CLA-2 CO:R:C:S 557248 RAH
Area Director
U.S. Customs Service
J.F.K. Airport
Building 178
Jamaica, New York 11430
RE: Internal Advice No. 24/93; applicability of certain active
ingredients used to make pharmaceutical samples for
duty-free treatment under subheading 9811.00.60, HTSUS;
detrimental reliance
Dear Sir:
This is in response to your memorandum of March 11, 1993,
forwarding a Request for Internal Advice dated February 9, 1993,
from counsel for SmithKline Beecham Pharmaceuticals ("SKB").
FACTS:
SKB manufactures pharmaceuticals in the U.S. and Puerto
Rico. The active ingredients for these drugs, which are sourced
from the parent company in the United Kingdom, comprise from 70
to 96 percent of the value of the finished drug. The active
ingredients are imported in bulk in drums, and a portion of each
of the subject entries is designated for production of sample
drugs to be distributed free to physicians, hospitals and other
health care providers. Counsel contends that SKB is capable of
maintaining the identification of the lots designated for sample
production throughout the production process due to a highly
sophisticated computerized inventory control system maintained to
ensure compliance with FDA regulations. The bulk ingredients are
mixed with some inactive excipients, which function as
preservative and adhesive agents and are either milled into
tablets and packaged or packaged in oral suspension form as a
powder. Counsel states that the sample package is clearly marked
as a complementary sample not for sale.
SKB argues that, to ensure that the samples in question
would not be distributed through regular commercial channels, it
could mark the particular drum or quantity as for sample
production only, and through the manufacturing and packaging
process, the lot or quantity so identified would be used only for
the production of the samples. SKB further advises that it
would provide documentation that the exact amount declared as
destined for sample production was, in fact, so used and
distributed.
Finally, if we find that the articles in question are not
entitled to duty-free treatment under subheading 9811.00.60,
HTSUS, SKB requests that this ruling be applied to its
unliquidated entries from the date of Customs' Notice of Action
(CF 29), proposing to rate advance SKB's unliquidated entries
(November 3, 1992) onward. SKB stopped making entry under
subheading 9811.00.60, HTSUS, as of the date of the Notice of
Action. SKB began importing active ingredients under subheading
9811.00.60, HTSUS, in September, 1991.
ISSUE:
Whether the imported active ingredients used to make
pharmaceutical samples will be entitled to free entry as samples
for soliciting orders for foreign products under subheading
9811.00.60, HTSUS.
LAW AND ANALYSIS:
Subheading 9811.00.60, HTSUS, provides for the free entry of
any sample valued not over $1.00 each, or marked, torn,
perforated, or otherwise treated so that it is unsuitable for
sale or for use otherwise than as a sample, to be used in the
U.S. only for soliciting orders for products of foreign
countries.
In Headquarters Ruling Letter (HRL) 555619 dated October 29,
1990, prescriptive pharmaceutical tablets were imported in bulk
and repackaged for distribution as samples. We held that tablets
imported in bulk and not individually marked or treated in some
way to distinguish them from standard merchandise could not be
considered "samples" within subheading 9811.00.60, HTSUS. We
further held that the mere marking of the outer container of the
bulk merchandise would not be sufficient to ensure that the
tablets are rendered "unsuitable for sale or for use otherwise
than as a sample" since the tablets could be distributed through
regular commercial channels and not used as samples for taking
orders.
We also held that if the tablets in their condition as
imported are individually marked "Sample," they could be treated
as samples and eligible for free entry under subheading
9811.00.60, HTSUS, upon proof that they will be distributed to
physicians to give to their patients in order to stimulate future
orders of the foreign product.
In the instant case, as in HRL 555619, we find that the mere
marking of the outer container or drum as for "sample production
only" is not sufficient to ensure that the finished product is
unsuitable for sale or for use otherwise than as a sample. In
addition, the ingredients as imported are not the same article
that will be distributed as samples for soliciting orders for
products of foreign countries. Accordingly, the ingredients
imported in bulk in drums will not be eligible for duty-free
treatment under subheading 9811.00.60, HTSUS, upon importation
into the U.S.
Next, we will address the secondary claim of detrimental
reliance. According to the regulations, Customs will from time
to time issue a ruling letter covering a transaction or issue not
previously the subject of a ruling letter and which has the
effect of modifying the treatment previously accorded by Customs
to substantially identical transactions of either the recipient
of the ruling letter or other parties. See 19 CFR 177.9(e)(1).
Pursuant to the regulations, Customs may, upon application by an
affected party, delay the effective date of a ruling letter and
continue the treatment previously accorded the substantially
identical transaction, for a period of up to 90 days from the
date a ruling letter is issued. See 19 CFR 177.9(e)(1). In
applying to the Customs Service for a delay in the effective date
of a ruling letter, an affected party must demonstrate to the
satisfaction of Customs that he reasonably relied upon treatment
previously accorded by Customs to substantially identical
transactions over a period of at least two years. See 19 CFR
177.9(e)(2).
The 43 unliquidated entries which are affected by this
decision were filed during the period December 31, 1991, through
October, 1992. Counsel advises that 40 identical entries filed
between September, 1991 to October, 1992, were liquidated duty
free under subheading 9811.00.60, HTSUS. SKB is requesting that
this ruling letter be applied from November 3, 1992 (the date of
the Notice of Action), onward to accord the unliquidated entries
filed prior to that date the same treatment given to
contemporaneous entries which were liquidated duty free.
Although SKB is not requesting a delay in the effective date
of this ruling for a period from the date of issuance, it is, in
effect, requesting that the effective date of this ruling be
delayed from December 31, 1991 (the date the first unliquidated
entry was filed) to November 3, 1992. Thus, we believe that, as
stated in 19 CFR 177.9(e)(1), SKB must demonstrate to our
satisfaction that it reasonable relied upon treatment previously
accorded by Customs to substantially identical transactions over
a period of at least two years. The entries in this case which
were liquidated duty free do not cover a two-year period prior to
the date of notification by Customs that the entries were
dutiable. Therefore, we conclude that your detrimental reliance
claim should be denied.
HOLDING:
Active ingredients imported in bulk in drums marked for
sample production only, and which are later manufactured into
finished drugs that will be distributed as samples, are not
entitled to free entry under subheading 9811.00.60, HTSUS, since
the ingredients as imported are not the same articles that will
be distributed as samples for soliciting orders for products of
foreign countries.
Sincerely,
John Durant, Director