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HQ 559937




July 25, 1997

CLA-2 RR:TC:SM 559937JML

CATEGORY: CLASSIFICATION

TARIFF NO: 9801.00.20

Director
Port of Dallas/Fort Worth
P.O. Box 619050
DFW Airport
Dallas, TX 75261

RE: Application for further review of protest no. 550196100166; duty-free treatment under subheading 9801.00.20, HTSUS; lease or similar use agreement; Werner & Pfleiderer Corporation v. United States, 17 C.I.T. 916 (1993); 19 CFR 10.108.

Dear Sir:

This is in response to a protest and application for further review filed by Circle International on behalf of their client, Fujitsu Network Transmission Systems, Inc. ("protestant"), concerning a denial of duty-free treatment for certain telecommunications instruments entered at the Port of Dallas/Fort Worth on Nov. 22, 1995. The entry was liquidated on February 23, 1996, and this protest was timely filed on May 3, 1996 in accordance with Part 174, Customs Regulations (19 CFR Part 174).

FACTS:

The evidence in the record indicates that protestant imported several pieces of Japanese origin telecommunications equipment into the United States ("U.S.") and paid duty on the same. Specifically, duty was paid on the following entries:

Part No. Entry No.

FC961MPD1 004-1134639-8

FC9616SF11 004-1101101-8

FC9616PW61 004-1093931-8

FC9616AWB1 004-1111998-5

FC9616SAM1 004-1093931-8

Subsequently, protestant exported the equipment to MegaSys Computer Technologies of Canada ("MegaSys"). Copies of the shipper's air waybills indicate that the equipment was exported to Canada in two different shipments, the first on January 23, 1995, and the second on February 8, 1995. The evidence in the record shows two Customs Form 4455 Certificates of Registration filed with each shipment. They confirm that in the first shipment part no.'s FC9616MPD1, SV11,PW6102, SVD1-I02, AWB1 and SAM1 were exported. The second shipment exported part no.'s FC9612SVD1-I02, and FC9616MPD1. Each Certificate of Registration indicates that the articles were being exported for repair and return to the U.S. Each air waybill also indicates that the articles were being sent to Canada for "repair and return." Finally, both sets of documents indicate MegaSys as the ultimate consignee and protestant as the shipper.

The record further reflects that the equipment was reimported into the U.S. by protestant on November 22, 1995. A Customs Form 7501 Entry Summary filed in connection with the entries, dated November 29, 1995, reflects that at the time of entry, protestant claimed duty-free treatment under subheading 9801.00.40, Harmonized Tariff Schedule of the United States ("HTSUS"). The entry number is 004-1310245-0. A Customs Form 29 Notice of Action indicates that on December 27, 1995, the entry was rate advanced and was to be liquidated as dutiable unless protestant supplied the documentation necessary to support its 9801.00.40, HTSUS, duty-free claim. As all necessary information was not supplied, your office liquidated the subject entry on February 23, 1996 under subheading 8517.40.50, HTSUS ([e]lectrical apparatus for line telephony or telegraphy, including such apparatus for carrier-current line systems; parts thereof:[o]ther apparatus, for carrier-current line systems: [o]ther: [t]elephonic). Duty was assessed at a rate of 8.5% ad valorem.

The record further reflects that on May 3, 1996, protestant filed this protest and application for further review of Customs' classification and liquidation of the subject entry under subheading 8517.40.50, HTSUS. Protestant has abandoned the claim made at the time of entry under subheading 9801.00.40, HTSUS, and instead now contends that the entry is classifiable under subheading 9801.00.20, HTSUS. Your office contends that subheading 9801.00.20, HTSUS, requires that the articles are exported under lease or similar use agreement, and that a loan arrangement does not meet the terms of that provision. In addition, your office asserts that testing and evaluation is not a permissible "use" within the meaning of 9801.00.20, HTSUS.

In support of its duty-free claim under subheading 9801.00.20, protestant supplied your office with copies of two letters. The first letter is dated Nov. 20, 1995 from John Reynolds, sales manager for protestant. That letter states that several pieces of transmission gear were being returned after having been previously delivered to MegaSys for the purpose of compliance and technology testing. The second letter, dated April 12, 1996, is from Hyperion Telecommunications, Inc. ("Hyperion"). That letter states that protestant loaned "electronic equipment" to MegaSys, on behalf of Hyperion for testing and evaluation. Further, the letter states that "this equipment should be returned to the Fujitsu Network Transmission Systems office at 2801 Telecom Parkway, Richardson, TX 75082 upon completion of the MegaSys testing."

ISSUES:

Whether the telecommunications equipment was exported to Canada under a lease or similar use agreement as required by subheading 9801.00.20, HTSUS.

