CLA-2 CO:R:C:S 557530 MLR
Mr. C. Arthur Trust, Sr.
Vice President
Brenco Inc.
P.O. Box 246
Laredo, Texas 78042-0246
RE: Applicability of duty exemption under HTSUS subheading
9802.00.50 to U.S. photocopier with feeder sent to Mexico
for reconditioning; perform faster
Dear Mr. Trust:
This is in reference to your letter dated August 3, 1993,
requesting a ruling on behalf of Eastman Kodak Company, regarding
the applicability of subheading 9802.00.50, Harmonized Tariff
Schedule of the United States (HTSUS), to a U.S. photocopier with
feeder sent to Mexico for reconditioning. Photographs were
submitted with your request.
FACTS:
Eastman Kodak Company ("KODAK") will send a complete Model
150F copier with feeder (including the CPU board) to Industria
Fotografica Interamericana, S.A. de C.V. ("IFISA") in
Guadalajara, Mexico, for reconditioning. After reconditioning
and return to the U.S., the copier is referred to as a 185F
Ektaprint copier with feeder. It is claimed that both the 150F
and 185F models are referred to as "indirect process
electrostatic photocopiers." The exported copier will be changed
to increase its paper speed from 70 to 85 copies per minute so
that the copier may make more copies. The new "185F" designation
is necessary to indicate that it is a reconditioned "150F" that
has undergone an upgrade, and not a new machine.
In Mexico, the reconditioning first involves evaluating the
150F copier to determine based on wear and cleanliness what
subassemblies need to be removed. Next, the 150F is sent to
subassembly work stations where a unique number is assigned so
that the copier may be traced throughout the system. The parts
and subassemblies that are removed are given the unique number
assigned to the copier to assure that they are returned to the
same copier. Once the unit is disassembled, the mainframe,
parts, and subassemblies proceed to work stations where they are
cleaned, worn parts are replaced, lubrication is applied, and any
necessary testing is completed. The parts that are changed to
make the unit function as a Model 185F consist of four gears,
three chains, and a CPU board. Three front center panels for the
paper supplies are also repainted. The original dataplate,
showing the Model 150F remains on the copier, and a serial number
overlay is used to display the new serial number. This is
necessary since the catalog number and name have changed, and the
Kodak computer system requires the serial number change. A new
nameplate is placed on the front cabinetry panel to show the new
model number. Some copiers may not have worn parts replaced but
may only have the cabinetry painted, and the gears, chains, and
CPU board changed. Upon completion, the parts, subassemblies,
and mainframe are moved to a functional checkout work station
where the operator assembles the copier and performs a complete
functional test. Next, the copier goes to a quality audit work
station to receive a quality performance test. Lastly, the
copier is packed and shipped to distribution from which it is
delivered to the customer. The photographs of the 150F and 185F
are basically the same except the color on the three front center
panels is different, and the feeder has less buttons.
The average net book value of the unconditioned 150F copier
with feeder as shipped from the U.S. to Mexico is stated to be
$549.00. The approximate cost to repair the 150F is $3,945.00,
$2,100.00 of which is for labor and $1,845 for the cost of the
parts. The approximate incremental cost to change the 150F to a
185F copier is stated to be $530.00, $100.00 of which is for
labor and $430.00 for the cost of the parts.
ISSUE:
Whether the reconditioning operations performed on copiers
in Mexico constitute an alteration or repair, thereby entitling
them to the partial duty exemption available under subheading
9802.00.50, HTSUS, when returned to the U.S.
LAW AND ANALYSIS:
Articles returned to the U.S. after having been exported to
be advanced in value or improved in condition by repairs or
alterations may qualify for the partial duty exemption under
subheading 9802.00.50, HTSUS, provided the foreign operation does
not destroy the identity of the exported articles or create new
or commercially different articles through a process of
manufacture. See A.F. Burstrom v. United States, 44 CCPA 27,
C.A.D. 631 (1956), aff'g C.D. 1752, 36 Cust. Ct. 46 (1956);
Guardian Industries Corp. v. United States, 3 CIT 9 (1982).
