Applicability of subheading 9801.00.10 or 9802.00.50, HTSUS, to U.S.-origin pistachio nuts which are returned after having been roasted, seasoned and packaged abroad; alteration

HQ W557917 October 25, 1995 CLA-2 R:C:S W557917 CW CATEGORY: Classification TARIFF NO.: 9801.00.10; 9802.00.50 Mr. Joe Yuen Sino Pacific Custom Brokerage 401 Broadway, Suite 605 New York, N.Y. 10013 RE: Applicability of subheading 9801.00.10 or 9802.00.50, HTSUS, to U.S.-origin pistachio nuts which are returned after having been roasted, seasoned and packaged abroad; alteration Dear Mr. Yuen: This is in response to your letter dated April 13, 1994, to our New York office, requesting a ruling on behalf of Kien Imports Corp. concerning the dutiable status of pistachio nuts which are exported to China for roasting, seasoning and packaging and then returned to the U.S. We regret the delay in responding. FACTS: You state that Kien Imports Corp. will export U.S.-grown pistachio nuts from the U.S. to China where the nuts will be roasted, seasoned and packaged for retail sale. After the processing in China, the nuts will be returned to the U.S. You ask whether the returned merchandise would be eligible for duty-free treatment as American goods returned. ISSUE: Whether U.S.-origin pistachio nuts which are exported to China for roasting, seasoning and packaging for retail sale are entitled to duty-free treatment under subheading 9801.00.10, Harmonized Tariff Schedule of the United States (HTSUS), or a partial duty exemption under subheading 9802.00.50, HTSUS, when returned to the U.S. LAW AND ANALYSIS: Subheading 9801.00. IO, 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 documentation requirements of section IO.I, Customs Regulations (19 CFR 10.1), are satisfied. While some  - 2 - 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 treatment upon return to the U.S. Border Brokerage Company, Inc. v. United States, 314 F. Supp. 718 (1970), appeal dismissed, 58 CCPA 165 (1970). In this case, the roasting and seasoning of the pistachio nuts in China clearly advance the value of the nuts, thereby precluding them from receiving duty-free treatment under subheading 9801.00.10, HTSUS. Subheading 9802.00.50, HTSUS, provides a partial duty exemption for articles that are returned after having been exported for repairs or alterations. However, the application of this tariff provision is precluded where the operations performed abroad destroy the identity of the articles or create new or commercially different articles. A.F. Burstrom v. United States, 44 CCPA 27, C.AD. 631 (1956). This tariff provision also is inapplicable where the exported article is incomplete for its intended use and the foreign processing is a necessary step in the preparation or manufacture of a finished article. Dolliff & Company Inc. v. United States, 66 CCPA 77, C.AD. 1225 (1979). Articles entitled to entry under this tariff provision are subject to duty only on the cost or value of the foreign repairs or alterations, provided the documentation requirements set forth in section 10.8, Customs Regulations (19 CFR 10.8), are satisfied. In Headquarters Ruling Letter (HRL) 555246 dated April 12, 1989, Customs held that raw pistachio nuts which were exported to Hong Kong for cracking and then returned to the U.S. were ineligible for HTSUS subheading 9802.00.50 treatment as the nuts in their condition as exported from the U.S. were incomplete for their intended use. Moreover, in a ruling dated July 27, 1966, Customs held that U.S.-origin peanuts which were subjected to a roasting process in Canada were ineligible for the partial duty exemption under the precursor provision to subheading 9802.00.50, HTSUS. We stated that the roasting of the peanuts exceeds an alteration as it changes a tasteless, almost inedible article into a widely eaten food ready for retail sale. Similarly, in the instant case, the roasting and seasoning of the pistachio nuts in China changes a raw, inedible product into a commercially different article--edible nuts ready for retail sale. The foreign processing clearly is necessary step in the preparation of the finished product. Therefore, we find that the roasting and seasoning operations in this case exceed the scope of an alteration and that the returned nuts are ineligible for subheading 9802.00.50, HTSUS, treatment. The returned pistachio nuts are classifiable in subheading 2008.19.3020, HTSUS, which provides for a specific duty rate of $.02 per kg.  - 3 - HOLDING: For the reasons discussed above, the returned pistachio nuts are ineligible for special tariff treatment under either subheading 9801.00.10 or 9802.00.50, HTSUS. A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction. Sincerely, John Durant, Director Tariff Classification Appeals Division