HQ 0110716 - Perth Amboy, New Jersey, Vessel Repair Entry No. C514- 3003635-3, dated January 30, 1989, M/V AMERICAN PRINCESS - United States International Trade Commision Rulings

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HQ 110716

July 26, 1990

VES-13-18-CO:R:P:C 110716 BEW

CATEGORY: CARRIER

Deputy Assistant Regional Commissioner
Commercial Operations
ATTN: Regional Vessel Repair Liquidation Unit New York, New York 10048-0945

RE: Perth Amboy, New Jersey, Vessel Repair Entry No. C514- 3003635-3, dated January 30, 1989, M/V AMERICAN PRINCESS

Dear Sir:

This is in reference to an application for relief from duties filed by Seahawk Management, Inc. in relation to the above referenced vessel repair entry dated January 30, 1989, transmitted to this office by memorandum dated December 18, 1989.

FACTS:

The record shows that the shipyard work in question was performed on the subject vessel in Mombasa, Kenya, Durban, South Africa, and Rotterdam, Holland, during the period October 22, 1988, December 14, 1988, and January 12, 1989, respectively. The subject vessel arrived in the United States at the port of Perth Amboy, New Jersey, on January 24, 1989.

The entire vessel repair entry involves an estimated duty of $549,100.

The applicant claims that relief for the subject items should be granted because the items should be classified as nondutiable items covered under title 19, United States Code, section 1466(a) and sections 4.14(a) and 4.14(c) of the Customs Regulations.

The applicant claims that the repairs or equipment purchases described in the documents were necessitated by a casualty, i.e., starboard main engine casualty. It claims that the vessel was compelled, because of damage, to make repairs and to purchase such equipment to secure the safety and seaworthiness of the vessel to enable it to reach its port of destination.

ISSUE:

Whether the foreign work performed on the subject vessel is dutiable under 19 U.S.C. 1466.

LAW AND ANALYSIS:

Title 19, United States Code, section 1466(a), provides in pertinent part for payment of duty in the amount of 50 percent ad valorem on the cost of foreign repairs to vessels documented under the laws of the United States to engage in the foreign or coastwise trade, or vessels intended to be employed in such trade.

Paragraph (1), subsection (d) of section 1466 provides that duty may also be remitted if good and sufficient evidence is furnished establishing that the vessel was compelled by stress of weather or other casualty to put into a foreign port to make repairs to secure the safety and seaworthiness of the vessel to enable her to reach her port of destination. It is Customs position that "port of destination" means a port in the United States."

The statute thus sets a three-part test which must be met in order to qualify for remission under the subsection, these being:

1. The establishment of a casualty occurrence.

2. The establishment of unsafe and unseaworthy conditions.

3. The inability to reach the port of destination without obtaining foreign repairs.

The term "casualty" as it is used in the statute, has been interpreted as something which, like stress of weather, comes with unexpected force or violence, such as fire, explosion, or collision (Dollar Steamship Lines, Inc. v. United States, 5 Cust. Ct. 28-29, C.D. 362 (1940)). In this sense, a "casualty" arises from an identifiable event of some sort. In the absence of evidence of such a casualty event, we must consider the repair to have been necessitated by normal wear and tear (ruling letter 106159, September 8, 1983).

The applicant describes a total of 23 invoices and alleges that each of the described invoices are repairs or costs relating to the damage which was the result of the casualty which occurred in Nacala, Mozambique. The point is made by the applicant that the vessel was not fit for a voyage to the United States. It contends that because of the choppy waters prohibiting the American Bureau of Shipping (ABS) inspector from boarding to inspect the damage, the inspector allowed the vessel to proceed slowly to Nacala where he met the vessel. It states that after the examination of the damage, the vessel was permitted to proceed slowly on to Mobasa to complete the discharge of her cargo provided that she proceed to the nearest drydock in Durban for repairs. It claims that there were no repair facilities at Nacala or Mobasa.

In the instant case, the evidence is clear that the vessel suffered a break down in the starboard main engine. The vessel's log dated October 3, 1988, (applicant's exhibit 5) reflects the sailing restrictions imposed and the requirement that the vessel put in at Durban for casualty repairs. The Salvage Association report indicates that the damage was accidental and not the result of wear and tear (exhibit 7). Other documents submitted with the application state that the starboard main engine repairs were required because of an accident and were not the result of ordinary wear and tear. The ABS report indicates that severe overheating (just short of an explosion), possibly due to an oil stoppage, was indicated as the probable cause of the damage.

