HQ 555369: Application for Further Review of Protest No. 1101-88-000569 contesting your denial of item 800.00, TSUS, treatment for certain parts of diagnostic analyzers imported in kits

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                            HQ 555369

                         August 10, 1990


CLA-2 CO:R:C:G  555369 CW

CATEGORY:   Classification

TARIFF NO.:   9801.00.10

District Director of Customs
2nd & Chestnut Street
Philadelphia, Pennsylvania 19106

RE:  Application for Further Review of Protest  No.
     1101-88-000569 contesting your denial of item 800.00, 
     TSUS, treatment for certain parts of diagnostic analyzers
     imported in kits

Dear Sir:

     The above-referenced protest was filed against the
liquidation on April 8, 1988, of Entry No. XXXXXXXX dated
November 2, 1988, denying duty-free treatment as American goods
returned under item 800.00, Tariff Schedules of the United States
(TSUS)  (now subheading 9801.00.10, Harmonized Tariff Schedule of
the United States (HTSUS)), for certain electrical components
imported in kits of diagnostic analyzers.

FACTS:

     Bear Automotive Service Equipment Co.  (protestant), a
manufacturer of automotive service equipment in the U.S., 
created kits in the U.S. in a knocked-down condition 
containing sufficient components to make substantially 
complete precision analyzers for automotive engine testing. 
The parts comprising the kits were of both U.S. and foreign
origin and were either manufactured by protestant in the U.S. 
or purchased from U.S. sources.   In creating the kits,
protestant assembled most of the parts in the U.S. into
subassemblies, while the remaining parts were merely placed in
the kits without first being incorporated in a subassembly. 
A number of these knocked-down kits were exported to an 
Italian subsidiary for final assembly operations (certain 
minor parts were not included in the kits but were to be 
provided by the subsidiary).   However, the Italian subsidiary
closed its operations and the kits were returned to the U.S.,
apparently in the same condition as exported, where they were
entered as American goods returned under item 800.00, TSUS.
                              - 2 -

     As an inspection by Customs disclosed the presence of
foreign components in the kits, item 800.00, TSUS, treatment 
for the units was denied.   Your office advised by memorandum
dated May 18, 1988, that the Certificate of Exportation 
required by section 10.l(a)(3), Customs Regulations (19 CFR
10.l(a)(3))~ was not filed, and that protestant has failed to
establish which components in the kits are of U.S. origin. 
This case also is the subject of Philadelphia penalty case No.
88-1119-00001, which is presently pending in Headquarters.

     Counsel for protestant contends that those parts of 
foreign origin which were incorporated into subassemblies in 
the U.S. were substantially transformed into products of the 
U.S.  Counsel further maintains that those foreign parts which
were merely placed in the kits should also be considered of 
U.S. origin since, by being organized into discrete kits
according to detailed bills of materials, they lost their
separate identities and were "merged into a new and different
article."    Alternatively, counsel asserts that only the 
foreign parts and those whose origin cannot be determined 
should be dutiable and that those parts clearly of U.S. origin
should be accorded item 800.00, TSUS, treatment.

ISSUE:

     Whether all, or any portion, of the electrical components
contained in each returned diagnostic analyzer kit are 
entitled to duty-free treatment under item 800.00, TSUS.

LAW AND ANALYSIS:

     Under item 800.00, TSUS, products of the U.S. which are
returned without having been advanced in value or improved in
condition by any process of manufacture or other means while
abroad are entitled to duty-free entry, provided the
documentation requirements of 19 CFR 10.1 are satisfied.

     In Superscope, Inc. v. United. StateS, 13 CIT __, 727
F.Supp. 629 (CIT 1989), the court held that certain glass 
panels of U.S. origin that were exported, repacked abroad with
certain foreign components, and returned to the U.S. as part 
of unassembled audio cabinets, were entitled to duty-free 
entry under item 800.00, TSUS.   The court reasoned that the 
U.S. panel portion of the imported merchandise was "not 
'advanced in value or improved in condition ... while abroad,'
but [was] merely repacked."  However,  it is incumbent upon the
importer to establish the portion of the merchandise which is of
American manufacture and to prove by satisfactory evidence 
that it was not advanced in value or improved in condition
                              - 3 -

while abroad.  See United States v. Joyira Perez, 59 CCPA 190,
C.A.D. 1065 (1972).   Moreover, the court in Ford Motor Co. v.
United States, 29 Cust. Ct. 553 (1952), stated that the 
precursor provision to item 800.00, TSUS:

