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HQ 560421




August 20, 1997

CLA-2 RR:TC:SM 560421 MLR

CATEGORY: CLASSIFICATION

TARIFF NO.: 9801.00.25

Port Director
U.S. Customs Service
700 Doug Davis Drive
Atlanta, GA 30354

RE: Application for Further Review of Protest No. 1704-95-100458; Denial of duty exemption under HTSUS subheading 9801.00.25 to Sleep Study Units

Dear Sir:

This is in reference to a protest and application for further review filed by Healthdyne Technologies ("Healthdyne"), contesting the denial of the duty exemption under subheading 9801.00.25, Harmonized Tariff Schedule of the United States (HTSUS), to sleep study units.

FACTS:

Your office indicates that eight items shipped from Germany and invoiced as "sleep study units" (hereinafter "units") were imported by Healthdyne on September 23, 1994. The units were initially entered under subheading 9801.00.10, HTSUS, but Healthdyne later indicated that they were manufactured in Germany. Accordingly, the units were reclassified as patient monitoring systems under subheading 9018.19.55, HTSUS. The entry was liquidated on May 19, 1995, and the protest was timely filed on August 17, 1995.

Healthdyne claims that it originally imported the units into the U.S. sometime in 1993, and your office states that Healthdyne has provided a copy of the purchase order covering that transaction. Your office states that the units were apparently sold to Healthdyne's customers and were used for an unspecified period of time before being returned to Healthdyne for repair sometime in 1994. Your office states that Healthdyne shipped them back to the German manufacturer, but that Healthdyne has not provided your office with evidence of this exportation. Healthdyne states that when it was determined that the repairs would be too costly, the units were returned to Healthdyne in the U.S.

ISSUE:

Whether the sleep study units are eligible for the duty exemption under subheading 9801.00.25, HTSUS, when returned to the U.S.

LAW AND ANALYSIS:

Subheading 9801.00.25, HTSUS, 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 specification, 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. However, the port director may waive the documentary requirements upon satisfaction that the requirements of subheading 9801.00.25, HTSUS, are met. 19 CFR 10.8a(b).

Your office contends that the protestant has failed to meet criteria (3) and (4) of subheading 9801.00.25, HTSUS. Your office claims that Healthdyne has failed to show that the units were reimported because they failed to conform to sample or specification, and that subheading 9801.00.25, HTSUS, is intended for situations where merchandise was exported from the U.S. and rejected because it was not satisfactory to the person to whom it was shipped. S. Rep. No. 91-1467, 91st Cong., 2nd Sess. (1970), reprinted in 1970 U.S. Code Cong. & Ad. News 5717. Rather, your office states that the units were returned because Healthdyne determined that the repairs would be too costly.

Additionally, your office states that other than a copy of a purchase order, Healthdyne has not provided any documentary evidence that establishes that the units were originally imported into the U.S. by or for the account of Healthdyne. Your office also states that Healthdyne has not provided any documentary evidence to establish that the units were exported from the U.S. by Healthdyne.

In Headquarters Ruling Letter (HRL) 555409 dated March 12, 1990, Customs considered tantalum and ceramic capacitors produced in Mexico and shipped to various U.S. customers. If a customer determined that certain capacitors either failed to meet its specifications or were defective, they were shipped to the importer's warehouse in Texas from which they were then exported back to the Mexican assembly facility. In Mexico, the re-worked capacitors were placed in finished goods inventory along with capacitors assembled from current production, thereby not allowing the importer to distinguish between the capacitors. Accordingly, in HRL 555409, when the re-worked capacitors were imported into the U.S., it was determined that although the information indicated that some of the previously imported capacitors may have been returned to Mexico for the reason that they did not conform to U.S. customer specifications, no evidence was presented to indicate that they were subsequently reimported because they failed to conform to sample or specification abroad, as required by clause (3) of this tariff provision. Consequently, in HRL 555409, Customs found that the capacitors which were returned to Mexico for restocking and then reimported were ineligible for duty-free entry under subheading 9801.00.25, HTSUS.

In HRL 558894 dated March 22, 1995, Customs considered certain rayon twill woven fabrics which was exported from the U.S. to Hong Kong, but while the fabric was en route, the order to purchase this particular fabric was canceled. The fabric was returned to the U.S. Customs determined that while the submitted documents indicated that original importer exported and reimported the fabric, subheading 9801.00.25, HTSUS, treatment was denied because the return of the merchandise was due to the cancellation of the order rather than the merchandise's failure to conform to sample or specification.

In this case, as in the rulings cited above, it is clear that the units were not returned because they failed to conform to the German manufacturer's sample or specification. Rather, the units appear to have been intended for entry under subheading 9802.00.50, HTSUS, which allows a partial duty exemption on repairs and alterations performed abroad; however, because the repairs were too costly for Healthdyne, the units were just returned without having been repaired. Accordingly, we do not find that the third criteria has been met that the units were returned for failure to conform to sample or specification.

Additionally, 19 CFR 10.8a provides that certain supplementary documents shall be filed in connection with the entry of articles claimed to be free of duty under subheading 9801.00.25, HTSUS. One of the documents includes a reference to the port, entry number, and the date of entry of the previous importation, and to the port and date of exportation. This information must be provided unless the port director is reasonably satisfied because of the nature of the articles or production of other evidence that the requirements of subheading 9801.00.25, HTSUS, have been met. 19 CFR 10.8a(c). In this instance, your office has indicated that the original purchase order is not satisfactory to prove that Healthdyne was the original importer and your office did not receive proof that Healthdyne exported the units from the U.S. to Germany. As your office has not waived production of documentation required under section 10.8a(c), subheading 9801.00.25, HTSUS, treatment is also denied because the documentary requirements have not been met and we are not otherwise satisfied that all of the requirements of this subheading have been met.

HOLDING:

On the basis of the information submitted, the units imported into the U.S. are not eligible for duty-free treatment under subheading 9801.00.25, HTSUS, because they did not fail to conform to sample or specification, and the documentary requirements of 19 CFR 10.8a were not satisfied. 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 attached to Customs Form 19, Notice of Action, and be mailed by your office to the protestant no later than 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 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, Lexis, Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director
Tariff Classification Appeals

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