HQ 0111362 - Vessel Repair Entry No. 514-3003564-5; S.S. MASON LYKES V- 16; Casualty; Underwater Damage; U.S. Parts; U.S. Labor; 19 U.S.C. 1466(d)(1) - United States International Trade Commision Rulings

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HQ 111362

January 29, 1991

VES-13-18-CO:R:IT:C 111362 GEV

CATEGORY: CARRIER

Deputy Assistant Regional Commissioner
Classification and Value Division
ATTN: Regional Vessel Repair Liquidation Unit 6 World Trade Center
New York, New York 10048-002980

RE: Vessel Repair Entry No. 514-3003564-5; S.S. MASON LYKES V- 16; Casualty; Underwater Damage; U.S. Parts; U.S. Labor; 19 U.S.C. 1466(d)(1)

Dear Sir:

This is in response to your memorandum dated October 17, 1990, transmitting a petition for review of the above referenced vessel repair entry. Our findings on this matter are set forth below.

FACTS:

The S.S. MASON LYKES is a U.S.-flag vessel owned by American President Lines and chartered to Lykes Bros. Steamship Co., Inc., of New Orleans, Louisiana. The subject vessel had foreign shipyard work performed in June of 1989. Subsequent to the completion of the work the vessel arrived in the United States at New York, N.Y. on July 2, 1989. A vessel repair entry was filed on the date of arrival.

An application for relief, dated August 1, 1989, was denied in full on August 28, 1990. Pursuant to an authorized extension of time, a petition dated October 2, 1990, was timely filed. The petitioner's claims for relief are set forth below.

On June 6, 1989, while en route from New York to Alexandria, Egypt via Leghorn, Italy, it was discovered that water was leaking into the no. 6 double bottom ballast tank. The tank was pumped out and an inspection of the area revealed an 18" crack in the shell plate between frames 172 and 173 port side. The vessel was diverted to Piraeus, Greece for survey and repairs.

On June 19, 1989, while en route from Naples, Italy, to Leghorn, Italy, the starboard steering gear pump failed. The vessel put into Leghorn for repairs. The petitioner states that these repairs could not have been done with local labor and materials and therefore it was necessary to fly a service engineer and repair parts from New Jersey.

The petitioner contends that the above repairs were necessitated as a result of two separate casualties and therefore the duties assessed thereon are nondutiable. In support of this position the petitioner submitted the following enclosures: (1) the master's report of the shell plate crack including the U.S. Coast Guard Report of Marine Accident and an abstract of the deck log; (2) an ABS report covering the bottom plate repairs; (3) an abstract of the vessel's casualty log; (4) Lykes service order to Del Gavio Marine Hydraulics, Inc. of Maywood, New Jersey covering the costs of a service engineer and repair parts to repair the steering hydraulic system; (5) Del Gavio Marine Hydraulics, Inc. invoice no. 2746 itemizing the costs referenced in enclosure (4); (6) an ABS certificate stating that the repaired starboard steering gear pump has been surveyed and is operating satisfactorily with a recommendation that the vessel be retained as classed; and (7) copies of excerpts from cognizant Lykes port engineers' reports covering the repairs due to the two alleged casualties.

ISSUE:

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

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).

As a simple reading will reveal, the vessel repair statute is clear and specific in permitting relief only where "good and sufficient" evidence is furnished establishing a casualty occurrence. In order to be considered a "casualty", an occurrence must be adequately documented or susceptible of proof in some fashion at the very least. Such evidence must indicate that the subject apparatus was damaged: (1) to a specifically stated extent; (2) in a specifically described fashion; and (3) at a named place on a certain date.

In regard to the applicant's first claim for relief regarding the leakage of water into the no. 6 double bottom ballast tank, we note that although the evidence satisfies the first criteria mentioned above, it does not satisfy the second two criteria (i.e., that the damage occurred in a specifically described fashion, and at a named place on a certain date).

However, it is apparent that the repairs to the cracked shell plate resulting in the ingress of water into the no. 6 double bottom ballast tank involved repairs to underwater parts of the vessel. In C.I.E. 1202/59, we held that damage to underwater parts of vessels is usually not easily detectable or susceptible of definite proof respecting date and place of occurrence. We held that relief under section 1466(d)(1) is therefore warranted for such damage in the absence of evidence showing that the vessel was grounded, struck bottom, or her propeller contacted some floating object capable of causing damage prior to the commencement of the voyage. However, in C.I.E. 1202/59 and in ruling 106240, dated July 20, 1983, which applied C.I.E. 1202/59 in a case of underwater damage, there was some evidence, or at least an inference could reasonably be made based upon the damage which had occurred, that the damage resulted from striking an unknown object rather than from normal wear and tear (see C.I.E. 1243/60, in which a leak in a vessel's hull was held to be due to normal wear and tear and therefore remission of duty was denied). The lack of evidence, or at least an inference based on the damage sustained, was the very reason why relief was denied in ruling 106369, dated February 13, 1984.

