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HQ 222524


December 24, 1990

DRA-4-CO:R:C:E 222524 CB

CATEGORY: DRAWBACK PROTEST

Regional Commissioner
U.S. Customs Service
10 Causeway Street
Suite 801
Boston, MA 02222-1056

RE: Application for Further Review of Protest No. 0401-90- 000044 under 19 U.S.C. 1313(j)

Dear Sir:

The above-referenced protest was forwarded to this office for further review. We have considered the points raised and our decision follows.

FACTS:

The subject protest concerns certain drawback entries that were liquidated in October of 1989. The claims were the subject of an audit conducted by the Boston Regional Regulatory Division. During the course of the audit it was determined by the auditors that these claims were ineligible for inclusion in a same condition drawback claim. The protest rests on the interpretation of 19 U.S.C 1313(j) and 19 CFR 191.141(a)(3).

The merchandise at issue are modules (loaded boards) which were imported with the intent of being incorporated into a Central Processing Unit ("CPU"). According to the information provided by the protestant, after the boards were inserted into a backplane and tested they failed the test and were removed from the backplane to be returned to the supplier. The operations performed consist of attaching a memory cable to the memory module and then attaching the memory cable to the backplane assembly. The assembler then insures that the cable locks are secured. The backplane assembly is then subjected to several burn-in tests. It is during these tests that the memory modules fail. Subsequent to rejection, the imported merchandise was disassembled from the subassemblies and memory modules and exported for repair.

It is protestant's claim that these loaded boards never became part of a functional CPU and therefore could not have been "used" within the meaning of the same-condition drawback law. The protestant contends that there are no manufacturing steps performed on the subject merchandise. Protestant claims that the -2-
merchandise enters the country fully manufactured and is simply inserted into the backplane. Therefore, since nothing is added to or deleted from the merchandise, the same condition requirement has been satisfied and protestant is entitled to drawback upon the exportation of the merchandise. Protestant argues that the subject merchandise was not used for its intended purpose. According to protestant, the subject modules are manufactured to compute data and they can only serve their function in concert with the other components of the CPU. Each module is tested to insure that it will perform its intended function by inserting them into the backplane. Therefore, since the modules did not perform as intended, they were not used for their intended purpose.

The Regulatory Audit Division took the position that the subject articles were subjected to a manufacturing operation by being assembled into a subassembly. In essence, that the assembly process constitutes a new unit (the computer backplane assembly) with different properties and, therefore, use has taken place within the meaning of the regulations. Additionally, that the defect could have developed as a result of subjecting the merchandise to an assembly process. The auditors determined that, at this point in time, it is impossible for Customs to determine whether the defect was present at time of importation or developed during the assembly process. Protestant was informed that the correct method of obtaining drawback was filing the claims under rejected merchandise drawback. However, in the instant case, the time limitations for rejected merchandise drawback precluded the filing of such a claim.

ISSUE:

Whether the subject entries qualify for same-condition drawback under 19 U.S.C. 1313(j)?

LAW AND ANALYSIS:

Section 313(j), Tariff Act of 1930, as amended (19 U.S.C. 1313(j)), provides for a refund of duty if a duty-paid article is exported in the same condition as when imported, within three years from date of importation, and was not used in the United States. The statute provides that the performing of incidental operations do not constitute a use for drawback purposes. Incidental operations include, but are not limited to, testing, cleaning, repacking, and inspecting.

The Customs Service administration of the same-condition drawback law is governed by 19 CFR 191.141. The regulation provides that the performing of incidental operations (such as testing and inspecting) on the imported item, not amounting to -3-
a manufacture or production, shall not be treated as a use of the merchandise. The prevailing interpretation of "use" of an article under 19 U.S.C. 1313(j) and 19 CFR 191.141 is that an article is used when it is employed for the purpose for which it was manufactured and intended. See, e.g., C.S.D. 81-222 and C.S.D. 82-135. Articles that have been changed in condition due to deterioration, accidental destruction or damage are also usually ineligible for same-condition drawback under 19 U.S.C. 1313(j). See, e.g., C.S.D. 83-23, C.S.D. 83-26.

The question is whether the introduction of the loaded boards into the manufacturing process constitutes a "use" for same-condition drawback purposes. Headquarters has previously ruled, under similar circumstances, that if a component is removed after installation and testing, same condition drawback applies. In C.S.D. 84-52, a disc drive was placed on a movable track; then input/output cables were plugged into the unit; and the power cable was plugged in; finally, the entire printer was tested as a functional unit. It was held that if the importer removed the disc drives after testing and exported them seperately, the same-condition drawback law would be applicable. We see no reason to reach a different conclusion in the instant case.

HOLDING:

The installation of the loaded boards for testing purposes does not constitute a "use" for same-condition drawback purposes. Therefore, the subject protest should be Approved.

Sincerely,

John Durant, Director

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