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HQ 111379


January 11, 1991

VES-13-18-CO:R:P:C 111379 GV

CATEGORY: CARRIER

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

RE: Vessel Repair; Protest No. 3001-90-101249; NOSAC RANGER V- 001; Work Prior to U.S. Documentation

Dear Sir:

Your memorandum dated October 31, 1990, forwarded a protest regarding vessel repair entry no. 928-0005138-2. Our findings are set forth below.

FACTS:

The NOSAC RANGER is a U.S.-flag vessel owned by Carships, Inc., of Dover, Delaware, and operated by Pacific-Gulf Marine, Inc., of New Orleans, Louisiana. The subject vessel, formerly the NOSAC MASCOT, entered a Singapore shipyard (Sembawang) on May 13, 1988, for various work. The vessel was under the flag of Liberia at the time the work was commenced. The vessel was redocumented under the U.S. flag on July 7, 1988, and shipyard operations were completed in Singapore on July 11, 1988. Additional work was performed on the vessel in Kawasaki, Japan, on July 19, 1988, in Yokohama, Japan, during July 19-20, 1988, and in Inchon, Korea, during July 23-24, 1988.

Subsequent to the completion of the above work, the subject vessel arrived in Tacoma, Washington, on August 5, 1988. A vessel repair entry covering the work in question was filed on October 14, 1988. An application for relief, dated November 1, 1988, for certain items listed on the entry was received by Customs on November 6, 1988. By letter dated September 19, 1989 (VES-13-18-CO:R:P:C 110206 LLB) Customs Headquarters ruled on the application. Copies of this ruling and work sheets were forwarded to Pacific-Gulf Marine, Inc. by a letter from the San Francisco Vessel Repair Liquidation Unit dated November 8, 1989. A petition for review of this ruling, dated November 17, 1989, was timely filed requesting that the calculations regarding the dutiability of the items contained in this entry be forwarded to
headquarters for review. By letter dated April 24, 1990 (VES-13- 18-CO:R:P:C 110745 GV) Customs Headquarters denied the petition in view of the fact that it was a mere two sentence letter which did not detail the exceptions taken to the decision on the application as is required per 4.14(d)(2)(i), Custom Regulations (19 CFR 4.14(d)(2)(i)). Customs gave formal notice of denial by letter dated May 30, 1990 (VES-13-SF:O:C:T (BZ)).

The entry was liquidated on June 22, 1990. On September 19, 1990, a timely protest was filed stating the following alternative claims for relief: (1) Only the Sembawang Shipyard operations performed after redocumentation are potentially subject to duty under 19 U.S.C. 1466; (2) Most of the operations performed at the Sembawang Shipyard while the vessel was under the U.S. flag were other than repair work and are nondutiable in any event; (3) The fuel oil heater related costs were required as a result of a casualty and are not dutiable; (4) The casualty related items are nondutiable under other grounds (i.e., cleaning, disposal, truckage, etc.); and (5) Other of the remaining work performed in the Kawasaki and Yokohoma Shipyards is also nondutiable.

ISSUES:

1. Whether evidence is presented sufficient to prove that the foreign work performed on the subject vessel for which the protestant seeks relief was performed prior to the vessel's documentation under the U.S. flag and therefore is not subject to duty under 19 U.S.C. 1466.

2. Whether evidence is presented sufficient to prove that the foreign work performed on the subject vessel for which the protestant seeks relief constitutes other than dutiable repair work under 19 U.S.C. 1466.

3. Whether evidence is presented sufficient to prove that the foreign work performed on the subject vessel for which the protestant seeks relief was necessitated by a casualty occurrence, thus warranting remission pursuant to 19 U.S.C.

4. Whether evidence is presented sufficient to prove that the foreign work performed on the subject vessel which the protestant alleges is casualty related also constitutes expenses otherwise nondutiable under 19 U.S.C. 1466.

5. Whether evidence is presented sufficient to prove that the remaining work performed on the subject vessel in the Kawasaki and Yokohama Shipyards for the which the protestant seeks relief is nondutiable 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 the foreign or coastwise trade, or vessels intended to engage in such trade. (emphasis added)

Customs has long held that in certain cases foreign shipyard work performed on a vessel prior to its documentation under the laws of the United States is nondutiable under 1466. To the extent that the vessel is clearly intended to engage in the foreign or coastwise trade, this position is in contravention of statutory language which specifically places duty upon repairs to those vessels not so documented at the time of foreign shipyard work but which are nonetheless intended to engage in those trades.

Accordingly, Customs is preparing a notice for publication in the Federal Register which will state that Customs will apply 1466 in those instances where a vessel is temporarily removed from United States documentation during the course of, or prior to, work performed in a foreign shipyard and is then redocumented for, or used in, or from available evidence deemed intended to be used in the United States foreign or coastwise 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).

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.

In regard to the first issue of this protest, our ruling on the application stated that, "Customs has held, consistent with the statute, that only repairs performed on U.S. flag vessels are subject to section 1466 duties." Although we regard this as a fugitive statement which does not represent Customs position on this matter (see discussion above) we believe the protestant is entitled to rely on it.

The application contained a letter from the shipyard, dated September 9, 1988, which lists eight operations which "were still in progress" when the vessel was documented under the U.S. flag. In view of the fact that this document was insufficient to prove that these operations were the only operations still in progress, or exactly how many operations may have begun after U.S.
documentation, this claim was disregarded and the examination of the record was directed to whether the various operations in question constituted nondutiable modifications/alterations/ additions.

