HQ 0111044 - New York Vessel Repair Entry No. 906-1514190-1, S/S ST. EMILION, Voyage No. 96. 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 111044

May 20, 1991

VES-13-18-CO:R:P:C 111044 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. 906-1514190-1, S/S ST. EMILION, Voyage No. 96. 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 B.A. McKenzie & Co., Inc. on behalf of Clayton Tankers, Inc., in relation to the above referenced vessel repair entry dated March 6, 1990. An incomplete entry was filed on December 15, 1989. The completed entry and the application were filed following a timely filed request for an extension of time. The vessel arrived at the port of New York, New York, on December 12, 1989.

FACTS:

The record shows that the shipyard work in question was performed on the subject vessel at the Keppel Shipyard in Singapore, during the period of June 27 through November 9, 1989.

The entire vessel repair entry involves a potential duty of $170,608.

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 900 items to us for our review. We have reviewed your comprehensive worksheet and breakdown of each item along with all of the invoices filed with this entry. After a complete review of all of the invoices submitted we find the following as to the items listed below.

We will refer to the work using the item numbers listed on your worksheet and invoice descriptions shown on the invoices submitted with your memorandum.

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:

Title 19, United States Code, 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.

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/K/Z/044A, and described as modifications 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 (1930))). 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 the following exceptions.

With regard to Item No. 209 - Forced draft fans, the invoice shows that repairs were made. The evidence is insufficient to show that the repairs were not due to damages, deterioration, or wear and tear. The documents submitted show that the forced fan motor was repaired, and that mounting brackets were installed to stabilize the fan. Since repairs were made to this item, the cost of the inspection associated with this item is also dutiable. Accordingly, all costs listed under item 209 are dutiable.

With regard to item 303(a) - governor inspection. The invoice indicates that the governor was disassembled, all parts cleaned and inspected, and reassembled using any new necessary parts furnished by the vessel. There is no evidence to show that the said new parts were not used in this repair work. The evidence is insufficient to show that this was an inspection and cleaning only. Accordingly, this item is dutiable.

Item No. 307 - Rotary and Centrifugal pump inspection. The invoice shows that renewals and repairs were made to several pumps tested in this item. The inspection costs associated with those items are also dutiable. We note that the invoice does not separate the inspection cost for the dutiable repairs from the non-dutiable repairs. Pursuant to C.I.E. 1325/58 and C.I.E. 565/55, cost may not be remitted where the invoice does not segregate the dutiable cost from the non-dutiable cost. Accordingly, the entire inspection cost associated with Item No. 307 is dutiable.

With regard to Item 320, the transportation cost would not be dutiable.

Item No. 803 - TPT Top and Item 801 Forecastle and Poop Deck Repairs. The invoice shows that repairs were made in item 803. You have listed on your worksheet, under item 801 costs in the amount of $3,200 for testing. This amount is associated with item 803. Tests which are made following repairs to determine if repairs were properly made are dutiable as a part of the repair work. Accordingly, the amount of $3,200 for testing is dutiable. Further, you may want to separate the amount for staging and lighting listed for each of these items which you have associated only with item 801.

Cleaning operations 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 (See C.I.E. 429/61). Customs has long held 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. Accordingly, the cleaning cost associated with the following items are dutiable.

Item No. 804 - PVD Pump Room Bottom Framings. Cleaning in preparation for repairs is dutiable.. Accordingly, sub-item (e) is dutiable as a part of the repairs made in sub-items (a) through (d).

Item 852 - PO Tank and Cofferdam Cleaning - The invoice shows that the PVP and AFT cofferdams were scraped and cleaned before welding in #10 PCS and PO tank. It appears from reading the invoice that repairs were performed on this item. Accordingly, the cost associated with this item is dutiable.

Where an inspection or survey, or testing is made to ascertain the extent of damage sustained or to ascertain if the work is adequately completed, the costs associated with the inspection, survey or testing are dutiable as a part of the repair work. According the testing associated with the following items is dutiable:

Item 826 Shell Wasted seams/butts welding.

Item 850 Tank test

With regard to the following items the applicant did not claim that these items are remissible under the statute. Accordingly, we find the items listed below dutiable for the following reasons:

Item 900 Painting and Corrosion protection - The removal of blasted grit in tanks is part of the tank repairs necessary for the coating of the tanks.

Item 709 - Explosive Proof Fittings. - It appears from the invoice that some repairs were made by replacing eyes. In addition, this is a part of the equipment rather than a modification to the vessel's hull and fittings.

Pursuant to C.I.E. 125/48, cleaning in preparation for painting is dutiable. In addition, C.I.E. 518/63 held that in applying a protective and preservative coating to a vessel's tanks, the charges for labor for erection and use of equipment, the cleaning incidental thereto, and materials used, all in connection with such repairs are dutiable as repairs.

With regard to the Chugokw Marine Paints invoices, all items of cost, including the cost for inspection, are dutiable. It appears that the inspection cost relates to inspection of the repair work associated with painting.

With regard to the following items, that are alleged to be owner-supplied and of U.S. origin:

Item No. 323 - List of spares required for shipyard repairs,

Item No. 324 - Spares of 400 OPM Vertical Waterous cargo pump, and

Items listed on the following invoices:

Alfred Conhagen, Inc. invoice Nos. 007969, 008113,008232, 008393, and 008566
Parmatic Pollution Control Corporation invoice No. 477 Louisiana Valve & Machine Works, Inc. invoice No. 3296 American Iron-Steel MFG. Co. invoice No. A123519 Unaflex invoice No. 038175
Federated Metals Corporation invoice No. 1767201 Texas Customs Builders, Inc. invoice No.9965 W&O Supply, Inc. invoice Nos. 156944 and 105615 Eastern Industrial Supply Corp., invoice No. 78867 L. Katzenstein & Co., invoice No. 25288
Coastal Ultrasonic Service, invoice No. 33-89
which are alleged to be U.S. spare parts or 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 Items No. 323 and 324, and the following invoices:

Alfred Conhagen, Inc. invoice Nos. 007969, 008113,008232, 008393, and 008566
Parmatic Pollution Control Corporation invoice No. 477 Louisiana Valve & Machine Works, Inc. invoice No. 3296 American Iron-Steel MFG. Co. invoice No. A123519 Unaflex invoice No. 038175
Federated Metals Corporation invoice No. 1767201 Texas Customs Builders, Inc. invoice No.9965 W&O Supply, Inc. invoice Nos. 156944 and 105615 Eastern Industrial Supply Corp., invoice No. 78867 L. Katzenstein & Co., invoice No. 25288
Coastal Ultrasonic Service, invoice No. 33-89.

Please proceed with liquidation on that basis.

With regard to the remaining items, we agree with your findings as to the dutiability of those items.

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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