In regard to the repairs to the cracked shell plate, the evidence seems to indicate that the fracture was situated over a previous fracture site that was inadequately welded, rather than that the fracture resulted from striking an underwater object. Accordingly, in view of the insufficiency of the evidence to support a casualty occurrence, remission based on section 1466(d)(1) is denied.

In regard to the petitioner's second claim for relief, we note that although the repairs to the starboard steering gear pump are necessary for the seaworthiness of the vessel, the petitioner 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.

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 which may not by 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 citing C.I.E. 1829/58), a burden of proof the petitioner did not meet.

We note, however, that the petitioner states that the repairs to the starboard steering gear pump could not have been done with local materials and labor and as a result it was necessary to fly a service engineer and repair parts from New Jersey to Leghorn, Italy. As proof of this statement the petitioner has submitted invoice no. 2746 from Del Gavio Marine Hydraulics, Inc. of Maywood, New Jersey, which itemizes the costs of a U.S. engineer to perform the repairs, the materials used, and miscellaneous charges (i.e., air fare, airport transfers, auto rental, hotel accommodations, meals and airfreight). (see Enclosure 5)

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 (HTSUS). 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 must be presented to escape duty and any other applicable consequences.

In addition, we require certification on the CF 226 or an accompanying document by a person with direct knowledge of the fact that an article was imported for the purpose of either then- existing or intended future installation on a company's vessels. Ordinarily, the vessel's master would not have direct knowledge of that fact, and an agent may also be without such knowledge.

Customs has in the past linked this duty remission provision to the duty assessment provision in subsection (a) of the statute. In the face of argument to the contrary we have held that a two-part test must be met in order for remission of duty to be granted: first, that the article must be of U.S. manufacture; and, second, it must be installed by a U.S.-resident or regular vessel crew labor. The reason for this position is that (d)(2) refers to "such equipments or parts...", etc., without any other logical placement for the word "such" occurring in that subsection. We inferred that "such" articles must refer to those installed under subsection (a), absent any other reasonable predication. The new amendment puts this issue to rest; it is clear that as concerns foreign-made parts imported for consumption and then installed on U.S. vessels abroad, the labor required for their installation is separately dutiable. A part may now be considered exempt from vessel repair duty albeit the foreign cost labor is dutiable.

Uniform treatment will be accorded to parts sent from the United States for use in vessel repairs abroad, regardless of whether they are proven to be produced in the U.S., or have been proven to have been imported and entered for consumption with duty paid. In both cases, the cost of the materials is duty exempt and only the cost of foreign labor necessary to install them is subject to duty. Crew member or U.S.-resident labor continues to be free of duty when warranted.

The effective date of this amendment makes this section applicable to any entry made before the date of enactment of this Act that is not liquidated on the date of enactment of this Act, and any entry made--

(A) on or after the date of enactment of this Act, and
(B) on or before December 31, 1992.

Since the subject entry has not been liquidated, the new section 1466(h) is applicable to this entry as it relates to spare parts.

Accordingly, in regard to the starboard steering gear pump repairs, although the petitioner has failed to substantiate remission based on a casualty within the meaning of section 1466(d)(1), it is apparent that the record (specifically invoice no. 2746 from Del Gavio Marine Hydraulics, Inc., Maywood, New Jersey) supports a finding that the parts, labor and miscellaneous expenses related to such repairs are nondutiable.

HOLDING:

The evidence presented is insufficient to prove that the foreign repairs for which the petitioner seeks relief were necessitated by casualty occurrences. Accordingly, remission pursuant to 19 U.S.C. 1466(d)(1) is denied.

With regard to the costs of labor and materials listed on invoice no. 2746 from Del Gavio Marine Hydraulics, Inc., these costs are nondutiable pursuant to Customs administration of 19 U.S.C. 1466(h). The remaining costs listed thereon (i.e., air fare, airport transfers, auto rental, hotel accommodations, meals and airfreight) are otherwise nondutiable under 19 U.S.C. 1466.

Sincerely,

B. James Fritz

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