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HQ 559648

May 20, 1996

CLA-2 RR:TC:SM 559648 DEC


TARIFF NO.: 9802.00.50

Port Director
477 Michigan Ave.
Detroit, Michigan 48226

RE: Application for Further Review of Protest No. 3801-4-104073; applicability of a partial duty exemption to baking pans coated abroad and returned to the U.S.;
HRL 558869; HRL 556992; HRL 557024; HRL 554192; HRL 555078; HRL 553657

Dear Sir:

This is in reference to your memorandum postmarked January 16, 1996, forwarding a Protest and Application for Further Review filed timely by Ameri-Can Customshouse Brokers, Incorporated, which contests your denial of the partial duty exemption under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to certain baking pans.


This protest concerns hamburger baking pans that are shipped from the United States to DuraShield in Canada so that a special coating may be applied and then returned to the United States. In Canada, DuraShield removes the existing, traditional bakery silicon release coating by means of heating and sandblasting. DuraShield then replaces the coating with their proprietary, superior, long-life, non-stick coating. Your office disallowed classification under subheading 9802.00.50, HTSUS, contending that the coating process is a further manufacturing process since the pans that are subjected to the coating process are unused.


Does the coating process that is performed in Canada on the baking pans as described above constitute an alteration pursuant to subheading 9802.00.50, HTSUS, thereby entitling the baking pans to a partial duty exemption under this subheading?


Articles returned to the U.S. after having been exported to be advanced in value or improved in condition by repairs or alterations may qualify for the partial duty exemption under subheading 9802.00.50, HTSUS, provided the foreign operation does not destroy the identity of the exported articles or create new or different articles through a process of manufacture. However, entitlement to this tariff treatment is precluded where the exported articles are incomplete for their intended use prior to the foreign processing, Guardian Industries Corp. v. United States, 3 CIT 9 (1982), or where the foreign operation constitutes an intermediate processing operation, which is performed as a matter of course in the preparation or the manufacture of finished articles. Dolliff & Company, Inc. v. United States, C.D. 4755, 81 Cust. Ct. 1, 455 F. Supp. 618 (1978), aff'd, C.A.D. 1225, 66 CCPA 77, 599 F.2d 1015 (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. from Canada, provided the documentary requirements of 19 CFR 181.64 are satisfied.

In the above-referenced Dolliff case, certain Dacron polyester fabrics--greige goods--were exported and subjected to multiple processing operations abroad, including dyeing. The finished fabric that was returned to the U.S. was denied the partial duty exemption for alterations abroad because it was determined that the dyeing and numerous other processing steps were all necessarily undertaken to produce the finished fabric.

In another alterations case, C.J. Tower & Sons of Niagara, Inc. v. United States, C.D. 2208, 45 Cust. Ct. 111 (1960), cotton drills--also greige goods--were exported and subjected to multiple operations, including dyeing. The cotton cloth that was returned to the U.S. was similarly denied the partial duty exemption for alterations abroad because it was determined that the merchandise exported was changed in color, width, length, porosity, in the distribution of the threads in the weave, in weight, tensile strength, texture, and suppleness as a result of the foreign processing. In holding that the foreign processing constituted more than an alteration, the court found that the returned merchandise was a new and different article, having materially different characteristics and a more limited and specialized use.

In Amity Fabrics, Inc. v. United States, C.D. 2l04, 43 Cust. Ct. 64, 305 F. Supp. 4 (1959), unmarketable, pumpkin-colored cotton twill-back velveteen was exported to be redyed a black color. The court determined that the dying operation was a change which rendered the fabric marketable and that this improved its condition commercially, and found that such change constituted an alteration under the statute and Customs Regulations. As the parties had stipulated that the redyeing in no way changed the quality, texture, or character of the material, the court concluded that the identity of the goods was not lost or destroyed by the dyeing process; no new article was created; there was no change in the character, quality, texture, or use of the merchandise; it was merely changed in color.