     ... being a grant of a privilege instead of a right, 
     must be strictly construed,  its scope and application
     confined to the special circumstances outlined by its
     provisions.   [Citation omitted].   The paragraph bestows 
     no unlimited and unconditional freedom from assessment 
     of duty.   It is hedged and circumscribed not alone by 
     the specificity of the lanugage employed by Congress 
     but also by such regulations as to proof of identity 
     and compliance with its conditions as are prescribed by 
     the Secretary of the Treasury.   Thus, an unmistakable
     congressional purpose to restrict the privilege of free
     entry is evidenced.

     In this case, counsel for the protestant contends that as a
result of the assembly in the U.S. of parts of U.S. and 
foreign origin into various diagnostic analyzer subassemblies,
the foreign parts were substantially transformed into products 
of the United States.   In support of this contention, counsel
cites section 10.12(e), Customs Regulations (19 CFR 10.12(e)),
which defines "product of the United States" and provides that 
if the article consists of foreign components, the 
manufacturing process in the U.S. must be such that the 
foreign parts are substantially transformed into a new and
different article, or are merged into a new and different
article.

     However, protestant has provided only a general 
description of the assembly operations performed in the U.S. 
to create the numerous subassemblies under consideration here.
Without a detailed description of the operations performed in
regard to each subassembly, we are unable to determine whether
the foreign parts incorporated therein were substantially
transformed into products of the U.S.   Therefore, based on the
record before us, we must necessarily conclude that the 
foreign parts incorporated into the subassembles were not
transformed or merged into new and different articles in the
U.S., but remained of foreign manufacture.   Moreover, merely
placing certain foreign-made components in the kits prior to
their exportation to Italy clearly does not result in the
substantial transformation of .those parts into products of the
U.S.

     With respect to the applicability of item 800.00, TSUS, 
to those parts of U.S. origin included in the analyzer kits, 
your office advises that protestant has failed to identify and
                              - 4 -

establish to your satisfaction which parts were manufactured 
in the U.S.   In this regard, protestant has submitted directly
to this office an apparently complete listing of the parts
included in the analyzer kits, indicating for each part 
whether it is of U.S. or foreign origin.   However, this
information, standing alone, is insufficient to establish that
the parts claimed to be manufactured in the U.S. are, in fact, 
of U.S. origin.   Therefore, unless protestant is able to
establish to your satisfaction the precise identity of the
returned U.S.-manufactured parts,  item 800.00, TSUS, treatment
for the analyzer kits is precluded.

     We note that there is no indication from the record that
protestant complied with the documentation requirements set 
forth in 19 CFR 10.l(a).   Compliance with the Customs
Regulations relating to American goods returned is mandatory 
and a condition precedent to recovery unless compliance has 
been waived or is impossible.  Mine Safety Appliances Co. v.
United States, 36 Cust. Ct. 277, C.D. 1786 (1956).  We 
understand that your office has not waived the documentation
requirements in this case (as authorized by 19 CFR 10.l(d)), 
and we have no reason to believe that production of the 
required documents was impossible.

HOLDING:

     Based on the record before us, we conclude that the 
foreign components incorporated into various diagnostic 
analyzer kits in the U.S., and those merely placed in the 
kits, were not substantially transformed into products of the
U.S.  Therefore, the foreign-made parts are not entitled to 
item 800.00, TSUS, treatment.  With respect to the U.S.-made
parts included in the kits, unless the importer establishes to
your satisfaction the identity of these parts (and the 
applicable documentation requirements are waived), free entry
under this tariff provision for these parts also is precluded.

     Accordingly, you are directed to dispose of the protest 
in accordance with this decision.  A copy of this decision 
should be attached to the Form 19, Notice of Action, to be 
sent to the protestant.

                              Sincerely,


                              John Durant, Director
                              Commercial Rulings Division

Enclosure