HQ 555117: Applicability of duty exemption under HTSUS subheading 9802.00.40 to certain alternators imported from Mexico

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 555117

                                  December 22, 1988

          CLA-2 CO:R:C:V 555117 GRV

          CATEGORY:  CLASSIFICATION

          TARIFF NO.:  9802.00.40; 806.20

          Luis Chavez, Esq.
          Kemp, Smith, Duncan & Hammond, P.C.
          2000 MBank Plaza
          P.O. Drawer 2800, 79999-2800
          El Paso, Texas  79901-1441

          RE:  Applicability of duty exemption under HTSUS subheading
               9802.00.40 to certain alternators imported from Mexico

          Dear Mr. Chavez:

                This is in response to your letter of August 23, 1988, on
          behalf of Diesel ReCon Company (Diesel), requesting a ruling on
          the applicability of subheading 9802.00.40, Harmonized Tariff
          Schedule of the United States (HTSUS)(item 806.20, Tariff Sched-
          ules of the United States (TSUS)), to certain alternators im-
          ported from Mexico after repair.

          FACTS:

                You state that 10S1 alternators will be bulk-shipped in
          wiretainers to Mexico for repairs by Diesel's wholly-owned sub-
          sidiary.  The foreign repair process consists of completely dis-
          assembling the alternators for cleaning, painting, electronic
          testing and replacement of non-essential defective parts.  To
          ensure the integrity of a given 10S1 alternator, on disassembly,
          all components of a particular alternator will be placed in a
          basket.  The basket and certain components of each alternator--
          the stator and the rectifier and rotor housings--will be indi-
          vidually and similarly tagged.  The tagging of the components
          identify them as being a matched set of essential components of a
          particular 10S1 alternator.  Following the various repair opera-
          tions, the components are reassembled, the wire tags removed, and
          the alternator is returned to the U.S.

                You also request clarification concerning:

                (1) whether component parts, deemed essential to the
                    identity of the exported article, may be repaired
                    or altered and even replaced; and,
                (2) whether non-essential components may be commingled
                    in baskets of like parts, and may be used in the
                    reassembly of repaired alternators without regard
                    to the fact that parts taken from one alternator










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                    may be used in the reassembly of a different repaired
                    alternator.

          ISSUE:

                Whether the described repair process sufficiently maintains
          the essential identity of the exported article (10S1 alterna-
          tors), thereby qualifying the articles for the partial duty ex-
          emption available under HTSUS subheading 9802.00.40 (TSUS 806.20)
          when returned to the U.S.

          LAW & ANALYSIS:

                Effective January 1, 1989, the Harmonized Tariff Schedule
          of the United States (HTSUS) will supercede and replace the Tar-
          iff Schedules of the United States (TSUS).  Item 806.20, TSUS,
          will be carried over into the HTSUS without change as subheading
          9802.00.40.  This tariff provision provides a partial duty exemp-
          tion for articles that are returned to the U.S. after having been
          exported to be advanced in value or improved in condition by
          repairs and/or alterations.  Such articles are dutiable only upon
          the value of the foreign repairs and/or alterations when returned
          to the U.S., provided the documentary requirements of section
          10.8, Customs Regulations (19 CFR 10.8), are satisfied.

                Repairs are operations aimed at restoring articles to their
          original condition, but cannot be so extensive as to destroy the
          identity of the exported article or to create a new and different
          article.  Press Wireless, Inc. v. United States, 6 Cust. Ct. 102,
          C.D. 438 (1941).  In Headquarters Ruling Letter 554539 (August
          25, 1987), we stated that:

                [s]o long as the identity of [the exported unit]
                is maintained throughout the disassembly and repair
                process, and there is a genuine repair of parts car-
                ried out during the foreign process, these units
                may be entered under the repairs provision of item
                806.20, Tariff Schedules of the United States (TSUS).

                In the instant case, as the essential components of indi-
          vidual alternators--identified as the rectifier and rotor hous-
          ings and the stator--will be separately tagged as a matched set
          by a wire identification system designed to ensure that the es-
          sential identity of each alternator is maintained, and as each
          disassembled alternator will be maintained in its own basket,
          similarly tagged, throughout the repair process, it appears that
          the described repair process will retain the essence of the ex-
          ported article.  Accordingly, the foreign repair process is
          deemed to fall within the meaning of the term "repairs" under
          HTSUS subheading 9802.00.40, thereby qualifying the returned











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          alternators for the partial duty exemption provided for in this
          tariff provision.  However, as we previously advised your firm in
          Headquarters Ruling Letters 554817 (November 18, 1987) and 554815
          (November 23, 1987), although the essential components may be
          subjected to repair operations, replacing any one of the essen-
          tial components would violate the uniqueness of the identified
          matched set and result in a new article of commerce, contrary to
          HTSUS subheading 9802.00.40.  As for the remaining, non-essential
          parts, they may be commingled in baskets of like parts or other-
          wise retained in storage or inventory until required for reassem-
          bly.

                Regarding the proper tariff classification of the returned
          alternators, as your letter does not specify their voltage out-
          put, an exact HTSUS subheading number cannot be determined.  In
          general, alternators are classifiable under HTSUS heading 8501.
          Under the TSUS, alternators are classifiable under item 682.60.

                The essential components constitute the item being repaired
          abroad.  Under section 10.8(l) of the Customs Regulations (19 CFR
          10.8(l), the cost or value of the repairs performed include the
          cost or value of all articles, domestic and foreign, used in the
          repair.  Consequently, the cost or value of the repair of the al-
          ternators would include the cost or value of both new parts and
          the non-essential used parts removed during disassembly of the
          alternators and commingled with other like parts pending reassem-
          bly.

          CONCLUSION:

                On the basis of the information provided, as the essential
          identity of the exported 10S1 alternators will be preserved dur-
          ing the described repair process by wire tagging a matched set of
          essential components, the repaired alternators will qualify for
          the partial duty exemption under HTSUS subheading 9802.00.40,
          upon compliance with 19 CFR 10.8.  The dutiable value of the
          repairs will include the cost or value of all articles, domestic
          and foreign, used in the repair.


                                        Sincerely,





                                        John Durant, Director
                                        Commercial Rulings Division