Applicability of partial duty exemption to rifle scopes which are exchanged abroad or which have the reticles (cross hairs) replaced; alteration

HQ W557154 June 16, 1993 CLA-2 CO:R:C:S W557154 RAH CATEGORY: Classification TARIFF NO.: 9802.00.50 Mr. Dietrich Apel Schmidt & Bender Brook Road P.O. Box 134 Meriden, NH 03770 RE: Applicability of partial duty exemption to rifle scopes which are exchanged abroad or which have the reticles (cross hairs) replaced; alteration Dear Mr. Apel: This is in response to your letter of February 11, 1993, requesting a ruling regarding rifle scopes which are returned to the maker in Germany for exchange or for replacement of the reticles. The exchanged or altered rifle scopes are then imported into the U.S. FACTS: You state that an inexperienced importer ordered rifle scopes from your factory in Germany with reticles (cross hairs) which are unpopular in the U.S. and cannot be sold in this country. You have taken over this inventory and wish to return these scopes to Germany for complete exchange or for replacement of the reticle only and return. In a telephone conversation with a member of my staff, you stated that the related party in Germany will charge nothing for the exchange or replacement. ISSUE: Whether the return of rifle scopes to Germany for complete exchange or for replacement of the reticle only constitutes a "repair" or "alteration" within the meaning of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS).  LAW AND ANALYSIS: Subheading 9802.00.50, HTSUS, provides a partial duty exemption for articles returned to the United States 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) (copy enclosed), are satisfied. However, entitlement to this tariff treatment is precluded in circumstances where the operations performed abroad 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.O. 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 prior to the foreign processing. Guardian; 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.O. 1225, 82, 599 F.2d 1015, 119 (1979). To receive a partial duty exemption under subheading 9802.00.50, HTSUS, the same article that is exported for repairs or alterations must be returned. See Headquarters Ruling Letter 554408 dated April 22, 1987 (a remanufacturing process which results in substituting one article for another is not a repair or alteration because the foreign process converts the exported article into a new and different product). Under the first alternative in this case, the scopes which would be received in exchange for the scopes with the unpopular reticles would be new and different articles from those which were exported to Germany. Accordingly, these rifle scopes will be dutiable upon their full value, upon importation into the U.S. However, merely replacing the reticle in a rifle scope with one which is more popular in the U.S. would constitute an acceptable alteration as this operation would not destroy the identity of the scope or create a new or commercially different article. Moreover, the scopes returned to Germany for replacement of the reticles clearly are completed articles which are suitable for their intended use at the time of exportation. Therefore, under these circumstances, the scopes would be entitled to the partial duty exemption under subheading 9802.00.50, HTSUS, upon return to the U.S., provided the documentation requirements of 19 CFR 10.8 are satisfied.  With respect to the value of the alteration performed abroad, U.S. Note 3(a), subchapter II, Chapter 98, HTSUS, states that the value of repairs or alterations shall be: The cost to the importer of such change; or If no charge is made, the value of such change, as set out in the invoice and entry papers; except that, if the appraiser concludes that the amount so set out does not represent a reasonable cost or value, then the value of the change shall be determined in accordance with section 402 of the Tariff Act of 1930, as amended (19 U.S.C. 1401a). HOLDING: Rifle scopes which are received in exchange for scopes which are returned to Germany because they have unpopular reticles will not be entitled to the partial duty exemption under subheading 9802.00.50, HTSUS, upon importation into the U.S., since an exchange of merchandise does not constitute a repair or alteration within the meaning of that subheading. However, merely replacing the reticles in the scopes exported to Germany constitutes an acceptable alteration. Accordingly, the rifle scopes which are returned to Germany for replacement of the reticles will be entitled to entry under subheading 9802.00.50, HTSUS, when returned to the U.S., assuming compliance with the documentation requirements of 19 CFR 10.8. Sincerely, John Durant, Director Commercial Rulings Division Enclosure