It is clear from the evidence that the vessel was in need of repairs to secure her safety and seaworthiness, however, the evidence is insufficient to show what actually caused the break down of the starboard main engine other then possibly an oil stoppage. Based on the evidence it appears that the oil stoppage may have been due to the lack of proper maintenance. Absent clear proof of an identifiable event to show an unexpected force or violence, such as fire, explosion, or collision resulting in damage, such cost of repairs is not remissible (see C.I.E. 1826/58). The documentation submitted is insufficient to support a finding of a casualty as provided in section 1466(d)(1). Accordingly, the cost incurred for the repairs associated with the starboard main engine casualty is dutiable as follows:

1. J.T. Rennie and Sons Invoice No. R3,012.97 - all items are nondutiable,

2. J.T. Rennie and Sons Invoice. No. R2,578.87 - all items are nondutiable.

3. Wartsila Diesel, Inc. No. W-9-0342 - all items are dutiable except charges for services of Morgan, Anderson and McKenna, and air fare, lodging and other transportation expenses.

4. Wartsila Diesel, Inc. No. W-9-0339F - all items are dutiable, except charges for expenses, air fare and travel. The service engineers' time for Morgan, Anderson and McKenna is not segregate on this invoice, Pursuant to C.I.E. 1325/58 and C.I.E. 565/55, duties may not be remitted where the invoice does not segregate the dutiable costs from the non-dutiable costs, therefore all time is dutiable.

5. Dorbyl Marine (PTY) Ltd. Contract No. 087588 B - all items are dutiable, except charges for air freight, transportation. Item No. 38 - sea trials are dutiable when perform to determine whether a repair has been properly done.

6. Dorbyl Marine (PTY) Ltd. Contract No. 087588 - all items are nondutiable.

7. Dorbyl Marine (PTY) Ltd. Contract No. 087588 - all items are nondutiable.

8. Dorbyl Marine (PTY) Ltd. - all items are nondutiable drydocking expenses except the gas free certificate which is prorated between the dutiable and nondutiable charges.

12. Fluid Mechanics, Inc. No. 988404 - all items are dutiable.

13. S.E.M.T. Pielstick Invoice No. 8122087 - all freight charges are non-dutiable.

14. National Ship Chandlers (PTY) LTD. Invoice No. 7256 - all items are non-dutiable as ship stores.

15. National Ship Chandlers (PTY) LTD. Invoice No. 7258 - all items are dutiable.

16. National Ship Chandlers (PTY) LTD. Invoice No. 7262 - all items are dutiable.

17. National Ship Chandlers (PTY) LTD. Invoice No. 7256 - all items are dutiable.

18. National Ship Chandlers (PTY) LTD. Invoice No. 7257 - all items are dutiable.

19. National Ship Chandlers (PTY) LTD. Invoice No. 7600 - all items are dutiable except soft rags which are ship stores.

20. Chandling International Ltd. Invoice No. 13857 - all items are dutiable.

21. Panasonic Invoice No. 62713 - all items are non- dutiable clerical expenses.

22. Echalaz & Osborne (PTY) Ltd. Invoice No. 6045 - all items are dutiable.

23. John T. Rennie and Sons - all items are nondutiable as drydocking and transportation expenses.

Customs has held that where periodic surveys are undertaken to meet the specific requirements of a classification society, insurance carrier, etc., the cost of the surveys is not dutiable even when dutiable repairs are effected as a result thereof; however, in the liquidation process Customs should go beyond the mere labels of "continuous" or "ongoing" before deciding whether the item is dutiable. If an inspection or survey is conducted as a part of an ongoing maintenance and repair program labelled "continuous" or "ongoing" the cost is dutiable. Also, if the survey is to ascertain the extent of damage sustained, or to ascertain if the work is adequately completed, the costs are dutiable as part of the repairs which are accomplished pursuant to the holdings in C.I.E. 429/61, C.S.D. 79-2, and C.S.D. 79- 277. Accordingly, the following items are dutiable:

9. ABS survey No. BB 11478

10. Invoice No. DB11364

11. Invoice No. DB11479

31. Hull Damage Survey Invoice No. 11480.

The remaining surveys are nondutiable:

30. - Invoice No. DB 11481, is nondutiable.

