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HQ 555640


August 13, 1990

CLA-2 CO:R:C:V 555640 KAC

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50

Rebekah J. Poston, Esq.
Fine Jacobson Schwartz Nash Block & England One CenTrust Financial Center
100 Southeast 2nd Street
Miami, Florida 33131-2112

RE: Applicability of partial duty exemption under HTSUS 9802.00.50 to gold jewelry.Alteration;polishing;diamond cutting;071523;Royal Bead;C.S.D. 89-49(9);C.S.D. 89-9(4)

Dear Ms. Poston:

This is in response to your letter of April 10, 1990, on behalf of Auracast, Inc., requesting a ruling on the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to gold jewelry exported to Mexico for polishing and diamond cutting operations and then imported into the U.S. Samples of various pieces of gold jewelry were submitted for examination.

FACTS:

Auracast manufactures gold jewelry in the U.S. using a six stage manufacturing process. The six stages of the manufacturing process are alloying, wax preparation, casting, cutting, grinding and tumbling. Upon completion of the U.S. manufacturing process, the gold jewelry with a tumbled lustre is complete and ready for sale. Auracast customers can purchase the jewelry with the tumbled lustre, or they can order the jewelry with an additional lustre, such as a polish or diamond cut. The polished and diamond cut lustre are added to the jewelry in Mexico. The polishing process employs the use of pastes and a rotating polishing wheel to produce a high gloss lustre, different in appearance from the tumbled lustre. The diamond cutting process involves making many small cuts on the jewelry by using a special diamond bit tool which moves in a rotating or vibrating fashion. Both the polishing and diamond cutting processes cause a minor reduction in the weight of the gold jewelry, and therefore, the resulting jewelry is sold at a slightly lower unit price than the tumbled jewelry. After these operations are complete, the jewelry is imported into the U.S.

ISSUE:

Whether the gold jewelry will be entitled to the partial duty exemption under HTSUS subheading 9802.00.50 when imported into 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 sent abroad for that purpose. However, the application of this tariff provision is precluded in circumstances where the operations preformed abroad destroy the identity of the articles or create new or commercially different articles. See, A.F. Burstrom v. United States, 44 CPU 27, C.A.D. 631 (1956), aff'd, C.D. 1752, 36 Cust.Ct. 46 (1956); Guardian Industries Corporation v. United States, 3 CIT 9 (1982), Slip Os. 82-4 (Jan. 5, 1982).

We have previously held in Headquarters Ruling Letter (HRL) 071523 dated December 1, 1983, that polishing drilled pearls qualifies as an alteration under item 806.20, Tariff Schedules of the United States (TSUS) (the precursor to HTSUS subheading 9802.00.50). Therefore, the gold jewelry exported to Mexico solely for polishing will qualify for the duty exemption available under HTSUS subheading 9802.00.50.

However, we are of the opinion that the diamond cutting operation exceeds an alteration within the meaning of this tariff provision. In Royal Bead Novelty Co. v. United States, 68 Cust.Cut. 154, C.D. 4353 (1972), it was held that glass beads which were exported for the application of a half coating of "Aurora Borealis" to impart a luster effect were entitled to item 806.20, TSUS, treatment. The Court stated that the application of the coating did not change the "quality, texture, or character" of the beads.

In the present case, the quality, texture and character of the gold jewelry has been changed. The diamond cut imparts a new and different texture to the jewelry. Upon examination of the jewelry's texture, it is difficult to distinguish the tumbled lustre from the polished lustre. However, one can readily distinguish the diamond cut jewelry, as the change in lustre is more dramatic than the tumbled and polished lustre. The diamond cut jewelry's different texture affects the character and quality of the jewelry. The diamond cut texture enhances the jewelry's characteristic by giving it a "diamond-like sparkle." Therefore, the diamond cutting operation results in a commercially different article, thereby precluding the application of subheading 9802.00.50, HTSUS, to the diamond cut jewelry. This conclusion is consistent with a previous ruling in which we held that etching glass mugs exceeds an alteration, as the operation creates a commercially different product with new characteristics and an enhanced appearance. See, C.S.D. 89- 49(9), 23 Cust.Bull. (1989) (HRL 555250 dated March 13, 1989). See also, C.S.D. 89-9(4), 23 Cust.Bull. (1989) (HRL 555105 dated October 31, 1988), which held that pewter figurines that undergo a diamond cutting operation, which impacts on the metal and imparts new and different characteristics to the articles, are deemed to have been "further processed" pursuant to subheading 9802.00.60, HTSUS.

HOLDING:

On the basis of the information and samples submitted, we find that the diamond cutting operation exceeds an alteration, and, therefore, the jewelry subjected to this process is not entitled to the duty exemption available under HTSUS subheading 9802.00.50. However, the polishing operation performed in Mexico constitutes an alteration within the meaning of HTSUS subheading 9802.00.50. Therefore, the polished gold jewelry will be entitled to the partial duty exemption available under this tariff provision, upon compliance with the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8).

Sincerely,

John Durant, Director
Commercial Rulings Division

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