Applicability of partial duty exemption under HTSUS subheading 9802.00.50 and duty exemption under 9801.00.10 to peanuts; reprocessed; sugar-coated; salted

HQ 558797 January 20, 1995 CLA-2 CO:R:C:S 558797 MLR CATEGORY: Classification TARIFF NO.: 9802.00.50; 9801.00.10 Mr. Andrew M. Carreno Carreno & O'Neil Shipping Co., Inc. 1A Colony Road Jersey City, NJ 07305 RE: Applicability of partial duty exemption under HTSUS subheading 9802.00.50 and duty exemption under 9801.00.10 to peanuts; reprocessed; sugar-coated; salted Dear Mr. Carreno: This is in reference to your letter of August 10, 1994, to Customs in New York, requesting a ruling on behalf of Shaffer Clarke Co., Inc. ("Shaffer"), regarding the applicability of subheadings 9802.00.50 and 9801.00.10, Harmonized Tariff Schedule of the United States (HTSUS), to peanuts reprocessed in Holland. A sample is submitted with your request. FACTS: Shaffer plans to ship peanuts to Holland, where they are reprocessed (sugar-coated, salted, etc.). You state that the peanuts are of U.S.-origin. The peanuts will then be packaged for retail sale and shipped to the U.S. ISSUE: Whether the U.S.-origin peanuts returned to the U.S. after being reprocessed in Holland qualify for the partial duty exemption available under subheading 9802.00.50, HTSUS, or for duty-free treatment under subheading 9801.00.10, HTSUS. LAW AND ANALYSIS: Subheading 9801.00.10, HTSUS, provides for the free entry of products of the U.S. that have been exported and returned without having been advanced in value or improved in condition by any process of manufacture or other means while abroad, provided the documentary requirements of section 10.1, Customs Regulations (19 CFR 10.1), are satisfied. See 59 Fed. Reg. 25563 (May 17, 1994) for recent amendments to 19 CFR 10.1. While some change in the condition of the product while it is abroad is permissible, operations which either advance the value or improve the condition of the exported product render it ineligible for duty-free entry upon return to the U.S. Border Brokerage Company, Inc. v. United States, 314 F. Supp. 788 (1970), appeal dismissed, 58 CCPA 165 (1970). In determining whether an advancement in value or improvement in condition exists at the time of importation, the overall value and condition of the article at the time it was exported from the U.S. shall be compared with its overall value and condition at the time of return to the U.S. However, each case must be decided on its own facts. Subheading 9802.00.50, HTSUS, provides for a partial duty exemption for articles returned to the United States after having been exported to be advanced in value or improved in condition by repairs or alterations, provided the foreign operation does not destroy the identity of the exported articles or create new or commercially different articles through a process of manufacture. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956), aff'g C.D. 1752, 36 Cust. Ct. 46 (1956); Guardian Industries Corp. v. United States, 3 CIT 9 (1982). Accordingly, entitlement to this tariff treatment is precluded where the exported articles are incomplete for their intended purpose prior to the foreign processing and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles. Dolliff & Company, Inc. v. United States, 455 F. Supp. 618 (CIT 1978), aff'd, 599 F.2d 1015 (Fed. Cir. 1979). Articles entitled to this partial duty exemption are dutiable only upon the cost or value of the foreign repairs or alterations when returned to the U.S., provided the documentary requirements 19 CFR 10.8 are satisfied. See 59 Fed. Reg. 25563 (May 17, 1994), for recent amendments to 19 CFR 10.8. In Headquarters Ruling Letter (HRL) 554934 dated April 3, 1989, Customs held that U.S.-origin peanuts exported to Mexico where they were shelled, roasted and salted were not eligible for duty-free treatment as American goods returned under subheading 9801.00.10, HTSUS, as they were advanced in value or improved in condition. In addition, they were not eligible for the partial duty exemption under subheading 9802.00.50, HTSUS, as the operations constituted intermediate steps in the preparation of the finished peanuts. See also HRL 554834 dated May 25, 1988; and HRL 554932 dated June 3, 1988. Similarly in this case, the peanuts are reprocessed by being sugar-coated and salted. Consequently, as in the cases above, we find that these operations advance the value and improve the condition of the peanuts, and are intermediate steps in the preparation of the finished peanuts, thereby rendering them ineligible for subheading 9801.00.10 and 9802.00.50, HTSUS, treatment. HOLDING: On the basis of the information submitted, we are of the opinion that the operations in Holland advance the value and improve the condition of the peanuts, and are intermediate steps in the preparation of the finished peanuts, thereby rendering them ineligible for duty-free treatment under subheading 9801.00.10, HTSUS, and for the partial duty exemption under subheading 9802.00.50, HTSUS. Sincerely, John Durant, Director Commercial Rulings Division