CON 9-04
OT:RR:CTF:ER
H276968 ABH
James Garland Hurst
Givens & Johnston
950 Echo Lane, Suite 360
Houston, Texas 77024
Re: Temporary Importation Under Bond; Refrigerant Gases for Blending
Dear Mr. Hurst:
This is in response to your ruling request dated June 17, 2016, on behalf of [Company A], regarding the temporary importation under bond (“TIB”) under Harmonized Tariff Schedule of the United States (“HTSUS”) subheading 9813.00.05, for the blending and repackaging of refrigerant gases. [Company A] also seeks a ruling with regard to accounting for leaked gases and the potential applicability of antidumping duties.
FACTS:
According to your ruling request, [Company A] intends to temporarily import under bond various types of pure refrigerant gases (“gases”) in bulk containers generally referred to as ISO tanks. The individual gases will then be blended to create mixtures of gases that are suitable for particular uses (e.g., refrigerators, air conditioners, etc.). The blending will also result in a significant repacking of the gases from ISO tanks to much smaller disposable DOT cylinders that are made in the USA and are suitable for individual sale and use. After the blending is complete, the gases will be exported for sale to [Company A’s] foreign customers. Prior to blending, the individual gases will be tested by a certified lab in the USA for quality and purity. After the blending, the blended gases will also be tested by a certified lab in the USA to ensure that the composition of the gases meets industry standards.
[Company A] intends to blend various gases to conform to industry standards as specified by the American Society of Heating, Refrigerating, and Air-Conditioning Engineers (“ASHRAE”). Specifically, [Company A] intends to produce the following blends that are made of the specified percent components:
Blend
%
ASHRAE No.
Source
HTSUS
R404A:
Pentafluorethane
44%
(R125)
Imported
2903.39.2030
1,1,1 – Trifluoroethane
52%
(R143A)
Imported
2903.39.2030
1, 1, 1, 2 - Tetrafluorethane
4%
(R134A)
Domestic or imported
2903.39.2020
R407C
Difluoromethane
23%
(R32)
Imported
2903.39.2030
Pentafluorethane
25%
(R125)
Imported
2903.39.2030
1, 1, 1, 2 – Tentrafluorethane
52%
(R134A)
Domestic or imported
2903.39.2020
R410A:
Difluoromethane
50%
(R32)
Imported
2903.39.2030
Pentafluorethane
50%
(R125)
Imported
2903.39.2030
In most cases the above gases described will be imported into the United States in the form of the individual components in bulk. [Company A] may purchase some of the components domestically for blending, but in most cases all of the gases will be imported from China.
You assert that by blending the individual components, [Company A] creates a zeotropic mixture that improves the refrigerant properties of the gases by widening the temperature range at which a phase change occurs. The individual gases do not meet customer or ASHRAE industry standards, but the gas blends do. R-404A, for example, is generally used for commercial refrigeration purposes, R-407C replaces the ozone depleting R-22 in air conditioners designed before the phase-out of R-22, and R-410A replaces R-22 in air conditioners designed after the phase-out of R-22.
You also assert that [Company A’s] proposed processing results in a change in tariff classification because the gas blends are classifiable under subheading 3824.78.0000 rather than the Chapter 29 classification of the individual components indicated in your chart above.
ISSUES:
I. Whether [Company A’s] proposed blending and repackaging operations qualify for entry under subheading 9813.00.05, HTSUS?
II. How should [Company A] account for any leakage (if any) of the refrigerant gas during blending and repackaging operations and would any duties be owed on leaked gases?
III. Whether [Company A] will owe antidumping duties on refrigerant gases imported temporarily under bond for blending and repackaging followed by exportation in accordance with the relevant provisions?
LAW AND ANALYSIS:
I. Whether [Company A’s] proposed blending and repackaging operations qualify for entry under subheading 9813.00.05, HTSUS.
General Note 1, HTSUS, dictates that all merchandise imported into the United States, unless specifically exempted, is subject to duty. Pursuant to U.S. Notes 1(a) of Subchapter XIII of Chapter 98, HTSUS, which contains subheading 9813.00.05, articles to be repaired, altered or processed, including processes which result in articles manufactured or produced in the United States may enter into the United States temporarily free of duty under a TIB for exportation within one year from the date of importation. This one-year period may be extended for one or more additional periods, which when added to the initial period may not exceed three years. See 19 C.F.R. § 10.37. The imported merchandise may not be imported for the purpose of a sale or sale on approval.
Merchandise may be entered into the United States under subheading 9813.00.05, HTSUS, only if they are to be “repaired, altered, or processed.” As the blending is not a “repair,” it must be determined if the blending of the gases is an alteration or process for purposes of TIB. With regard to “process,” CBP has found milling of indigo powder and suspending it in water to form a paste to constitute a “process.” HQ 228961 (Jan. 23, 2002). Similarly, we have found that milling a product to make it usable as a pharmaceutical constituted a “process.” HQ H198355 (Mar. 7, 2013). CBP has also found that slow churning liquid ice cream constituted a “process” because the product was incomplete for its intended use, retail sale, until the slow churning made it complete as ice cream. HQ 230942 (June 6, 2005). We have also found that blending and grading of wheat is a process for TIB purposes because the “result is a change in the character and use of the wheat.” HQ 229962 (Aug. 1, 2003). We held that the “character is changed in the grade, protein level, moisture content or falling number, and the use is changed to meet certain customer specifications.” Id.
