CLA-2 RR:TC:SM 559483 MLR
Port Director
U.S. Customs Service
610 W. Ash St.
San Diego, CA 92188
RE: Application for Further Review of Protest No.2501-95-100033; Denial of duty exemption under HTSUS subheading
9802.00.50 to Kodak Model C copier; Mexico; 19 CFR
181.64(c)
Dear Sir/Madam:
This is in reference to a protest and application for
further review filed by Ross & Associates, on behalf of
Eastman Kodak Company ("Kodak"), contesting the denial of
the duty exemption under subheading 9802.00.50, Harmonized
Tariff Schedule of the United States (HTSUS), to
photocopiers imported from Mexico. A meeting was held at
the Office of Regulations & Rulings on April 22, 1996, and
charts and photographs were submitted at that time.
FACTS:
The articles covered by this protest were entered
October 1994, they were reliquidated either March 30 or
April 14, 1995, and the protest was timely filed on May 18,
1995. It is stated that Kodak exported used model B copier-duplicators to Mexico, performed various processes to these
copiers, and imported model C copier-duplicators to the U.S.
It is claimed that the processes performed in Mexico were
"repairs and alterations" and that the returned articles
qualified for duty-free entry under subheading 9802.00.50,
HTSUS. Before describing the processes performed to make a
model B into a model C, counsel describes the processes
performed on a model B when there was no change in model
number, as it is stated that the processes employed were
almost identical to those employed when the model B becomes
a model C.
The model B processes performed when there is no change
in model number involve disassembling the copiers, cleaning
them, and replacing worn parts. It is also stated that if
there was an engineering enhancement, newer model parts were
installed to replace old and outdated ones. The
disassembled subassemblies were routed through subassembly
work stations with unique identifiers so that the repaired
subassemblies could be installed into the same copier during
the reconditioning phase. According to protestant, the
Mexican plant did not perform optical alignments; therefore,
the reassembly process kept subassemblies together which had
been mated at the time of original manufacture. The copier
underwent a set-up and test process. It is alleged that the
reconditioned model B copier was returned to the U.S.
without change to its essential components (the image
capture system (lenses and film handling assembly)). Both
of the copiers are stated to be referred to as "indirect
process electrophotostatic copiers," and six Erasable
Programmable Read-Only Memory chips ("EPROMS") were erased
and reprogrammed to accommodate updated operating
instructions triggered by the new document feeder.
Next, counsel presents the processes performed to
convert a model B to a model C. It is stated that none of
the operations sped up the photocopier or altered the type
or size of paper the copier is able to process. Speed and
paper size and type are stated by protestant to be the
criteria in the marketplace to determine whether or not a
copier has been upgraded. The only features which appeared
on the model C which did not appear on the model B were the
specific document feeder and the Pressure Assist Corona
Transfer (PACT). The document feeder incorporates a semi-automatic positioning feature. The PACT modification keeps
the paper flatter as it works its way through the imaging
process but allegedly does not change the copier's function.
When the document feeder was installed, it required a
modification to the static eliminator harness in the duplex
tray and the positioner interlock harness in the cabinetry
as the remaining internal space was diminished. As a
result, a new wire harness was inserted to make the static
eliminator smaller.
Counsel also states that new circuit boards were
substituted whether or not the processes resulted in a
change in model number. However, the model C required
different circuit boards. The existing EPROMS were
reprogrammed and the input/output boards were modified by
soldering an additional wire which allowed the machine to
operate either as a model B or a model C. The EPROMS
reprogramming supposedly arose to accommodate the new
document feeder.
