CLA-2 CO:R:C:S W556313 LS
Area Director
J.F.K. Airport Building 178
Jamaica, New York 11430
RE: Application for Further Review of Protest No. 1001-1-002865, protesting denial of duty-free treatment under subheading 9801.00.10, HTSUS, for a car engine and race car exported abroad for use at a race rally, and under subheading 9801.00.60, HTSUS, for accompanying spare parts, accessories, and tools; substantial transformation; 19 CFR 10.1; C.E. Durnell; 555313, 071052, 061084
Dear Sir:
This is our decision on the above-referenced protest which you forwarded to our office. The protest, which was filed by Rod Millen Motorsport (Racing) Inc. (hereafter "Rod Millen Motorsport"), on March 25, 1991, contests your denial of duty free treatment under subheading 9801.00.10, Harmonized Tariff Schedule of the United States (HTSUS), for a car engine and race car, and under subheading 9801.00.60, HTSUS, for spare parts, accessories, and tools exported from the U.S. to India and returned.
FACTS:
Rod Millen is a professional rally driver who is sponsored by Mazda. Rod Millen Motorsport exported a race car to India for use at a race rally. An engine, spare parts, accessories, and tools were exported along with the race car, presumably for use as replacement parts at the race rally, if needed. When these items were returned to the U.S. under one entry, Customs denied the claimed duty-free entry under subheading 9804.00.10, HTSUS. On January 4, 1991, your office liquidated this entry as follows: the car under subheading 8703.23.00, HTSUS; the engine under subheading 8407.33.20, HTSUS; and the other items under subheading 8708.99.50, HTSUS. In the protest, Rod Millen Motorsport contends that the car and eng ne should be reclassified as duty-free under subheading 9801.00.10, HTSUS, and the spare parts, accessories, and tools under subheading
9801.00.60, HTSUS. The majority of the spare parts,
accessories, and tools are claimed to be of U.S. origin. A claim for duty-free entry under subheading 9804.00.10, HTSUS was not made in the protest.
The car, a Mazda 323, had originally been imported into the
U.S. from Japan as an ordinary production car. In the U.S., the car was completely stripped to the bare chassis and rebuilt to enhance strength, performance, and safety so that it could be used in a race rally. Many of the foreign parts were discarded and replaced by U.S. origin parts, which included the engine, roll cage, brakes, transmission, driveline components, fuel cells, driver's seat, equipment, and controls. The protestant claims that although the car's outside appearance changes very little and it still carries the "Mazda" insignia, it is basically an American car underneath. The bodywork remains essentially the same so as to comply with racing regulations. Ten percent of the racing car's declared value is attributed to the bodywork, forty percent to the installed spare parts, and fifty percent to the labor. Based upon these facts, Rod Millen Motorsport contends that the car was substantially transformed in the U.S. from an ordinary production car of Japanese origin into a high
performance race car of u. . origin, thus entitling it to duty
free entry under subheading 9801.00.10, HTSUS, upon its return to the U.S. after being exported to India.
Rod Millen Motorsport claims that the engine which is exported along with the car is also of U.S. origin. In support of this claim, a copy of Customs Form 3311 is attached to the protest. However, this form was not verified by Customs.
Attached to the form is a list of all items covered, including a "Mazda Race Engine B6 1513,11 which is grouped along with other items claimed to be of U.S. origin. Your office has informed us that no proof was submitted, such as a U.S. manufacturer's declaration, to show that the engine was made in the U.S.
With respect to the parts, accessories, and tools which were exported with the race car to be used as replacement parts at the race rally, Rod Millen Motorsport contends that they should be entitled to duty-free entry under subheading 9801.00.60, HTSUS, because a race rally is a "public exposition," for purposes of this tariff provision. A copy of a Certificate of Registration (Customs Form 4455), attached to the protest, lists auto parts and tires with their corresponding values, but does not include the serial numbers for the auto parts. Although the form is signed by a customs officer, it states that there is no guarantee of duty-free entry upon reimportation.
ISSUES:
Whether the Mazda race car which was rebuilt in the U.S., exported to India for use in a race rally, and returned to
the U.S., was entitled to duty-free entry under subheading 9801.00.10, HTSUS.
Whether the spare engine exported to India with the Mazda race car and returned to the U.S. was eligible for duty free entry under subheading 9801.00.10, HTSUS.
Whether the spare parts, accessories, and tools exported to India with the race car and returned to the U.S. were eligible for duty-free entry under subheading 9801.00.60, HTSUS.
LAW AND ANALYSIS:
Eligibility of race car and spare engine under subheading 9801.00.10, HTSUS
Subheading 9801.00.10, HTSUS, provides for the duty-free entry of products of the U.S. that are 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. 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. See Border Brokerage Co. v. United States, 65 Cust. Ct.
50, c.o. 4052, 314 F. supp. 788 (1970), appeal dismissed, 58 CCPA
165 (1970).
The first step in our analysis with respect to the race car is to determine whether it became a "product of the U.S." as a result of the modifications performed in the U.S. To become a product of the U.S., the race car must undergo a process of manufacture in the U.S. which results in a substantial transformation.
