Eligibility of an industrial gas turbine which was exported to Norway for repairs and returnedfor a partial duty exemption; essential identity; tariff classification of the gas turbine andthe container/frames in which the turbine is shipped to the U.S.

HQ W559678 March 13, 1998 CLA-2 RR:CR:SM W559678 CW CATEGORY: Classification TARIFF NO.: 8411.82.80; 8609.00.00; 9802.00.50 Port Director of Customs 300 South Ferry Street Terminal Island, CA. 90731 RE: Eligibility of an industrial gas turbine which was exported to Norway for repairs and returned for a partial duty exemption; essential identity; tariff classification of the gas turbine and the container/frames in which the turbine is shipped to the U.S. Dear Port Director: This is in reference to letters dated February 5, 1996, September 26, 1996, and February 25, 1998, to this office from Melvin S. Schwechter, Esq.. requesting a ruling on behalf of his client, Kvaerner Industrial Services, Inc. ("KIS"), concerning the tariff classification and eligibility of an industrial gas turbine from Norway for a partial duty exemption under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS). Although the transaction was prospective in nature at the time of the initial ruling request, we have been advised that the gas turbine in question has been imported through your Port and that the entry is being held open pending issuance of this ruling. We have granted confidential treatment to the cost/price information identified in brackets in counsel's February 5, 1996, submission. FACTS: According to information provided by counsel, KIS, a Delaware Corporation, sells gas turbine repair services, and supplies on-site service and parts, to owners and users of gas turbines and sub-assemblies thereof. KIS is related to Kvaerner Energy A.S. ("KEN"), a Norwegian corporation. In 1995, KIS entered into a contract with a U.S. company for the repair of a U.S.­ made General Electric Model LM-2500 industrial gas turbine used for power generation purposes. The bulk of the repairs to the gas turbine was to be made by KE at its GE authorized repair facility in Norway, although certain minor repairs were to be made in the U.S. by KIS. Following execution of the repair agreement, KIS took possession of the gas turbine and  partially disassembled it by separating its gas generator and power turbine portions. This was done because shipment of the two portions to Norway in their separate containers resulted in more convenient shipment and lower freight costs. Before the gas generator and power turbine were shipped to Norway, certain parts, referred to as field replacement parts, were separately removed from both portions for repair or replacement in the U.S. Field replacement parts are relatively minor parts which GE allows a repairer to repair or replace on site rather than at a GE authorized repair facility. After the field replacement parts were removed from the gas generator, the gas generator was shipped to Norway. Subsequently the power turbine was shipped to Norway following removal of its field replacement parts. Once KIS performed the repairs/replacement on the field replacement parts in the U.S. (more than 97% were repaired, while the remainder were replaced with new parts), they were shipped to Norway for incorporation into the gas generator and power turbine. In Norway, the gas generator and power turbine portions were repaired by KEN. The repair process consisted of disassembling the two portions, inspecting and cleaning all components, reconditioning or replacing components as needed, machining, grinding, reassembling all components, and testing the reassembled gas generator and power turbine. However, counsel for KIS advises that certain major components of each portion, comprising the essential identity of the industrial gas turbine, were not replaced but were maintained as a matched set throughout the foreign repair process. In addition, the distinct and unique serial number of the gas turbine remained the same. According to counsel, the essential identity components of the gas generator portion consist of the "compressor rear frame," "compressor rotor" and "front frame," while the essential identity components of the power turbine section consist of the "power turbine rotor" and the "power turbine rear frame." The repaired gas turbine was shipped from Norway and entered into the U.S. mounted in two transportation container/frames that were custom-designed for LM-2500 industrial gas turbines. These container/frames are suitable for door-to-door shipment without repacking, and are used repeatedly. The container/frame holding the power turbine portion was made in the U.S. while the container/frame holding the gas generator portion was made outside the U.S. The two container/frames holding the two portions of the gas turbine were transported to the U.S. aboard the same airplane. Counsel for KIS asked that we issue a ruling on various issues relating to the foreign repair and subsequent importation of the industrial gas turbine. These include the proper tariff classification of the imported gas turbine as well as the container/frames in which the turbine was shipped to the U.S., the eligibility of the U.S.