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HQ 555620


August 8, 1990

CLA-2 CO:R:C:V 555620 KAC

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50 - 9802.00.60

Mr. Dave Morris
CE MacPherson Company
468 Rideau Street
P.O. Box 320
Kingston, Ontario, Canada

RE: Applicability of duty exemptions under HTSUS subheadings 9802.00.50 and 9802.00.60 to torispherical tank heads created by bending, flanging, cutting, cleaning, grinding, machining, and welding.Further processing;555417;C.S.D. 84- 49;553950

Dear Mr. Morris:

This is in response to your letter dated March 26, 1990, requesting a ruling on the applicability of subheadings 9802.00.50 and 9802.00.60, Harmonized Tariff Schedule of the United States (HTSUS), to torispherical (flanged and dished) tank heads to be imported from Canada.

FACTS:

Your company will ship hot rolled stainless steel plates cut into discs in the U.S., to Canada for certain processing, after which they will be returned to the U.S. for further processing. In Canada, the exported discs will be subjected to the following operations:

(1) bending the disc into a uniform "dish shape" for the head;
(2) flanging the head to the required diameter; (3) cutting off excess material beyond the specified height; and
(4) cleaning the head.

The head is then imported into the U.S. where your U.S. customer will grind or machine a bevel onto the edge of the head and cut holes into the head. The heads will then be welded to cylinders to create tanks. After the welding operation, the heads will undergo further operations to complete the tank, which include cutting further holes in the head and grinding or buffing the interior of the head to remove forming marks.

ISSUE:

Whether torispherical tank heads will qualify for the partial duty exemption available under HTSUS subheading 9802.00.50 or 9802.00.60 when returned to the U.S.

LAW AND ANALYSIS:

Subheading 9802.00.50, HTSUS, provides for the assessment of duty on the value of repairs or alterations performed on articles returned to the U.S. after having been exported for that purpose. However, the application of this tariff provision is 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), aff'g, C.D. 1752, 36 Cust.Ct. 46 (1956); Guardian Industries Corporation v. United States, 3 CIT 9 (1982), Slip Op. 82-4 (1982). Subheading 9802.00.50, HTSUS, treatment is also precluded where the exported articles are incomplete for their intended use and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles. 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 (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.

In this case, the foreign operations performed on the stainless steel discs do not constitute alterations within the meaning of subheading 9802.00.50, HTSUS. The bending and flanging of the discs to the specified radius are further processing steps that are necessary to manufacture the torispherical heads. See, Headquarters Ruling Letter (HRL) 555417 dated January 22, 1990, which held that the bending of rebars abroad constitutes a process of manufacture, which exceeds an alteration.

HTSUS subheading 9802.00.60 provides a partial duty exemption for:

[a]ny article of metal (as defined in U.S. note 3(d) of this subchapter) manufactured in the United States or subjected to a process of manufacture in the United States, if exported for further processing, and if the exported article as processed outside the United States, or the article which results from the processing outside the United States, is returned to the United States for further processing.

This tariff provision imposes a dual "further processing" requirement on eligible articles of metal--one foreign, and when returned, one domestic. Metal articles satisfying these statutory requirements may be classified under this tariff provision with duty only on the value of such processing performed outside the U.S., provided there is compliance with the documentary requirements of section 10.9, Customs Regulations (19 CFR 10.9).

In C.S.D. 84-49, 18 Cust.Bull. 957 (1983) we stated that:

[f]or purposes of item 806.30, TSUS, the term 'further processing' has reference to processing that changes the shape of the metal or imparts new and different characteristics which become an integral part of the metal itself and which did not exist in the metal before processing; thus, further processing includes machining, grinding, drilling, threading, punching, forming, plating, and the like, but does not include painting or the mere assembly of finished parts by bolting, welding, etc.

(The precursor provision to HTSUS subheading 9802.00.60 was item 806.30, Tariff Schedules of the United States (TSUS).)

In this case, the stainless steel disc is an eligible article of metal for purposes of HTSUS subheading 9802.00.60. The bending, flanging, and cutting of the discs in Canada are considered "further processing" operations, as they change the metal and impart new and different characteristics which become an integral part of the metal. Moreover, the operations performed in the U.S. to the returned heads (grinding or machining of the bevel onto the edge and cutting holes) are considered sufficient processes to comply with the domestic "further processing" requirement of HTSUS subheading 9802.00.60. See, C.S.D. 84-49, and HRL 553950 dated December 13, 1985, which held that the cutting of metal constituted "further processing."

HOLDING:

On the basis of the information submitted, it is our opinion that the processes performed abroad exceed an alteration, and, therefore preclude tariff treatment under HTSUS subheading 9802.00.50. However, the processes performed abroad and in the U.S. constitute "further processing" as that term is used in HTSUS subheading 9802.00.60, and, therefore, the imported
stainless steel heads will be entitled to classification under this tariff provision with duty only on the cost or value of such processing performed outside the U.S., upon compliance with the documentary requirements of 19 CFR 10.9.

Sincerely,

John Durant, Director
Commercial Rulings Division

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