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HQ 110744


June 21, 1990

VES-13-18-CO:R:P:C 110744 KVS

CATEGORY: CARRIER

Chief
Residual Liquidation and Protest Branch
6 World Trade Center
Room 701
New York, NY 10048

RE: Vessel: S.S. TEXAS SUN V-701
Date of Arrival: June 12, 1987
Port of Arrival: Philadelphia, PA
Vessel Repair Entry No. C11-0000996-3

Dear Sir:

This is in response to your memorandum of December 18, 1989, which forwards for our consideration a petition for review filed in connection with the TEXAS SUN V-701, vessel repair entry no. C11-0000996-3. Our findings are set forth below.

FACTS:

The TEXAS SUN, a United States-flag vessel, underwent shipyard operations from March 20, 1987, until May 21, 1987, at Lisbon, Portugal. The vessel arrived in the United States on June 12, 1987, at Philadelphia, Pennsylvania. After having requested and received an extension of time to file an application for relief from vessel repair duties, the petitioner filed a timely application on September 3, 1987.

The application for relief was granted in part and denied in part in Customs Letter Ruling 109990 PH (dated July 10, 1989). After having requested and received an extension of time to file a petition for relief, the petitioner filed the petition for relief currently under consideration on September 29, 1989. The petition for relief presents several matters for our determination.

ISSUE:

Whether the described repairs performed and equipment purchased for the subject vessel are subject to vessel repair duties pursuant to 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.

In response to requests for advice regarding the dutiability under section 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, published in the United States Customs Bulletin and Decisions, Vol. 23, No. 19, dated May 10, 1989, held that the use of foreign labor to install U.S. parts subjects both the parts and the labor to duty.

The petitioner contends that the above Customs position is not supported by section 1466, is a departure from Customs long- standing position on this matter, and its implementation without prior publication in the Federal Register giving interested parties an opportunity to comment is violative of the Administrative Procedures Act (5 U.S.C. 553) and Customs Regulations (19 CFR 177.10).

Notwithstanding counsel's argument as to the applicability of section 1466, we note that upon further review of of this matter, 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, the labor alone is dutiable.

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 petition currently under consideration, the petitioner has submitted invoices for the contested articles
which indicate purchase in the United States. The only evidence submitted that addresses the articles' place of manufacture, however, is an affidavit by an employee of the petitioner. Since no direct evidence of U.S. manufacture has been submitted, we find the amounts listed for U.S. materials (i.e. those items listed on the computer sheet annotated with footnote 6) on the following items/invoices to be dutiable:

Item/Invoice Number Amount

03............................................$ 6,767.00 04............................................$ 379.00 05............................................$10,014.00 06............................................$ 1,603.00 08............................................$ 514.00 09............................................$ 100.00 11............................................$ 93.00 12............................................$10,100.00 13............................................$ 88.00 14............................................$ 3,831.00 15............................................$ 372.00 16............................................$ 572.00 17............................................$ 1,600.00 18............................................$ 2,035.00 19............................................$77,880.00 20............................................$33,000.00 21............................................$ 151.00 22............................................$ 432.00 23............................................$ 934.00 24............................................$ 151.00 25............................................$ 45.00 26............................................$ 317.00 27............................................$ 1,070.00 28............................................$ 88.00 29............................................$ 243.00 30............................................$ 628.00 31............................................$ 5,673.00 32............................................$14,533.00 33............................................$ 1,184.00 34............................................$ 5,460.00 35............................................$ 996.00 36............................................$ 206.00 37............................................$ 7,253.00 38............................................$ 2,535.00 40............................................$ 732.00 41............................................$ 136.00 42............................................$ 60.00 43............................................$ 1,191.00 44............................................$ 55.00 45............................................$ 658.00 46............................................$ 196.00