-made container/frame for subheading 9801.00.10, HTSUS, treatment, and the eligibility of the returned gas turbine for a partial duty exemption under subheading 9802.00.50, HTSUS. In connection with the subheading 9802.00.50, HTSUS, issue, counsel asked whether the cost or value of the new or repaired field replacement parts separately shipped to Norway by KIS for incorporation in the repaired gas turbine would be  dutiable as part of the cost of the foreign repair operation. Counsel also asked whether the cost of shipping those field replacement parts to Norway would be considered dutiable as part of the foreign repair. ISSUES: What is the proper tariff classification of the returned LM-2500 industrial gas turbine? What is the tariff classification of the container/frames? Whether the U.S.-made container/frame used to transport the power turbine portion of the gas turbine to the U.S. is entitled to duty-free treatment under subheading 9801.00.10, HTSUS. Whether the returned industrial gas turbine is entitled to a partial duty exemption under subheading 9802.00.50, HTSUS. LAW AND ANALYSIS: Classification of the industrial gas turbine The LM-2500 is a simple-cycle, two-shaft engine consisting of a gas generator and a power turbine. Components of the gas generator include a 16-stage axial compressor, an annular combustor, a two-stage, air cooled high pressure turbine, an accessory drive gearbox, plus controls and accessories. The six-stage, low pressure power turbine is aerodynamically coupled with and driven by exhaust from the gas generator. The LM-2500 is 21.4 feet long (6.52 m), weighs approximately 10,300 pounds (4,682 kg), and has a diameter at the power turbine exhaust flange of 6.7 feet (2.04 m). Gas turbines of this type can be used for industrial utility power generation and mechanical drive applications. Counsel for KIS maintains that the LM-2500 industrial gas turbine is classifiable under subheading 8411.82.80, HTSUS, a provision for other gas turbines. Merchandise is classifiable under the HTSUS in accordance with the General Rules of Interpretation (GRis). GRI I states, in part, that for legal purposes, classification shall be determined according to the te1ms of the headings and any relative section or chapter notes, and provided the headings or notes do not require otherwise, according to GRis 2 through 6. The Harmonized Commodity Description And Coding System Explanatory Notes (ENs) constitute the official interpretation of the Harmonized System. While not legally binding  on the contracting parties, and therefore not dispositive, the ENs provide a commentary on the scope of each heading of the Harmonized System and are thus useful in ascertaining the classification of merchandise w1der the System. Customs believes the ENs should always be consulted. See T.D. 89-80. 54 Fed. Reg. 35127, 35128 (Aug. 23, 1989). Heading 8411, HTSUS, provides for turbojets, turbo propellers, and other gas turbines, and parts thereof. Heading 84.11 ENs, at pp. 1250-1252, under (C) OTHER GAS TURBINES, describe a two-shaft gas turbine unit for marine craft, among others, in which the compressor, combustion system and compressor turbine are accommodated in one unit generally called a gas generator, while a second turbine on a separate shaft receives the heated and pressurized gas from the exhaust of the gas generator. This second turbine, known as the power turbine, is coupled to a driven unit, such as a compressor or pump. These ENs describe a complete and fully functional gas turbine of the type provided for in heading 8411. We find that the LM-2500 industrial gas turbine, imported unassembled as described above, is classifiable in subheading 8411.82.80, HTSUS, as other gas turbines. Classification of the container/frames Counsel for KIS maintains that the container/frames are classifiable under heading 8609.00.00, HTSUS, a provision for containers (including containers for the transport of fluids) specially designed and equipped for carriage by one or more modes of transport. The container/frame for the gas generator portion is of aluminum