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HQ 556685


June 26, 1992

CLA-2 CO:R:C:S 556685 WAW

CATEGORY: CLASSIFICATION

TARIFF NO.: 0709.60.00; 9802.00.50

District Director
U.S. Customs
P.O. Box 3130
Laredo, TX 78044

RE: Request for Internal Advice No. 21/92 concerning the applicability of the partial duty exemption under subheading 9802.00.50, HTSUS, to jalapeno peppers from Mexico; de-stem; 555490; 553740

Dear Sir:

This is in response to your letter dated April 2, 1992, forwarding a Request for Internal Advice No. 21/92 concerning the applicability of the partial duty exemption under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to jalapeno peppers which are exported to Mexico for de- stemming. No sample of the merchandise was submitted for examination.

FACTS:

The importer plans to export whole, U.S.-grown jalapeno peppers to Mexico for removal of the stem. The stem is described as the woody, inedible part of the pepper which fans out at the point of attachment to the vegetable, forming a "crown." In Mexico, the importer will have the stem and the crown removed by hand, without opening a hole in the top of the pepper. The de- stemmed peppers will then be shipped to the U.S. and sent to a processing plant, where they will be cut up and combined with other ingredients to produce a picante sauce.

ISSUE:

Whether jalapeno peppers imported into Mexico for de-stemming are entitled to the partial duty exemption under subheading 9802.00.50, HTSUS, when reimported into the U.S. LAW AND ANALYSIS:

Subheading 9802.00.50, HTSUS, provides a partial duty exemption for articles returned to the U.S. after having been exported to be advanced in value or improved in condition by means of repairs or alterations. Such articles are dutiable only upon the value of the foreign repairs or alterations, provided the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8), are satisfied.

However, entitlement to this tariff treatment 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'd, C.D. 1752, 36 Cust. Ct. 46 (1956); and Guardian Industries Corporation v. United States, 3 CIT 9 (1982), Slip Op. 82-4 (Jan. 5, 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. See 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).

We have previously held in C.S.D. 81-79, 15 Cust. Bull. 896 (1980) and HRL 555490 dated August 8, 1990, that tobacco leaves which are sent abroad for a stemming operation may receive TSUS 806.20 (precursor to HTSUS subheading 9802.00.50), treatment upon their return to the U.S., provided that the tobacco leaves are also returned with their stems. In another case involving a similar processing operation to that in question, we held that dried figs which are shipped abroad for a stemming operation and subsequently returned to the U.S. with their stems are entitled to the partial duty exemption under item 806.20, TSUS. See HRL 553740 dated July 24, 1985. .

In order to receive the partial duty exemption under subheading 9802.00.50, HTSUS, the same commercially recognizable article must be exported and returned. The only divergences allowed under this provision are those resulting from the repairs and alterations. Thus, if a new article is produced or if the article is sent abroad to undergo repairs or alterations but actually undergoes more than repairs or alterations, it may not return under subheading 9802.00.50, HTSUS.

The requirement in C.S.D. 81-79 and HRL 555490 that the cut tobacco leaves be returned with their stems was deemed necessary to ensure that the same article would be returned, though in an altered condition, as was exported. Leaves of stemmed tobacco, returned without their stems, would not be entitled to subheading 9802.00.50, HTSUS, treatment because they are recognized as commercially different articles from unstemmed tobacco leaves, as evidenced by the fact that separate tariff classification provisions exist for stemmed and unstemmed tobacco leaves.

In the instant case, there is no evidence that the stems removed from the jalapeno peppers are returned with the peppers. Nevertheless, we do not believe that this would preclude the peppers from receiving the benefits of subheading 9802.00.50, HTSUS, since, in our opinion, stemmed peppers are not commercially different articles from unstemmed peppers. Unlike the stemmed and unstemmed tobacco leaves, jalapeno peppers, with or without the stems attached, are classified in a single tariff provision. Accordingly, the processing operations performed in Mexico can be considered an acceptable "alteration" within the meaning of HTSUS subheading 9802.00.50.

The importer has also asked that we determine the applicable rate of duty for the jalapeno peppers returned to the U.S. Fresh jalapeno peppers from Mexico are classified under subheading 0709.60.00, HTSUS, which provides for Other vegetables, fresh or chilled: Fruits of the genus Capsicum (peppers) or of the genus Pimenta, and dutiable at the specific rate of 5.5 cents per kilogram. To calculate the ad valorem percentage rate of duty to be applied against the cost or value of the alteration, the specific rate first is multiplied by the total number of kilograms in the shipment, and the resulting amount is then divided by the full appraised value of the shipment.

HOLDING:

On the basis of the information submitted, it is our opinion that the processing operations performed in Mexico may be considered an acceptable alteration as that term is used in HTSUS subheading 9802.00.50. Accordingly, the jalapeno peppers will be entitled to classification under this tariff provision with duty to be assessed only on the cost or value of the operations performed in Mexico, provided the documentary requirements of 19 CFR 10.8, are satisfied.

Sincerely,

John Durant, Director

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