CLA-2 CO:R:C:S 558797 MLR
Mr. Andrew M. Carreno
Carreno & O'Neil Shipping Co., Inc.
1A Colony Road
Jersey City, NJ 07305
RE: Applicability of partial duty exemption under HTSUS
subheading 9802.00.50 and duty exemption under 9801.00.10 to
peanuts; reprocessed; sugar-coated; salted
Dear Mr. Carreno:
This is in reference to your letter of August 10, 1994, to
Customs in New York, requesting a ruling on behalf of Shaffer
Clarke Co., Inc. ("Shaffer"), regarding the applicability of
subheadings 9802.00.50 and 9801.00.10, Harmonized Tariff Schedule
of the United States (HTSUS), to peanuts reprocessed in Holland.
A sample is submitted with your request.
FACTS:
Shaffer plans to ship peanuts to Holland, where they are
reprocessed (sugar-coated, salted, etc.). You state that the
peanuts are of U.S.-origin. The peanuts will then be packaged
for retail sale and shipped to the U.S.
ISSUE:
Whether the U.S.-origin peanuts returned to the U.S. after
being reprocessed in Holland qualify for the partial duty
exemption available under subheading 9802.00.50, HTSUS, or for
duty-free treatment under subheading 9801.00.10, HTSUS.
LAW AND ANALYSIS:
Subheading 9801.00.10, HTSUS, provides for the free entry of
products of the U.S. that have been exported and returned without
having been advanced in value or improved in condition by any
process of manufacture or other means while abroad, provided the
documentary requirements of section 10.1, Customs Regulations (19
CFR 10.1), are satisfied. See 59 Fed. Reg. 25563 (May 17, 1994)
for recent amendments to 19 CFR 10.1. While some change in the
condition of the product while it is abroad is permissible,
operations which either advance the value or improve the
condition of the exported product render it ineligible for duty-free entry upon return to the U.S. Border Brokerage Company,
Inc. v. United States, 314 F. Supp. 788 (1970), appeal dismissed,
58 CCPA 165 (1970). In determining whether an advancement in
value or improvement in condition exists at the time of
importation, the overall value and condition of the article at
the time it was exported from the U.S. shall be compared with its
overall value and condition at the time of return to the U.S.
However, each case must be decided on its own facts.
Subheading 9802.00.50, HTSUS, provides for a partial duty
exemption for articles returned to the United States after having
been exported to be advanced in value or improved in condition by
repairs or alterations, provided the foreign operation does not
destroy the identity of the exported articles or create new or
commercially different articles through a process of manufacture.
See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631
(1956), aff'g C.D. 1752, 36 Cust. Ct. 46 (1956); Guardian
Industries Corp. v. United States, 3 CIT 9 (1982). Accordingly,
entitlement to this tariff treatment is precluded where the
exported articles are incomplete for their intended purpose prior
to the foreign processing and the foreign processing operation is
a necessary step in the preparation or manufacture of finished
articles. Dolliff & Company, Inc. v. United States, 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 when
returned to the U.S., provided the documentary requirements 19
CFR 10.8 are satisfied. See 59 Fed. Reg. 25563 (May 17, 1994),
for recent amendments to 19 CFR 10.8.
In Headquarters Ruling Letter (HRL) 554934 dated April 3,
1989, Customs held that U.S.-origin peanuts exported to Mexico
where they were shelled, roasted and salted were not eligible for
duty-free treatment as American goods returned under subheading
9801.00.10, HTSUS, as they were advanced in value or improved in
condition. In addition, they were not eligible for the partial
duty exemption under subheading 9802.00.50, HTSUS, as the
operations constituted intermediate steps in the preparation of
the finished peanuts. See also HRL 554834 dated May 25, 1988;
and HRL 554932 dated June 3, 1988.
Similarly in this case, the peanuts are reprocessed by being
sugar-coated and salted. Consequently, as in the cases above, we
find that these operations advance the value and improve the
condition of the peanuts, and are intermediate steps in the
preparation of the finished peanuts, thereby rendering them
ineligible for subheading 9801.00.10 and 9802.00.50, HTSUS,
treatment.
HOLDING:
On the basis of the information submitted, we are of the
opinion that the operations in Holland advance the value and
improve the condition of the peanuts, and are intermediate steps
in the preparation of the finished peanuts, thereby rendering
them ineligible for duty-free treatment under subheading
9801.00.10, HTSUS, and for the partial duty exemption under
subheading 9802.00.50, HTSUS.
Sincerely,
John Durant, Director
Commercial Rulings Division