CLA-02 RR:CTF:VS 563422 FP
Ms. Margaret R. Polito
Neville Peterson LLP
17 State Street, 19th Floor
New York, New York 10004
RE: Applicability of subheading 9802.00.50 to mannose sugar; alteration by crystallization
Dear Ms. Polito:
This is in response to your letter dated December 15, 2005, on behalf of Danisco USA, Inc. (“Danisco”), in which you seek a determination of the eligibility of crystallization mannose sugar for the partial duty exemption under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), 19 U.S.C. § 1202.
FACTS:
Danisco is a producer of functional ingredients for the food industry. The company’s sugar and sweetener businesses manufacture rare sugars, which are used in the pharmaceutical industry for a variety of applications, such as anti-cancer agents and anti-inflammatory agents. It is stated that the mannose sugar at issue is used as an ingredient in dietary supplements to promote urinary tracts and bladders. This rare sugar attracts E. coli bacteria in the bladder, and the mannose with the attached bacteria is expelled when the bladder is voided.
Mannose sugar syrup that has been extracted, processed and refined in the United States is exported from the United States to either India or Ireland and subjected to a process of crystallization. In its condition as exported, the U.S.-origin mannose sugar syrup is in liquid form containing 25% water and 75% dry substances. Of the 75% dry substances, 80% is mannose and the remaining 20% consists of other rare sugars.
The processing operations abroad begin when the exported syrup is placed in an evaporation reactor and seeded with milled mannose crystals. Solvent is added to the syrup to increase the crystallization yield and the crystals are separated from the syrup by centrifuge. This process is repeated until sufficient amounts of crystals are formed. Finally, the crystals are dried, sieved, and packed into cartons for export back to the United States.
You state that operations performed abroad do not increase the concentration of the mannose sugar nor do they alter the chemical or molecular structure of the mannose. Rather, that the foreign operations change the mannose from a liquid to a solid, thereby rendering the mannose easier to use, by allowing it to be measured more easily.
ISSUE:
Whether the operations performed in India or Ireland, as described above, constitute “alterations” under subheading 9802.00.50, HTSUS, thereby qualifying the returned mannose sugar for the duty exemption under this tariff provision.
LAW AND ANALYSIS:
Subheading 9802.00.50, HTSUS, provides a full or partial duty exemption for articles returned to the U.S. after having been exported to be advanced in value or improved in condition by means of repairs or alterations. Duty is assessed only on the cost or value of the repair or alteration performed abroad, provided that the documentation requirements of section 10.8, Customs Regulations (19 CFR § 10.8), are satisfied. Entitlement to the benefits of subheading 9802.00.50, HTSUS, are precluded in circumstances where the operations performed abroad destroy the identity of the articles or create new or commercially different articles. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956); Guardian Industries Corp. v. United States, 3 CIT 9 (1982). Further, classification under this provision is precluded when the exported product is not complete for its intended use, and the foreign operations constitute intermediate processing operations which are performed as a matter of course in the preparation of the finished article. See Dolliff & Company, Inc., v. United States, 81 Cust.Ct. 1, C.D. 4755, 455 F.Supp. 618 (1978), aff'd, 66 CCPA 77, C.A.D. 1225, 599 F.2d 1015, 1019 (1979).
You claim that the exported and imported products are both mannose sugar and that the removal of water and crystallization does not create more mannose, but changes it from a liquid to a solid form making it easier to measure and use. You claim that the imported crystallization mannose has the same level of purity as the exported mannose and that the molecular structure and polarity is unchanged.
