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HQ 556452


April 4, 1992
CLA-2 CO:R:C:S 556452 SER

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50

District Director of Customs
Lincoln Juarez Bridge, Building 2
P.O. Box 3130
Laredo, TX 78044-3130

RE: Application for Further Review of Protest No. 2301-91- 100019; applicability of partial duty exemption for Saturn gas producers; Press Wireless, Inc. v. U.S., Guardian Industries, Inc. v. U.S., Dolliff & Co., Inc. v. U.S.; HRL 555741, 555443; 19 CFR 10.8(1); repairs

Dear Sir:

The above-referenced protest concerns your classification and duty assessment of Saturn gas producers from Mexico. Protestant claims that the articles at issue are eligible for a partial duty exemption under subheading 9802.00.50, HTSUSA, a claim which you have denied. Protestant also contends that the appraised value of each of the gas producers should be reduced from $18,000 to $13,000. A memorandum was submitted by Stein, Shostak, Shostak & O'Hara on behalf of the protestant-- Solar Turbines, Inc.

FACTS:

The Saturn gas producer contains four major repairable components that are maintained as matched sets during the repair operations. They are the air inlet housing, compressor stator case, combustor housing and nozzle support case. The remaining sections of the gas producer may be replaced with new components or repaired and reused.

The actual operations in Mexico begin with the serialization and marking of the four "essential identity" parts, followed by the disassembly of the entire gas producer. The components are then cleaned chemically, by grit blasting and then by hand. The components are then inspected visually and by use of a fluorescent penetrant.

At this stage, the non-essential components are either scrapped and replaced with new parts, reused if they are in adequate condition, or repaired. The repair operations beginn-2-
with machining surfaces to restore the components to their original dimensions. Corroded threads are also machined to restore them to their original condition. The repaired components then undergo visual, fluorescent, and dimensional inspection followed by painting to original specifications.

The final assembly operations begin with hand cleaning, removal of any oil residues, and grit blasting. The serialized parts are then matched and reassembled together and with the other non-essential repaired, reused and/or replaced parts. A final inspection, performance testing and, if needed, adjustments are made, followed by a final cleaning and the addition of preservatives before the gas producers are boxed and shipped to the U.S.

ISSUE:

Whether the refurbished gas producers are entitled to the partial duty exemption available under subheading 9802.00.50, Harmonized Tariff Schedule of the United States Annotated (HTSUSA).

LAW AND ANALYSIS:

Articles returned to the U.S. after having been exported to be advanced in value or improved in condition by repairs or alterations may qualify for the partial duty exemption under subheading 9802.00.50, HTSUSA, provided the foreign operation does not destroy the identity of the exported articles or create new or different articles. Entitlement to this tariff treatment is also precluded where the exported articles are incomplete for their intended use prior to the foreign processing, Guardian Industries, Inc. v. U.S., 3 CIT 9 (1982), or where the foreign operation constitutes an intermediate processing operation, which is performed as a matter of course in the preparation or the manufacture of the finished articles. Dolliff & Company, Inc. v. U.S., 455 F.Supp. 618 (CIT 1978), aff'd, 599 F.2d 1015, (Fed. Cir. 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.

Repairs are operations aimed at restoring articles to their original condition, but cannot be so extensive as to destroy the identity of the exported article or to create a new or different article. Press Wireless, Inc. v. U.S., C.D. 4386, Cust. Ct. 102 (1941).

Section 10.8(1), Customs Regulations (19 CFR 10.8(1)), concerns the dutiable value of foreign repairs or alterations and provides, in part, that:n -3-

The cost or fair market value ... of the repairs or alteration outside the United States ... shall be limited to the cost or value of the repairs or alterations actually performed abroad, which will include all domestic and foreign articles furnished for the repairs or alterations, but shall not include any of the expenses incurred in this country whether by way of engineering costs, preparation of plans or specifications, and furnishing of tools or equipment for doing the repairs or alterations abroad or otherwise.

In Headquarters Ruling Letter (HRL) 555741 dated February 25, 1991, Customs ruled on a foreign repair operation which involved the complete disassembly of the exported article and replacement of some of the parts of the article. In that case the concept of "essential identity" was raised to determine if the particular article at issue became a new and different article as a result of the repair operations. HRL 555741 stated that:

This concept (essential identity) is employed under [subheading 9802.00.50, HTSUSA] to insure that the article imported is the same as the article exported, and operates by identifying certain components parts of an exported article as embracing the essential identity of the particular article exported. Component parts so identified are to be maintained together throughout the repair operation.

Protestant states that the four "essential identity" components are serialized and matched to maintain these components together throughout the repair operation. Since their integrity as a unit is maintained, the operations clearly are aimed at restoring the articles to their original condition, and the articles do not lose their identity, we find that the gas producers are eligible for the partial duty exemption under subheading 9802.00.50, HTSUSA.

Pursuant to 19 CFR 10.8(1), the applicable duty rate should be applied against the cost or value of the repairs actually performed abroad, which would include the cost or value of new parts incorporated into the gas producers as well as non- essential used parts taken from other units and used in the repair of the gas producers. See, HRL 555443 dated November 30, 1990.

Regarding protestant's contention that the appraised value of the gas producers should be reduced, it is noted that, with one exception not applicable in this case, no appraisement of articles entitled to the partial duty exemption under subheadingn-4-

9802.00.50, HTSUSA, is required. See, U.S. Note 3(b), subchapter II, Chapter 98, HTSUSA. Under subheading 9802.00.50, HTSUSA, repaired articles are subject only to a duty upon the value of the foreign repairs, calculated in the manner described above.

HOLDING:

Based on the information submitted, as the "essential identity" of the exported gas producers is preserved during the described repair process by serialization of the four "essential identity" components, the repaired gas producers qualify for the partial duty exemption under subheading 9802.00.50, HTSUSA. Under section 10.8(1), the cost or value of the repairs performed abroad includes the cost or value of both new parts and the non- essential used parts taken from other units and used in the repair of the gas producers.

Accordingly, the protest should be granted consistent with this decision. A copy of this decision should be attached to Customs Form 19 and sent to the protestant as part of the notice of action on the protest.

Sincerely,

John Durant, Director

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