HQ 559648

May 20, 1996

CLA-2 RR:TC:SM 559648 DEC

CATEGORY: Classification

TARIFF NO.: 9802.00.50

Port Director

477 Michigan Ave.

Detroit, Michigan 48226

RE: Application for Further Review of Protest No. 3801-4-104073;

applicability of a

partial duty exemption to baking pans coated abroad and

returned to the U.S.;

HRL 558869; HRL 556992; HRL 557024; HRL 554192; HRL 555078;

HRL 553657

Dear Sir:

This is in reference to your memorandum postmarked January

16, 1996, forwarding a Protest and Application for Further Review

filed timely by Ameri-Can Customshouse Brokers, Incorporated,

which contests your denial of the partial duty exemption under

subheading 9802.00.50, Harmonized Tariff Schedule of the United

States (HTSUS), to certain baking pans.

FACTS:

This protest concerns hamburger baking pans that are shipped

from the United States to DuraShield in Canada so that a special

coating may be applied and then returned to the United States.

In Canada, DuraShield removes the existing, traditional bakery

silicon release coating by means of heating and sandblasting.

DuraShield then replaces the coating with their proprietary,

superior, long-life, non-stick coating. Your office disallowed

classification under subheading 9802.00.50, HTSUS, contending

that the coating process is a further manufacturing process since

the pans that are subjected to the coating process are unused.

ISSUE:

Does the coating process that is performed in Canada on the

baking pans as described above constitute an alteration pursuant

to subheading 9802.00.50, HTSUS, thereby entitling the baking

pans to a partial duty exemption under this subheading?

LAW AND ANALYSIS:

Articles returned to the U.S. after having been exported to

be advanced in value or improved in condition by repairs or

alterations may qualify for the partial duty exemption under

subheading 9802.00.50, HTSUS, provided the foreign operation does

not destroy the identity of the exported articles or create new

or different articles through a process of manufacture. However,

entitlement to this tariff treatment is precluded where the

exported articles are incomplete for their intended use prior to

the foreign processing, Guardian Industries Corp. v. United

States, 3 CIT 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 finished articles. Dolliff & Company, Inc. v.

United States, C.D. 4755, 81 Cust. Ct. 1, 455 F. Supp. 618

(1978), aff\'d, C.A.D. 1225, 66 CCPA 77, 599 F.2d 1015 (1979).

Articles entitled to this partial duty exemption are dutiable

only upon the cost or value of the foreign repairs or alterations

when returned to the U.S. from Canada, provided the documentary

requirements of 19 CFR 181.64 are satisfied.

In the above-referenced Dolliff case, certain Dacron

polyester fabrics\--greige goods\--were exported and subjected to

multiple processing operations abroad, including dyeing. The

finished fabric that was returned to the U.S. was denied the

partial duty exemption for alterations abroad because it was

determined that the dyeing and numerous other processing steps

were all necessarily undertaken to produce the finished fabric.

In another alterations case, C.J. Tower & Sons of Niagara,

Inc. v. United States, C.D. 2208, 45 Cust. Ct. 111 (1960), cotton

drills\--also greige goods\--were exported and subjected to

multiple operations, including dyeing. The cotton cloth that was

returned to the U.S. was similarly denied the partial duty

exemption for alterations abroad because it was determined that

the merchandise exported was changed in color, width, length,

porosity, in the distribution of the threads in the weave, in

weight, tensile strength, texture, and suppleness as a result of

the foreign processing. In holding that the foreign processing

constituted more than an alteration, the court found that the

returned merchandise was a new and different article, having

materially different characteristics and a more limited and

specialized use.

In Amity Fabrics, Inc. v. United States, C.D. 2l04, 43 Cust.

Ct. 64, 305 F. Supp. 4 (1959), unmarketable, pumpkin-colored

cotton twill-back velveteen was exported to be redyed a black

color. The court determined that the dying operation was a

change which rendered the fabric marketable and that this

improved its condition commercially, and found that such change

constituted an alteration under the statute and Customs

Regulations. As the parties had stipulated that the redyeing in

no way changed the quality, texture, or character of the

material, the court concluded that the identity of the goods was

not lost or destroyed by the dyeing process; no new article was

created; there was no change in the character, quality, texture,

or use of the merchandise; it was merely changed in color.

