HQ 0110876 - New York Vessel Repair Entry No. C10-4907895-4, NEW YORK SUN, Voyage No. 177. Application; modifications; inspection and cleaning; U.S. spare parts and owner-supplied spare parts; Customs and Trade Act of 1990; P.L. 101-382; 19 U.S.C. 1466; 19 U.S.C. 1466(h); 19 CFR 4.14 - United States International Trade Commision Rulings

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HQ 110876

June 11, 1991

VES-13-18-CO:R:P:C 110876 BEW

CATEGORY: CARRIER

Chief, Residual Liquidation Branch
U.S. Customs Service
6 World Trade Center
New York, New York 10048-0945

RE: New York Vessel Repair Entry No. C10-4907895-4, NEW YORK SUN, Voyage No. 177. Application; modifications; inspection and cleaning; U.S. spare parts and owner-supplied spare parts; Customs and Trade Act of 1990; P.L. 101-382; 19 U.S.C. 1466; 19 U.S.C. 1466(h); 19 CFR 4.14

Dear Sir:

This is in reference to an application for relief from duties filed by E. Charles Routh on behalf of Sun Transport, Inc., in relation to the above referenced vessel repair entry dated October 11, 1989. The application for relief was filed following a timely filed request for an extension of time. The vessel arrived at the port of New York, New York, on October 7, 1989.

FACTS:

The record shows that the shipyard work in question was performed on the subject vessel in Tyne, England from August 16 through September 24, 1989, and in Immingham, England from September 24 through September 28, 1989.

The entire vessel repair entry involves a potential duty of $1,200.000.

The applicant claims that relief for the subject items should be granted because the items should be classified as nondutiable items covered under title 19, United States Code, section 1466 and section 4.14 of the Customs Regulations.

You have referred a total of approximately 618 items to us for our review. We have reviewed the comprehensive computerized worksheet and breakdown of each item along with all of the invoices filed with this entry. We will refer to the work using the item numbers listed on the computerized worksheet and invoice descriptions shown on the invoices submitted with your memorandum.

The shipyard contract or workorder from A&P Appledore (Tyne) Limited is broken down by specific operational categories into four main divisions as follows:

A. General
B. Alterations
B. Inspections
D. Repairs.

In addition, the computerized sheet contain a fifth category, U.S. Spare parts and owner-supplied parts (Category

ISSUES:

1. Whether sufficient evidence is presented to establish that the certain repairs were modifications and/or inspections and cleaning which are remissible under the vessel repair statute (19 U.S.C. 1466).

2. Whether sufficient evidence is presented to establish that certain parts used in the repairs are owner- supplied spare parts which are free under the vessel repair statute (19 U.S.C. 1466(h)).

LAW AND ANALYSIS:

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 4.14(b)(2)(ii), Customs Regulations (19 CFR 4.14(b)(2)(ii), provides that whenever a repair entry is submitted as a full and complete account, the entry papers shall include evidence showing the cost of each item listed on the entry. If a repair entry is submitted as a incomplete account, as is the case here, the evidence must be submitted within 60 days of the vessel's arrival. The operator may, upon good cause shown, obtain an extension of 30 days to file cost evidence, such extensions to be obtained from the appropriate Vessel Repair Liquidation Unit. In this case, the vessel arrived October 7, 1989, and the initial 60-day period would have expired December 6, 1990. A 30 extension of time to file was granted. Cost evidence in the form of a foreign shipyard workorder and foreign and domestic invoices, along with an Application for Relief from duties were filed on January 4, 1990.

It is provided in part under section 4.14(d)(1)(iii) of the Customs Regulations (19 CFR 4.14(d)(1)(iii), that:

Unless such evidence is already filed with Customs, each application for relief shall include duplicate copies of the following evidence,...

(A) All itemized bills, receipts, and invoices covering items specified in paragraph (a)(1) of this section, segregating the cost of those items for which relief is sought from all other items listed in the vessel repair entry.

We have reviewed the complete file submitted with the subject application, however we find no invoice from A & P Appledore (Tyne) Limited; the only indicia of cost are the amounts listed on the workorder which is not in and of itself sufficient evidence of cost. The evidence required by 19 CFR 4.14(d)(1)(iii)(A) includes itemized bills, receipts, and invoices. Internal documents, such as the computerized worksheets, are insufficient, but will be considered in support of the evidence mentioned above.

The regulations provide clear direction regarding the necessary course of action in such cases. Section 4.14(e), Customs Regulations (19 CFR 4.14(e)), provides, in pertinent part:

In... cases in which evidence of cost is available, the entry may be liquidated 60 days after arrival of the vessel, or at the expiration of any extension of time granted under paragraph (b)(2)(ii) of this section to furnish evidence of cost, unless an application for relief is filed timely as provided in paragraph (d)(1)(ii) of this section.

Since the invoices relating to the A&P Appledore (Tyne) Limited workorder has not been submitted, you may proceed with immediate liquidation using the best evidence available, and in the absence of other evidence, your best cost estimates based on your experience.

