HQ 0111072 - Vessel Repair; Entry No. 906-1514386-5; GREAT LAND; Modifications; U.S. parts; Storage; Ineffective Repairs - United States International Trade Commision Rulings

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HQ 111072

August 28, 1990

VES-13-18-CO:R:P:C 111072 GV

CATEGORY: CARRIER

Chief, Technical Branch
Commercial Region
Pacific Region
1 World Trade Center
Long Beach, California 90831

RE: Vessel Repair; Entry No. 906-1514386-5; GREAT LAND; Modifications; U.S. parts; Storage; Ineffective Repairs

Dear Sir:

This is in response to your memorandum dated May 21, 1990, transmitting an application for relief from duties assessed pursuant to 19 U.S.C. 1466. You request that we review nineteen (19) items contained in the above entry. Our findings are set forth below.

FACTS:

The GREAT LAND is a U.S.-flag vessel owned by 673 Leasing Co. of Wilmington, Delaware. The subject vessel had shipyard work performed on her in Victoria, British Columbia, Canada from January 14, 1990 through January 26, 1990. Subsequent to the completion of this work the vessel arrived in the United States at Tacoma, Washington on January 26, 1990. A vessel repair entry was filed on the date of arrival.

Pursuant to an authorized extension of time, an application for relief, dated April 25, 1990, was timely filed. The applicant claims, inter alia, that various work performed on the vessel constitutes nondutiable modifications and expenses that are otherwise classifiably free, and that U.S.-made material is nondutiable. In support of this claim the applicant submitted an affidavit from the Vice President, Marine Operations, Totem Ocean Express, Inc. (the operators of the vessel), shipyard invoices, survey reports, and spreadsheets of the work in question.

ISSUE:

Whether the foreign expenses for which the applicant seeks relief are dutiable under 19 U.S.C. 1466.

LAW AND ANALYSIS:

Title 19, United States Code, section 1466, 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 foreign or coastwise trade, or vessels intended to engage in such trade.

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. 288). That opinion interpreted section 17 of the Act of June 26, 1884, (23 Stat. 57, which allowed drawback on the 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 thereto, 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 to the vessel, would be dutiable under section 1466.

Upon reviewing the record with regard to the applicant's claims, we note that the following items constitute nondutiable modifications:

Item 20 - viewing ports

Item 27 - main switchboard

Item 40 - evaporator piping

Item 45 - boiler piping

Item 59 - flood lights

Item 75 - service pump

Item 76 - main mast halyard brackets

Item 77 - trailer securement

Item 78 - control air system

Item 80 - watertight door

Item 81 - draft motor

Item 84 - portable deck opening

Item 86 - access to 3rd deck

Item 92 - ballast tank

In regard to the remaining item claimed to be a modification for which our review is requested (Item 44), the record does not support such a finding. The invoice indicates that dutiable repairs took place under this item (i.e., "Cropping off existing eroded 3/4" plate doubler on external shell" (emphasis added)). Accordingly, this item is dutiable.

Item 68 covers the cost of correcting an ineffective repair. While Customs has long held the cost of ineffective repairs to be nondutiable under section 1466 (see C.I.E.'s 1128/60, 1156/62, and T.D. 55193(24)) that holding does not extend to the cost of correcting such repairs. Accordingly, Item 68 is dutiable.

In regard to Item 102 covering various paint and paint products, the basis for which relief is sought is that these items were manufactured, purchased and delivered in the United States or delivered directly to the ship at the foreign shipyard and installed by U.S. residents or the regular ship's crew (see footnotes 4 and 14 of the worksheets).

In response to requests for advice regarding the dutiability under section of 1466 of equipments, parts, repair material, etc., which have been manufactured and purchased in the United States for installation abroad on U.S.-documented vessels, Customs, by memorandum dated April 19, 1989, and published in the Customs Bulletin of May 10, 1989, held that the use of foreign labor to install U.S. parts subjects both the parts and labor to duty. The memorandum further held that the installation of such parts by U.S. residents or regular crew labor warrants remission pursuant to section 1466(d)(2).

Upon further review of this matter, however, it appears that the implementation of Customs policy as set forth in the May 10, 1989, Customs Bulletin should have been preceded by the publication of a notice in the Federal Register soliciting comments from interested parties. Accordingly, until such time as said notice is published, Customs will uphold its position as delineated in T.D. 75-257, which held that where equipment, parts, repair materials, etc., which have been manufactured and purchased in the United States are installed abroad on U.S.- documented vessels by other than U.S. residents or regular crew, only the labor alone is dutiable. If the installation of such articles is performed by U.S. residents or the regular crew, remission is warranted pursuant to section 1466(d)(2).

In our adherence to the policy set forth in T.D. 75-257, however, it has come to our attention that affidavits have been submitted which misrepresent the place of manufacture of the article in question. Inasmuch as we have come to learn of this misrepresentation, it is our policy to require evidence beyond an affidavit from an interested party to establish U.S. manufacture and U.S. purchase. Therefore, we require direct evidence of U.S. manufacture as well as U.S. purchase for remission to be granted.

In the application currently under consideration, the applicant has submitted invoices for the contested articles which indicate purchase in the United States. However, the record is devoid of evidence as to the articles' place of manufacture and the residency or crew status of the laborers involved with the exception of the reference to footnotes 4 and 14 in the applicant's worksheets. Since no direct evidence of U.S. manufacture or the source of labor has been submitted, we find the articles in Item 102 and the labor associated with their installation to be dutiable.

Item 107 covers repairs which, contrary to the applicant's claim, were not performed entirely in the U.S. but in both the U.S. and Canada. While the itemized cost of repair work performed on January 4, 1990 at Tacoma, Washington is not dutiable, the labor costs incurred during the period of January 15-23, 1990 in Victoria, British Columbia, Canada are dutiable.

Item 109 covers storage costs. Customs has previously held such costs to be nondutiable under the vessel repair statute (see Customs rulings 108474, 109414 and 109465).

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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