Item/Invoice Number (cont.) Amount

47............................................$ 294.00 48............................................$ 84.00 49............................................$ 84.00 50............................................$ 1,549.00 51............................................$ 1,011.00 52............................................$ 490.00 53............................................$ 509.00 54............................................$ 190.00 55............................................$ 484.00 56............................................$ 385.00 57............................................$ 386.00 58............................................$ 504.00 59............................................$ 79.00 60............................................$ 367.00 61............................................$ 578.00 62............................................$ 1,024.00 63............................................$ 222.00 64............................................$ 86.00 65............................................$ 626.00 66............................................$ 3,876.00 67............................................$ 664.00 68............................................$ 5,010.00 69............................................$ 367.00 70............................................$ 198.00 73............................................$ 7,464.00 74............................................$ 3,514.00 75............................................$ 234.00 78............................................$ 1,856.00 79............................................$ 1,854.00 80............................................$ 1,044.00 81............................................$ 5,382.00 86............................................$ 3,616.00 88............................................$ 5,108.00 89............................................$12,000.00 90............................................$ 4,105.00 91............................................$ 1,910.00 92............................................$ 1,682.00 93............................................$ 955.00 94............................................$ 1,910.00 95............................................$ 96.00 96............................................$ 880.00 98............................................$12,920.00 99............................................$12,920.00 102...........................................$ 255.00 103...........................................$ 1,195.00 104...........................................$ 2,632.00 105...........................................$ 125.00 106...........................................$ 1,344.00 107...........................................$ 650.00

Item/Invoice Number (cont.) Amount

108...........................................$ 689.00 109...........................................$ 1,088.00 110...........................................$ 41.00 111...........................................$ 141.00 112...........................................$ 230.00 113...........................................$ 1,001.00 114...........................................$ 7,889.00 115...........................................$ 639.00 119...........................................$ 6,650.00 120...........................................$12,859.00 121...........................................$19,392.00 122...........................................$ 1,240.00 123...........................................$ 304.00 124...........................................$ 8,138.00 125...........................................$ 249.00 126...........................................$ 1,325.00 127...........................................$ 608.00 128...........................................$44,376.00 129...........................................$16,125.00 130...........................................$ 3,738.00 131...........................................$ 3,422.00 132...........................................$ 171.00 152...........................................$ 1,155.00
total ............$430,063.00

With regard to item/invoice 95, the petitioner seeks remission under 1466(d)(2), which requires that a U.S. resident use materials that have been manufactured and purchased in the United States. Although evidence is furnished that the party completing the work is a U.S. resident, the documentation submitted as to the parts indicates only that the materials were purchased in the United States. Since no direct evidence has been submitted which demonstrates that the materials used were manufactured or produced in the United States, remission can not be granted. Accordingly, both the cost of labor ($5,721.00) and materials ($95.00, as included in the above list) are dutiable.

Likewise, the petitioner also seeks relief for item/invoice 159, which lists the costs of labor and expenses for work done by a U.S. resident to install a cathodic system. In connection with this installation, the petitioner has submitted the following documentation: the shipyard invoice (item/invoice 202, A-20), the invoice for the parts (item/invoice 155), a drawing of the proposed work (Drawing #611-R259-30) and the corresponding List of Materials (#611-R259-30L/M). After careful review of the evidence submitted, we find that the installation of the computer-controlled cathodic protection system is an alteration
or modification to the hull and fittings of the vessel. Accordingly, we find that item/invoice 155 ($20,000.00 for parts), item/invoice 159 ($8,800.00 for labor by a U.S. resident) and item/invoice 202, A-20 ($31,696.00 for foreign labor) are not subject to duty.

In connection with the installation of the cathodic system, item/invoice 158 is claimed to be duty-free as material utilized as part of the modification. Our decision on the application held that the petitioner had submitted insufficient evidence to establish that the material listed on item/invoice 158 was part of the installation of the anodes. The only additional information submitted by the petitioner is an affidavit by an employee of the petitioner which merely repeats statements made in another employee affidavit. We find these documents to be self-serving and, without corroborating documentation from an independent source, unpersuasive. Accordingly, we find the cost of the material ($907.00) to be dutiable.

Item/invoice 97 is claimed to be duty-free as material utilized as part of a modification referenced in item A-1 on Item/Invoice 202. As part of its application for relief, the petitioner submitted drawing #610-R140-031, which is an electric schematic of the aft sewage treatment plant remote alarm panel. Detailed examination of all documents reveals that item/invoice 97 specifically states that the alarm panel was "assembled and wired as drawing #610-R140-031." Although the shipyard invoice (item/invoice 202, listing item A-1) does not specifically state that an alarm panel was installed, drawing #610-R140-031 is included in a list of plans apparently utilized by the shipyard in making the modification. Accordingly, we find the cost of the material ($576.00) to be non-dutiable.