In Royal Bead Novelty Co. v. United States, C.D. 4353, 68

Cust. Ct. 154, 342 F. Supp. 1394 (1972), uncoated glass beads

were exported so that they could be half-coated with an Aurora

Borealis finish which imparted a rainbow-like luster to the

half-coated beads. The court found that the identity of the

beads was not lost or destroyed in the coating process and that

no new article was created. Moreover, there was no change in the

beads\' size, shape, or manner of use in the making of jewelry (as

the plaintiff testified that both uncoated and half-coated beads

were used interchangeably). The sole change was in the finish,

which did not change the quality, texture, or character of the

exported beads. Accordingly, the court concluded that

application of the Aurora Borealis finish constituted an

alteration within the meaning of item 806.20, Tariff Schedules of

the United States (TSUS) (the precursor tariff provision to

subheading 9802.00.50, HTSUS).

In Headquarters Ruling Letter (HRL) 558869, dated March 8,

1995, we determined that digital voice terminals that were

originally manufactured in the United States for sale in the

United Kingdom, but never sold, were entitled to the partial duty

exemption under subheading 9802.00.50, HTSUS, for operations

relating to the replacement of a certain chip programmed to meet

the United States requirements rather than the United Kingdom\'s

specifications.

In HRL 556992, dated May 7, 1993, Customs considered whether

notebook computers with a monochrome video display that were to

be sent abroad to have the monochrome display replaced with a

color display feature would be eligible for subheading

9802.00.50, HTSUS, treatment. The upgraded unit would retain all

of the original capabilities of the exported unit, i.e., the

ability to store programs, to be freely programmed, to perform

computations, and to execute a program requiring logical

decision. In that case, we found that the computer in its

exported condition was complete for its intended use as an

\"automatic data processing machine.\" It could be

used for this purpose without exercising the option to upgrade

the unit. There was no change in the identity of the computer as

a result of the upgrade and no new article was created.

Accordingly, we found that the upgrade was an alteration within

the meaning of subheading 9802.00.50, HTSUS.

In HRL 557024, dated June 30, 1993, Customs determined that

a U.S.-origin host computer sent to Canada to be modified by the

addition of a Canadian-produced board set was an alteration.

This alteration increased the data processing speed of the

computer to enable it to handle the complex software.

In HRL 554192, dated September 5, 1986, we held that

treating shakes and shingles with fire retardant chemicals in

Canada qualified as an alteration eligible for purposes of

806.20, TSUS, because the products were completed articles ready

for their intended use, were regularly so used in their untreated

condition, and appeared to be preferred over the more expensive

treated product by the vast majority of customers. We also

stated that they did not lose their identity in the

fire-retardant process.

As in HRL 558869, HRL 556992, HRL 557024, and HRL 554192, we

find that the baking pans in their exported condition are

complete for their intended use as baking pans, and that the

processing abroad does not serve to change the identity or the

character of the exported articles. No new and different article

of commerce is created as a result of the processing abroad.

Rather, the exported baking pans merely undergo an operation to

equip them with the ability to function more effectively.

Accordingly, we find that the processing abroad constitute

alterations within the meaning of subheading 9802.00.50, HTSUS.

You cite to HRL 555078, dated March 27, 1989, in support of

your position that the baking pans at issue are not entitled to

classification under subheading 9802.00.50, HTSUS. In that

ruling letter, we concluded that the clamp brackets at issue

which were sent abroad to be cleaned, coated, rinsed, heated and

painted to be a necessary part of the manufacturing process.

Accordingly, we concluded that these operations were not

alterations. We reached a similar determination in HRL 553657,

dated December 11, 1985, which addressed a coating operation of

certain welding tips coated with aluminum. A change in quality

of an article resulting from further processing is not

necessarily indicative that a particular operation constitutes a

non-qualifying operation. In this case, the baking pans are

completely manufactured articles prior to exportation for the

replacement coating operation. The fact that they may or may not

have actually been used prior to exportation is irrelevant under

these circumstances.

HOLDING:

On the basis of the information provided, we find that the

coating operation performed in Canada to the baking pans as

described above constitutes a qualifying alteration. Thus, the

returned baking pans are entitled to the partial duty exemption

under subheading 9802.00.50, HTSUS. Accordingly, the protest

should be granted.

In accordance with Section 3A(11)(b) of Customs Directive

099-3550-065, dated August 4, 1993, Subject: Revised Protest

Directive, this decision should be mailed by your office to the

protestant no later than 60 days from the date of this letter.

Any reliquidation of the entry in accordance with the decision

must be accomplished prior to mailing of the decision. Sixty

days from the date of the decision 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

Tariff Classification Appeals

Division