HQ 0110892 - Honolulu Vessel Repair Entry No. H19-00110335-9 dated June 7, 1989, AMERICAN SUN. Application; casualty; modifications; owner-supplied parts; Customs and Trade Act of 1990 (Pub. L. 101-382); 19 U.S.C. 1466; 19 CFR 4.14 - United States International Trade Commision Rulings

United States International Trade Commision Rulings And Harmonized Tariff Schedule

faqs.org Rulings By Number Rulings By Category Tariff Numbers

faqs.org > Rulings and Tariffs Home > Rulings By Number > 1992 HQ Rulings > HQ 0110731 - HQ 0110894 > HQ 0110892

HQ 110892

May 13, 1991

VES-13-18-CO:R:IT:C 110892 BEW

CATEGORY: CARRIER

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

RE: Honolulu Vessel Repair Entry No. H19-00110335-9 dated June 7, 1989, AMERICAN SUN. Application; casualty; modifications; owner-supplied parts; Customs and Trade Act of 1990 (Pub. L. 101-382); 19 U.S.C. 1466; 19 CFR 4.14

Dear Sir:

FACTS:

The record shows that the shipyard work in question was performed on the subject vessel in Singapore during the period from April 17 through May 12, 1989. The subject vessel arrived in the United States at the port of Honolulu, Hawaii, on June 6, 1989.

The entire vessel repair entry involves a potential duty of $478,449.50.

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.

The applicant contends that the vessel sustained hull damage as a result of contact with the bow of a lighter vessel M.V. SAPPORO OLYMPICS when she was coming along side at 1916 hours on April 3, 1989, at Chittagong Anchorage, located in Bangladesh. The American Bureau of Shipping (ABS) report No. Report No. CI 1187 sustains that on April 3, 1989, the vessel was damaged on the port side. It also indicates that no repairs were carried out at that time. The repairs were not performed until the vessel arrived in Singapore a few weeks later.

You have requested our advice concerning the following repairs listed on Keppel Shipyard invoice No. 89/E/Y/031A/B which relate to modifications/alterations/additions and a casualty.

Item Nos. Description

000001 - Shell damage Repairs
000003 - 0001 Steaming out line
0002 Sounding pipe
0003 Watertight door
0004 Ballast suction lines
0005 Butterworth opening
0006 Gunwale installation
0007 Crude oil washing main line
0008 Fuel oil bypass
0009 Incinerator Unit
Installation
0010 Sewage Treatment Plant
Replacement
0011 Smit Bracket
0012 Butterworth plates
0013 Gunwales Scupper
000005 - 0012 Engine room supply fan
000010 - 0008 American Bureau of Shipping Survey - hull modifications.
000025 - 0001 Hamworthy pumps - sewage treatment plant
000038 - 0002 Testron Services - lubetron 000041 - 0001 Unitor - acetylene
- 0003 Unitor - oxygen
000043 - 0001 - 0007 American United Marine Equipment

The applicant claims that all of the above items are modifications/alterations/additions to the hull and fittings of the vessel with the exception of Item No. 000001 - Shell damage repairs, and 000038 - 0002, 000041-0001 and 0003, and 000043 - 0001-0007 which are either spare parts or U.S. owner-supplied spare parts.

ISSUES:

1. Whether certain work performed in a foreign country constitutes modifications/alterations/additions to the hull and fittings rather than equipment purchases or repairs within the meaning of 19 U.S.C. 1466?

2. Whether sufficient evidence is presented to establish that the subject repairs were necessitated by a "casualty" which is remissible under the vessel repair statute (19 U.S.C. 1466).

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

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.

Paragraph (1), subsection (d) of section 1466 provides that duty may also 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.

The statute thus sets a three-part test which must be met in order to qualify for remission under the subsection, these being:

1. The establishment of a casualty occurrence.

2. The establishment of unsafe and unseaworthy conditions.

3. The inability to reach the port of destination without obtaining foreign repairs.

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, or spontaneous explosion of such dimensions as to be immediately obvious to ship's personnel, 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 event, we must consider the repair to have been necessitated by normal wear and tear (ruling letter 106159, September 8, 1983).

