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HQ 559298




February 7, 1996

CLA-2-5-RR:TC:SM 559298 KKV

CATEGORY: CLASSIFICATION

TARIFF NO.: 9801.00.25

Jonathon K. Bellsey, Esq.
Bellsey and Baker
100 California Street, Suite 670
San Francisco, CA 94111

RE: Duty exemption; Articles previously imported; Non-confirming sample or specification; HRL 558746; HRL 556751; 1970 USCCAN 5717

Dear Mr. Bellsey:

This is in response to your letter dated June 27, 1995, on behalf of Esprit de Corp, with regard to the interpretation of the term "specifications" as used in subheading 9801.00.25, Harmonized Tariff Schedule of the United States (HTSUS) in conjunction with the duty exemption afforded by that section to articles previously imported into the United States. Specifically, you seek clarification as to the applicability of the duty exemption to merchandise which physically conforms to the specifications or contract requirements, but does not comply with other contract provisions, such as quantity or timeliness of delivery.

FACTS:

We are informed that Esprit De Corp is an importer of various types of textile apparel items, a large portion of which is foreign procured merchandise subject to quota/visa requirements. This merchandise is sold at wholesale and retail both in the United States and in various foreign countries. From time to time, Esprit de Corp experiences returns of merchandise which was previously imported into the United States with appropriate duty paid, exported pursuant to a purchase order, then shipped back to the United States after rejection by a foreign customer.

With regard to these returns, we are informed that a purchaser may receive a shipment too small to be used for its intended purposes, e.g., insufficient to establish a business or market. Alternatively, there may be an overshipment of merchandise due to miscounting or duplicate shipments. In such instances, a foreign purchaser might seek to return the entire shipment for failure to conform to its quantity specification, or, return only the excess portion of the shipment. Additionally, a purchaser may return merchandise due to late shipment or delivery.

ISSUE:

Whether a shipment of merchandise upon which duty has previously been paid and which is returned by a foreign purchaser where the merchandise physically conforms to the contract specifications but which does not comply with other terms of the contract, i.e., quantity of merchandise or timeliness of delivery, is entitled to duty-free treatment under subheading 9801.00.25, Harmonized Tariff Schedule of the United States (HTSUS).

LAW AND ANALYSIS:

Section 141.2 of the Customs regulations (19 CFR 141.2) provides that dutiable merchandise imported and afterwards exported, even though duty thereon may have been paid on the first importation, is liable to duty on every subsequent importation into the Customs territory of the United States, unless exempt by law.

One such exemption is set out in subheading 9801.00.25, HTSUS, which provides for the duty-free entry of:

[a]rticles, previously imported, with respect to which the duty was paid upon such previous importation if (1) exported within three years after the date of such previous importation, (2) reimported without having been advanced in value or improved in condition by any process of manufacture or other means while abroad, (3) reimported for the reason that such articles do not conform to sample or specifications, and (4) reimported by or for the account of the person who imported them into, and exported them from, the United States.

Articles satisfying each of the above requirements are entitled to duty-free treatment, assuming compliance with the documentary requirements of section 10.8a, Customs Regulations (19 CFR 10.8a). This regulation contains the same criteria found in subheading 9801.00.25, HTSUS. The documents required are declarations by the person abroad who received and is returning the merchandise and by the owner or importer (or consignee or agent). Each declaration must include a description of the articles, and the latter declaration must set forth information relative to the original importation of the merchandise, such as port and date of importation, entry number, and name and address of the importer at the time the duty was paid. (19 CFR 10.8a(b)). However, the district director may waive the documentary requirements if he/she is satisfied that the requirements of that subheading are met. 19 CFR 10.8a(c). In addition, in order to qualify for duty-free treatment under subheading 9801.00.25, HTSUS, there must be some tangible evidence that the returned merchandise does not conform to "specification."

As your letter indicates, "the application of this provision is clear where the failure to meet specifications relates to the physical nature of the goods" and cites as example a shipment which includes the wrong style number, the wrong size, the wrong color, or defective workmanship. Indeed, it has long been Customs position that the term "specification" refers to the physical attributes of the merchandise. Moreover, Customs extended duty-free treatment to merchandise which, although in compliance upon exportation from the United States, subsequently failed to meet sample or specification upon arrival. In Headquarters Ruling Letter (HRL) 558746 (dated January 6, 1995), Customs held that alarm and security equipment which was defective due to mishandling during delivery failed to conform to "specification" and was entitled to duty-free treatment under subheading 9801.00.25 upon reimportation into the United States.

