CLA-2 RR:TC:SM 559551 BLS

Port Director
511 N.W. Broadway
Portland, Oregon 97209

RE: Internal Advice Request 48/95; VTECH Communications Ltd.

Dear Madame:

This is in reference to a memorandum dated September 25, 1995, from your office, forwarding a request for internal advice on behalf of VTECH Communications, Ltd. ("VTECH HK"), in connection with the documentation requirements for cordless telephones sent to Hong Kong for repairs and returned under subheadings 9802.00.40 and 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS).

FACTS:

VTECH US ("VTECH") imports cordless telephones from its parent company, VTECH HK, and in turn sells the telephones to wholesalers and retailers. Defective telephones are returned to VTECH HK for repair. When the defective telephone products subject to this internal advice were exported, VTECH submitted a Certificate of Registration, CF 4455, to the Port Director listing the export quantity model and part number by "lot integrity number."

The defective telephones are entered into VTECH HK's general repair inventory. Defective telephones are removed for repair from inventory on a FIFO ("first-in, first-out") inventory basis. Under this system, the first articles received at the repair facility and placed into inventory are presumed to be the first to be taken out of inventory, repaired, and returned to the U.S. You state that newly manufactured phones are never substituted for defective telephones. After the articles are repaired, the serial number affixed to the model is changed by adding an "R" or an "O" plus a two letter suffix. The "R" confirms that the telephones have

- 2 -

either been repaired or refurbished. The "O" confirms that the telephones have been "advanced." (Counsel has orally advised that "advanced" means improved in condition in some manner, such as the addition of a second telephone line.)

Repaired telephones are returned to VTECH through the port of Portland, Oregon, either as a complete shipment or as part of a shipment containing newly manufactured telephones. For U.S. customs purposes, an export invoice is prepared by VTECH HK. The export invoice for shipments containing repaired telephones states "REPAIRED GOODS RETURNED - FREE OF CHARGE" and includes the lot integrity number corresponding to the defective telephones exported for repair. Newly manufactured telephones shipped with repaired telephones are invoiced separately.

After return to the U.S., VTECH matches the repair lot integrity and serial numbers assigned on the corresponding Certificate of Registration. VTECH states that at all times, it is able to identify the repaired telephones from newly manufactured telephones by virtue of the serial number markings on the models and the export documentation prepared by VTECH HK. However, VTECH's counsel orally advises that the company is not able to match the returning articles to a particular export shipment.

ISSUE:

Whether, under the circumstances described above, the methodology used to identify returned "repaired or altered" telephone products is acceptable in determining whether the articles are entitled to tariff treatment under subheadings 9802.00.40 and 9802.00.50, HTSUS.

LAW AND ANALYSIS:

Subheading 9802.00.40, HTSUS, provides a partial duty exemption for articles returned to the U.S. after having been exported to be advanced in value or improved in condition by repairs or alterations made pursuant to warranty. Subheading 9802.00.50, HTSUS, provides the same partial duty exemption for articles exported for repairs or alterations made other than pursuant to a warranty. Such articles are dutiable only upon the cost or value of the foreign repairs or alterations, provided the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8), are satisfied.

Prior to modification of the documentation requirements set forth in 19 CFR 10.8 effected by T.D. 94-47 (F.R. 25567 dated May 17, 1994), this provision required the filing of a Certificate of Registration, CF 4455, with the district director (now port

- 3 -

director) before exportation of the articles to be repaired. The Certificate includes the quantity and description of the articles being exported and the dates when, and ports where, the articles were examined by Customs and laden aboard the exporting carrier. The form also includes a statement to be signed by the importer when the articles are returned that "[d]uty-free entry is claimed for the described articles...." The regulation also requires the importer to file with Customs a declaration of the person who performed the repair or alteration, stating "in substantially the following form" that the:

"...articles herein specified are the articles which, in the condition in which they were exported from the United States, were received by me (us) on , 19 , from (name and address of owner or exporter in the United States)...."

This declaration also includes the "marks and numbers" relating to the articles as well as a description of the articles. In addition, 19 CFR 10.8 requires the filing of a declaration of the owner, importer, consignee, or agent that "such articles were exported from the United States for repairs or alterations ...from (port) on , 19 ;... and that the "articles entered in their repaired or altered condition are the same articles covered by the Certificate of Registration." The above documentation requirements (which existed at the time the articles subject to this request were imported) establish that the articles subject to this request that are returned to the U.S. and entered under subheading 9802.00.40 or 9802.00.50, HTSUS, must be traced back to the export shipment encompassing those specific imported articles. Those requirements are designed to prevent, to the extent possible, the substitution of new or remanufactured articles for the articles that were exported from the U.S. for repairs or alterations. The use of a FIFO inventory method does not satisfy the importer's responsibility, under the above documentation requirements, to establish that the "articles entered in their repaired or altered condition are the same articles covered by the Certificate of Registration." (Emphasis added.) However, 19 CFR 10.8(j) provides that:

If the district director [port director] concerned is satisfied because of the nature of the articles, or production of other evidence, that the articles are imported under circumstances meeting the requirements of subheading 9802.00.40 [or 9802.00.50], HTSUS, - 4 -

and related section and additional U.S. notes, he may waive the declaration [of the person who performed the repair or alteration and the declaration of the owner, importer, consignee or agent].

Based on the information furnished by VTECH, repaired telephones are readily identifiable from newly manufactured telephones by virtue of the serial number markings on the models and the export documentation. As a result of these facts, the potential for substitution of articles not entitled to subheading 9802.00.40 or 9802.00.50, HTSUS, appears to be minimal. You also believe that the methodology used by VTECH for documenting repairs or alterations under subheading 9802.00.40 or 9802.00.50, HTSUS, for the entries in question is acceptable. Under these circumstances, the specific documentation requirements of 19 CFR 10.8 may be waived.

HOLDING:

Based on the information provided, we are satisfied that the methodology employed by VTECH readily identifies the telephone products as articles sent abroad for "repair or alteration" and returned. Provided you find that the telephone products otherwise satisfy the conditions and requirements of subheading 9802.00.40 or 9802.00.50, HTSUS, the articles are entitled to the partial duty exemption under the appropriate provision. This decision is specifically limited to the entries subject to this request.

This decision should be mailed by your office to the internal advice requester no later than 60 days from the date of this letter. On that date, the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs 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