In Royal Bead Novelty Co. v. United States, C.D. 4353, 68 Cust. Ct. 154, 342 F. Supp. 1394 (1972), uncoated glass beads were exported so that they could be half-coated with an Aurora Borealis finish which imparted a rainbow-like luster to the half-coated beads. The court found that the identity of the beads was not lost or destroyed in the coating process and that no new article was created. Moreover, there was no change in the beads' size, shape, or manner of use in the making of jewelry (as the plaintiff testified that both uncoated and half-coated beads were used interchangeably). The sole change was in the finish, which did not change the quality, texture, or character of the exported beads. Accordingly, the court concluded that application of the Aurora Borealis finish constituted an alteration within the meaning of item 806.20, Tariff Schedules of the United States (TSUS) (the precursor tariff provision to subheading 9802.00.50, HTSUS).

In Headquarters Ruling Letter (HRL) 558869, dated March 8, 1995, we determined that digital voice terminals that were originally manufactured in the United States for sale in the United Kingdom, but never sold, were entitled to the partial duty exemption under subheading 9802.00.50, HTSUS, for operations relating to the replacement of a certain chip programmed to meet the United States requirements rather than the United Kingdom's specifications.

In HRL 556992, dated May 7, 1993, Customs considered whether notebook computers with a monochrome video display that were to be sent abroad to have the monochrome display replaced with a color display feature would be eligible for subheading 9802.00.50, HTSUS, treatment. The upgraded unit would retain all of the original capabilities of the exported unit, i.e., the ability to store programs, to be freely programmed, to perform computations, and to execute a program requiring logical decision. In that case, we found that the computer in its exported condition was complete for its intended use as an "automatic data processing machine." It could be used for this purpose without exercising the option to upgrade the unit. There was no change in the identity of the computer as a result of the upgrade and no new article was created. Accordingly, we found that the upgrade was an alteration within the meaning of subheading 9802.00.50, HTSUS.

In HRL 557024, dated June 30, 1993, Customs determined that a U.S.-origin host computer sent to Canada to be modified by the addition of a Canadian-produced board set was an alteration. This alteration increased the data processing speed of the computer to enable it to handle the complex software.

In HRL 554192, dated September 5, 1986, we held that treating shakes and shingles with fire retardant chemicals in Canada qualified as an alteration eligible for purposes of 806.20, TSUS, because the products were completed articles ready for their intended use, were regularly so used in their untreated condition, and appeared to be preferred over the more expensive treated product by the vast majority of customers. We also stated that they did not lose their identity in the fire-retardant process.

As in HRL 558869, HRL 556992, HRL 557024, and HRL 554192, we find that the baking pans in their exported condition are complete for their intended use as baking pans, and that the processing abroad does not serve to change the identity or the character of the exported articles. No new and different article of commerce is created as a result of the processing abroad. Rather, the exported baking pans merely undergo an operation to equip them with the ability to function more effectively. Accordingly, we find that the processing abroad constitute alterations within the meaning of subheading 9802.00.50, HTSUS.

You cite to HRL 555078, dated March 27, 1989, in support of your position that the baking pans at issue are not entitled to classification under subheading 9802.00.50, HTSUS. In that ruling letter, we concluded that the clamp brackets at issue which were sent abroad to be cleaned, coated, rinsed, heated and painted to be a necessary part of the manufacturing process. Accordingly, we concluded that these operations were not alterations. We reached a similar determination in HRL 553657, dated December 11, 1985, which addressed a coating operation of certain welding tips coated with aluminum. A change in quality of an article resulting from further processing is not necessarily indicative that a particular operation constitutes a non-qualifying operation. In this case, the baking pans are completely manufactured articles prior to exportation for the replacement coating operation. The fact that they may or may not have actually been used prior to exportation is irrelevant under these circumstances.


On the basis of the information provided, we find that the coating operation performed in Canada to the baking pans as described above constitutes a qualifying alteration. Thus, the returned baking pans are entitled to the partial duty exemption under subheading 9802.00.50, HTSUS. Accordingly, the protest should be granted.

In accordance with Section 3A(11)(b) of Customs Directive 099-3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.


John Durant, Director
Tariff Classification Appeals

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