HQ 0111169 - Vessel Repair; C53-0012153-6; PRIDE OF TEXAS V-40; Casualty; U.S Parts; U.S. Technician - United States International Trade Commision Rulings

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HQ 111169

October 12, 1990

VES-13-18-CO:R:P:C 111169 GV

CATEGORY: CARRIER

Deputy Assistant Regional Commissioner
Commercial Operations c/o Regional Commissioner
New Orleans, Louisiana 70130-2341

RE: Vessel Repair; C53-0012153-6; PRIDE OF TEXAS V-40; Casualty; U.S Parts; U.S. Technician

Dear Sir:

This is in reference to your memorandum dated July 9, 1990, transmitting an application for relief from duties assessed pursuant to 19 U.S.C. 1466. Our findings are set forth below.

FACTS:

The PRIDE OF TEXAS is a U.S.-flag vessel owned by Seahawk Management, Inc., of Houston, Texas. The subject vessel had the work in question performed in Cape Town, South Africa, during February 26 - March 9, 1990. Subsequent to the completion of the work the vessel arrived in the United States in Houston, Texas on March 23, 1990. A vessel repair entry was filed on March 24, 1990.

An application dated May 21, 1990, with supporting documentation was timely filed. The applicant alleges that the work in question was required as a result of an accident during the operation of the subject vessel. It is stated that at 10:25 p.m. on February 20, 1990, while the vessel was en route from Nicalo, Mozambique to the U.S. Gulf, the main engine alarm sounded and the starboard main engine shut down and declutched. The starboard main engine was rendered inoperable as a result of the damage. The vessel thereafter proceeded to Cape Town for repairs. A survey of the vessel determined that the damage was the result of a broken exhaust valve stem dropping into the piston chamber during the operation of the engine.

The applicant claims that the damage in question was caused by a casualty occurrence and therefore remission on the cost of the foreign repairs should be granted pursuant to 19 U.S.C. 1466(d)(1). In support of this claim, the applicant has submitted the following: Vessel Logs (Exhibit 1(a)); Pictures

(Exhibit 1(b)); USCG Form 2692, Report of Accident (Exhibit 2); Chief Engineer's Statement (Exhibit 3(a)); Master's Affidavit (Exhibit 3(b)); Field Survey Report (Exhibit 4); ABS Survey Report #CT5471 (Exhibit 5); and Senior Port Engineer's letter of 5/15/90 with attachments (Exhibit 6 (A-1)).

In the alternative, the applicant claims that the parts used to repair the casualty were U.S.-manufactured parts taken from the vessel's original inventory (or part of the original inventory of a sister ship) and that the repairs were accomplished under the direct supervision, control, and with the active participation of a U.S. technician and therefore remission should be granted pursuant to 19 U.S.C. 1466(d)(2). In support of this alternative claim for relief, the applicant has submitted the following: Letter from Energy Services which states that their technician who supervised the casualty repairs is a U.S. citizen/resident (Exhibit 11(b)); List of spares from ship's inventory for casualty (Exhibit 12); Parts list for original equipment dated 1/24/79 (Exhibit 14); Memorandum to file by Senior Port Engineer (Exhibit 15); Current price list for spare parts (Exhibit 16); 22 Op. Atty. Gen. 360, 361 (1899), which held that original equipment is part of the construction cost of a vessel and therefore is not dutiable (Exhibit 17); and a copy of Sea-Land Service, Inc. v. U.S., 683 F.Supp. 1404 (CIT 1988) which cites 22 Op. Atty. Gen. 360, 361 (1899).

ISSUES:

1. Whether evidence is presented sufficient to prove that the foreign repairs performed on the subject vessel for which relief is sought were necessitated by a casualty occurrence, thus warranting remission pursuant to 19 U.S.C. 1466(d)(1).

2. Whether evidence is presented sufficient to prove that the foreign repairs performed on the subject vessel for which relief is sought were performed with U.S.-manufactured parts taken from the vessel's original inventory or part of the original inventory of a sister ship, and U.S. resident labor thus warranting remission pursuant to 19 U.S.C. 1466(d)(2).

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. Section 1466(d)(1) provides for remission of the above duties in those instances where good and sufficient evidence is furnished to show that foreign repairs were compelled by "stress of weather
or other casualty" necessary to secure the safety and seaworthiness of the vessel to enable her to reach her port of destination.

