Applicability of duty exemption under HTSUS subheading 9802.00.40 to certain alternators imported from Mexico

HQ 555117 December 22, 1988 CLA-2 CO:R:C:V 555117 GRV CATEGORY: CLASSIFICATION TARIFF NO.: 9802.00.40; 806.20 Luis Chavez, Esq. Kemp, Smith, Duncan & Hammond, P.C. 2000 MBank Plaza P.O. Drawer 2800, 79999-2800 El Paso, Texas 79901-1441 RE: Applicability of duty exemption under HTSUS subheading 9802.00.40 to certain alternators imported from Mexico Dear Mr. Chavez: This is in response to your letter of August 23, 1988, on behalf of Diesel ReCon Company (Diesel), requesting a ruling on the applicability of subheading 9802.00.40, Harmonized Tariff Schedule of the United States (HTSUS)(item 806.20, Tariff Sched- ules of the United States (TSUS)), to certain alternators im- ported from Mexico after repair. FACTS: You state that 10S1 alternators will be bulk-shipped in wiretainers to Mexico for repairs by Diesel's wholly-owned sub- sidiary. The foreign repair process consists of completely dis- assembling the alternators for cleaning, painting, electronic testing and replacement of non-essential defective parts. To ensure the integrity of a given 10S1 alternator, on disassembly, all components of a particular alternator will be placed in a basket. The basket and certain components of each alternator-- the stator and the rectifier and rotor housings--will be indi- vidually and similarly tagged. The tagging of the components identify them as being a matched set of essential components of a particular 10S1 alternator. Following the various repair opera- tions, the components are reassembled, the wire tags removed, and the alternator is returned to the U.S. You also request clarification concerning: (1) whether component parts, deemed essential to the identity of the exported article, may be repaired or altered and even replaced; and, (2) whether non-essential components may be commingled in baskets of like parts, and may be used in the reassembly of repaired alternators without regard to the fact that parts taken from one alternator - 2 - may be used in the reassembly of a different repaired alternator. ISSUE: Whether the described repair process sufficiently maintains the essential identity of the exported article (10S1 alterna- tors), thereby qualifying the articles for the partial duty ex- emption available under HTSUS subheading 9802.00.40 (TSUS 806.20) when returned to the U.S. LAW & ANALYSIS: Effective January 1, 1989, the Harmonized Tariff Schedule of the United States (HTSUS) will supercede and replace the Tar- iff Schedules of the United States (TSUS). Item 806.20, TSUS, will be carried over into the HTSUS without change as subheading 9802.00.40. This tariff provision provides a partial duty exemp- tion for articles that are returned to the U.S. after having been exported to be advanced in value or improved in condition by repairs and/or alterations. Such articles are dutiable only upon the value of the foreign repairs and/or alterations when returned to the U.S., provided the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8), are satisfied. 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). In Headquarters Ruling Letter 554539 (August 25, 1987), we stated that: [s]o long as the identity of [the exported unit] is maintained throughout the disassembly and repair process, and there is a genuine repair of parts car- ried out during the foreign process, these units may be entered under the repairs provision of item 806.20, Tariff Schedules of the United States (TSUS). In the instant case, as the essential components of indi- vidual alternators--identified as the rectifier and rotor hous- ings and the stator--will be separately tagged as a matched set by a wire identification system designed to ensure that the es- sential identity of each alternator is maintained, and as each disassembled alternator will be maintained in its own basket, similarly tagged, throughout the repair process, it appears that the described repair process will retain the essence of the ex- ported article. Accordingly, the foreign repair process is deemed to fall within the meaning of the term "repairs" under HTSUS subheading 9802.00.40, thereby qualifying the returned - 3 - alternators for the partial duty exemption provided for in this tariff provision. However, as we previously advised your firm in Headquarters Ruling Letters 554817 (November 18, 1987) and 554815 (November 23, 1987), although the essential components may be subjected to repair operations, replacing any one of the essen- tial components would violate the uniqueness of the identified matched set and result in a new article of commerce, contrary to HTSUS subheading 9802.00.40. As for the remaining, non-essential parts, they may be commingled in baskets of like parts or other- wise retained in storage or inventory until required for reassem- bly. Regarding the proper tariff classification of the returned alternators, as your letter does not specify their voltage out- put, an exact HTSUS subheading number cannot be determined. In general, alternators are classifiable under HTSUS heading 8501. Under the TSUS, alternators are classifiable under item 682.60. The essential components constitute the item being repaired abroad. Under section 10.8(l) of the Customs Regulations (19 CFR 10.8(l), the cost or value of the repairs performed include the cost or value of all articles, domestic and foreign, used in the repair. Consequently, the cost or value of the repair of the al- ternators would include the cost or value of both new parts and the non-essential used parts removed during disassembly of the alternators and commingled with other like parts pending reassem- bly. CONCLUSION: On the basis of the information provided, as the essential identity of the exported 10S1 alternators will be preserved dur- ing the described repair process by wire tagging a matched set of essential components, the repaired alternators will qualify for the partial duty exemption under HTSUS subheading 9802.00.40, upon compliance with 19 CFR 10.8. 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