Accordingly, entitlement to this tariff treatment is precluded
where the exported articles are incomplete for their intended
purpose prior to the foreign processing and the foreign
processing operation is a necessary step in the preparation or
manufacture of finished articles. Dolliff & Company, Inc. v.
United States, 455 F. Supp. 618 (CIT 1978), aff'd, 599 F.2d 1015
(Fed. Cir. 1979). Articles entitled to this partial duty
exemption are dutiable only upon the cost or value of the foreign
repairs or alterations when returned to the U.S., provided the
documentation requirements of section 10.8, Customs Regulations
(19 CFR 10.8), are satisfied.
In HRL 556992 dated May 7, 1993, notebook computers with a
monochrome video display were sent to Canada to be replaced with
an active-matrix color video display. The upgraded unit retained
all of the original capabilities of the exported unit, (i.e., the
ability to store programs, to be freely programmed, to perform
computations, and to execute a program requiring logical
decision). It was held that the article in its exported
condition was complete for its intended use as an "automatic data
processing machine", and that it could be used for that purpose
without being upgraded. There was no change in the commercial
identity of the computer as a result of the upgrade and no new
article was created. Accordingly, the upgrade represented an
alteration within the meaning of subheading 9802.00.50, HTSUS.
In HRL 557024 dated June 30, 1993, a "host computer" which
was part of the Computer Assisted Medical Reconstruction and
Analysis System (CAMRA) was sent to Canada where it was modified
by the addition of a Canadian-produced board set which allowed
the data processing speed of the computer to be increased so that
it could handle certain complex software. It was stated that a
standard work station could use the software but would require 60
minutes to perform the function, whereas the added board set
accelerated the process. It was held that the computer in its
exported condition was complete for its intended use as a
"digital processing unit", and that the processing abroad did not
change the identity or character of the exported article, and no
new article of commerce was created. The exported computer was
merely enhanced with an accelerator feature. Accordingly, the
modifications performed constituted an alteration within the
meaning of subheading 9802.00.50, HTSUS.
In Amity Fabrics, Inc. v. United States, C.D. 2104, 43
Cust.Ct. 64, 305 F.Supp. 4 (1959), the court held that
unmarketable, pumpkin colored cotton twill-back velveteen which
was exported to be redyed rendered the fabric marketable and that
this improvement in the exported fabric advanced its value and
improved its condition commercially. As the parties had
stipulated that the redyeing in no way changed the quality,
texture, or character of the material, the court concluded that
the identity of the goods was not lost or destroyed by the dying
process; no new article was created; there was no change in the
character, quality, texture, or use of the merchandise; it was
merely changed in color; and that such change constituted an
alteration under the statute and Customs Regulations.
Returning to the case at hand, based on HRL 557024 where the
upgraded computer accelerated the processing of the software and
in Amity Fabrics where the fabric was redyed, we find that the
reconditioning operations that increase the speed of the copiers
and that involve repainting the cabinetry constitute acceptable
alterations within the meaning of subheading 9802.00.50, HTSUS.
The copiers are complete articles when they are exported to
Mexico, and in both instances where the parts are installed to
upgrade the copiers from a Model 150F to a Model 185F and they
are repainted, or where worn parts may also be replaced, no new
or different article is created, but the copiers are merely made
useful again and are allowed to work more efficiently.
HOLDING:
On the basis of the information submitted, we find that the
reconditioning operations in Mexico, which allow the copiers to
perform faster, constitute an alteration within the meaning of
subheading 9802.00.50, HTSUS. Therefore, the copiers are
entitled to classification under this tariff provision upon
compliance with the documentary requirements of 19 CFR 10.8.
Sincerely,
John Durant, Director
Commercial Rulings Division