HQ 0223808 - Protest and application for further review no. 2809-91- 101607; manufacturing or same condition drawback; modification of thermal array recorder; manufacturing drawback; same condition drawback; manufacture or production; incidental operation; 19 U.S.C. 1313(a); 19 U.S.C. 1313(j)(1); 19 U.S.C. 1313(j)(4) - United States International Trade Commision Rulings

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HQ 223808

July 24, 1992

DRA-2 CO:R:C:E 223808 C

CATEGORY: DRAWBACK

District Director of Customs
San Francisco District Office
U.S. Customs Service
555 Battery St.
P.O. Box 2450
San Francisco, CA 94126

RE: Protest and application for further review no. 2809-91- 101607; manufacturing or same condition drawback; modification of thermal array recorder; manufacturing drawback; same condition drawback; manufacture or production; incidental operation; 19 U.S.C. 1313(a); 19 U.S.C. 1313(j)(1); 19 U.S.C. 1313(j)(4)

Dear Sir:

This responds to the referenced protest and application for further review, dated September 26, 1991. We have reviewed all relevant materials, and our decision follows.

FACTS:

PROTESTANT is an importer of thermal array recorders. The recorder, the TA-2000, is a stand-alone, independently operable recorder that is sold and usable as is - that is, in its condition as imported. PROTESTANT sells the TA-2000 as an in- facility (e.g. office or laboratory), stationary recorder. PROTESTANT also modifies the recorder after entry and sells it as a portable unit and a rack-mountable unit. The brochure submitted by PROTESTANT briefly describes the three recorders as follows:

Stand Alone Recorder - The economical TA 2000 Stand Alone unit is ideal for desk-top and cart-mount applications where preconditioned signals are available. The TA 2000 is designed to directly accept analog signals up to +/-5V.

Portable System - The TA 2000 portable system includes a 5900 Signal Conditioner Cage, recorder enclosure with handles, chart take-up drawer, and interconnecting cable. The 5900 cage in conjunction with any of Gould's 4600 or 5600 Series Signal Conditioners provides unparalled [sic] application flexibility to meet your specific test and measurement requirements.

Rack-Mount System - The Rack-Mount System includes a 5900 Signal Conditioner Cage, recorder enclosure, chart take-up drawer, mountable in a standard 19 inch RETMA rack.

PROTESTANT first filed for drawback under the same condition drawback provision, 19 U.S.C. 1313(j). By letter of November 8, 1989, your office informed PROTESTANT that its modification operation exceeds the limits of "incidental operations" permitted under 19 U.S.C. 1313(j)(1).

Subsequently, PROTESTANT requested permission to operate under the conditions of the general manufacturing drawback contract, Treasury Decision (T.D.) 81-234. By letter of September 25, 1990, your office denied drawback on the grounds that the modification operation does not constitute a "manufacture or production" for drawback since it does not transform the imported merchandise into a new and different article with a distinctive character or use. Consequently, on June 28, 1991, eight entries were liquidated without the benefit of drawback. This protest was filed on September 26, 1991, objecting to these liquidations.

The protest asserts that a drawback refund should be approved under either 19 U.S.C. 1313(j)(1) or 19 U.S.C. 1313(a). Regarding the same condition drawback provision, PROTESTANT asserts that the modification operation is an incidental operation permissible under section 1313(j)(1). Under the manufacturing drawback provision, PROTESTANT asserts that a manufacture or production takes place in modifying the TA-2000 into the portable and rack-mountable units. Further, the protest asserts that Customs Service Decision (C.S.D.) 91-18 is incorrect. That ruling held that the manufacturing drawback provision and the same condition drawback provision are not complementary and contiguous provisions; failure to qualify for drawback under one provision does not qualify a procedure, by operation of such failure, for drawback under the other. In this latter regard, it is argued that if the procedure involved is not an incidental operation permissible under the same condition drawback provision, it must perforce be a manufacture or production.

