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HQ 950878


August 6, 1992

CLA-2 CO:R:C:S 950878 RAH

CATEGORY: CLASSIFICATION

TARIFF NO.: 9801.00.10; 9802.00.50

Mr. Steve Workman
Shipping Manager
TransFRESH, Inc.
The Engineering Department
120-A Albright Way
Los Gatos, CA 95030

RE: Eligibility of a U.S.-origin controlled atmosphere system for a complete or partial duty exemption; Programming; Alteration

Dear Mr. Workman:

This is in response to your correspondence of December 6, 1991, and March 31, 1992, concerning an atmosphere monitor controller system.

FACTS:

The controlled atmosphere system helps deliver fresh perishables to distant markets around the world. The controlled atmosphere system maintains the ideal atmosphere in equilibrium with the product's respiration rate. The atmosphere balance is maintained by replacing consumed oxygen through a unique air exchange system. A slide valve inside the controller allows precise amounts of pressurized air generated from the reefer fan to be pushed out through the air exchange outlet port. Fresh air is drawn into the low pressure side of the fan through the air exchange inlet port, replacing consumed oxygen.

The controller unit comprises one part of an atmosphere monitor/controller system which is used in refrigerated sea- freight containers and removed on arrival at its destination for subsequent reuse. Each system is wholly manufactured in the United States for TransFRESH Corporation.

You state that the product is shipped in two parts. The first is a one-time installation kit that is added to the container. The second is a removable pre-programmed environment controller. The controller will be shipped to a foreign country and "plugged" into a freight container full of produce destined for a foreign port. It then will be programmed for the type of produce and length of the trip. After the trip is completed, the controller is removed and sent back to the United States where the information is down-loaded and the controller memory is cleared and recharged. It is then shipped back out. This cycle usually takes a month; the product never stays in the country longer than a year.

You further state that the product is leased, not sold. A contract with local shipping lines is negotiated whereby profits from the produce shipments are shared. Therefore, prices on the commercial invoice are for customs purposes only, and do not reflect actual sale prices. You ask whether the product qualifies for temporary status or some other means of reducing high duties.

On June 8, 1992, a member of my staff called you to obtain additional information. At that time, you informed us that the controller unit is programmed in the country where the shipment of produce originates. However, the controller unit is always down-loaded in the United States.

ISSUE:

(1) Whether a programmed controller unit will be entitled to either free entry under subheading 9801.00.10, Harmonized Tariff Schedule of the United States (HTSUS), or a partial duty allowance under subheading 9802.00.50, HTSUS, when returned to the United States to be down-loaded.

(2) Whether a programmed controller unit which will be returned to the United States to be down-loaded, recharged and later exported within one year, may be imported free of duty under the transportation in bond (T.I.B.) provisions in Chapter 98, Subchapter XIII, HTSUS.

LAW AND ANALYSIS:

Chapter 98, subchapter II, Note 2(a), HTSUS, provides in part that any product of the United States which is returned after having been advanced in value or improved in condition abroad, or assembled abroad, shall be a foreign article for purposes of the Tariff Act of 1930, as amended.

Subheading 9801.00.10, HTSUS, provides for the free entry of U.S.-made products that are exported and returned without having been advanced in value or improved in condition by any process of manufacture or other means while abroad, provided the documentary requirements of section 10.1, Customs Regulations (19 CFR 10.1), are met. Under the facts presented, we find that programming the controller unit advances its value and/or improves its condition. The unit must be individually programmed for each shipment of produce in order to maintain the ideal atmosphere for that shipment and to insure that it does not perish before delivery. Without the programming, the controller unit would not serve the function for which it is marketed. Accordingly, if the controller unit is programmed abroad it is not entitled to duty- free treatment under subheading 9801.00.10, HTSUS. However, in instances where the controller unit is programmed in the United States and subsequently returned to be down-loaded, it would be entitled to duty-free treatment under that subheading.

The next question presented is whether the controller unit is entitled to a duty allowance under subheading 9802.00.50, HTSUS. Subheading 9802.00.50, HTSUS, provides a partial duty exemption for articles returned to the United States 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); Guardian Industries Corp. v. United States, 3 CIT 9 (1982). Tariff treatment under subheading 9802.00.50, HTSUS, is also precluded where the exported articles are incomplete for their intended use prior to the foreign processing. Guardian; 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, 82, 599 F.2d 1015, 119 (1979). In the instant case, when the controller unit is exported to a foreign country to be programmed and installed in a container, it is clearly not suited for its intended use (to maintain ideal atmosphere in equilibrium with the product's respiratory rate) without such programming. Therefore, entitlement to this tariff treatment is precluded as programming the controller unit exceeds an alteration.

With regard to the second issue, subheading 9813.00.05, HTSUS, provides for the temporary duty-free entry of:

Articles to be repaired, altered or processed (including processes which result in articles manufactured or produced in the United States).

Pursuant to U.S. Note 1(a) of subchapter XIII, HTSUS, which contains subheading 9813.00.05:

The articles described in the provisions of this subchapter, when not imported for sale or for sale on approval, may be admitted into the United States without the payment of duty, under bond for their exportation within 1 year from the date of importation, which period, in the discretion of the Secretary of the Treasury, may be extended, upon application, for one or more further periods which, when added to the initial 1 year, shall not exceed a total of 3 years ....

Under the facts presented, the programmed controller unit is imported into the United States for processing (down-loading, clearing and recharging). Furthermore, it is not imported for sale and it will be exported within one year from the date of importation. Accordingly, it may be imported free of duty under bond pursuant to subheading 9813.00.05, HTSUS.

HOLDING:

Programming a controller unit in a foreign country to maintain the ideal atmosphere for perishable products advances the value and/or improves its condition for purposes of subheading 9801.00.10, HTSUS. Accordingly, the controller unit programmed outside of the United States will not be entitled to duty-free treatment under that subheading when returned to the United States. Moreover, the controller unit will not be entitled to a duty allowance under subheading 9802.00.50, HTSUS, because it is incomplete for its intended use without the foreign processing/programming. However, it may be imported free of duty under the transportation in bond (T.I.B.) provisions in Chapter 98, Subchapter XIII, HTSUS.

Sincerely,

John Durant, Director
Commercial Rulings Division

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