ENT 1
OT:RR:CTF:ER
H264475 RGR
Elon A. Pollack
Stein Shostak Shostak Pollack & O’Hara, LLP
865 South Figueroa Street
Suite 1388
Los Angeles CA 90017
Re: Eligibility of certain silicon carbide crystals for exemption from provisions of the tariff schedule under General Note 3(e)(iii), HTSUS; eligibility for duty-free treatment under subheading 9801.00.10, HTSUS
Dear Mr. Pollack:
This is in reference to your letter dated April 28, 2015, on behalf of LG Tech-Link (“LG”), and a conference call with our office on June 27, 2016, concerning your request for a ruling on the eligibility of certain silicon carbide crystals for exemption from the provisions of the tariff schedule under General Note 3(e)(iii), Harmonized Tariff Schedule of the United States (“HTSUS”). In the alternative, you request that the silicon carbide crystals be classified as U.S. goods returned under subheading 9801.00.10, HTSUS.
FACTS:
The subject merchandise consists of certain micro size silicon carbide crystals shaped like prisms (measuring 0.008 x 0.008 x 0.015 in. or 0.2 x 0.2 x 0.38 mm) of U.S. origin which LG exports to its customers overseas. LG exports the subject crystals to its customers as part of heat measurement services and analysis. LG states that the actual cost to manufacture the crystals is minimal (less than $1.00 each). Its customers embed the crystals in machinery to measure its maximum temperature at the point where the crystals are embedded. The types of machinery typically involved include aircraft and automotive engines, generators and similar machinery which run continuously for long periods and require heat measurements. After embedding the crystals and running the machinery to be tested, LG’s customers remove the crystals and return them to LG.
Like crystals of many materials, when exposed to heat, silicon carbide undergoes physical changes in density, porosity, water absorption, etc. LG states that these changes are well known in various industries, such as glass-making and ceramics manufacture. LG measures the physical changes in the returned crystals using proprietary processes involving diffractometry and company-developed software. LG correlates the changes in the crystals with a customer-provided time diagram of testing to determine the maximum temperature to which the crystals were exposed and reports the results to its customers. After importation into the United States, the crystals are stored in LG’s facility in the event that its customers desire to have them re-read. LG states that like business records, the crystals are not reused or resold for any purpose. LG does not know exactly what type of equipment the customers are testing, the locations in which the crystals were embedded, and the types of materials from which the tested machinery is composed. Rather, LG provides a service to measure heat from a particular location inside a machine and reports findings to its customers. According to LG, the crystals are used for analysis because they are a medium for carrying business information.
LG also explains that on prior entries of the subject crystals, it was only the ultimate consignee. LG has submitted this ruling request because it is now interested in becoming the importer of record on at least some of the entries in which the crystals are returned to the United States for analysis. The crystals were previously entered under subheading 2849.20.2000, HTSUS, which applies to “Carbides, whether or not chemically defined: Of silicon: In grains, or ground, or pulverized or refined.” LG believes that this classification of the imported crystals was erroneous because the imported crystals are a medium for carrying business records, which are exempt from the provisions of the tariff schedule under General Note 3(e)(iii), HTSUS.
LG requests a ruling that the subject merchandise is exempt from customs formalities under General Note 3(e)(iii), HTSUS, as a medium for carrying business records. In the alternative, it requests that the crystals be classified as U.S. goods returned under subheading 9801.00.10, HTSUS.
ISSUES:
Whether certain silicon carbide crystals are eligible for exemption from the provisions of the tariff schedule under General Note 3(e)(iii), HTSUS.
If certain silicon carbide crystals are not exempt from the provisions of the tariff schedule under General Note 3(e)(iii), HTSUS, whether they are classifiable as U.S. goods returned under subheading 9801.00.10, HTSUS.
LAW AND ANALYSIS:
You query whether certain silicon carbide crystals are eligible for exemption from the provisions of the tariff schedule under General Note 3(e)(iii), HTSUS. In the alternative, you request that the crystals be classified as U.S. goods returned under subheading 9801.00.10, HTSUS. As explained below, the crystals are not exempt from the tariff schedule provisions under General Note 3(e)(iii), HTSUS, because they are not records, diagrams, or other data related to the internal business operations of LG. Moreover, the crystals are ineligible for duty-free treatment under subheading 9801.00.01, HTSUS, when returned to the United States after having been exported because the returned crystals are advanced in value. However, as explained below, the crystals may be eligible for preferential tariff treatment under subheading 9801.00.40, HTSUS, if the documentary requirements of 19 C.F.R. § 10.67 are satisfied.