ISSUE:

On the facts of this case, is drawback allowable under either 19 U.S.C. 1313(j)(1) or 19 U.S.C. 1313(a)?

LAW AND ANALYSIS:

Initially, we note that PROTESTANT"s protest of the liquidations in question was timely filed under 19 U.S.C.

Same Condition Drawback - 19 U.S.C. 1313(j)(1)

Under 19 U.S.C. 1313(j)(1), drawback is allowed upon the exportation of imported merchandise if that merchandise was not used in the United States and is in the same condition at exportation as it was upon importation. There is an exception to the use prohibition. Under section 1313(j)(4), the performing of an "incidental operation" is not treated as a disqualifying use of the imported merchandise. An "incidental operation" is not defined in the statute, but several explicit examples are illuminating: testing, cleaning, repacking, and inspecting.

We agree with your view that the modification operation performed by PROTESTANT to make a portable system and a rack- mountable system from the imported stand-alone TA-2000 does not qualify as an incidental operation. This operation is not remotely similar to the exemplars contained in section 1313(j)(4). Further, the operation changes the condition of the imported merchandise. It is not in the same condition at exportation and thus does not meet the basic requirement of

Manufacturing Drawback - 19 U.S.C. 1313(a)

Under 19 U.S.C. 1313(a), drawback is allowed upon the exportation of articles manufactured or produced in the United States with the use of imported, duty-paid merchandise. The term "manufactured or produced" has been defined as the production of a new and different article having a distinctive name, character, or use. Annheuser-Busch Brewing Co. v. United States, 207 U.S. 556 (1907). PROTESTANT asserts that the modification operation here involved produces a new and different article and that manufacturing drawback should be approved. The modification procedure was described by PROTESTANT in a letter dated August 10, 1990, as follows:

1) Remove recorder housing.
2) Rewire transformer to 230 volt (input changed from parallel to series wiring)(not applicable to 115V units).
3) Place recorder into new housing and secure with bolts.
4) Add a new front panel to the equipment. 5) Add a new specification plate to unit.

We agree with your view that the modification operation here involved is not a manufacture or production for drawback. There has not been evidenced a sufficient transformation in character affecting the imported TA-2000 recorders to support the conclusion that a new and different article has been produced.

C.S.D. 91-18

It is not necessary to revisit the issue considered in C.S.D. 91-18 in great detail here. We reaffirm that ruling's holding, and we submit that it is particularly relevant to the facts of the instant case. There are numerous operations performed on or with imported merchandise that neither produce a new and different article nor qualify as incidental operations. The procedures discussed in C.S.D. 91-18 and the instant case are good examples. One need only look at the many rulings that have denied applicability of manufacturing drawback on the grounds that the procedure involved did not produce a new and different article. In the great majority of these cases, the condition of the imported merchandise has been changed to a sufficient degree to preclude the conclusion that what is exported is in the same condition as was the imported merchandise upon importation. We believe that the holding of C.S.D. 91-18 is a sound interpretation of 19 U.S.C. 1313(j)(1) and properly reconciles the principle of same condition and the incidental operation exception. If it is accepted that any operation that is not a manufacture or production under the manufacturing drawback provision qualifies as an incidental operation under the same condition drawback provision, the concept of "same condition" is rendered meaningless and the exemplars of incidental operations in section 1313(j)(4) are stretched beyond recognition.

HOLDING:

Neither same condition nor manufacturing drawback is applicable to the modification procedure in question. It is not a "manufacture or production" under 19 U.S.C. 1313(a), nor does it qualify as an "incidental operation" under 19 U.S.C. 1313(j)(4). The exported merchandise is neither a new and different article, nor is it in the same condition as was the imported merchandise upon importation.

You are hereby instructed to deny this protest. Please attach a copy of this decision to the CF 19 Notice of Action to be forwarded to PROTESTANT in accordance with 19 C.F.R. 174.30.

Sincerely,

John Durant, Director

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