For your general information, our review of the A&P Appledore (Tyne) Limited workorder (Exhibit 1) reveals the following:

Subdivision A (General), are, for the most part, considered classifiably free items under authority of United States v. George Hall Coal Co., 134 F. 1003 (1905). The exception is Item 00001-0001 - gas free certificate. The cost of obtaining a gas-free certificate constitutes and ordinary and necessary expense incident to repair operations and is pro-rated between dutiable and non-dutiable work.

Following a thorough review of the evidence submitted in support of the subject Application for Relief, as well as a careful analysis of the law and applicable precedents, the materials described as (B) Alterations, items No. 00002-0001 through 00002-0035 on the computerized worksheet, with the exception of 00002-0029 Boiler controls, may constitute alterations/modifications/additions, which are non-dutiable under title 19, United States Code, section 1466 (for a general discussion see Otte v. United States, 7 C.C.P.A. 166 (1916); United States v. Admiral Oriental Line et al., 18 C.C.P.A. 137 (T.D. 44359 (1930))).

Cleaning operations (subdivision (C) Inspections) which remove rust and deterioration or worn parts, and which are a necessary factor in the effective restoration of a vessel to its former state of preservation, constitute vessel repairs. Customs has long held that 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.

It appears that the repair work and equipment purchases (subdivision D) which are listed on the workorder are for the most part dutiable.

With respect to those items listed in subdivision (E) exhibits 100 through 296, a finding of non-dutiability is dependent upon evidence establishing that the materials were manufactured or produced in the United States.

The applicant has submitted certain invoices listed in the following exhibits which are alleged to be owner-supplied and U.S. spare parts.
Exhibit No. Exhibit No. Exhibit No. Exhibit No.

00100 00115 00133 00154
00102 00116 00134 00155
00105 00117 00143 00156
00106 00121 00144 00157
00107 00122 00145 00158
00108 00123 00146 00159
00109 00125 00147 00160
00110 00126 00148 00161
00111 00128 00151 200 through 296
00113 00129 00152
00114 00132 00153

The climate with regard to parts shipped abroad from the United States for foreign installation was transformed on August 20, 1990, when the President signed Public Law 101-382 which added a new subsection (h) to section 1466. While this provision applies by its terms only to foreign-made imported parts, there is ample reason to extend its effect to U.S.-made materials as well. To fail to do so would act to discourage the use of U.S.-made materials in effecting foreign repairs since continued linkage of remission provisions of subsection (d)(2) with the assessment provisions of subsection (a) of section 1466 would obligate operators to pay duty on such materials unless they were installed by crew or resident labor. If an article is claimed to be of U.S. manufacture, there must be proof of its origin in the form of a bill of sale or domestic invoice. If an article is claimed to have been previously entered for consumption, duty paid by the vessel operator, there must be proof of this fact in the form of a reference to the consumption entry number for that previous importation, as well as to the U.S. port of importation. If imported articles are purchased from third parties in the United States, a domestic bill of sale to the vessel operator must be presented. Further, with regard to imported articles, there must be presented a certification from the owner or master that the vessel at issue is a cargo vessel and that the imported articles were purchased for installation aboard the company's vessels.

If the elements stated above are proven to the satisfaction of Customs, the cost of foreign labor utilized for installation of U.S.-made or previously imported articles will be subject to duty under section 1466 in matters concerning repairs, and only the cost of qualifying materials used in repairs will be free of duty. All costs for freight, travel, customs duties listed on the invoices submitted as Exhibits 100 through 296 would be non- dutiable costs. Modifications will of course continue to be treated as duty-free, both materials and labor.

Please proceed with liquidation on that basis.

With respect to certain other invoices listed in the following exhibits, all costs are dutiable with the exception of costs relating to expenses incurred for packing, transportation, hotel and travel expenses, mileage expenses, train fares, air freight, customs duties and handling charges.

Exhibit Nos. Exhibit Nos.

00112 00127
00118 00130
00119 00131
00120 00135 through 00142,
00124 00149 and 00150

With respect to Exhibit Nos. 00162, 00163, and 00164 all costs are non-dutiable.

With respect to Exhibit No. 00165, all costs are non- dutiable with the exception of labor, parts and charts.

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 the item is dutiable. Very often an inspection or survey is conducted as a part of a vessel manager's or operator's ongoing maintenance and repair program. The cost of that "continuous" or "ongoing" survey is dutiable. Also, 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 holdings in C.I.E. 429/61, C.S.D. 79-2, and C.S.D. 79-277. With respect to the American Bureau of Shipping (ABS) Surveys, we find as follows:

ABS invoice No. 10530, all items are non-dutiable. ABS invoice No. 10531, all items are non-dutiable.

With respect to ABS invoice No. 10532, since the shipyard invoice has not been submitted to show the exact nature of the repair work which was performed, all surveys listed on this invoice are dutiable except drydocking.

HOLDING:

Following a thorough review of the law and analysis of the evidence, we recommend that the application be granted with the exception of the items enumerated above.

Sincerely,

B. James Fritz

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