Applicability of alteration provision in subheading 9802.00.50, HTSUS, to fabrics exported to Canada for heat transfer designs and returned

HQ 555535 March 15, 1990 CLA-2 CO:R:C 555535 RA CATEGORY: Classification TARIFF NO.: 9802.00.50, HTSUS Ms. Ann M. Williams A.N. Deringer, Inc. 30 West Service Road Champlain, New York 12919-9703 RE: Applicability of alteration provision in subheading 9802.00.50, HTSUS, to fabrics exported to Canada for heat transfer designs and returned Dear Ms. Williams: This is in response to your letter of November 30, 1989, on behalf of Master Fabrics Ltd., in Quebec, requesting a ruling on the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS) to fabrics sent to Canada where designs are applied by a heat transfer process before being returned to the United States. FACTS: Two different woven fabrics in the greige of U.S. manufacture are finished in Canada by printing with a heat transfer. The first item consists of a cotton, polyester, and rayon plain fabric which is printed by means of a German-made paper by Transfertex. The second item is a fabric composed of a nylon face and a back of polyester and cotton, which is printed with a paper transfer of German or U.S. origin. When completed, the first item has a multi-colored design on one side and the second item has a pink napped surface on one side. ISSUE: Are the returned printed fabrics eligible for tariff treatment under the alterations provision in subheading 9802.00.50, HTSUS? LAW AND ANALYSIS: Subheading 9802.00.50, HTSUS, 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 - 2 - means of an alteration and duty is assessed only on the cost or value of the alteration abroad. The application of this provision is precluded where the operations abroad result in new or different articles or are for the purpose of finishing them 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." In Dolliff & Company, Inc. v. U.S., 66 CCPA 77, C.A.D. 1225 (1979), the court found that the processing steps performed on exported greige goods were undertaken to produce the finished fabric and could not be considered as alterations. It was concluded that alterations are made to completed articles and do not include processing operations done as a matter of course in the preparation or the manufacture of finished articles. Congress did not intend to permit uncompleted articles to be exported and made into finished products in the foreign country and when returned to be subject to duties only on the cost of the so-called alterations. U.S. v. J.D. Richardson Co., 36 CCPA 15, C.A.D. 390 (1948). In Headquarters Ruling Letter of November 2, 1983 (071501), we held that rolls of fabric in the greige state exported to Italy for bleaching, dyeing, and printing and returned were dutiable on total value since the process of producing the finished article went beyond an alteration. Moreover, in Headquarters Ruling Letter dated February 6, 1989 (554985), we decided that socks sent to Taiwan for silk screening with a novelty design could not be treated as merely altered abroad because, when returned, they were decorated socks in a finished condition. HOLDING: On the basis of the information and samples submitted, we must conclude that the fabrics involved were incomplete articles when exported to Canada and finished products when returned which renders them ineligible for the partial duty exemption available under subheading 9802.00.50, HTSUS. Sincerely, John Durant, Director Commercial Rulings Division 6cc: A.D., NY Seaport 1cc: D.D., Champlain, NY ARNOLD:lw 2/7/90