HQ 0111043 - Petition for Review on Elizabeth, New Jersey, Vessel Repair Entry No. 514-3003996-9 dated January 3, 1990, vessel RALEIGH BAY, Voyage 020. Casualty; owner-supplied spare parts; surveys. - United States International Trade Commision Rulings

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HQ 111043

April 12, 1991

VES-13-18 CO:R:IT:C 111043 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 Elizabeth, New Jersey, Vessel Repair Entry No. 514-3003996-9 dated January 3, 1990, vessel RALEIGH BAY, Voyage 020. Casualty; owner-supplied spare parts; surveys.

Dear Sir:

This is in reference to a memorandum dated April 13, 1990, from your office which forwards a petition for relief filed by Sea-Land Services, Inc., on a partial denial of an application for relief for duties assessed on repairs made to the vessel RALEIGH BAY, Voyage 020.

FACTS:

The petitioner's request for review centers on the cost for damage to the No. 2 turbo-charger alleged to be caused by a "casualty" suffered by the vessel while enroute from Algeciras to Valencia, Spain.

In a decision dated March 12, 1990, you ruled that the ABS invoices and all ship spares are considered dutiable.

The petitioner has submitted additional evidence to show that the turbo-chargers have a scheduled preventative maintenance that is routinely performed at or before 12,000 hours of in-use operation. It states that the subject turbo-chargers had only 10,000 hours in-use operation when the damage occurred.

In addition, the petitioner alleges that the bearings and seals used to repair the No. 2 turbo-charger were taken from the original inventory on board at the time of the ship's 1988 acquisition.

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 turbo-chargers 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.

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, 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 has submitted documentation which shows that the turbo-charger had been last overhauled at 14,859, and that damage occurred at 24,883 engine hours, after approximately 10,000 engine hours of use. The evidence also indicates that new bearings were installed at 23,424 engine hours, and that an oil change was made at 23,612 engine hours.

The evidence is clear that the vessel suffered a break down due to damage to the vessel's turbo-chargers. The entry also includes American Bureau of Shipping (ABS) report No. CZ 4855 covering the damages to the turbo-chargers.

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 vessel's turbo chargers. 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 turbo-chargers.

With regard to the ABS report No. CZ 4855 covering the damages to the turbo-chargers, 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. Accordingly, we find that the survey is dutiable. The petition is denied as to the survey cost.

With regard to the items of cost relating to these items which are alleged to be a part of the original inventory of the ship's 1988 acquisition, 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.

HOLDING:

The evidence presented is not sufficient to prove that the foreign repairs performed on the subject vessel's No. 2 turbo- chargers were necessitated by a casualty occurrence, thus warranting remission pursuant to 19 U.S.C. 1466. The petition is denied as to the repairs made to the No. 2 turbo-charger.

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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