1. Whether certain silicon carbide crystals are eligible for exemption from the provisions of the tariff schedule under General Note 3(e)(iii), HTSUS.
General Note 1 to the HTSUS provides that, “All goods provided for in this schedule and imported into the customs territory of the United States from outside thereof, and all vessel equipments, parts, materials and repairs covered by the provisions of subchapter XVIII to chapter 98 of this schedule, are subject to duty or exempt therefrom as prescribed in general notes 3 through 29, inclusive.” Goods specifically exempted are listed in General Note 3(e). General Note 3(e)(iii) states the following:
(e) Exemptions. For the purposes of general note 1 –
(iii) records, diagrams and other data with regard to any business, engineering or
exploration operation whether on paper, cards, photographs, blueprints, tapes or other media, . . .
are not goods subject to the provisions of the tariff schedule.
Further, under 19 C.F.R. § 141.4(b)(1), an exception to the general rule that all merchandise imported into the United States is required to be entered includes, “[t]he exemptions listed in General Note 3(e) to the Harmonized Tariff Schedule of the United States (HTSUS).”
General Note 3(e)(iii), HTSUS, has been renumbered several times since it was originally set forth as Item 870.10, Tariff Schedule of the United States (“TSUS”), with almost identical language. Thus, examining the legislative history of Item 870.10, TSUS, provides helpful guidance in interpreting General Note 3(e)(iii), HTSUS. According to the legislative history, this provision was designed to benefit businesses with overseas branches and to exempt from duty business records or other data regarding overseas operations, which are brought into the United States for consideration by the company’s U.S. executives. S. Rep. No. 87-1318 (1962), reprinted in 1962 U.S.C.C.A.N. 1639, 1640. Further, this provision was intended “to facilitate the customs clearance of data with regard to business, engineering, or exploration operations conducted outside the United States...” Id. The legislative history also provides that data with regard to business, engineering, or exploration operations collected outside the United States are not salable. Id. Legacy Customs interpreted the term “salable” to mean that the primary purpose of importation into the United States is for resale to others. See HQ 220989 (May 11, 1989).
In accordance with the statutory language in General Note 3(e)(iii) and the relevant legislative history, where imported records, diagrams, or other data are developed for internal use by the importer, then they fall within the records exemption. For example, in HQ 079847, dated October 28, 1987, Legacy Customs held that satellite imagery and serial photography pertaining to geological and hydraulic information about the Earth’s surface, which was imported on magnetic tape and designed for internal use by U.S. government agencies, fell under the predecessor to the records exemption in General Headnote 5(e), TSUS. However, Legacy Customs also concluded that magnetic tape imported with the same satellite imagery and serial photography for use by private industry and individuals did not fall under the exemption because the records were not for inter-corporate use and were not requested from an overseas branch to be considered by executives of an affiliated office located in the United States. HQ 079847 (Oct. 28, 1987). Similarly, in HQ 951044, dated February 1, 1993, Legacy Customs held that business records that were exported, transcribed onto magnetic computer discs while overseas, and returned with the transcribed information on the discs fell within the records exemption. In holding us such, we explained that data concerning the business operation of a company falls under the records exemption, whereas commercial information that is intended for sale to third parties will not qualify for the exemption. Id. Thus, if data from a business, engineering, or exploration operation recorded onto media is related to the operations of a company and is not commercial data intended for sale to third parties, then such data falls under the records exemption.
We note that in HQ 556040, dated June 18, 1991, Legacy Customs expanded the definition of records for purposes of the exemption, such that records now include data on business conducted in the United States that is exported abroad for transfer to another form of media and returned to the United States. Accordingly, the original requirement that the data must come from an overseas branch of a company is no longer necessary. Despite this change, HQ 556040 continued to stand for the position that for data to fall under the records exemption, it “would have to concern business operations of firms involved in importing the information.” Id. Thus, “reproduction of catalogs, advertising matter, or literature not relating to operations of the business would not qualify” for the exemption. Id. Accordingly, the records exemption applies only to data related to the internal business operations of the importing company.