In Dolliff & Company, Inc. v. U.S., supra, the court found that the processing steps performed on exported greige goods were undertaken to produce the finished fabric and could not be considered as alterations. At issue in Dolliff was the question of whether certain Dacron polyester fabrics, which were manufactured in the U.S., and exported to Canada for heat setting, chemical scouring, dyeing, and treating with chemicals were eligible for the partial duty exemption available under item 806.20, Tariff Schedules of the United States (TSUS) (the precursor to HTSUS subheading 9802.00.50), when returned to the U.S. Specifically, the U.S. Court of Customs and Patent Appeals stated that:
... repairs and alterations are made to completed articles and do not include intermediate processing operations which are performed as a matter of course in the preparation or manufacture of finished articles. In the instant situation, the operations performed in Canada comprise further processing steps which are performed on unfinished goods and which lead to completed articles, i.e., the finished fabrics, and, therefore, the processing cannot be considered alterations.
Congress did not intend to permit uncompleted articles to be exported and made into finished products in the foreign country and when returned to be subject to duties only on the cost of the so-called alterations. U.S. v. J.D. Richardson Company, 36 CCPA 15, C.A.D. 390 (1948), cert. denied, 336 U.S. 936 (1949). Therefore, the focus is upon whether the exported article is "incomplete" or "unsuitable for its intended use" prior to the foreign processing. Guardian Industries Corp. v. United States, 3 CIT 9 (1982).
In Headquarters Ruling Letter (HRL) 560274, dated May 16, 1997, Customs considered the question of whether granular and pellet herbicides manufactured in the U.S. and then exported to Switzerland to be ground into powder, heated and bagged, were eligible for a partial duty exemption under subheading 9802.00.50, HTSUS, when returned to the U.S. Customs concluded that the granules were complete for their intended use prior to exportation to Switzerland and determined that the foreign processing operations did not have the effect of destroying the identity of the products or changing their chemical compositions but only altered their form and did not result in any significant change in the character or use of the products. Accordingly, Customs held that the process of grinding the granules and pellets in Switzerland constituted an acceptable alteration within the meaning of subheading 9802.00.50, HTSUS.
Similarly, in HRL 562175, dated October 29, 2001, Customs considered whether U.S.-origin liquid sodium chondroitin exported to Spain for purification and processing into powdered form was an alteration within the meaning of subheading 9802.00.50, HTSUS. The finished powders were used to produce dietary supplements. The exported sodium chondroitin was complete for its intended application and sold to manufacturers in both its liquid and powdered form. The chemical action was essentially the same and the liquids and powders were sold in the same end-use markets. Customs held that the processing of the liquid sodium chondroitin in Spain was an alteration within the meaning of subheading 9802.00.50, HTSUS. See also 563060, dated September 29, 2004; HRL 887836, dated April 11, 1994; HRL 555740, dated May 28, 1991; HRL 556616, dated June 16, 1992; and HRL 557534, dated December 17, 1993.
Likewise, in HRL 561918, dated July 30, 2001, Customs determined that the processing by which exported acrylic coatings were changed from liquid into aerosol form by the addition of solvents and propellants was an acceptable alteration for purposes of subheading 9802.00.50, HTSUS, and held that the returned product was eligible for the partial duty exemption provided by that subheading. It was found that the coatings, both before and after the foreign processing, were suitable for their intended use.
In our view, the mannose sugar is complete for its intended use prior to being exported to undergo the above-described operations. Further, the operations performed abroad do not have the effect of destroying the identity of the mannose sugar or changing its chemical composition, but only serve to change the form of the product. The foreign operations do not result in any significant change in the character or use of the product nor create a new and different article.
Therefore, based on the information provided, and consistent with our previous rulings, we find that the processing of the U.S.-origin mannose sugar syrup constitutes an acceptable alteration within the meaning of subheading 9802.00.50, HTSUS.
HOLDING:
On the basis of the information provided, the process of rendering mannose sugar syrup into a crystalline form constitutes an alteration under subheading 9802.00.50, HTSUS. Therefore, the returned mannose is entitled to classification under this tariff provision with duty to be assessed only upon the cost or value of the operations performed in India or Ireland, provided the documentary requirements of 19 CFR § 10.8 are satisfied.
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs official handling the transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch