Partial exemption for cigarettes made in England using tobacco of U.S. origin

HQ 556479 May 12, 1992 CLA-2 CO:R:C:S 556479 RA CATEGORY: Classification TARIFF NOs.: 9802.00.50, 9802.00.80 Mr. Anthony P. Verdino Tax Director The American Tobacco Co. Six Stamford Forum P.O. Box 10380 Stamford, Connecticut 06904-2380 RE: Partial exemption for cigarettes made in England using tobacco of U.S. origin Dear Mr. Verdino: In your letter of January 10, 1992, you requested a ruling on the partial free entry of cigarettes produced abroad from tobacco exported from the United States. FACTS: You state that your company will send processed tobacco to England to be manufactured into cigarettes which will be packaged and returned to the U.S. for sale as one specific brand. An allowance in duties is sought for the value of the tobacco which is of United States origin. ISSUE: Are the imported cigarettes entitled to a partial exemption from duty under subheading 9802.00.50 or subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS)? LAW AND ANALYSIS: Subheading 9802.00.50, HTSUS, provides for a duty only on the cost or value of alterations made on articles returned to the U.S. after having been exported for that purpose. However, the application of this tariff provision is precluded where the operations performed abroad result in articles with new and different uses or where the processing constitutes a part of the manufacturing process begun in the U.S. Dollill & Company v. United States, 66 CCPA 77, C.A.D. 1225 (1979). -2- Alterations can be made only to completed articles and the term does not include intermediate operations performed in the manufacture of finished articles. Congress did not intend to permit uncompleted articles to be exported abroad and there made into finished products and when returned to be subject to duties only on the cost of the so-called alterations. United States v. J.D. Richardson Co., 36 CCPA 15, C.A.D. 390 (1948). The manufacture of cigarettes from paper and tobacco clearly exceeds an alteration so a partial exemption under subheading 9802.00.50, HTSUS, is precluded. Subheading 9802.00.80, HTSUS, provides a partial exemption from duty for articles assembled abroad in whole or in part of U.S.-fabricated components, provided the components (a) are exported in condition ready for assembly without further fabrication; (b) do not lose their physical identity by change in form, shape, or otherwise, and; (c) are not advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process such as cleaning, lubricating, and painting. All three requirements of subheading 9802.00.80, HTSUS, must be satisfied before a component may recelve a duty allowance. An article entered under subheading 9802.00.80, HTSUS, is subject to duty upon the full value of the imported assembled article less the cost or value of such U.S. components, upon compliance with the documentation requirements of section 10.24, Customs Regulations (19 CFR 10.24). Section 10.16(a), Customs Regulations (19 CFR 10.16(a)), provides that the assembly operations may consist of any method used to join together solid components and may be preceded, accompanied, or followed by operations incidental to the assembly process. However, the combining of amorphous solids with each other or with solid components is not regarded as an assembly. Thus, powders, liquids, and analogous substances are considered to be incapable of combining in a genuine assembly within the meaning of the tariff provision. The cigarette tobacco under consideration is merely a fungible material which must be changed from bulk quantities into precise proportions before being combined with papers to form the cigarettes and, therefore, cannot be considered as fabricated components when exported from the United States. Therefore, we are of the opinion that the tobacco portion of the finished cigarettes is not entitled to a duty allowance under subheading 9802.00.80, HTSUS. -3- HOLDING: Tobacco of U.S. origin exported to England and used in the manufacture of cigarettes is not covered by the alterations provision in subheading 9802.00.50, HTSUS, and is a fungible material and not a fabricated component within the meaning of the provision in subheading 9802.00.80, HTSUS, and cannot qualify for partial exemption from duty under either subheading. Sincerely, John Durant, Director Commercial Rulings Division