Turning to the facts presented by LG, we note that there are two issues to consider in determining whether the General Note 3(e)(iii) exemption applies: 1) whether the crystals are related to the business operations of the company, and 2) whether the crystals are considered to be “records, diagrams and other data.” In applying the above rulings, we first find that the crystals are not eligible for exemption from the provisions of the HTSUS because the imported crystals do not relate to the business operations of the company. Rather, the crystals are provided to LG’s customers as a part of a commercial service. In accordance with the statutory language in General Note 3(e)(iii) and the relevant legislative history, where imported records are developed for internal use by the importer and relate to the internal business operations of the company, then they may fall within the records exemption. If those same records are sold to a third party, however, they do not qualify for the exemption. Here, the subject crystals are part of a commercial service provided by LG to customers. The crystals undergo physical changes when exposed to heat, which LG analyzes. The analysis of the crystals is a paid commercial service provided to LG’s customers and no not relate to how LG operates its business as the firm that is importing the crystals. Rather, the crystals provided to LG’s customers are purely commercial in nature and is sold to and purchased by LG’s customers. Therefore, we find that the subject crystals do not qualify for the records exemption under General Note 3(e)(iii).
Next, LG asserts that the crystals are similar to the records identified in the above-cited rulings because they are a medium for carrying information, which can be ascertained using scientific processes. LG explains that like the records in the above-cited rulings, the crystals are not used in any manufacturing process. LG compares the crystals to satellite imagery and serial photography on magnetic tape in HQ 079847, dated October 28, 1987, and to business records transcribed onto magnetic disks in HQ 951044, dated February 1, 1993, both discussed above. In addition, LG asserts that the subject crystals are like system studies results in HQ 085348, dated November 30, 1989. The system studies results in HQ 085348 consisted of computer-generated numbers printed on paper, which Legacy Customs held were exempt from the HTSUS under the records exemption. LG also compares the crystals to business records that were transferred from tape to microfiche while overseas and returned to the United States, which Legacy Customs held were eligible for the records exemption in HQ 556040, dated June 18, 1991. Unlike the data discussed in the rulings cited by LG, the merchandise at issue are silicon carbide crystals that are used as measurement instruments. Here, the crystals are embedded into machinery, where they undergo changes based on the temperature of the machine. The crystals act as measuring instruments for heat temperature in the same way that instruments, such as thermometers or litmus paper, are used to measure temperature or pH. Just as a thermometer or litmus paper does not become a business record simply because it is used as an instrument to measure temperature or pH, neither do the subject crystals become records simply because they are used to measure heat temperature. Instruments used to measure certain characteristics such as temperature do not constitute data or records. In sum, the subject crystals are not exempt from the provisions of the tariff schedule under the General Note 3(e) exemption, HTSUS, as they are not records, diagrams, or other data within the meaning of the records exemption.
Finally, LG asserts that the subject crystals fall under the records exemption because like records, diagrams, or other data, the crystals are not resold or reused. The legislative history and rulings note that records falling under the exemption cannot be resold or sold to third parties. We note, however, that reusability is not a legal criterion for whether or not merchandise qualifies for the records exemption under General Note 3(e)(iii), HTSUS. See, e.g., HQ 079847 (Oct. 28, 1987) (holding that magnetic tape qualified for the records exemption without considering the tapes’ reusability). Thus, whether or not the crystals may be reused is not relevant to determining the crystals’ eligibility for the records exemption. As noted above, the crystals are not data but are used as instruments of measurement. Moreover, the crystals are purchased by LG’s customers as a part of a commercial service provided by the company; therefore, they do not relate to the operational side of LG’s business. Based on all of the above, LG’s crystals are not exempt from the tariff schedule provisions pursuant to General Note 3(e)(iii), HTSUS, because they are not records, diagrams, or other data related to the business operations of the company.
2. Whether certain silicon carbide crystals are classifiable as U.S. goods returned under subheading 9801.00.10, HTSUS.
Subheading 9801.00.10, HTSUS, provides for the duty-free treatment of:
Products of the United States when returned after having been exported, or any other products when returned within 3 years after having been exported, without having been advanced in value or improved in condition by any process of manufacture or other means while abroad.
You state that the crystals are of U.S. origin. For purposes of this ruling, we will assume that they may be considered “products of the United States.”
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 treatment upon reimportation into the United States. See Border Brokerage Company, Inc. v. United States, 314 F. Supp. 788 (1970), appeal dismissed, 58 CCPA 165 (1970). In Border Brokerage Company, the court held that the test to be applied in item 800.00, Tariff Schedules of the United States (“TSUS”) (precursor to subheading 9801.00.10, HTSUS), cases is whether the merchandise of American origin has itself (apart from its container) been the object of advancement in value or improvement in condition while abroad. Border Brokerage Company, Inc., 314 F. Supp. at 792.