Item/invoice 108, in addition to being claimed duty-free as a part manufactured in the U.S., is also claimed to be duty-free as related to a modification referenced in Item/invoice 202, A-2. Our decision on the application held that insufficient evidence had been submitted to establish that the pump unit listed on item/invoice 108 was a part of the modification performed in items A-2 listed on item/invoice 202. In an affidavit submitted with the petition for review, the petitioner asserts that the listing of pump model #34401 on the Smith-Koch, Inc. purchase invoice and the listing of Robbins & Myers pump model #34401 on the list of materials for Drawing #611-R140-012 indicate that item/invoice 108 was part of the modification performed in item/invoice 202, A-2.

However, the shipyard invoice (item/invoice 202, A-2) does not list the Drawing #611-R140-012 as the specifications for the installation of any pump as is the case with other drawings (i.e., item/invoice 202, A-2 paragraph E states, "Install owner
furnished Hamworthy Model ST-1 sewage treatment unit on bedplate fitted in paragraph (D) above...[r]efer to Sun Dwg. No. 610-R140- 011.") Nor is this drawing included in the list of plans utilized by the shipyard in performing the modification. The shipyard invoice (item/invoice 202, A-2) contains references to three types of pumps: a refurbished shore discharge pump, two owner-furnished Gast rotary air pumps, and a starboard transfer pump. None of these references supports the conclusion that the pump listed in item/invoice 108 was utilized in the modification performed. Therefore, we find the cost ($689.00, previously included in our list above) to be dutiable.

Item/invoice 153 is also claimed to be related to a modification (see item/invoice 202, items A-5, A-8, and A-10). As with the previous items, we held in our decision on the application that insufficient evidence had been presented to establish that the calibrations and other services listed on item/invoice 153 were a part of the modification performed. In an affidavit submitted with the petition for review, the petitioner contends that the services were an integral part of the modifications performed. Although the shipyard invoice (202, A-5, A-8, and A-10) does indicate that modifications were performed to Tank 8 center, the invoice also lists repairs made to tank 8, including tank 8 center (item/invoice 204, R-10). In the absence of evidence that demonstrating that the services were not related to the dutiable repairs performed, we find the cost of the actual services ($1,372.00) to be dutiable.

Item/invoice 161 is claimed to be free as a boiler survey undertaken by a classification society. This claim was denied in our decision on the application due to a lack of evidence establishing that the survey was undertaken to meet specific requirements of the American Bureau of Shipping or the United States Coast Guard. The petitioner has submitted an untitled document which is purported to be the list of boiler surveys required by the American Bureau of Shipping (section 45.15). Even if we were to assume this to be true, the petitioner still has not established that the particular boiler survey in question is one of the required surveys and not a damage survey for the purpose to ascertain needed repairs. Without such evidence, we find the cost of the survey ($1,298.00) and the non-segregated cost for overtime ($1,350.00) to be dutiable.

Item/invoice 200, items 25 (sea trial) and 27 (scale and muck removal) were held to be dutiable in our decision on the application due to a lack of satisfactory evidence establishing that these items were not part of dutiable repairs performed. The petitioner has submitted no additional evidence, other than an employee affidavit, on which to base a finding that the items were not part of dutiable repairs performed, thus, we find the cost of the sea trial ($668.00) and the scale and muck removal

($45,821.00) listed on item/invoice 200 to be dutiable.

Item A-15 listed on item/invoice 202 (removal of deck awning) is asserted to be non-dutiable on the basis that this item was a modification. In our decision on the application for relief, we noted that evidence had been submitted indicating that the existing awning structure had been condemned by a United States Coast Guard inspector as a safety hazard.

The court in United States v. Admiral Oriental T.D. 44359 (1930), in addressing the terms "repairs" and "maintainence", turned to the definitions supplied by Funk and Wagnalls New Standard Dictionary:

Repair, vt. 1. To mend, add or make over... 2. To restore to a sound or good state...

Maintain, v. 1. To hold or preserve in any particular state or condition; keep effective and from falling, declining, or ceasing... 2. To supply with means of support; provide for; sustain; keep up...

Furthermore, the court in Admiral Oriental, supra, (quoting Gagon v. United States, 193 U.S. 451, 457) added that, "repair... contemplates an existing structure which has become imperfect by reason of the action of the elements or otherwise." Placing the facts given to us within the definitional framework provided by Admiral Oriental, supra, the removal of an awning which was condemned as a safety hazard is clearly a repair. Accordingly, we find that the cost ($6,230.00) to be dutiable.

HOLDING:

Following a thorough review of the documentation submitted by the petitioner, and as detailed in the Law and Analysis section of this ruling, petition for review granted in part and denied in part.

Sincerely,

Stuart Seidel

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