construction and measures 123 inches x 71 inches x 62 inches. The container/frame for the power turbine portion is nearly identical, except that it is of U. S. origin, and of steel construction, and measures 75 inches x 67 inches x 62 inches. The container/frames are made up of tubular and plate metal shafts. They consist of a rectangular metal frame which serves as the base, and rectangular metal plates/caps on each end secured to the base by locking pins and arms. Four (4) large ring-eyes welded at each corner of the container/frame, 2-per side, to permit lashing the container/frames into aircraft cargo holds. In addition, they have two (2) looped runner guides or forklift channels situated equidistant along the longer parallel sides for ease in loading and unloading. Both container/frames are said to be suitable for door-to-door shipment without repacking, and are used repeatedly. The ENs, at p. 1542, describe containers of heading 86.09 as packing receptacles specially designed and equipped for carriage by one or more modes of transport (e.g., road, rail, water or air). They are equipped with jittings (hooks, ri11gs, castors, supports, etc.) To facilitate handling and securing 011tlte tra11sporti11g velticle, aircraft or vessel. They are thus suitable for the "door-to-door" transport of goods without intermediate repacking and, being of robust construction, are intended to be used repeatedly (Emphasis added). Among the articles excluded  from heading 86.09 are cases, crates, etc., which though designed for the "door-to-door" transport of goods are not specially constructed as described above to be secured to the transporting vehicle, aircraft or vessel; these are classified according to their constituent material. The issue of whether certain containers were "specially designed and equipped" for the purposes of heading 8609.00.00 was addressed in Headquarters Ruling Letter (HRL) 951388, dated September 29, 1992. In that decision, it was held that an article is specially constructed for a particular purpose if it includes particular features which adapt it for that purpose, even though the purpose may not be the article's principal purpose. HRL 951388 held that although capable of and used for in-plant storage, containers with tie down tubes or runner guides that permit handling by forklifts, but which also permit them to be tied down during transit, were goods of heading 8609.00.00. In this case, the gas turbine container/frames have not only looped runner guides but also 4 ring-eyes welded to their sides. These container/frames satisfy the cited ENs and are goods of subheading 8609.00.00, HTSUS, which provides for a free rate of duty. Eligibility of the U.S.-made container/frame for 9801.00.10, HTSUS, treatment Subheading 9801.00.10, HTSUS, provides for the duty-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 documentation requirements of section 10.1, Customs Regulations (19 CFR 10.1), are met. While some change in the condition of the product while it is abroad is permissible, 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, Inc. v. United States, 65 Cust.Ct. 50, C.D. 4052, 314 F.Supp. 788, appeal dismissed, 58 CCPA 165 (1970). We have held that upon submission of satisfactory proof that a container is of U.S. origin and that it is returned without having been advanced in value or improved in condition while abroad, it is entitled to duty-free treatment under subheading 9801.00.10, HTSUS. The act of being filled with its contents is not considered to constitute such an advancement or improvement. See HRL 731806 dated November 18, 1988. The information provided by counsel for KIS does not indicate that the container/frame used to transport the power turbine portion of the gas turbine from Norway to the U.S. was advanced in value or improved in condition while abroad. Therefore, if your office is satisfied that this container/frame was manufactured in the U.S., we find that it is entitled to subheading 9801.00.10, HTSUS, treatment, upon compliance with the documentation requirements of 19 CFR I 0.1, unless such documentation is waived. Eligibility of the returned industrial gas turbine for 9802.00.50, HTSUS, treatment Articles returned to the United States after having been exported to be advanced in value  or improved in condition by repairs or alterations may qualify for a partial duty exemption under subheading 9802.00.50, HTSUS, provided that the foreign operation does not destroy the identity of the exported articles or create new or different articles. Entitlement to this tariff treatment is also precluded where the exported articles are incomplete for their intended