HQ 0111296 - Vessel Repair; 19 U.S.C. 1466; Inspection; Survey; Parts - United States International Trade Commision Rulings

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HQ 111296

January 31, 1991

VES-13-18:CO:I:T:C 111296 RAH

CATEGORY: CARRIER

Chief, Residual Liquidation and Protest Section U.S. Customs Service
6 World Trade Center
New York, New York 10048

RE: Vessel Repair; 19 U.S.C. 1466; Inspection; Survey; Parts

Dear Sir:

This is in response to your transmittal of August 28, 1990, requesting advice on a petition for remission of duty on vessel repair entry #514-3003744-3.

FACTS:

The record reflects that the AMERICAN RESOLUTE, voyage 23, arrived at the port of Elizabeth, New Jersey, on April 22, 1989. The shipyard work in question was performed on the subject vessel at the Malta Drydocks shipyard in Valetta, Malta, during the period March 20 through April 4, 1989. An application for relief was filed dated June 30, 1989, which was denied in part in Headquarters Ruling Letter 110426 BEW (May 24, 1990).

The subject of this ruling is a petition for review dated June 27, 1990, in which the petitioner contends that the following items on Malta Drydock Invoice #8750 are non-dutiable:

Item 4 - Tailshaft Examination
Item 9 - Main Circulator
Item 12 - Scoop, Sea Chests & Strainers
Item 17 - Turbo Generators
Item 19 - Main Stream Line
Item 20 - Main Stream Strainer
Item 24 - D.C. Heater Relief Valve
Item 33 - Exhaust Line Relief Valve
Item 35 - Main Air compressor
Item 25 - Main Air Compressor
Item 38 - L.O. Service Pump Motor
Item 39 - L.O. Service Pump
Item 40 - Drum Pilot Relief Valves
Item 41 - Fire Extinguishing System
Item 42 - Oxygen & Acetylene Bottles

Item 43 - Port Auxiliary Circulating Pump Motor
Item 44 - Megger Testing
Item 96 - Radar Scanner

Issue:

Whether the work performed on the subject vessel for which the petitioner seeks relief 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.

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 a part of an ongoing maintenance and repair program labelled "continuous" or "ongoing" is dutiable. Although, 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.

A review of the Malta Drydock Invoice descriptions reveal that the following items are non-dutiable inspections because they were not performed in connection with dutiable repairs: Item 4 - Tailshaft Examination; Item 17 - Turbo Generators; Item 19 - Main Stream Line; Item 20 - Main Stream Strainer; Item 24 - D.C. Heater Relief Valve; Item 33- Exhaust Line Relief Valve; Item 35 - Main Air Compressor; Item 36- Main Air Compressor Motor; Item 38 - L.O. Service Pump Motor; Item 39 - L.O. Service Pump; Item 40 - Drum Pilot Relief Valve; Item 41 - Fire Extinguishing System; Item 42 - Oxygen & Acetylene Bottles; Item 43 - Port Auxiliary Circulating Pump Motor; Item 44 - Megger Testing; Item 96 - Radar Scanner.

We agree with you that item 76, oxygen and acetylene, constitutes consumable supplies. Consumable supplies are generally defined as supplies for the consumption, assistance, and medical needs of the crew and passengers during the voyage. H.E. Warner, Trustee v. United States, 28 CCPA 143, Customs Memorandum 107323 PH (5-21-85), and are generally not subject to
vessel repair duty unless used in effecting dutiable repairs. C.I.E. 196/60.

With regard to Item 9, Main Circulator, although the Malta Drydock Invoice does not indicate any repairs were made, item 67 on American Bureau of Shipping Report ( report #MT 1757 dated April 7, 1989) indicates the impeller was renewed. The petitioner claims that the impeller was replaced by the vessels regular crew from ships spares and is non-dutiable. Subpart (d)(2) of 19 U.S.C. 1466 provides that if the owner or master of such vessel furnishes good and sufficient evidence that -

...such equipments or parts thereof or repair parts or materials, were manufactured or produced in the United States, and the labor necessary to install such equipments or to make such repairs was performed by residents of the United States or by members of the regular crew of such vessel...
then the Secretary of the Treasury is authorized to remit or refund such duties. In the instant case, the petitioner has not submitted any evidence (i.e. affidavits, vessel logs, etc.) to substantiate its claim that the impeller was replaced by the vessel's regular crew. Absent evidence to that effect, the replacement of the impeller is dutiable.

The Customs and Trade Act of 1990 (Pub. L. 101-382) which amends 19 U.S.C. 1466, exempts from duty under the statute, the cost of spare repair parts or materials which have been previously imported into the United States as commodities with applicable duty paid under the Harmonized Tariff Schedule of the United States. The amendment specifies that the owner or master must provide a certification that the materials were imported with the intent that they be installed on a cargo vessel documented for and engaged in the foreign or coasting trade.

The certification required by 19 U.S.C. 1466(h)(2) as to the vessel's documentation (foreign or coasting trades) and service, will be made by the master on the vessel repair entry (CF 226) at the time of arrival. The fact of payment of duty under the HTSUS for a particular part will take the form of a positive statement. In cases in which the vessel operator or a related party has acted as the importer of foreign materials, or where materials were imported at the request of the vessel operator for later use by the operator, the vessel repair entry will identify the port of entry and the consumption entry number for each part installed on the ship which has not previously been entered on a CF 226. In cases in which the vessel operator has purchased imported materials from a third party in the United States, a
bill of sale for the materials shall constitute sufficient proof of prior importation and HTSUS duty payment. This evidence of proof of importation and payment of duty on the impeller must be presented to escape duty and any other applicable consequences.

The petitioner concedes that the coating of the scoop, sea chests and strainers (item 12) are dutiable, but contends that because the inspections thereof are required by the U.S. Coast Guard and ABS in connection with the required drydock survey same is not dutiable. Nevertheless, when dutiable repairs are accomplished, surveys performed in conjunction with such repairs are dutiable. There is no evidence that the inspections in question were not linked to the subject repairs, and therefore we find same to be dutiable.

The petitioner claims that the foreign repairs to item 96, radar scanner, and item 63, anchor windlass brake bands were ineffective repairs and thus not dutiable. The petitioner states that the anchor windlass is not in continuous use, the brakes only being used when anchoring, thus a normal service of at least 5 to 10 years should be expected. The brake linings supplied in Malta failed in less than one year, necessitating complete renewal. Petitioner has submitted invoices from Steven Ransom Inc. to support its claim that the brake linings were replaced in the United States after arrival of the vessel. We have held that where repairs are completely ineffective and consequently of no value to the vessel, the cost therefor is not liable to duty. C.I.E. 1128/60.

The Stephen Ransom Inc. invoice numbers 11-4785 and 10-4710 describe work done to the windlass brake band. However, the repairs were not performed immediately after the initial repairs in Malta. The radar scanner was not repaired until two months after the arrival of the vessel and the brake bands were not repaired until 6 to 7 months thereafter. Based on the lapse of time between the work in Malta and the subsequent repairs in the United States, we find that the foreign repairs were not completely ineffective. Accordingly, items 96 and 63 are dutiable.

HOLDING:

Following a thorough review of the evidence provided, and as detailed in the law and analysis section of this ruling, the petition for review is denied in part and granted in part, as discussed above.

If you have any further questions regarding this matter, please do not hesitate to contact our office.

Sincerely,

B. James Fritz
Chief

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