Section 1466, states that the vessel must be compelled to obtain the repairs and/or purchases "to enable it to reach its port of destination". Three of the elements necessary under the statute to qualify for remission after a casualty has been proven are evidence of unsafe and unseaworthy conditions, the inability to reach the port of destination without obtaining foreign repairs, and the performance of only those minimal repairs which were necessary to enable the ship to reach that port.

The subject accident occurred while the vessel was at anchorage. Vessels cannot be said to be compelled for the safety and seaworthiness of the vessel to obtain repairs after a thousand mile voyage subsequent to the "casualty." Accordingly, the cost associated with the casualty repair is dutiable.

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, we have determined that the materials listed on Keppel Shipyard, invoice No. 89/E/Y/031A/B, and described below constitute neither repairs nor equipment, the purchase of which is dutiable under title 19, United States Code, section 1466 (for a general discussion of "ships' equipment" see the discussion in, inter alia, 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

Item Nos. Description

000003 - 0001 Steaming out line
0002 Sounding pipe
0003 Watertight door
0004 Ballast suction lines
0005 Butterworth opening
0006 Gunwale installation
0007 Crude oil washing main line
0008 Fuel oil bypass
0009 Incinerator Unit
Installation
0010 Sewage Treatment Plant
Replacement
0011 Smit Bracket
0012 Butterworth plates
0013 Gunwales Scupper
000005 - 0012 Engine room supply fan
000025 - 0001 Hamworthy pumps - sewage treatment pumps

Since the subject items appear to be of such a nature, and to have been incorporated into the ship in such a manner, as to constitute neither a dutiable repair nor a dutiable purchase or equipment, relief is granted as to those items.

With regard to the items of cost relating to the items which are alleged to be spare parts and U.S. owner-supplied parts, we have found that the Customs administration of duty assessment issues under section 1466 regarding U.S.-made materials purchased in the U.S. had for some time been guided by the terms of Treasury Decision 75-257 (T.D. 75-257).

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. Modifications will of course continue to be treated as duty-free, both materials and labor.

Since the applicant has not submitted the above stated evidence to sustain that either duty has been paid on or that certain other owner-supplied parts are of U.S. origin, the cost of the owner supplied parts is dutiable. The application is denied as to the following items:

000041 - 0001 Unitor - acetylene
- 0003 Unitor - oxygen
000043 - 0001 - 0007 American United Marine Equipment

Please proceed with liquidation on that basis.

With regard to Testron Services Invoice No. 9470, all items are dutiable.

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. If an inspection or survey is conducted as a part of an ongoing maintenance and repair program labelled "continuous" or "ongoing" the cost 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 regard to the surveys listed on ABS invoice No. 643907, we find them to be nondutiable with the exception of the Tank Repairs Survey.

The Contact (shell) Damage Survey listed on ABS invoice No. CI 1274-S is dutiable.

HOLDING:

1. The evidence presented is not sufficient to prove that the foreign repairs performed on the subject vessel were necessitated by a casualty occurrence, thus warranting remission pursuant to 19 U.S.C. 1466. The application is denied as to the casualty.

2. The installation of Item Nos. 000003 -0001 through 0013, 000005 -0012, and 000025 - 0001 constitutes modifications/ alterations/additions to the hull and fittings rather than repairs. As such, the cost of this work in not dutiable under 19 U.S.C. 1466.

3. The evidence is insufficient to sustain that either duty has been paid on or that certain spare parts and other owner-supplied parts are of U.S. origin. As such, the cost of the subject U. S. spare parts and owner supplied parts is dutiable.

4. All surveys listed on ABS invoice No. 643907 are non- dutiable except the tank Repairs Survey. The Contact (shell) Damage Survey listed on ABS invoice No. CI 1274-S is dutiable.
Sincerely,

B. James Fritz

Previous Ruling Next Ruling