The term "casualty", as it is used in the vessel repair statute (19 U.S.C. 1466) has been interpreted by the Customs Court as something which, like stress of weather, comes with unexpected force or violence, such as a fire, explosion, or collision (see Dollar Steamship Lines, Inc., v. United States, 5 Cust. Ct. 28-29, C.D. 362 (1940)). It should be noted that absent specific evidence to the contrary, we consider foreign repairs to have been necessitated by normal wear and tear, a result which does not permit remission (see C.S.D. 79-32).

In regard to the applicant's first claim for relief, we note that although the repairs in question were necessitated by the breaking of the exhaust valve stem which created further damage thereby rendering the vessel unseaworthy, the applicant is apparently equating a finding of unseaworthiness with a casualty occurrence. The two are not necessarily related. A finding that a vessel is unseaworthy provides no evidence of exactly how it came to be in such a state. The applicant relies heavily on a Field Survey Report (Exhibit 4) signed by officials (titles unknown) from the ABS and The Salvage Association which states that, "The damage is not a result of normal wear and tear." However, we note that this statement appears under a heading entitled "ALLEGATION" which renders its probative weight subject to speculation. Furthermore, the formal ABS survey report (Exhibit 5) contains no such statement.

Accordingly, upon reviewing the record in its entirety it is apparent that the damage in question was caused by a breakdown or failure of machinery (i.e., exhaust valve stem) which may not be regarded as a casualty for purposes of remission pursuant to section 1466(d)(1) in the absence of a showing that it was caused by some outside force (see C.S.D. 79-32, cited above), a burden of proof the applicant did not meet.

In regard to the applicant's second claim for relief, we note that the Customs and Trade Act of 1990, section 484(2), Pub. L. No. 101-382 (to be codified at 19 U.S.C. 1466(h)(2)), amended the vessel repair statute to except from duty spare repair parts or materials that have entered the United States duty-paid and are used aboard a cargo vessel engaged in foreign or coastwise trade. This amendment is inapplicable to the case under consideration in view of the fact that the applicant claims the spare parts are U.S.-manufactured and part of the subject vessel's original inventory and/or that of a sister ship.

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 and/or other documentation has been submitted which misrepresent the place of manufacture of the articles 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 (e.g., an affidavit by the equipment manufacturer) as well as U.S. purchase for remission to be granted.

In the application currently under consideration, the applicant has submitted documentation to establish that a U.S. resident did travel overseas to Cape Town (see Exhibits 10(E-1), 11(a) and 11(b)). Upon reviewing the record in its entirety, however, we note that it is not clear that this technician actually did the repairs (see other labor charges on Exhibit 10(G-8)) or was merely a supervisor as is stated in the application for which remission pursuant to section 1466(d)(2) may not be granted. Furthermore, although we agree that a vessel's original equipment is not dutiable under section 1466 since it is part of the construction cost of the vessel (see Sea- Land Service, Inc. v. U.S., 683 F.Supp. 1404 (1988), citing 22 Op. Atty. Gen. 360, 361) the documentation pertaining to the parts involved is insufficient to prove either that they were part of the vessel's original inventory, or that they were U.S.- manufactured. Specifically, Exhibits 12 and 14 are merely lists of parts with no references whatsoever to the subject vessel, much less evidence that they were even placed on the subject vessel or manufactured in the U.S. In addition, Exhibit 15 is
merely a self-serving statement from the Senior Port Engineer that these parts were part of either the ship's stock or from a sister ship's stock (the latter of which would remove such a part from the duty-free status accorded a vessel's original equipment pursuant to Sea-Land Service, Inc. v. U.S., supra). Accordingly, remission pursuant to section 1466(d)(2) is denied.

In regard to the remaining foreign costs for which the applicant seeks relief (see Items 4 and 5 on p. 6 of the application) we agree that these are classifiably free.

HOLDINGS:

1. The evidence presented is insufficient to prove that the foreign repairs performed on the subject vessel for which the applicant seeks relief were necessitated by a casualty occurrence. Accordingly, remission pursuant to 19 U.S.C. 1466(d)(1) is denied.

2. The evidence presented is insufficient to prove that the foreign repairs on the subject vessel for which relief is sought were performed with U.S.-manufactured parts taken from the vessel's original inventory or part of the original inventory of a sister ship, and U.S. resident labor thus warranting remission pursuant to 19 U.S.C. 1466(d)(2).

Sincerely,

B. James Fritz

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