"[A] substantial transformation occurs when an article emerges from a manufacturing process with a name, character, or use which differs from those of the original material subjected to the process." Torrington Co. v. United States, 764 F.2d 1563, 1568, 3 CAFC 158, 163 (Fed. Cir. 1985). The rebuilding of the Mazda 323 to enhance its strength, performance, and safety, was not a manufacturing process which resulted in a substantial transformation. See Headquarters Ruling Letter (HRL) 555313 dated June 19, 1990 (the disassembly, reconditioning or machining, and reassembly of automotive air-conditioning compressors does not result in a substantial transformation for purposes of the Generalized System of Preferences (GSP));
HRL 071052 dated January 6, 1983 (West German automobile starters and alternators which were rebuilt by replacing various internal components with components produced in Israel
were not considered a product of Israel for GSP purposes because they were not substantially transformed). Therefore, the rebuilt race car, which was exported to India for use in a race rally, was not considered a product of the U.S. and, therefore, was not eligible for duty-free entry under subheading 9801.00.10, HTSUS, upon its return to the U.S.
Section 10.l(a), Customs Regulations (19 CFR 10.l(a)), sets forth the following documentary requirements for articles claimed to be free of duty under subheading 9801.00.10, HTSUS: (a) a declaration by the foreign shipper if the value of the returned article exceeds $1,000; (b) a declaration for free entry by the owner, importer, consignee, or agent on Customs Form 3311; and
(c) a certificate of exportation on Customs Form 3311 executed by the district director at the port from which the merchandise was exported. Section 10.l(d), customs Regulations (19 CFR 10.l(d)), provides that the district director may waive these requirements if he or she is reasonably satisfied, because of the nature of the articles, or production of other evidence, that the articles are imported in circumstances meeting the requirements of subheading 9801.00.10, HTSUS.
There is no evidence that a waiver of these documentary requirements was granted with respect to the engine and race car. The invoice attached to Customs Form 3311 lists all the items for which duty-free entry is claimed under subheading 9801.00.10, HTSUS, including a ''Mazda Race Engine B6 1513''· The importer has presented no evidence to substantiate its claim that this "Mazda engine" is of U.S. origin, despite requests for such evidence by your office. No serial numbers are listed for the engine or any of the other parts. In addition, Customs Form 3311 was not certified by Customs. Because the protestant failed to comply with the documentary requirements of subheading 9801.00.10, HTSUS, the engine was not entitled to duty-free entry under this provision. See Air-Sea Brokers, Inc. v. United States, 80 Cust. ct. 102, 454 F. Supp. 451 (1978), aff'd, 66 CCPA 64, 596 F.2d
1008 (1979) (compliance with 19 CFR 10.l(a) is mandatory and a condition precedent to eligibility under item 800.00, Tariff Schedules of the United States (TSUS} (the predecessor provision to subheading 9801.00.10, HTSUS), unless compliance has been waived or is impossible). Although the protestant has not claimed eligibility under subheading 9801.00.10, HTSUS, for the spare parts, accessories, and tools said to be of U.S. origin, these items would also be precluded from duty-free entry under this provision for failure to comply with the documentary requirements.
Eligibility of spare parts, accessories, and tools under subheading 9801.00.60, HTSUS
Subheading 9801.00.60, HTSUS (formerly item 802.30, Tariff Schedules of the United States (TSUS)), provides for the free
entry of articles which are returned after having been exported for temporary use abroad solely for exhibition or use in connection with any public exposition, fair, or conference, provided such articles are returned by or for the account of the person who exported them.
The Customs Court, in C.E. Durnell v. United States, 24 cust. Ct. 218, C.D. 1236 (1950), held that race horses sent abroad for the purpose of racing upon tracks were not eligible for duty-free entry under 19 u.s.c. 194, upon their return to the
U.S. This statute, which was repealed effective August 31, 1963, was the predecessor provision of item 802.30, TSUS. With respect to the legislative history of 19 u.s.c. 194, the court stated:
(T]he intent of Congress was to provide solely for the free entry of articles or livestock for exhibition purposes, and ... our law-making body had no intention of including therein animals to be used in the sport of professional horse racing. The words 'temporary use' and 'exhibitions' are words of limitation to the use of articles or livestock at public exhibitions, fairs or conferences. Even though horse racing was among the attractions at such public exhibitions, fairs, etc., the animals so used would not come within the grant of exemption provided for in section 194, supra.
Further, in HRL 061084 dated June 8, 1979, customs held that foreign racing cars sent abroad for automobile racing, and returned to the U.S., were not eligible for duty-free entry under item 802.30, TSUS, because automobile racing is a commercial event which is not within the purview of "exhibition or use at any public exposition, fair, or conference." Customs relied upon
C.E. Durnell in this decision.
Based upon these decisions, we find that the spare parts, accessories, and tools exported to India--presumably for use as replacement parts, if needed, for the car at the race rally-- were not entitled to duty-free entry under subheading 9801.00.60, HTSUS, upon their return to the U.S. Even though the protestant has not claimed duty-free entry for the race car and engine under subheading 9801.00.60, HTSUS, these items would also not be covered under this provision for the same reasons discussed above.
HOLDING:
The Mazda race car, which was rebuilt in the U.S., exported to India for use in a race rally, and returned to the U.S., was not entitled to duty-free entry under subheading 9801.00.10, HTSUS, because it was not substantially transformed into a "product of the U.S.'' The spare engine, which was exported to
India with the Mazda race car and returned to the U.S., was ineligible for duty-free entry under subheading 9801.00.10, HTSUS, because the protestant failed to comply with the documentary requirements of 19 CFR 10.l(a), including substantiation of its claim that the engine was of U.S. origin. The spare parts, accessories, and tools exported along with the race car for use at the race rally were not entitled to duty-free entry under subheading 9801.00.60, HTSUS, because automobile racing does not fall within the purview of this tariff
provision.
Accordingly, the protest should be denied in full. A copy of this decision should be attached to the Customs Form 19 and mailed to the protestant as part of the notice of action on the protest.
Sincerely,
John Durant, Director
Commercial Rulings Division