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HQ 110763

July 13, 1990

VES 13-18-CO:R:P:C 110763 LLB

Category: CARRIER

Deputy Assistant Regional Commissioner
Classification and Value Division
ATTN: Regional Vessel Repair Liquidation Unit New York, New York 10048-0945

RE: Vessel Repair; Casualty; Testing; Survey; Cleaning; Transportation; Latent Defect; 19 U.S.C. 1466; 19 CFR 4.14; SEALAND NEWARK BAY, V-14; Entry Number 559-1236859-8

Dear Sir:

Reference is made to your memorandum of October 23, 1989, and additional transmittal of December 29, 1989, which forward for our consideration the application for relief filed by Sea- Land Service, Inc., concerning the assessment of vessel repair duties associated with the April 26, 1989, arrival of the vessel SEALAND NEWARK BAY in the port of Boston, Massachusetts.

FACTS:

The vessel arrived in Boston, Massachusetts, and reported the fact of various repairs and purchases having been made in a foreign shipyard. These items are as follows:

1. Repairs to cylinder head cover (#NY 5203).

2. Fuel oil analysis (# NY 5204).

3. Cylinder head cover inspection/consultation (# NY 5205).

4. Cleaning of piston cylinder buffer space (# NY 5206).

5. Shipping charges (# NY 8700).

6. Purchase of charts (# NY 8202).

7. Cylinder head transportation charges (# NY 8703).

With respect to items 1 and 3, it is claimed that damage to the cylinder head was due to casualty since the item is expected to have an unlimited useful life expectancy. There is no "event"
as such which has been identified, but it is suggested that the breakdown could not be other than casualty-related. This is, in effect, a claim of latent defect.

ISSUE:

Whether establishment of a latent defect is tantamount to the occurrence of a casualty which will permit remission of duties under 19 U.S.C. 1466(d).

LAW AND ANALYSIS:

Section 466, Tariff Act of 1930, as amended (19 U.S.C. 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.

Paragraph (1), subsection (d) of section 1466 provides that duty may be remitted if good and sufficient evidence is furnished establishing that the vessel was compelled by stress of weather or other casualty to put into a foreign port to make repairs to secure the safety and seaworthiness of the vessel to enable her to reach her port of destination. Thus, it is necessary that in order qualify for duty remission, the party seeking relief must show both the occurrence of a casualty, and that repair was necessary for safety and seaworthiness.

The term "casualty" as it is used in the statute, has been interpreted as something which, like stress of weather, comes with unexpected force or violence, such as fire, explosion or collision (Dollar Steamship Lines, Inc. v. United States, 5 Cust. Ct. 28-29, C.D. 362 (1940)). In this sense, a "casualty" arises from an identifiable event of some sort. In the absence of evidence of such a casualty-causing event, we must consider a repair to have been necessitated by normal wear and tear (ruling letter 105159), September 8, 1983).

Customs holds that the costs of certain surveys and inspections are not dutiable, even though dutiable repair may be performed in connection with their execution. Such operations are generally limited to surveys required to keep a vessel in class. Other surveys or inspections, such as those performed to ascertain whether repairs are either necessary or adequately accomplished, are dutiable.

One early case (United States v. George Hall Coal Co., 134 F. 1003 (1905)), was the first to find any of various types of expenses associated with foreign shipyard operations to be classifiably free from the assessment of vessel repair duties. These operations include cleaning not associated with repairs (either preceeding or following), and shipping/transportation expenses (so long as they are separately invoiced).

The main question to be addressed in this case is whether the presence of a latent defect which leads to a breakdown may be equated with the occurrence of a casualty arising from an identifiable event. Since neither the statute nor court cases address this point, resort is made to legislative history to resolve the issue. It is the intention of the Congress, as reflected in the record of hearings concerning amendments to sections 3114 and 3115 of the Revised Statutes of the United States (the predecessor provisions to 19 U.S.C. 1466(a) and (d)), that the statute not recognize latent defects. At that time, the House of Representatives and the Senate were considering different amendatory language. The following is recorded in regard to the latent defect issue:

[Senator] Barkley. In other words, as I understand the Senator, according to the
House provisions if some portion of the ship on the voyage over wears out or a defect is disclosed prior to the sailing of the ship from the home port, that repair may be made in a foreign port without paying the 50 percent tax?

[Senator] Fletcher. Yes.

[Senator] Barkley. But under the Senate committee amendment, no such circumstances could exist. The only repairs that could be exempted from payment of a 50 percent tax are repairs made necessary by reason of stress of storm or weather. In other words ... she can not repair any ordinary wear and tear of machinery or appliances that could not have been reasonably discovered prior to the sailing of the vessel ...

[Senator] Fletcher. That is exactly what it means. (Congressional Record, September 19, 1929, p. 3782)

The quoted legislative history amply demonstrates that latent defect will not excuse duty under the statute. The Senate version was, of course, the version which was adopted and is incorporated in the present statute.

The finding that latent defects are not considered under the statute disposes of items 1 and 3 on the application for relief. Item 1 is considered to be a repair item, and item 3 is the pre-repair inspection concerning that item where cost is dutiable because it is associated with that dutiable operation.

In the case of item 2, it appears to be a routine fuel oil analysis of the type previously considered on numerous occasions. Since it is not repair or maintenance related, it should be considered duty-free.

Items 4, 5, and 7 are among the types of expenses which are considered "classifiably free", as previously discussed. These include the non-repair-related cleaning expenses for the piston cylinder buffer space, and the segregated shipping and transpor- tation charges for parts and materials.

In regard to item 6, under long-standing administrative precedent, charts for the vessel are considered dutiable vessel equipment (Ruling Letter MS 212.6c, May 11, 1967).

HOLDING:

Following thorough review of the facts and analysis of the law and precedents in this case, we recommend that the application be allowed in part and denied in part, as specified above.

Sincerely,

B. James Fritz
Chief

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