CLA-2-5-RR:TC:SM 559298 KKV
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
Director, Tariff Classification
Appeals Division