Request for Clarification of Headquarters Ruling Letter 554408 (April 22, 1987)

HQ 554731 February 2, 1989 CLA-2 CO:R:C:V 554731 GRV CATEGORY: CLASSIFICATION TARIFF NO.: 9802.00.50 John J. Scanlon, Esq. Kemp, Smith, Duncan & Hammond 2000 MBank Plaza P.O. Drawer 2800 El Paso, Texas 79901-1441 RE: Request for Clarification of Headquarters Ruling Letter 554408 (April 22, 1987) Dear Mr. Scanlon: This is in response to your letter of September 1, 1987, on behalf of Diesel ReCon Company, requesting clarification of Head- quarters Ruling Letter 554408 (April 22, 1987), concerning the applicability of subheading 9802.00.50, Harmonized Tariff Sched- ule of the United States (HTSUS) (formerly item 806.20, Tariff Schedules of the United States (TSUS)) to certain diesel fuel injectors to be exported to Mexico for remanufacture and return to the U.S. FACTS: In our ruling of April 22, 1987, we stated that the remanu- facturing process to be performed abroad, wherein fuel injectors are to be disassembled into their constituent parts, the parts cleaned and repaired and placed in storage with other identical parts awaiting reassembly into new and different fuel injectors, would result in a conversion of the exported fuel injectors into new and different articles. Thus, we stated that these opera- tions were beyond the scope of the term "repairs or alterations" under item 806.20, TSUS. However, we also stated that were it possible to retain the essence of the exported fuel injectors throughout the foreign repair process, so that the same units would be returned as were exported, then the returned injectors might be entitled to item 806.20, TSUS, treatment. In your original request for a ruling on this matter, dated December 17, 1986, you indicated that of the components parts comprising the fuel injectors, the plungers and barrels repre- sented the essence of the fuel injector units. In your letter of September 1, 1987, you requested clari- fication concerning: (1) whether the identity and essence of each diesel fuel injector would be maintained by entering the adaptor and retainer portions of the injector into the repair process as a matched set, even though the adaptor or retainer, or both, might be replaced during the repair process; (2) whether, by entering the adapter and retainer into the repair process, the diesel fuel injectors may be re- paired without regard to the number of injectors in the lot being repaired; (3) whether it must be proven that the adaptor and retainer components are from the same diesel fuel injector by means of placing identical serial numbers on each adapter and retainer in a set; and (4) whether reusable, non-essential components of the fuel injectors being repaired may be commingled in storage bins or in inventory until required for reassembly. ISSUE: Whether, under the circumstances set forth in the request for clarification of our ruling of April 22, 1987, the diesel fuel injectors would qualify for the partial duty exemption pro- vided for in HTSUS subheading 9802.00.50 upon their return to the U.S. LAW AND ANALYSIS: Effective January 1, 1989, the HTSUS superseded and re- placed the TSUS. TSUS item 806.20 was carried over into the HTSUS as subheadings 9802.00.40 (repairs or alterations made pursuant to a warranty) and 9802.00.50 (other repairs or altera- tions). These tariff provisions provide a partial duty exemp- tion for articles returned to the U. S. after having been ex- ported to be advanced in value or improved in condition by means of repairs or alterations. Under these tariff provisions, there is a duty only upon the value of the foreign repairs or altera- tions, provided the documentation requirements of section 10.8, Customs Regulations (19 CFR 10.8), are met. Repairs are operations aimed at restoring articles to their original condition, but cannot be so extensive as to destroy the identity of the exported article or to create a new and different article. Press Wireless, Inc. v. United States, 6 Cust. Ct. 102, C.D. 438 (1941). Thus, application of this tariff provision is precluded where the foreign operation destroys the identity of the exported article or creates a new or different commercial article. In Headquarters Ruling Letter 554539 (August 25, 1987), we stated that: [s]o long as the identity of these units is maintained throughout the disassembly and repair process, and there is a genuine repair of parts carried out during the foreign process, these units may be entered under the repairs provision of item 806.20.... In the present case, the exported diesel fuel injectors are disassembled into some nine discrete, potentially reusable, com- ponent parts. Other parts, such as O-rings, orifice plugs, gas- kets, and screens are removed, scrapped and replaced. You state in your September 1, 1987, letter that the essence of a fuel in- jector is best represented by the adaptor and retainer of that injector. You indicate that an average of 95 percent of adaptors and retainers pass through the repair process without need of re- placement. However, only about half of the barrels and plungers pass through the repair process without replacement. On the basis of this information, we agree that the identities of the fuel injectors would be better represented by the adaptors and retainers. Therefore, so long as both the adaptor and retainer of the same fuel injector enter and go through the repair process to- gether as a matched set, the essential identity of each fuel in- jector will be maintained for purposes of conforming to the re- quirements of HTSUS subheading 9802.00.60. However, neither the adaptor nor the retainer of a particular exported injector may be replaced during the repair process, as this would violate the uniqueness of the identified matched set and destroy the identity of the exported article which that set represents. This is con- sistent with the holdings in Headquarters Ruling Letters 554817 (November 18, 1987), 554816 (November 23, 1987), and 555117 (December 22, 1988). In answer to your second question, the repair of the in- jectors may be accomplished without regard to the number of units in the lot being repaired, provided the essential identity of each exported injector for which HTSUS subheading 9802.00.50 treatment will be sought is maintained throughout the foreign repair process. Concerning your third question, to maintain the essential identity of the exported fuel injectors, the adapter and retainer of each exported injector must be marked in some manner to indi- cate that they are a matched set from the same injector and to distinquish one matched set from all others. Lastly, so long as the essential components of the diesel fuel injectors are retained as matched sets during the repair process, the remaining, nonessential components of the disas- sembled injectors may be commingled with other identical parts in storage bins or in inventory until required for reassembly. As we stated in Headquarters Ruling Letter 555117 (December 22, 1988), the essential components constitute the item being re- paired abroad. Under section 10.8(l) of the Customs Regulations (19 CFR 10.8(l)), the cost or value of the repairs performed in- clude the cost or value of all articles, domestic and foreign, used in the repair. Consequently, the cost or value of the re- pair of the alternators would include the cost or value of both new parts and the non-essential used parts removed during dis- assembly of the alternators and commingled with other like parts pending reassembly. HOLDING: On the basis of the information presented, if the adapter and retainer of each fuel injector for which HTSUS subheading 9802.00.50 treatment is sought are identified and retained as a matched set, throughout the foreign repair process and without replacement of either or both of these parts, the essential iden- tity of the injector would be maintained. Under these circum- stances, the repaired fuel injectors would qualify for the par- tial duty exemption under HTSUS subheading 9802.00.50, upon com- pliance with the documentary requirements of 19 CFR 10.8. How- ever, the dutiable value of the repairs will include the cost or value of all articles, domestic and foreign, used in the repair. Sincerely, John Durant, Director Commercial Rulings Division