The chart of the model B to model C process indicates
that in regard to the Imaging Assemblies, the film belt and
worn components were replaced in the film belt and handling
assembly; worn components were replaced in the toner and
developer assembly and in the charging assemblies; and an
upgraded cleaning housing was added to the cleaning
assembly. In regard to the Optics Assemblies, worn
components were replaced in the lens/mirror assembly, and
worn components and the platen glass was replaced in the
platen glass and illumination housing. In regard to the
User Control Assemblies, worn components were replaced in
the operator control panel assembly, and a new display panel
was installed along with a new color scheme. In regard to
the Paper Handling Assemblies, a new document
feeder/positioner assembly was made reusing some components
and incorporating a semi-automatic positioning feature; worn
components were also replaced in the paper supply assembly,
registration assembly (along with the PACT change), duplex
paper path assembly, transport assembly, and worn vacuum
system components were replaced. In regard to the logic and
control unit, the EPROMS were reprogrammed to accommodate
the semi-automatic positioning feature. Additionally,
change occurred to the color scheme, the top cover was
modified and a tray assembly and side hopper were installed
to accommodate the positioner.
Your office states that the model B did not possess the
necessary mechanical hardware, circuitry, document
positioner, tri-modal feeder, auto-sizing capabilities, PACT
and programming required for the model C to exist. Your
office states that the model B was known as a copier-duplicator, while the model C was known as an offset copier-duplicator. The model C's tri-modal feeder takes normal
paper weights and sizes automatically through the
recirculating feeder, or it copies odd size and weight
originals through the semi-automatic positioner, or it
allows for manual copying. The auto-sizing capabilities
reduce the image size of the original to fit the selected
paper supply, and it is capable of offset stacking.
Thus, your office disagrees with protestant that the
only features on the model C that were not on the model B
copier, were the document feeder and PACT. Your office
states that the PACT is not a simple mechanical device which
holds a piece of paper in place to enhance the quality of
the copy produced during the imaging process, but rather its
purpose is to aid in preventing white spots on the second
side of duplex copies in low humidity environments. This
modification not only enhanced the second side transfer
characteristics by adding hardware, a solenoid, circuit
board, harness, and a mylar flap, but further contributed to
the creation of the model C with its tri-modal feeder and
new document positioner.
Your office states that the registration assembly
(mechanical) was altered to accommodate the addition of the
PACT, if the model B received from the U.S. did not already
have this modification installed. Registration assembly was
done by installing a new circuit board and wire harness in
the main frame. A paper supply cover and a document
positioner hopper were created to guide and capture
originals because the model C is a tri-modal feeder. The
EPROM reprogramming contained the latest software
enhancements made to the model B software plus the
additional feature of auto paper size reduction.
The brochure describing the model B copier states that
it delivers 85 copies per minute. Special features include
the margin shift, an edge erase, automatic chapterization
which inserts divider pages, and interleaf of
transparencies. The model B uses 8 x 10 through 8 « x 14
inch copy paper which is commercially available xerographic
and duplicator bond. The brochure describing the model C
copier states that it delivers 85 copies per minute, but
that it also handles different paper weights (onion skin to
110 pound index) and different paper sizes (memo size 7.5 x
7.5 inches to computer printouts up to 11 x 17 inches)
through the positioner, whereas the 8 x 10 to 8 « x 14
documents are handled through the feeder. Along with the
other features of the model B copier, the brochure states
that the model C has auto-sizing which automatically reduces
the image size of the original to fit the paper supply
selected.
ISSUE:
Whether the conversion of a Kodak Model B copier to a
Kodak Model C copier constituted a repair or alteration
within the meaning of subheading 9802.00.50, Harmonized
Tariff Schedule of the United States (HTSUS), thereby
qualifying the returned Model C copier for the duty
exemption under this tariff provision.
LAW AND ANALYSIS:
Articles exported from and returned to the U.S., after
having been advanced in value or improved in condition by
repairs or alterations in Mexico, may qualify for a duty
exemption under HTSUS subheading 9802.00.50, 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). Articles are
entitled to this duty exemption provided the documentary
requirements of section 181.64(c), Customs Regulations (19
CFR 181.64), are satisfied. In particular, the
documentation required includes a declaration from the
person who performed the repairs or alterations, which
describes the operations performed and the value and cost of
such operations and which includes a statement that "no
substitution whatever has been made to replace any of the
goods originally received."
"Repairs or alterations" are defined in 19 CFR 181.64 as
the restoration, addition, renovation, redyeing, cleaning,
resterilizing, or other treatment which does not destroy the
essential characteristics of, or create a new or
commercially different good from, the good exported from the
U.S.
