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HQ 558860




February 16, 1995

CLA-2 CO:R:C:S 558860 BLS

TARIFF NO.: 9802.00.50

District Director of Customs
P.O. Box 3130
Laredo, Texas 78044-3130

RE: Internal Advice Request No. 51/94; subheading 9802.00.50; packing costs

Dear Madame:

This is in reference to your memorandum dated September 9, 1994, forwarding an internal advice (IA) request on behalf of Xerox Corporation. The issue concerns the dutiability of packing costs incurred in connection with repair operations qualifying under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS). Two other internal advice requests (IAs 52/94 and 54/94) also involving certain issues in connection with subheading 9802.00.50, HTSUS, submitted on behalf of Xerox, will be the subject of separate rulings. We understand that all three internal advice requests have arisen as the result of an audit of 1992 and 1993 entries, which remain unliquidated.

FACTS:

Xerox exports from the U. S. used copiers and accesories to Mexico. In Mexico, the machines are subject to a partial teardown operation, and worn, broken, or defective parts are replaced as required. After the repair operations have been completed, the restored machines are packed for exportation to the U.S. These operations may include "shrink wrapping" all or part of the device with clear plastic, to protect the machine from gathering dust or dirt, and to prevent the machine's components from being dislodged during transport. In addition, the repaired devices will generally be packed with styrofoam plastic blocks or cardboard pads and skids, all of which are designed to protect the exterior surfaces of the machine from dents and scratches, and to prevent the machine's components from shifting during transport.

After these steps are completed, the refurbished machines are packed in sturdy cardboard shipping cartons, and placed on a wooden pallet. In connection with the entries in question, the packing charges were not separately invoiced, but were included as part of the total cost of repairs charged by the repair facility. (We will assume for purposes of this ruling that the repaired articles qualify for the partial duty exemption under subheading 9802.00.50, HTSUS.)

ISSUE:

Whether packing costs incurred in connection with the transport of copying machines returned to the U.S. from Mexico under subheading 9802.00.50, HTSUS, form part of the value of the repairs or alterations performed on such articles.

LAW AND ANALYSIS:

U.S. Note 3(a) to Subchapter II, Chapter 98, HTSUS, ("Note 3(a)"), applicable to subheadings 9802.00.40 through 9802.00.60, HTSUS, provides in pertinent part that...

(a) The value of repairs, alterations, processing or other change in condition outside the United States shall be:

(i) The cost to the importer of such change; or

(ii) If no charge is made, the value of such change, as set out in the invoice and entry papers; except that, if the appraiser concludes that the amount so set out does not represent a reasonable cost or value, then the value of the change shall be determined in accordance with section 402 of the Tariff Act of 1930, as amended.

In Headquarters Ruling Letter (HRL) 544015 dated March 20, 1989, certain charges incurred for packing, loading, insurance and express carriage were separately stated on the commercial invoice. We found that such charges incurred in connection with the transportation of a repaired article from the foreign facility to the U.S., did not fall within the ambit of item 806.20, Tariff Schedules of the United States (predecessor to subheading 9802.00.50, HTSUS), since such expenses were incurred after the foreign repair operation. Note also section 10.8(m), Customs Regulations (19 CFR 10.8(m)), which provides that the amount to be set forth in the invoice and entry papers "shall be limited to the cost or value of the repairs or alterations actually performed abroad."

These authorities are in point. As the packing costs in question do not constitute actual repairs or alterations, but are incurred after such operations, such costs do not form part of the dutiable value of the repairs or alterations performed abroad. Therefore, in applying Note 3(a), the appraising officer should conclude that the amount set out in the invoice and entry papers does not "represent a reasonable cost or value", if the amount includes packing costs. The value of the repair or alteration actually performed would then be determined in accordance with
section 402 of the Tariff Act of 1930, as amended, without reference to the packing costs. (Also note that pursuant to the North American Free Trade Agreement (NAFTA), goods re-entered into the U.S. (on or after January 1, 1994), after undergoing repairs or alterations in Mexico, are eligible for duty-free treatment. See 19 CFR 181.64.)

We further note that the information provided on the declaration of the person who performed the repairs or alterations, required by 19 CFR 10.8 (and 19 CFR 181.64), should enable Customs to ascertain (1) whether the amount set out in the invoice and entry papers represents a reasonable cost or value; and (2) if not, the value of the repairs or alterations actually performed.

HOLDING:

Packing costs incurred in connection with articles eligible for the partial duty exemption under subheading 9802.00,.50, HTSUS, are not considered part of the value of the repairs or alterations, since such costs are incurred after the foreign repairs or alterations. (Note, however, that pursuant to the North American Free Trade Agreement (NAFTA), goods re-entered into the U.S. on or after January 1, 1994 after undergoing repairs or alterations in Mexico, are eligible for duty-free treatment.) Therefore, in applying Note 3(a), Subchapter II, Chapter 98, HTSUS, the appraising officer should conclude that the amount set out in the invoice and entry papers does not "represent a reasonable cost or value", if the amount includes packing costs. The value of the repairs or alterations actually performed would then be determined in accordance with section 402 of the Tariff Act of 1930, as amended, without reference to the packing costs.

The information required under 19 CFR 10.8 (and 19 CFR 181.64), by the person who performed the repairs or alterations, should enable Customs to ascertain whether (1) the amount set out in the invoice and entry papers represents a reasonable cost or value; or (2) if not, the value of the repairs or alterations actually performed.

This decision should be mailed by your office to the internal advice requestor no later than 60 days from the daste of this letter. On that date the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Ruling Module in ACS and the public via the Diskette Subscription Service, Lexis, Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director

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