Applicability of subheadings 9801.00.10 and 9802.00.50, HTSUS, to ground chili

HQ 557794 May 23, 1994 CLA-2 CO:R:C:S 557794 BLS CATEGORY: Classification TARIFF NO.: 9801.00.10, 9802.00.50 Mr. Yong M. Kim 9129 Tobias Street #110 Panorama City, CA. 91402 RE: Applicability of subheadings 9801.00.10 and 9802.00.50, HTSUS, to ground chili Dear Mr. Kim: This is in reference to your letter dated January 25, 1994, requesting a ruling regarding the tariff treatment of ground chili sent to Mexico for processing. Samples of the product have been submitted. FACTS: The chili, of U.S. origin, is sent to Mexico in a chopped, dehydrated state to be cleaned, selected (refined) and coarsely ground before being returned to the U.S. ISSUE: 1) Whether the cleaned, selected and ground chili is entitled to duty-free treatment under subheading 9801.00.10, Harmonized Tariff Schedule of the United States (HTSUS), upon return to the U.S. 2) Whether the cleaned, selected and ground chili is entitled to the partial duty exemption under subheading 9802.00.50, HTSUS, upon return to the U.S. LAW AND ANALYSIS: Subheading 9801.00.10, HTSUS, provides for the free entry of U.S. products that are exported and returned without having been advanced in value or improved in condition by any means while abroad, provided the documentary requirements of section 10.1, Customs Regulations (19 CFR 10.1), are met. While some change in the condition of the product is permissible abroad, operations which either advance the value or improve the condition of the exported product render it ineligible for duty-free entry upon return to the U.S. See Border Brokerage Company v. United States, 65 Cust Ct. 50, C.D. 4052, 314 F. Supp. 788 (1970), appeal - 2 - dismissed, 57 CCPA 165 (1970). The packaging abroad of U.S.-made products will not preclude classification under this tariff provision when there is no improvement in condition or advancement in value of the products themselves, apart from their containers. See United States v. John V. Carr & Sons, Inc., 69 Cust. Ct. 78, C.D. 4377 (1972), in which the court stated that absent some alteration or change in the item itself, the mere repackaging of the item, even for the purpose of resale to the ultimate consumer, is not sufficient to preclude the merchandise from being classified under item 800.00, Tariff Schedules of the United States (TSUS) (the precursor to subheading 9801.00.10, HTSUS). We have previously held that a lipstick mass exported abroad to be heated, formed into stick shapes and inserted into individual applicators was advanced in value or improved in condition as a result of these processes. The returned product was therefore ineligible for duty-free treatment under subheading 9801.00.10, HTSUS. See Headquarters Ruling Letter (HRL) 556384 dated May 22, 1992. (See also HRL 555815 dated March 15, 1991, cheddar cheese spray dried into a powder form mixed with salt and emulsifier found to be ineligible for subheading 9801.00.10, HTSUS, treatment, and HRL 054825 dated February 27, 1978, liquid egg whites reduced to powder form found to be advanced in value and improved in condition, and thus ineligible for HTSUS subheading 9801.00.10, treatment.) The processing in Mexico clearly advances the value and improves the condition of the exported chili. The grinding process further refines the product to meet consumer tastes. As a result, we find that the exported chili is ineligible for duty-free treatment under subheading 9801.00.10, HTSUS, upon return from Mexico. 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 means of repairs or alterations. Such articles are dutiable only upon the value of the foreign repairs or alterations, provided the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8), are satisfied. However, entitlement to this provision is precluded in circumstances where the operations performed destroy the identity of the articles or create new or commercially different articles. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956); Guardian Industries Corp. v. United States, 3 CIT 9 (1982). Tariff treatment under subheading 9802.00.50, HTSUS, is also precluded where the exported articles are incomplete for their intended use and the foreign processing - 3 - operation is a necessary step in the preparation or manufacture of finished articles. See, Dolliff & Company, Inc. v. United States, 81 Cust. Ct. 1, C.D. 4755, 455 F. Supp. 618 (1978), aff'd, 66 CCPA 77, C.A.D. 1225, 599 F.2d 1015 (1979). In HRL 556384, above, we found that the lipstick mass was not a completed article and therefore ineligible for the partial duty exemption under subheading 9802.00.50, HTSUS, because it was not in a condition suitable for its intended use; the lipstick material had to be further refined before it became a product usable by and saleable to consumers. Therefore, we held in that case that the process performed abroad exceeded an alteration as that term is used in subheading 9802.00.50, HTSUS. Similarly, in the instant case, the chili is not complete for its intended use when exported. The product must be further refined before it will be sold, and the cleaning, selection, and grinding operations are steps leading to its completion as a saleable and usable product. Therefore, the processing in Mexico exceeds an alteration as that term is used in subheading 9802.00.50, HTSUS, as that tariff provision contemplates foreign processing only to completed products. HOLDING: The chili imported into the U.S. from Mexico will be ineligible for duty-free entry under subheading 9801.00.10, HTSUS, because the U.S.-origin chili is advanced in value and/or improved in condition as a result of the processes performed there. In addition, the chili will not be eligible for a partial duty exemption under subheading 9802.00.50, HTSUS, because the product is considered to be incomplete for its intended use prior to the foreign operations of cleaning, selecting, and grinding. Sincerely, John Durant, Director Commercial Rulings Division