Your office contends that rulings allow for programming
and reprogramming of an article's PROMs and EPROMs under
9802.00.50, HTSUS, where the article's performance
characteristics upon foreign processing are upgraded and
enhanced, and do not alter the exported article's handling
and uses over that which earlier prevailed. It is your view
that these rulings are distinguishable from the copier at
issue since the foreign processing of the model B altered
its handling and uses over that which earlier prevailed, and
the replacement and reprogramming of the EPROMS created a
new and different article of commerce with attributes and
functions that are unique to the model C.
Counsel claims that the essential components of a copier
are its imaging and paper handling processes, both of which
are stated to remain essentially unchanged except for the
descriptions noted in the model B to Model C process.
Specifically, counsel has noted that the image capture
system refers to the "lenses and film handling system."
Rather, counsel claims that some minor mechanical devices
were added to the model B and its six EPROMs were
reprogrammed.
We note that under Additional Note 5, Chapter 90, HTSUS,
copier assemblies are grouped as follows: (a) Imaging
assemblies; (b) Optics assemblies; (c) User control
assemblies; (d) Image fixing assemblies; (e) Paper handling
assemblies; and (f) Combination of the above specified
assemblies. In our opinion, the order of the listed
assemblies, (a) through (e), reflected in U.S. Note 5, is
indicative of their significance to the copier. Therefore,
for purposes of our determination of eligibility for
subheading 9802.00.50, HTSUS, treatment, we have focused
upon the effect of the operations performed abroad upon the
above copier assemblies.
Repairs
Repairs are operations aimed at restoring articles to
their original condition, but cannot be so extensive as to
destroy the identity of the exported article or to create a
new and different article. Press Wireless, Inc. v. United
States, 6 Cust. Ct. 102, C.D. 438 (1941). In Press
Wireless, radio tubes were sent abroad for repairs which
involved the use of heavier filament than that used in the
original manufacture of the tubes. Also, the markings on
the articles were erased, and new numbers were substituted
to facilitate matching the tubes for use in transmitters.
The court held that the use of improved materials in the
restoration was immaterial, as long as the article was not
considered a new and different article of commerce or its
identity was destroyed.
In previous rulings, we have held that subheading
9802.00.50, HTSUS, will be applicable to articles subject to
both partial and complete disassembly, where repairs are
made and parts are replaced as long as the essential
components and, therefore, the identity of the article
remains intact throughout the repair process. See HRL
557991 dated October 17, 1991.
In HRL 558858/558859 dated March 11, 1996, Customs
considered seven models of used copier "hulks" which were
repaired, upgraded, and/or modified in Mexico. In each
case, the frame of the "hulk" remained intact, and the
components such as the wiring harnesses, optics assemblies,
printed circuit boards, and other electronic subassemblies
remained assembled to the hulk at all times. The operations
performed in Mexico involved removing the covers, feeder
assembly, fuser, developer houser, xerographic motor,
control panel, bypass, platen glass, coroton, copy cartridge
and bypass tray assembly. The covers were sanded and
painted, and the platen glass and other non-repairable parts
were scraped. Next, the fuser, developer housing and bypass
were sent to subassembly stations for repair. The partially
torn-down hulk was then sent to an assembly and repair area
where the enabler, low and high voltage power supplies,
power cord, main printed wiring board assemblies (pwba),
paper size pwba, feeder motor, copy cartridge, counter
solenoid, counter, balance spring, half rate cartridge, and
front/rear rail were removed, repaired, and reassembled
along with the previously removed parts.
During the period of 1992-1993, in HRL 558858/558859,
the frames, optics, wiring harnesses, optical control
boards, optical drive motor, noise filter, fans, blower,
discharge lamp, lower cover base, paper feeder motor, ac
driver and sensor pwbas, and the low and high voltage power
supplies were left intact on the hulk. During the period of
1993-1995, the paper feeder motor, ac driver and sensor
pwbas and the low and high voltage power supplies were
removed from the hulk frame during the repair and assembly
process. However, such parts were identified by bar code,
and new parts were either used if required, or the used
repaired parts were returned to the same model number.