In asserting that the term "specification" should encompass other contractual requirements, i.e. quantity and timeliness of delivery, in addition to physical imperfections, your letter references HRL 556751 (dated September 8, 1992). There, Customs held that the refusal of a foreign country to enter the merchandise for failure to produce textile visas or satisfy other requirements is not a failure to meet sample or specification for purposes of subheading 9801.00.25, where such a condition is not specified in the contract. Specifically, Customs stated,

If the written contract in this case had expressly provided for the condition of appropriate quota/visa requirements for the subject textiles and it was returned for failure to meet this condition, we would consider this to be representative of
"failure to meet specification" within the meaning of subheading 9801.00.25, HTSUS.

In so holding, Customs acknowledged that the presence of import visas, albeit not a physical attribute, is an attendant requirement so integral for importation that the absence of such visas is tantamount to a failure to conform to "specification" within the meaning of subheading 9801.00.25.

With regard to use-related specifications, Customs, in HRL 556751, established that the tangible evidence prerequisite for duty-free treatment is not limited solely by a physical item-by-item comparison, but may be satisfied by resort to the written contract as it pertains solely to the physical attributes of the merchandise or those attendant requirements for importation, like textile visas, that so touch and concern the merchandise so as to constitute a "specification" within the very narrow interpretation heretofore afforded that term by Customs. Customs specifically rejected the assertion that the failure of the merchandise to meet specifications may be sufficiently established by implication, thus repudiating the applicability of the doctrine of implied warranty of merchantability, stating,

In order to qualify for duty-free treatment under subheading 9801.00.25, HTSUS, there must be some tangible evidence that the returned merchandise does not conform to
"specification." The scope of that term, however, is not limited to physical specifications or sample comparison, but may also include failure to meet the terms of a contract. Evidence of failure to meet specification can be evidenced by the written contract, or if oral, by the declarations required under 19 CFR 10.8a(b).

Additionally, HRL 556751 also rejected as a basis for relief the assertion that subheading 9801.00.25 is analogous to the drawback statute (19 U.S.C. 1313). Likewise, we also reject your analogy to the drawback statute (19 U.S.C. 1313) as a basis for the inclusion of extraneous contract terms within the term "specification" noting that the two statutes are distinct, each with its own designated purpose.

A review of the legislative history of subheading 9801.00.25 reveals that it was intended for situations in which merchandise was exported and rejected because it was not satisfactory to the person to whom it was shipped. Such intention is evidenced by a report of the Senate Finance Committee dated December 16, 1970 (S. Report No. 91-1467, 91st Sess, 2nd Sess. (1970) reprinted in U.S. CODE CONG. & AD. NEWS 5717, which provides, in part, that:

The committee was informed that in at least one instance a shipment of articles was imported and the normal duty was paid.
Thereafter the articles were sold and exported to a customer in a foreign country, who subsequently rejected them for the reason that they did not conform to specification. Upon return to the United States, the articles were again subject to duty under U.S. tariff law. The committee is of the opinion that the laws should be changed, as proposed in H.R. 9138, to prevent a recurrence of double liability for duty in imported article under similar circumstances.

As its history demonstrates, this legislation was enacted by Congress in response to a particular need by the importing community and, to that end, Customs has narrowly construed the language of the resulting subheading. Thus, we find that while the term "specification" is not necessarily limited to physical specifications of the contract, other contractual specifications must cover attributes related to physical condition, such as documentation required for the admission and use of the articles abroad ( e.g. visas, licenses, etc.), in order to be construed as falling within the scope of 9801.00.25, HTSUS. In the absence of additional guidance from Congress, we find nothing in the legislative history which would persuade us to expand the scope of our interpretation of this provision at this time.

HOLDING:

A shipment of merchandise upon which duty has previously been paid and which is returned by a foreign purchaser where the merchandise physically conforms to the contract specifications but which does not comply with other terms of the contract, i.e., quantity of merchandise or timeliness of delivery, is not entitled to duty-free treatment under subheading 9801.00.25, Harmonized Tariff Schedule of the United States (HTSUS) upon return to the U.S.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer.

Sincerely,

John Durant

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