use prior to the foreign processing, Guardian Industries, Inc. v. U.S., 3 C.I.T. 9 (1982), or where the foreign operation constitutes an intermediate processing operation, which is performed as a matter of course in the preparation or the manufacture of the finished articles. Dolliff & Company, Inc. v. U.S., 455 F. Supp. 618 (C.I.T. 1978), affd, 599 F.2d 1015 (Fed. Cir. 1979). Such articles are dutiable only upon the value of the foreign repairs or alteration, provided the documentation 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 or different article. Press Wireless, Inc. v. U.S., C.D. 4386, Cust. Ct. 102 (1941). The replacement and/or addition of parts to restore products to their original condition may constitute repair operations for purposes of subheading 9802.00.50, HTSUS, if the particular article does not lose its identity and the replacements and/or additions are not so extensive as to create a new or different article. In prior rulings, we have held that subheading 9802.00.50, HTSUS, will be applicable to articles disassembled for repairs, where components are reconditioned and others are replaced, as long as the essential components and therefore the identity of the article remains intact throughout the repair process. The concept of "essential identity" is employed under this tariff provision to insure that the article imported is the same as the article exported, and operates by identifying certain component parts of an exported article as embracing the essential identity of the particular article exported. Component parts so identified are to be maintained together throughout the repair operation as a matched set. Thus, replacing any one of these essential components would violate the uniqueness of the matched set and result in a new article of commerce, thereby precluding eligibility for the partial duty exemption under subheading 9802.00.50, HTSUS. See Headquarters Ruling Letter (HRL) 555443, dated November 30, 1990 and rulings cited therein. HRL 557969 dated October 14, 1994, involved the applicability of subheading 9802.00.50, HTSUS, to two gas turbine engine sub-assemblies (a bearing housing and a turbine nozzle assembly) which were shipped to Mexico for repairs and returned. The repairs consisted of disassembling the two sub-assemblies, cleaning by sand blasting, machining, welding, grinding, painting and reassembly. As the essential identity parts of the two sub-assemblies (identified as the outer support and inner support of the bearing housing and the nozzle case of the nozzle assembly) were retained throughout the repair process, Customs determined that the articles qualified for subheading 9802.0050, HTSUS, treatment. In HRL 556452 dated April 4, 1992, Customs considered whether operations perfom1ed  abroad on gas producers constituted repairs under this tariff provision. The units were disassembled, cleaned, grit blasted, machined non-essential components were replaced, and the units were reassembled. It was held that since the essential identity of the exported gas producers, identified as the air inlet housing, compressor stator case, combustor housing and nozzle support case, was preserved, the repaired gas producers qualified for the partial duty exemption under subheading 9802.00.50, HTSUS. With respect to the essential identity of the industrial gas turbine in this case, based upon information provided to us by counsel for KIS, we find that the "compressor rear frame," "compressor rotor" and "front frame" of the gas generator portion, and the "power turbine rotor" and the "power turbine rear frame" of the power turbine portion constitute the essential identity of these two portions of the gas turbine. Thus, we are satisfied that, by maintaining these components as matched sets throughout the repair process in Norway, the essential identity of the gas turbine remained intact during the foreign repairs. Moreover, we find that the operations performed in Norway, consisting of disassembly, inspecting, cleaning, reconditioning or replacing non-essential components as needed, machining, grinding, reassembly and testing constitute acceptable repairs under subheading 9802.00.50, HTSUS. Therefore, the returned industrial gas turbine is entitled to the partial duty exemption under this tariff provision, upon compliance with the documentation requirements of 19 CFR l 0.8, unless such documentation is waived. Counsel for KIS has raised the issue of the dutiability of the field replacement parts provided by KIS to KEN in Norway for incorporation in the repaired gas turbine. These parts were removed from the gas generator and power turbine sections in the U.S. and then were either repaired or replaced with new parts in the U.S. prior to shipment to Norway. According to counsel, 97.5% of these field replacement parts were repaired, while only 2.5% were replaced. U.S. Note 3(a), subchapter TI, Chapter 98, HTSUS, applicable to subheadings 9802.00.40 through 9802.00.60, HTSUS, provides, in pertinent part, that The value of repairs, alterations processing or other change in condition outside the United States shall be: The cost to the importer of such change; or (ii) 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, the value of the change shall be determined in accordance with section 402 of the Tariff Act of 1930, as amended.  