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 United States shall be compared with its overall value and condition at the time of return to the United States. However, each case must be decided on its own facts. See HQ 559496, dated December 1, 1995; and HQ 558797, dated January 20, 1995.
In the instant case, we find that the processing to which the silicon carbide crystals are subjected is an advancement in value. As previously noted, when the silicon carbide crystals are exposed to heat, they undergo physical changes in density, porosity, and water absorption. These physical changes enable LG to determine the maximum temperature to which the crystals were exposed and report the results to its customers. Since the returned crystals are advanced in value, they are ineligible for duty-free treatment under subheading 9801.00.10, HTSUS, when returned to the United States after having been exported.
Nevertheless, the crystals may be eligible for duty-free treatment under subheading 9801.00.40, HTSUS, which is applicable to articles, when returned after having been exported for use temporarily abroad solely for exhibition, examination or experimentation, for scientific or educational purposes, if imported by or for the account of the person who exported them.
19 C.F.R. § 10.67 sets forth the documentary requirements for entry under subheading 9801.00.40, HTSUS. 19 C.F.R. § 10.67(a) requires that, irrespective of the value of the shipment, the following must be submitted in connection with each entry of articles exported for scientific or educational purposes and returned under subheading 9801.00.40, HTSUS:
(1) A certificate of exportation on Customs Form 3311, or its electronic equivalent;
(2) A declaration, or its electronic equivalent, by the foreign shipper in the same form as that prescribed in 19 C.F.R. § 10.66(a)(2) but stating that such articles were sent from the United States solely for temporary scientific or educational use and describing the specific use to which they were put while abroad.
(3) A declaration of the ultimate consignee, or its electronic equivalent…
In addition, 19 C.F.R. § 10.67(b) states:
If it is shown to be impracticable to produce the certificate of exportation required by paragraph (a)(1) of this section, the port director may accept other satisfactory evidence of exportation. The port director may take a bond on Customs Form 301, containing the bond conditions set forth in § 113.62 of this chapter to secure the subsequent production of any of the evidence or documents required by paragraph (a) of this section which are not available at the time of entry.
Further, 19 C.F.R. § 10.67(c) provides:
If, prior to the exportation of articles claimed to be exempt from duty under subheading 9801.00.40, Harmonized Tariff Schedule of the United States (HTSUS), an application on Customs Form 4455, or its electronic equivalent, (accompanied by an appropriate inventory when, in the discretion of the port director, such inventory is deemed necessary) was filed, such articles may be returned for the account of the exporter free of duty without formal entry, without regard to the requirements of paragraphs (a) and (b) of this section, upon the filing of the duplicate Customs Form 4455, or its electronic equivalent, (with accompanying inventory, if one was required), and a declaration of the ultimate consignee in substantially the form set forth in paragraph (a)(3) of this section.
The crystals are exported for temporary use abroad for testing purposes, as they are placed in various locations such as aircraft engines, turbines, and generators, to ascertain temperatures. After they are reimported into the United States, they are analyzed through the use of proprietary scientific processes. They are reimported by or for the account of LG, which originally exported them and not for resale. You state that the purpose for which the crystals are used is applied science and development of products using the results of LG’s analysis. Based on the description provided, we find that the silicon carbide crystals may be eligible for preferential tariff treatment under subheading 9801.00.40, HTSUS, if the documentary requirements of 19 C.F.R. § 10.67 are satisfied.
HOLDING:
Based on the materials presented, we find that the silicon carbide crystals do not qualify for exemption from the provisions of the tariff schedule under General Note 3(e)(iii), HTSUS. We also find that the silicon carbide crystals are ineligible for duty-free treatment under subheading 9801.00.01, HTSUS, when returned to the United States after having been exported because the returned crystals are advanced in value. However, the silicon carbide crystals may be eligible for preferential tariff treatment under subheading 9801.00.40, HTSUS, if the documentary requirements of 19 C.F.R. § 10.67 are satisfied.
Please note that 19 C.F.R. § 177.9(b)(1) provides that "[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs Service field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based."
Sincerely,
Gail Kan, Acting Chief
Entry Process and Duty Refunds Branch