as embracing the essential identity
of the particular article exported. Component parts so
identified are to be maintained together throughout the
repair operation.
Protestant states that the four "essential identity"
components are serialized and matched to maintain these
components together throughout the repair operation. Since their
integrity as a unit is maintained, the operations clearly are
aimed at restoring the articles to their original condition, and
the articles do not lose their identity, we find that the gas
producers are eligible for the partial duty exemption under
subheading 9802.00.50, HTSUSA.
Pursuant to 19 CFR 10.8(1), the applicable duty rate should
be applied against the cost or value of the repairs actually
performed abroad, which would include the cost or value of new
parts incorporated into the gas producers as well as non-
essential used parts taken from other units and used in the
repair of the gas producers. See, HRL 555443 dated November 30,
1990.
Regarding protestant's contention that the appraised value
of the gas producers should be reduced, it is noted that, with
one exception not applicable in this case, no appraisement of
articles entitled to the partial duty exemption under subheadingn-4-
9802.00.50, HTSUSA, is required. See, U.S. Note 3(b), subchapter
II, Chapter 98, HTSUSA. Under subheading 9802.00.50, HTSUSA,
repaired articles are subject only to a duty upon the value of
the foreign repairs, calculated in the manner described above.
HOLDING:
Based on the information submitted, as the "essential
identity" of the exported gas producers is preserved during the
described repair process by serialization of the four "essential
identity" components, the repaired gas producers qualify for the
partial duty exemption under subheading 9802.00.50, HTSUSA.
Under section 10.8(1), the cost or value of the repairs performed
abroad includes the cost or value of both new parts and the non-
essential used parts taken from other units and used in the
repair of the gas producers.
Accordingly, the protest should be granted consistent with
this decision. A copy of this decision should be attached to
Customs Form 19 and sent to the protestant as part of the notice
of action on the protest.
Sincerely,
John Durant, Director