In regard to the repairs performed, in HRL
558858/558859, the frame of the hulk remained intact
throughout the repair process, and components such as the
optics, optical control board, optical drive motor, wiring
harnesses, noise filter, fans, blower, discharge lamp, and
printed circuit boards, remained assembled to the hulk at
all times. The teardown included covers, feeder assembly,
fuser, developer houser, xerographic motor, control panel,
bypass, platen glass, coroton, copy cartridge and bypass
tray assembly. Beginning in 1994, additional parts were
removed, including the paper feeder motor, ac driver, sensor
pwbas, and the low and high voltage power supplies. These
parts were repaired and commingled with parts of the same
model copier. It was found that the essential components of
the copiers remained intact throughout the repair process,
and did not lose their identity as a result of the Mexican
operations.
In the instant case, protestant alleges that major
components of the Imaging, Optics, Image Fixing, and Paper
Handling systems were not replaced during the repair
process. Evidence to the contrary in the record has not
been presented by your office, nor has evidence been
presented that the repairs otherwise changed the essential
identity of the returned copiers. As a result, we find
that, provided the documentary requirements of 19 CFR 181.64
are satisfied, the operations performed in Mexico constitute
"repairs" within the meaning of subheading 9802.00.50,
HTSUS.
Alterations
Additionally, in HRL 5558858/558859, three models of
copiers underwent certain upgrades and modifications. The
EPROMS contained in the copier's control panel were replaced
or reprogrammed so that the copier could perform upgraded
tasks, such as operating a noise reduction package or an
automatic stapler.
In regard to the replacement or reprogramming of the
EPROMS, which upgraded the copiers to conform to current
industry standards, in HRL 558858/558859, it was determined
that this did not change the identity of the exported
articles, but rather improved the product and advanced its
value. Accordingly, the copiers qualified for subheading
9802.00.50, HTSUS, treatment.
In HRL 555046 dated August 5, 1988, Customs held that
the reprogramming of a copier's memory board and EPROM and
the addition of a feeder, stacker, and enhanced control
panel did not qualify as an alteration under item 806.20,
Tariff Schedules of the United States (TSUS) (now subheading
9802.00.50, HTSUS). However, pursuant to 19 U.S.C.
1625(c)(1), on May 24, 1995, Customs notified the public in
the "Customs Bulletin" that it was revoking HRL 555046, and
that the reprogramming of a copier's memory board and EPROM
and the addition of a feeder, stacker and enhanced control
panel, qualified as an alteration under subheading
9802.00.50, HTSUS. [It was, however, noted that HRL 555046
should not be relied upon as establishing that the copiers
described therein either qualify or do not qualify for
subheading 9802.00.50, HTSUS, treatment, as the facts in HRL
555046 indicated that additional operations unknown to
Customs were performed. We also note that "Library
Technology Reports," Vol. 30,
No. 5 (September 1994), indicates that the model C is
"essentially an upgraded model B with a newly-designed"
standard recirculating document handler with a built-in
single-sheet positioner (side feeder).]
Accordingly, since by the May 24, 1995 General Notice,
Customs has specifically revoked HRL 555046 and indicated
that the reprogramming of a copier's memory board and EPROM
and the addition of a feeder, stacker and enhanced control
panel, qualified as an "alteration" under subheading
9802.00.50, HTSUS, it is our opinion that a similar finding
must be found in this case. Therefore, provided the
documentary requirements of 19 CFR 181.64(c) are satisfied,
the model C copiers are eligible for duty-free treatment
under subheading 9802.00.50, HTSUS.
HOLDING:
On the basis of the information submitted, it is our
opinion that the Mexican operations enumerated above
constitute "repairs" or "alterations" since the essential
identity of the copiers is retained. Therefore, provided
the documentary requirements of 19 CFR 181.64(c) are
satisfied, the model C copiers are eligible for the full
duty exemption under subheading 9802.00.50, HTSUS. If these
documentary requirements are satisfied, the protest should
be granted.
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, Freedom of Information Act
and other public access channels.
Sincerely,
John Durant, Director
Tariff Classification Appeals
Division