CLA-2 CO:R:C:S W954683 /557651 MLR
District Director
9400 Viscount Blvd.
El Paso, Texas 79925
RE: Application for Further Review of Protest No. 2402-92-100040; Denial of duty exemption under HTSUS subheading 9801.00.25 to an Avisert High Speed Radial-Lead Components Inserter
Dear Sir:
This is in reference to a protest and application for further review filed by TDK Texas Corporation and the consignee TDK Corporation of America, contesting the denial of the duty exemption under subheading 9801.00.25, Harmonized Tariff Schedule of the United States (HTSUS), to an Avisert High Speed Radial-Lead Components Inserter.
FACTS:
On January 22, 1991, TDK Corporation of America exported an Avisert High Speed Radial-Lead Components Inserter (hereinafter referred to as "equipment") to Altec Electronica de Chihuahua ("Altec"), in Mexico, which was previously imported from Canada on April 23, 1990. On November 7, 1991, TDK Texas Corporation, reimported the equipment claiming the duty exemption under subheading 9801.00.25, HTSUS, because the equipment did not conform to Altec's requirements. In a letter dated November 7, 1991, Altec states that the equipment does not conform to sample or specification for the following reasons: "(A) it does not fill our requirements on flexibility to be attached to our equipment; (B) it use (sic) a different software of what we use to handle; (C) it would increase the spare parts inventory in our store."
The Certificate of Exportation filed by TDK Corp. of America, indicates that the equipment was sent to Mexico for a three month period after which it was to be returned to the U.S. In a letter dated April 20, 1992, TDK Corp. of America indicated to your office that the original intent was to loan (not lease) the equipment to Altec for 90 days for their evaluation. The record also contains a letter from Altec certifying that Altec requested and received an extension until October 1991 to loan TDK's equipment and that "after the evaluation period, Altec Electronica will return the equipment to TDK."
The protestant states that similar merchandise imported under identical circumstances, has been classified under subheading 9801.00.25, HTSUS by the District Director of Customs at the Port of Chicago, Illinois.
ISSUE:
Whether the Avisert High Speed Radial-Lead Components Inserter is eligible for the duty exemption under subheading 9801.00.25, HTSUS, when returned to the U.S.
LAW AND ANALYSIS:
Subheading 9801.00.25, HTSUS, 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 specification, 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).
In Headquarters Ruling Letter (HRL) 553027 dated July 19, 1984, we held that medical equipment units that could fail when a major component was subjected to high temperature during a sterilization process did not qualify for the duty exemption under item 801.10, Tariff Schedules of the United States (TSUS) (now subheading 9801.00.25, HTSUS), when the units were returned to the U.S. because they did not fail to conform to specification but only did not meet the expectations of the users.
In HRL 067921 dated October 19, 1982, we considered baller/bander textile machinery which was exported on a trial basis and possible sale to a textile firm in Canada, and returned after approximately six weeks to the U.S. because the machine produced a ball that was not as long, clean, or better looking than that produced by a competitor's machine. We determined that item 801.10, TSUS, does not cover every circumstance in which goods are rejected by a consignee, but the provision applies to goods that are reimported only for the reason that they do not conform to sample or specifications. Therefore, because the machine was suitable for producing a good product but when compared with competing machinery during the trial period it was rejected, we found that presumably it might have been acceptable in the absence of the competing machinery. Consequently, it was held that the exported machine only failed to meet the specifications of the competitor's machine, and not the specifications established when it was sold and exported, thereby precluding item 801.10, TSUS, treatment.
In HRL 036935 dated November 29, 1974, it was held that memory stacks, assembled in the Orient and exported to Canada where they were found to be defective, or warehoused for a period of four months before use and then found to be defective, could be entered under item 801.10, TSUS, when returned to the U.S. However, memory stacks immediately put to use upon arrival in Canada, but found to be defective after one year before being returned to the U.S., appeared to be an unreasonable time span sufficient to negate the application of item 801.10, TSUS, upon re-entry of the merchandise.
In the instant case, first, the Certificate of Exportation indicates that the equipment was exported for use abroad for a three month period after which it would be returned to the U.S. Furthermore, instead of being returned after three months, it was kept in Mexico for nine months which is not as long as the time period in HRL 036935, but suggests in conjunction with the intention to only loan the equipment to Altec, that the equipment was not returned solely because it did not conform to sample or specification. Second, as in HRL 067921 and HRL 553027, the equipment did not meet Altec's use expectations (i.e., flexibility requirement, use of different software, and increase of spare parts inventory) which does not indicate that the equipment itself was somehow defective. We, therefore, find that the equipment was not returned to the U.S. for failure to conform to sample or specification and is not eligible for subheading 9801.00.25, HTSUS, treatment.
HOLDING:
On the basis of the information submitted, the Avisert High Speed Radial-Lead Components Inserter exported to Mexico and returned to the U.S. is not eligible for duty-free treatment under subheading 9801.00.25, HTSUS, because it did not fail to conform to sample or specification. Accordingly, the protest should be denied.
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, Lexis, Freedom of Information Act and other public access channels.
Sincerely,
John Durant, Director
Commercial Rulings Division