Based on the above authorities, [Company A’s] blending of the individual gases constitutes a process within the meaning of subheading 9813.00.05, HTSUS, and the gases may be entered into the United States under subheading 9813.00.05, HTSUS. The character is changed by widening the temperature range at which a phase change occurs and the use is changed to conform to industry standards as specified by ASHRAE for use in refrigerators and air conditioners.
II. How should [Company A] account for any leakage (if any) of the refrigerant gas during blending and repackaging operations and would any duties be owed on leaked gases?
You inquire as to how [Company A] should account for any leakage (if any) of the refrigerant gas during blending and repackaging operations and would any duties would be owed on the leaked gas? You state that the leakage ordinarily amounts to less than one percent of the total amount of gas. You note that this leaked gas cannot be captured and escapes into the environment despite the use of state-of-the-art equipment and techniques. [Company A] also asserts that it intends to provide Customs a full accounting of any losses resulting from leakage during its blending and repackaging operation.
U.S. Note 2(b) of Subchapter XIII, HTSUS, requires that, when processing of merchandise admitted into the United States under subheading 9813.00.05, HTSUS, results in an article manufactured or produced in the United States,
A complete accounting will be made to the Customs Service for all articles, wastes and irrecoverable losses resulting from such processing; and
All articles and valuable wastes resulting from such processing will be exported or destroyed under customs supervision within the bonded period; except that in lieu of the exportation or destruction of valuable wastes, duties may be tendered on such wastes at rates of duties in effect for such wastes at the time of importation.
In determining whether there has been a manufacture or production for drawback purposes, Customs has long used the criteria in the case of Anheuser-Busch v. United States, 207 U.S. 556 (1908). Under Anheuser-Busch, a manufacture or production is considered to have occurred when the merchandise under consideration is changed or transformed into a new and different article “having a distinctive name, character, or use.” Id. at 562; HQ 230942 (June 6, 2005) (applying the “distinctive name, character, and use” standard for manufacture for a TIB).
In the blended wheat case, CBP did not find the process to be a manufacture or production because a new article did not result from the blending and grading. HQ 229962 (Aug. 1, 2003). “The wheat itself may be changed, but it is still wheat, and is not a component of another article.” Id. In the slow-churn ice cream case, however, we found the “retail-ready ice cream [to be] a new and different article having a distinctive character and use.” HQ 230942 (June 6, 2005). The blended gases in this case are more akin to slow-churned ice cream than to blended wheat. While the gases may still be gases, the refrigerant properties are improved by widening the temperature range at which a phase change occurs. The individual gases do not meet customer or ASHRAE industry standards, but the blended gases do. Further, the blending of the gases results in a classification change. Thus, the blended gases have a distinctive character and use than the gases in their individual forms and, accordingly, we find that a manufacture has occurred. Consequently, [Company A] must comply with the accounting requirements in U.S. Note 2(b) of Subchapter XIII, HTSUS, requiring complete accounting of all gases entered into the United States under TIB, including all waste and losses.
Because [Company A] is unable to physically capture the leaked gas for use or for sale, the leaked gas is considered to be an irrecoverable loss. See HQ 229265 (Sept. 27, 2002) (“To the extent that a portion of the [merchandise] physically cannot be recovered it is an irrecoverable loss – not a valuable waste.”). Pursuant to U.S. Note 2(b)(i) of Subchapter XIII, HTSUS, however, the irrecoverable loss is still subject to the accounting requirements. Because the leaked gas is considered irrecoverable loss, pursuant to the plain language of U.S. Note 2(b) of Subchapter XIII, HTSUS, duties would not be owed on the leaked gas.
III. Will [Company A] owe antidumping duties on refrigerant gases imported temporarily under bond for blending and repackaging followed by exportation in accordance with the relevant provisions?
You inquire as to whether [Company A] will owe antidumping duties on refrigerant gases imported temporarily under bond for blending and repackaging followed by exportation in accordance with the relevant provisions. Customs has held that TIB entries of merchandise are not entered for consumption for purposes of antidumping and countervailing duty laws. HQ 224187 (Feb. 23, 1993) (“Antidumping duties are to be charged against the TIB and do not have to be deposited at the time of entry. This is so because TIB entries are not considered consumption entries for TIB purposes.”). This position has been upheld by the U.S. Court of International Trade. Titanium Metals Corp. v. United States, 19 C.I.T. 1143, 1148 (1995). It is Customs’ practice to include estimated antidumping and countervailing duties in the amount of the temporary importation bond in order to protect revenue. Id. at 1145. The bond requirements and the basis of computation of the amount of a temporary importation bond may be found in 19 C.F.R. § 10.31(f).
HOLDING:
Based on the above, the blending process on the imported gases qualifies as a “process” for purposes of 9813.00.05 HTSUS. Therefore, entry under TIB under 9813.00.05 is permissible. Because the blended gases have a distinctive character and use than the gases in their imported individual form, we find that a manufacture has occurred. Consequently, [Company A] must comply with the accounting requirements in U.S. Note 2(b) of Subchapter XIII, HTSUS, which requires the complete accounting of all gases entered into the United States under TIB, including all waste and irrecoverable losses. Duties will not be owed on any irrecoverable losses. [Company A] will not be required to deposit antidumping and/or countervailing duties at the time of entry, but such duties may be included in the computation of the bond amount in order to protect revenue.
Please note that 19 C.F.R. §177.9(b) provides that, “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs Service filed office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”
Sincerely,
Monika R. Brenner, Acting Chief
Entry Process & Duty Refunds Branch