CLA-2 CO:R:C:S 558723 MLR

Mr. Michael L. Chance
Transportation & Transit Assoc., Inc.
3251 Garmon Drive
Loganville, Georgia 30249

RE: Applicability of duty exemption under HTSUS subheading 9801.00.10 to self-propelled railway diesel coaches; refurbish in Canada; U.S.-origin

Dear Mr. Chance:

This is in reference to your letter of August 25, 1994, requesting a ruling regarding the applicability of subheading 9801.00.10, Harmonized Tariff Schedule of the United States (HTSUS), to self-propelled railway diesel coaches ("coaches") which you plan to refurbish in Canada.

FACTS:

You are currently pursuing a contract for an extensive refurbishment of approximately 10 coaches in Canada, with labor and materials valued at about $500,000. You indicate that the coaches were originally manufactured in the U.S. by the Budd Company. In a facsimile dated August 30, 1994, you indicate that the coaches were exported to Canada approximately 10 years ago, and will be restored to their original serviceable condition as exported to Canada by renewing or replacing any components with physical or mechanical wear. In some instances, you plan to return the coaches in their used and deteriorated condition without performing any refurbishment work on them in Canada. You also mentioned in a telephone conversation with a member of my staff that the coaches were new when they were exported to Canada.

ISSUES:

I. Whether the coaches refurbished in Canada will qualify for the duty exemption available under subheading 9801.00.10, HTSUS, when returned to the U.S.

II. Whether the coaches will qualify for the duty exemption available under subheading 9801.00.10, HTSUS, when returned to the U.S. in their used and deteriorated condition. LAW AND ANALYSIS:

Subheading 9801.00.10, HTSUS, provides for the free entry of products of the U.S. that have been exported and returned without having been advanced in value or improved in condition by any process of manufacture or other means while abroad, provided the documentary requirements of section 10.1, Customs Regulations (19 CFR 10.1), are met. See 59 Fed. Reg. 25563 (May 17, 1994), for recent amendments to 19 CFR 10.1 (copy enclosed). While some change in the condition of the product while it is abroad is permissible, operations which either advance the value or improve the condition of the exported product render it ineligible for duty-free entry upon return to the U.S. Border Brokerage Company, Inc. v. United States, 314 F. Supp. 788 (1970), appeal dismissed, 58 CCPA 165 (1970).

In determining whether an advancement in value or improvement in condition exists at the time of importation, the overall value and condition of the article at the time it was exported from the U.S. shall be compared with its overall value and condition at the time of return to the U.S. However, each case must be decided on its own facts.

Customs has previously held in Headquarters Ruling Letter (HRL) 067592 dated December 16, 1981, that U.S.-origin military vehicles exported abroad in a new condition and overhauled and rebuilt in order to maintain them in an operable and serviceable condition were entitled to the tariff benefits of item 800.00, Tariff Schedules of the United States (TSUS) (now subheading 9801.00.10, HTSUS). See also HRL 054097 dated January 15, 1978 (ordinary maintenance and minor repairs to automobiles would not preclude the applicability of item 800.00, TSUS); see also HRL 555754 dated February 4, 1991 (spools damaged in Mexico and restored to their condition as exported to Mexico, were entitled to duty-free treatment under subheading 9801.00.10, HTSUS). Accordingly, based on the rulings above, the coaches restored to their condition as exported to Canada will be entitled to duty-free treatment under subheading 9801.00.10, HTSUS, provided the U.S. identity of the coaches is maintained and the documentary requirements are satisfied.

In regard to whether the coaches will qualify for the duty exemption available under subheading 9801.00.10, HTSUS, when they are returned to the U.S. in their used and deteriorated condition, HRL 063433 dated December 12, 1979, is relevant. In HRL 063433, recreational vehicles of U.S. manufacture were leased in Canada for nine months, and subsequently used to travel through the U.S. for a maximum of three months before they were returned to Canada. It was determined that these vehicles would be entitled to duty-free entry pursuant to item 800.00, TSUS, since they were not advanced in value or improved in condition while in Canada. Similarly, in this case, the coaches are used in Canada and will be returned to the U.S. in their used and deteriorated condition without being advanced in value or improved in condition while in Canada. Accordingly, the coaches will be entitled to duty-free treatment under subheading 9801.00.10, HTSUS, provided the documentary requirements are satisfied. HOLDING:

On the basis of the information submitted, it is our opinion that the self-propelled railway diesel coaches are not advanced in value or improved in condition as a result of the refurbishment operations performed in Canada, as they will merely be restored to their exported condition. Furthermore, the coaches returned to the U.S. without any refurbishment work are not advanced in value or improved in condition. Accordingly, the self-propelled railway diesel coaches will be entitled to duty-free treatment under subheading 9801.00.10, HTSUS, when returned to the U.S., provided the documentary requirements of 19 CFR 10.1, as amended by 59 Fed. Reg. 25563 (May 17, 1994), are satisfied.

Sincerely,

John Durant, Director
Commercial Rulings Division