Section 10.8(d), Customs Regulations (19 CFR 10.8(d)), provides, in pertinent part, as follows: The cost or value of the repairs or alterations outside the United States ... shall be limited to the cost or value of the repairs or alterations actually performed abroad, which will include all domestic and foreign articles furnished for the repairs or alterations but shall not include any of the expenses incurred in this country whether by way of engineering costs, preparation of plans or specifications, furnishing of tools or equipment for doing the repairs or alterations abroad, or otherwise. Thus, according to the clear wording of 19 CFR 10.8(d), the cost or value of foreign repairs includes the cost or value of U.S. and foreign materials furnished for the repair. Customs has consistently held in this regard that the "actual" cost to repair an article includes not only the cost of new components used to replace worn or defective non-essential parts, but also the cost of used and repaired non-essential components taken from one unit and used in the repair of another. See HRLs 555443 dated November 30, 1990, 555139 dated June 23, 1989, and 555087 dated May 15, 1989. Therefore, consistent with the foregoing, the new field replacement parts provided by KJS to KEN as well as any other new parts, or reconditioned parts taken from other gas turbines, which were used in the repair of the industrial gas turbine in Norway (whether the parts are of U.S. or foreign origin) are dutiable as part of the cost or value of the foreign repairs. However, it is our opinion that the cost of those field replacement parts which were removed from the gas turbine in the U.S., repaired and then shipped to Norway for reassembly into the gas turbine are not dutiable as part of the foreign repairs as they were repaired in the U.S. and were taken from and later reinserted into the same article. With respect to the dutiability of the cost of transporting the gas generator and power turbine portions of the gas turbine from the U.S. to Norway, C.S.D. 82-150 (HRL 542866) dated July 30, 1982, held that costs incurred to transport articles from the U.S. to a foreign facility for repairs or alterations were not dutiable under the predecessor provision to subheading 9802.00.50, HTSUS, since the expenses were incurred in the U.S. Further, in HRL 544015 dated March 20, 1989, Customs found that charges incurred in connection with the transportation of the article from the foreign facility to the U.S. were not dutiable as part of the foreign repair costs as they were incurred after the foreign repair or processing operation. HOLDING: On the basis of the information submitted to us by counsel to KJS, we find that:  The LM-2500 General Electric industrial gas turbine, whether imported assembled or unassembled, is classifiable in subheading 84 l 1.82.80, HTSUS, as other gas turbines; Both the aluminum and the steel gas turbine container/frames are classifiable in subheading 8609.00.00, HTSUS; The container/frame used to transport the power turbine portion of the gas turbine from Norway to the U.S. is entitled to duty-free treatment under subheading 9801.00.10, HTSUS, assuming your office is satisfied that it is of U.S. origin and that the documentation requirements of 19 CFR 10.1 have been satisfied (or waived by your office); and . The returned repaired industrial gas turbine is entitled to the partial duty exemption under subheading 9802.00.50, HTSUS, assuming the documentation requirements of 19 CFR I 0.8 have been satisfied (or waived by your office). Please provide a copy of this decision to counsel for KlS, Melvin S. Schwechter of LeBoef, Lamb, Green & MacRae, 1875 Connecticut Ave., N.W., Washington, D.C. 20009-5728. The decision should be mailed by your office to counsel no later than 60 days from the date of this letter. On that date, the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels. Sincerely, John Durant, Director Commercial Rulings Division