LAW AND ANALYSIS:

Subheading 9801.00.20, HTSUS, provides duty-free treatment for:

[a]rticles, previously imported, with respect to which the duty was paid upon such previous importation or which were previously free of duty pursuant to the Caribbean Basin Economic Recovery Act or Title V of the Trade Act of 1974, if (1) reimported, without having been advanced in value or improved in condition by any process of manufacture or other means while abroad, after having been exported under lease or similar use agreements, and (2) reimported by or for the account of the person who imported it into, and exported it from, the United States.

Section 10.108, Customs Regulations (19 CFR 10.108), provides, in relevant part, that free entry shall be accorded under subheading 9801.00.20, HTSUS, whenever it is established to the satisfaction of the port director that the article for which free entry is claimed was duty paid on a previous importation, is being reimported by or for the account of the person who previously imported it into, and exported it from the U.S., and was exported from the U.S. under lease or similar use agreement.

In Werner & Pfleiderer Corporation. v. United States, 17 C.I.T. 916 (1993), a recent case interpreting item 801.00, Tariff Schedules of the United States ("TSUS") (the precursor provision to subheading 9801.00.20, HTSUS), the Court of International Trade stated that "the provision concerning goods exported under lease, in particular, is not the sort of exemption from duties which must be narrowly construed." At issue was whether or not a loan arrangement was the type of "similar use agreement" contemplated by item 801.00, TSUS. The court noted that the general definitions of a loan and a lease are identical except for the requirement of consideration in a valid lease for purposes of item 801.00, TSUS. The court opined that if the drafters of that provision intended the provision to encompass nothing broader than a lease, then the language "similar use agreement" would not have been added to the provision. As a result loan arrangements were found to be valid "similar use agreements" for purposes of item 801.00, TSUS, and its successor, subheading 9801.00.20, HTSUS.

Your office does not dispute that the telecommunications equipment was previously imported into the U.S. and duty paid on them by protestant. This is confirmed by a review of the entries made for the equipment in question. Nor does your office refute that protestant was the party who exported and subsequently reimported the telecommunications equipment from Canada. The CF 4455 Certificates of Registration filed along with the exported telecommunications equipment indicate protestant as the exporter of record. Further, they indicate that the equipment will be returning to the U.S. Both air waybills for the exportations also indicate protestant as the shipper of the equipment and MegaSys as the ultimate consignee.

Your office does dispute, however, that the telecommunications equipment was exported to Canada under a lease or similar use agreement as required by subheading 9801.00.20, HTSUS. Although a loan is generally considered to be a valid similar use agreement for purposes of subheading 9801.00.20, HTSUS, the only evidence of such an arrangement on the record is a letter dated April 12, 1996. That letter states protestant loaned "electronic equipment" to MegaSys for the purposes of testing and evaluation. Further, the letter states "[t]his equipment should be returned to the Fujitsu Network Transmission Systems..."

We are of the opinion that this evidence is insufficient under section 10.108, Customs Regulations, to satisfy protestant's 9801.00.20, HTSUS, claim. First, the letter is dated almost two months after the liquidation of the entries. No evidence exists on the record which indicates such a loan arrangement existed at the time of exportation of the telecommunications equipment on January 23, 1995 and February 8, 1995. Second, no dates, product or serial numbers or other terms of reference are provided in the letter. The letter merely indicates that "electronic equipment" was loaned to MegaSys. Nothing in that letter indicates that the referenced "electronic equipment" was the exported telecommunications equipment. Moreover, the letter states "[t]his equipment should be returned to the Fujitsu Network Transmission Systems" which implies the equipment that is the subject of that letter had not yet been returned to protestant as of the date of the letter (April 12, 1996). In contrast, the entry for which subheading 9801.00.20, HTSUS, treatment was claimed was liquidated on February 23, 1996, some two months before the date of the letter.

Considering the fact that the letter post-dates the liquidations of the reimported telecommunications equipment, its ambiguous reference to the subject equipment, and the fact that the terms of the letter are inconsistent with the facts of this case, we are not satisfied that protestant exported the subject telecommunication equipment to MegaSys of Canada "under lease or similar use agreement" as that term is used for purposes of subheading 9801.00.20, HTSUS.

Based upon the above, we are of the opinion that there is insufficient evidence to support protestant's claim for duty-free treatment under subheading 9801.00.20, HTSUS.

HOLDING:

No evidence exists on the record or otherwise which establishes that protestant exported the subject telecommunications equipment to Canada under lease or similar use agreement. Thus, protestant has not adequately supported its claim for duty-free treatment under subheading 9801.00.20, HTSUS, as required by section 10.108, Customs Regulations. Accordingly, the protest should be denied.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the protestant no later than sixty (60) days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty (60) days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director
Tariff Classification Appeals

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