HQ 0111040 - Petition for Review on Bath, Maine, Vessel Repair Entry No. 345-0005074-4 dated November 14, 1989, vessel OCEAN KING. Casualty; owner-supplied spare parts; non-segregated costs; portable fire extinguishers. - United States International Trade Commision Rulings

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HQ 111040

March 25, 1991

VES-13-18 CO:R:IT:C 111040 BEW

CATEGORY: CARRIER

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

RE: Petition for Review on Bath, Maine, Vessel Repair Entry No. 345-0005074-4 dated November 14, 1989, vessel OCEAN KING. Casualty; owner-supplied spare parts; non-segregated costs; portable fire extinguishers.

Dear Sir:

This is in reference to a memorandum from your office which forwards a petition for relief filed by Chase Leavitt, Inc., on behalf of Farrell Ocean Service, Inc., on a partial denial of an application for relief for duties assessed on repairs made to the vessel OCEAN KING. The vessel arrived at the port of Bath on October 11, 1989.

FACTS:

The petitioner's request for review centers on the cost for damage to the Engine Cylinder Liner alleged to be caused by a "casualty" suffered by the vessel at approximately 3.55 a.m. off the coast of Nova Scotia while enroute to Bath, Maine.

In a decision dated February 12, 1990, you ruled that the application was approved in part and denied as to items Nos. 4, 5, 6, 7, 10, 11, and 13 because of insufficient documentation. The said items are as follows:

Item 4 - To Supply Miscellaneous materials to ships crew

Item 5 - Liner

Item 6 - Repairs to liferaft and shipping cost

Item 7 - Repairs to fire extinguisher

Item 10 - Repair to exhaust pipe

Item 11 - Repair to drip trays

Item 13 - Overtime costs

Notwithstanding correspondence between officials of Chase Leavitt and Customs, we note the following. A completed entry was filed on November 14, 1989, thirty-four (34) days after the vessel arrived at the port of entry. An application for relief, dated January 5, 1990, was filed on the same date with the District office in Portland, Maine.

The petitioner has submitted additional evidence and an explanation of the damage to the vessel's engine.

In addition, the petitioner has submitted documentation and invoices relating to cost of certain foreign repairs which it claims to be U.S. made owner-supplied parts.

ISSUES:

1. 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).

2. Whether sufficient evidence is presented to establish that parts used in the repair of the Engine Cylinder Liner are owner-supplied spare 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.

Section 4.14(b)(2), Customs Regulations (19 CFR 4.14(b)(2)) provides, in pertinent part, that entry shall be filed with the appropriate Customs officer within five working days after the vessel's arrival. The subject entry, dated November 11, 1989, is untimely filed.

Furthermore, pursuant to section 4.14(d)(1)(ii), Customs Regulations, the application for relief, with supporting evidence, shall be filed within 60 days from the date of first arrival of the vessel, unless Customs grants an extension. The application under consideration was filed more than two (2) months from the date of first arrival of the OCEAN KING. Furthermore, it was incomplete as to documentation for various items for which relief was sought.

Although an application for relief need not be in any particular form, pursuant to section 4.14(d)(1)(i), Customs Regulations, it should allege that an item or a repair expense is not subject to duty under either paragraph (a) of section 4.14 (items that are not subject to duty) and/or paragraph (c) (circumstances allowing remission of duty otherwise due).

The applicant should be informed for future reference that in light of the Court's holding in Penrod Drilling Co. v. United States, (Slip Op. 89-168, dated December 13, 1989) anything less than strict adherence to the time requirements set forth in section 4.14 will result in the issuance of penalties for untimely filing. In view of the apparent assurances/extensions of time given by officials of the New York VRLU during various meetings and correspondence, we recommend no penalty action be taken regarding this particular entry. Notwithstanding the procedural deficiencies noted above, our determinations regarding the dutiable status of the work included on the subject entry are as follows:

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. It is Customs position that "port of destination" means a port in the United States."

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, 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 event, we must consider the repair to have been necessitated by normal wear and tear (ruling letter 106159, September 8, 1983).

The petitioner describes the repairs as follows:

The vessel broke down at sea and could not continue to its destination without the repairs. On September 17, 1989, approximately 11 miles southeast of western head, an engine problem was noticed. Exhaust gas was escaping into the cooling water jackets. The Captain expected that they were having cylinder liner or manifold problems. At 6:15 hours a decision was made to head for shore because the engine was heating up rapidly. On September 20, an inspection of the engine showed water leaking in from a cracked cylinder.

The evidence is clear that the vessel suffered a break down due to a cracked cylinder. The vessel's log reflects that the vessel put in at Shelburne, Nova Scotia, Canada, for casualty repairs.

It is clear from the evidence that the vessel was in need of repairs to secure her safety and seaworthiness, however, the evidence is insufficient to show what actually caused the break down of the cylinder liner. Absent clear proof of an identifiable event to show an unexpected force or violence, such as fire, explosion, or collision resulting in damage, such cost of repairs is not remissible (see C.I.E. 1826/58). The documentation submitted is insufficient to support a finding of a casualty as provided in section 1466(d)(1). The petitioner has not submitted documentation to substantiate that the damage was due to an identifiable event of some sort which caused the damage. Accordingly, the petition is denied as to the repairs performed on the engine cylinder liner.

With regard to the items of cost relating to these items which are alleged to be 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). That decision provides that when materials of U.S.-manufacture are purchased by the vessel owner in the U.S. for installation abroad by foreign labor, the labor cost alone is subject to duty under section 1466. When those same materials are purchased by the owner overseas or purchased in the U.S. by parties other than the owner, the cost of the materials themselves (even though of U.S.-manufacture) was also subject to vessel repair duty.

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.

The documents reveal that the cost for the work performed in item 6 was for repairs to the liferaft and for shipping costs. The shipping cost is not segregated from the repair cost.

Under the provisions of CD 1836, the fees for shipping and customs clearance is non-dutiable. Pursuant to C.I.E. 1325/58 and C.I.E. 565/55, duties may not be remitted where the invoice does not segregate the dutiable costs from the non-dutiable costs. Accordingly, the cost for the work performed in item 6 including the shipping cost is dutiable. The petition is denied as to item 6.

Installation of fire fighting equipment which is not permanently attached or the installation of apparatus which replaces worm out parts of a vessel is not an alteration to the hull and fittings. The documents state that the cost relating to item 7 was for the removal of (7) fire extinguishers from the vessel and transportation of the same to the shop for servicing, and replacing the extinguishers on board the vessel after service had been perfprmed. After reviewing the record, we considered the work done under item 7 dutiable (see C.I.E. 233/60). The petition is denied as to this item.

With regard to the remaining items, No. 10, 11, and 13, these items of cost were for repairs performed on the exhaust pipe and (5) drip trays, and for overtime cost for foreign labor. These items are all dutiable. The petition is denied as to these 3 items.

HOLDING:

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 petition is denied as to the casualty.

After a thorough review of the evidence submitted, and as detailed in the Law and Analysis portion of this ruling, we recommend that the Petition for Review be denied in with regard to those items specifically enumerated.

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 petition is denied as to these items. If, prior to liquidation, the proper certification and/or proof of prior importation is presented, the said items considered under section 1466(h) may be considered free of duty.

Sincerely,

B. James Fritz
Chief

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