37. - South African Diving Services invoice No. 7273.

A leading case in the interpretation and application of section 1466 is United States v. Admiral Oriental Line et al., 18 C.C.P.A. 137 (T.D. 44359 (1930)). That case distinguished between equipment and repairs on one hand and permanent additions to the hull and fittings on the other, the former being subject to duty under section 1466.

The Court in Admiral Oriental, supra., cited with approval an opinion of the Attorney General (27 Op. Atty. Gen. 228). That opinion interpreted section 17 of the Act of June 26, 1884 (23 Stat. 57), which allowed drawback on vessels built in the U.S. for foreign account, wholly or in part of duty-paid materials. In defining equipment of a vessel, the Attorney General found that items which are not equipment are:

... those appliances which are permanently attached to the vessel, and which would remain on board were the vessel to be laid up for a long period ... [and] are material[s] used in the construction of the vessel ....

While the opinion of the Attorney General interpreted a provision of law other than section 1466 or a predecessor thereof, it is considered instructive and has long been cited in Customs Service rulings as defining permanent additions to the hull and fittings of a vessel.

For purposes of section 1466, dutiable equipment has been defined as:

... portable articles necessary or appropriate for the navigation, operation, or maintenance of a vessel, but not permanently incorporated in or permanently attached to its hull or propelling machinery, and not constituting consumable supplies. (T.D.
34150 (1914)).

It should be noted that the fact that a change or addition of equipment is made to conform with a new design scheme, or for the purpose of complying with the requirements of statute or code, is not a relevant consideration. Therefore, any change accomplished solely for these reasons, and which does not constitute a permanent addition to the hull and fittings of the vessel, would be dutiable under section 1466.

In its application of the vessel repair statute (19 U.S.C. 1466), Customs has consistently held that modifications/ alterations/additions to the hull and fittings of a vessel which allow the vessel to operate more efficiently are not subject to vessel repair duties. To be found non-dutiable as a modification/alteration/addition, the work done must involve no element of repair due to damages, deterioration or wear and tear. If those are present, the work will be considered a repair and dutiable. Accordingly, we find the cost of repairs on the following invoices to be nondutiable modifications to the hull and fittings:

24. Dorbyl Marine (PTY) Ltd. 087588 A - all items are dutiable except items 20, 21, and transportation charges.

25. Dorbly Marine (PTY) Ltd. Invoice No. 087588 C, all items are nondutiable.

In Headquarters ruling 106543 JM, we held that mere cleaning operations are not dutiable. However, cleaning operations which remove rust and deterioration or worn parts, and which are a necessary factor in the effective restoration of a vessel to its former state of preservation, constitute vessel repairs (See C.I.E. 429/61). Our review of the following invoices reveals that general cleaning and cleaning in preparation for cargo were done, as such these items are nondutiable:

33. Dusty Miller Invoice No. 3129 R4,392.00.

34. Dusty Miller Invoice No. 3138 R13,908.00,

35. Dusty Miller Invoice No. 3131 R6,702.00,

36. Dusty Miller Invoice dated November 18, 1988,

Pursuant to B/L dated February 21, 1947, cleaning to fumigate a vessel is a non-dutiable expense. The cost in exhibit no. 32 - Rentokil invoice No. 11388 was for spraying of the vessel for domestic pests. Accordingly, we find this cost to be nondutiable.

Finally, with the exception of the transportation charges, all items listed on the following invoices are dutiable:

26. S.M.D. Telecommunications CC, invoice No. 38215,

27. S.M.D. Telecommunications CC, invoice No. 38214,

28. S.M.D. Telecommunications CC, invoice No. 38192,

29. S.M.D. Telecommunications CC, invoice No. 1339,

38. Radio-Holland BV invoice No. 34502,

39. Woodward invoice No. 65347,

40. Manothermm b.v. invoice No. 50411,

41. Van Ommeren invoice no. 37.276.5, all items are dutiable except the charges for redelivery.

42. Mobasa (no vendor) Pro forma invoice for chipping and painting vessel.

HOLDING:

The foreign work for which the applicant seeks relief is dutiable under 19 U.S.C. 1466 with the exception of those items noted above.

Sincerely,

B. James Fritz

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