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HQ 111572


October 30, 1991

VES-13-18 CO:R:IT:C 111572 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 Baltimore, Maryland, Vessel Repair Entry No. C13-00176422 dated June 7, 1990, MARJORIE LYKES, Voyage 116. Casualty; owner-supplied spare parts; survey.

Dear Sir:

This is in reference to a memorandum from your office which forwarded a petition for relief filed by Lykes Bros. Steamship Co., on a partial denial of an application for relief for duties assessed on repairs made to the vessel MARJORIE LYKES, Voyage 116.

FACTS:

The petitioner's request for review centers on the cost for damage to the No. 1 main deck hatch cover, forward section, alleged to have been suffered by the vessel while at dock, due to stevedore negligence, and parts and materials used in the certain other repairs alleged to be U.S. spare parts and/or materials.

In a decision dated December 24, 1990, you denied in part the application on the basis that there was no proof of a casualty as to the stevedore damage, and that there was no proof of United States manufacture of the spare parts used in certain other repairs. You ruled that all of the subject items were considered dutiable.

The petitioner has submitted additional evidence to show that the vessel was damaged on April 24, 1990, by stevedores while at dock in Mogadiscio, Republic of Somali.

The file contains copies of relevant pages from the ship's log and official log for the dates of April 24 and May 14, 1990. The log for April 24, 1990, shows that at 01:00 hour, while the
vessel was docked, panels were hit by a sling of bags causing the brackets to the "A" and "B" panels to break off at the bottom. The breakage caused the panels to fall forward onto the deck. The vessel log for May 14, 1990, shows that while the vessel was docked at Durban, South Africa, the shipyard gang boarded the vessel at 13:30 hours to repair the No. 1 main deck hatch cover, forward section which had been damaged on April 24, 1990.

The file also contains copies of internal documents relating to the stevedore damage.

In addition, the petitioner alleges that the parts contained in Richardson Electronics, Ltd. invoice 0063533, namely, M13111/M5039 magnetrons, used to make the repairs in item 1, 3CM radar, listed on the CF 226, were taken from the ship's spares on board the vessel. The petitioner has submitted a document dated July 19, 1990, to show that it purchased replacement parts for the 3CM radar from a US company.

With regard to item No. 3, electric motor for No. 1 distiller, the petitioner has submitted a service report from a communications firm in Mombasa, Kenya, showing that new bearings were supplied by the vessel to repair the No. 1 distiller.

ISSUES:

1. Whether sufficient evidence is presented to establish that repairs to the main hatch cover 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 3 CM radar and the electric motor for the No. 1 distiller 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. 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, 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).

In addition, if the above requirements are satisfied by evidence, the remission is restricted to the cost of the minimal repairs necessary to enable the vessel to reach her port of destination. Repair costs beyond that minimal amount are not subject to remission.

Customs Regulations require that certain supporting evidence be submitted with an application for relief for damages resulting from stress of weather. This evidence includes photocopies of the relevant parts of the vessel's logs, certification of any claimed casualty by the master or other responsible vessel officer with personal knowledge of the facts, and a certification by the master that the repairs were necessary for the safety and seaworthiness of the vessel to enable her to reach her port of destination in the United States (19 C.F.R.

It is clear from the evidence that the vessel suffered damage to the main No. 1 hatch cover on April 24, 1990, by stevedores while at dock in Mogadiscio, Republic of Somali. With regard to the evidence that the vessel was in need of repairs to secure her safety and seaworthiness, however, the documents show that the repairs were not made until May 14, 1990, when the vessel was in the port of Durban, South Africa.

In a recent ruling, Customs noted that pursuant to 2.01-15, U.S. Coast Guard (USCG) Regulations (46 CFR 2.01-15) a vessel may not proceed from one port to another for repairs unless prior authorization is obtained from the USCG Officer in Charge, Marine Inspection (OCMI) either through the issuance of a USCG "Permit to Proceed to Another Port for Repairs" (CG-948) or a CG-835 which would specify the restrictions on, and duration of, any voyage undertaken prior to obtaining permanent repairs. In the absence of any determination of the USCG regarding a vessel's safety and seaworthiness, and absent evidence that would be adduced by the required USCG determination on the issue of seaworthiness, the petitioner failed to substantiate its claim for remission under 1466(d)(1) (see HQ 111477 GV).

The petitioner has not met a burden of proof that is provided for by federal regulations. The controlling agency that determines questions of fitness to proceed is the USCG which is not empowered to assign this responsibility to a private organization (i.e., the ABS, which is a surveying society the primary purpose of which is to determine whether, for insurance purposes, a vessel will remain in class). The USCG regulations, which have the force and effect of law, require a vessel operator to prove certain facts to the federal government; that was not done.

Accordingly, in the absence of any determination of the USCG regarding the subject vessel's safety and seaworthiness, and absent the evidence that would be adduced by the required USCG determination on the issue of seaworthiness, the petitioner has failed to substantiate its claim for remission under 1466(d)(1).

With regard to the items of cost relating to those items which are alleged to be a part of the ship's spare 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. The documents submitted are insufficient to sustain proof that the articles used in the foreign repairs made to the radar and to the distiller were spare parts that were previously imported and duty paid or are US manufacture parts.

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.

With regard to the ABS report No. DB12380 covering the repairs to the No. 1 generator with a "spare ship supplied new control spring", 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 cost for item No. 2, ABS survey for repairs to the #1 main generator.

HOLDING:

The evidence presented is not sufficient to prove that the foreign repairs performed on the subject vessel for which relief is sought were necessary for its safety and seaworthiness therefore remission pursuant to 19 U.S.C. 1466(d)(1) is denied.

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.

The ABS survey was performed to determine the extent of damage to the No. 1 generator, the cost of the ABS survey is dutiable.

Sincerely,

B. James Fritz
Chief

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