Application for Further Review of Protest No. 3004-8-000102, contesting the denial of item 806.20, TSUS, treatment to coffee which was decaffeinated abroad

HQ 555385 August 6, 1990 CLA-2 CO:R:C:V 555385 RA CATEGORY: Classification TARIFF NO.: 9802.00.50 District Director of Customs 909 First Avenue Room 2039 Seattle, Washington 98174 RE: Application for Further Review of Protest No. 3004-8-000102, contesting the denial of item 806.20, TSUS, treatment to coffee which was decaffeinated abroad Dear Sir: The above-referenced protest contests your denial of the partial duty exemption under item 806.20, Tariff Schedules of the United States (TSUS) (now subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS)), to raw or crude coffee which was exported to Canada for decaffeination and returned. FACTS: Coffee in a raw or crude condition was sent to Canada where it was subjected to processing to remove its carrein. It was then returned to the U.S. for additional processing, consisting of roasting, grounding, and packaging for retail sale. ISSUE: Does the processing abroad of coffee to remove the carrein constitute an alteration, thereby entitling the returned product to the partial exemption from duty under item 806.20, TSUS? LAW AND ANALYSIS: Item 806.20, TSUS, provides a partial duty exemption for articles returned to the U.S. after having been exported to be advanced in value or improved in condition by means of repairs or alterations. The application of this provision is precluded where the operations abroad result in new or - 2 - different articles or are for the purpose of finishing products to certain specifications. Thus, intermediate processing operations which are performed in the preparation of finished articles do not come within the scope of the term "alterations." An article entitled to classification under item 806.20, TSUS, is dutiable only upon the cost or value of the foreign repairs or alterations. In Dolliff & Company Inc. v. U.S., 66 CCPA 77, C.A.D. 1225 (1979), the court fou d that the processing steps performed on exported greige goods were undertaken to produce the finished fabric and could not be considered as alterations. The court stated that alterations are made to completed articles and do not include intermediate processing performed on unfinished goods, leading to completed articles. Moreover, in U.S. v. J.D. Richardson Co., 36 CCPA 15, C.A.D. 390 (1948), the court stated that Congress did not intend that incomplete articles, manufactured in the U.S. or imported into the U.S., could be exported to a foreign country and there manufactured into completed articles, and when returned to the U.S., be subject only to duties on the so-called alterations. It is clear from the holdings in the above judicial decisions that a manufacturing operation which constitutes an intermediate step in the preparation of a finished product cannot be characterized as an alteration. In this case, after the processing of the coffee in Canada, it must be roasted, ground, and packaged in the U.S. before it can be sold at retail. Accordingly, the operation of removing the caffein abroad was only an intermediate step in making a finished product and, therefore, cannot be treated as an alteration. HOLDING: The processing in Canada to remove the carrein from crude coffee amounts to an intermediate step in making the finished article and cannot be considered an alteration under item 806.20, TSUS. Therefore, the protest should be denied in full. 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