In response to Customs disregard of the claim that various work was performed before U.S. documentation, the protestant submitted a letter from Sembawang, signed by the Ship Repair Manager, stating that the eight items in question were the only work still in progress as of July 7, 1988, the date the vessel was documented under the U.S. flag. The letter also listed the total cost of each work item and the cost of the portion of the work remaining as of July 7, 1988. Accordingly, in view of the sufficiency of this documentation to establish that these operations were the only operations still in progress as of the date of the U.S. documentation, and in view of the statement in our ruling on the application regarding the inapplicability of 1466 duties prior to U.S. documentation, those costs of the Sembawang Shipyard letter covering work done prior to the U.S. documentation of the subject vessel are nondutiable.

In regard to the second issue of the protest, upon reviewing the record with regard to the protestant's claims (specifically Exhibit 4 containing copies of the Sembawang Shipyard invoices covering the eight post-documentation work items), we note that the only detailed descriptions of these work items come from counsel's memorandum attached to the protest, not from the invoices or any other documentation from Sembawang. In addition, the specific dollar amounts counsel states are dutiable to Task 1 (Fire Stations) and Task 3 (Stern Ramp Painting) are not so apportioned in the shipyard invoices. Accordingly, the record is insufficient to support the protestant's claim that the eight post-documentation work items are other than dutiable repair work.

In regard to the third issue of the protest, it is claimed that on July 18, 1988, while en route from Singapore, the vessel suffered a casualty when several valves blew, spewing black oil over the interior of the stern areas of the vessel. The oil apparently blasted from the valves on the inside of the vessel and also from the funnel top excess steam line on the outside of the vessel. Oil was sprayed throughout the interior of the stern portion of the vessel and soaked various insulation.

The protestant 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. We reiterate what was stated in ruling 110206, that is, we must look to some verified event which led to the damage, and in the absence of such evidence, the repairs must be considered to have been necessitated by normal wear and tear which does not
warrant remission under 1466(d)(1). The only nexus to a casualty event provided by the protestant is the statement in counsel's memorandum that "[t]he valves blew from the force of a pressure spike or surge starting in the fuel oil heater and flowing through the boiler to the blown valves and to the excess steam line in the funnel." This statement, without more, is insufficient. In view of the fact that the protestant has provided no tangible evidence to support a casualty occurrence, this claim is denied.

In regard to the fourth issue of the protest, the items claimed as expenses otherwise nondutiable include cleaning oil- stained areas of the vessel (Exhibits 5 and 7), and disposal, truckage, and removing oil-soaked insulation and tin plates and replacing them with new insulation and plates (Exhibit 6).

Insofar as cleaning is concerned, Customs has long held the cost of cleaning is not dutiable unless it is performed as part of, in preparation for, or in conjunction with dutiable repairs or is an integral part of the overall maintenance of the vessel; see C.I.E.'s 18/48, 125/48, 910/59, 820/60, 51/61, 429/61; 569/62, 698/62; C.D. 2514; T.D.'s 45001 and 49531; and numerous Customs rulings. In view of the fact that these cleaning costs were incurred as a result of the blowing of the valves on July 18, 1988, the repairs of which, as discussed above, are dutiable in view of the fact that they are not casualty related, the cleaning costs in Exhibits 5 and 7 are dutiable.

In regard to the costs listed in Exhibit 6, the disposal and truckage charges are nondutiable under 1466. The remaining costs listed therein cover the labor and materials for replacing oil-soaked insulation and tin plates. In view of the fact that these costs, like the cleaning costs discussed above, were incurred as a result of the blowing of the valves on July 18, 1988, the repairs of which are dutiable in view of the fact that they are not casualty related, these remaining costs for replacing insulation and tin plates are dutiable as well.

In regard to the fifth issue of the protest, it is claimed that the Anschutz technician attended the vessel for completion of work to the steering gear system. Although the protestant claims this technician was attending to work which constituted a modification, the record does not support a finding that the steering gear work was in fact a modification. Accordingly, in the absence of evidence to the contrary, the expenses of the technician are dutiable.

As for the MacGregor representative who surveyed the vessel stern and ramp hydraulics, upon reviewing this survey it is apparent that it was to ascertain the extent of damage incurred in the area where the valves blew, and it preceded dutiable repairs. Customs has held that if a survey is to ascertain the extent of damage sustained the cost of such a survey is dutiable as part of the repairs which are accomplished pursuant to holdings in C.I.E. 429/61, C.S.D. 79-2, and C.S.D. 79-277. Accordingly, the cost of the services of the MacGregor representative in performing this survey is dutiable.

HOLDINGS:

1. Evidence is presented sufficient to prove that a portion of the cost of the foreign work performed on the subject vessel for which the protestant seeks relief was performed prior to the vessel's documentation under the U.S. flag and therefore is not subject to duty under 19 U.S.C. 1466.

2. Evidence is not presented sufficient to prove that the foreign work performed on the subject vessel for which the protestant seeks relief constitutes other than dutiable repair work under 19 U.S.C. 1466.

3. Evidence is not presented sufficient to prove that the foreign work performed on the subject vessel which the protestant seeks relief was necessitated by a casualty occurrence, thus warranting remission pursuant to 19 U.S.C. 1466.

4. Except for the costs of truckage and disposal, evidence is not presented sufficient to prove that the foreign work performed on the subject vessel which the protestant alleges is casualty related also constitutes expenses otherwise nondutiable under 19 U.S.C. 1466.

5. Evidence is not presented sufficient to prove that the remaining work performed on the subject vessel in the Kawasaki and Yokohama Shipyards for which the protestant seeks relief is nondutiable under 19 U.S.C. 1466.

Accordingly, the protest is granted in part and denied in part.

Sincerely,

Harvey B. Fox

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