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HQ 111900

December 17, 1991

VES-13-18-CO:R:IT:C 111900 RAH

CATEGORY: CARRIER

Deputy Assistant Regional Commissioner
Commercial Operations Division
423 Canal Street
New Orleans, Louisiana 70130-2341

RE: Vessel Repair; 19 U.S.C. 1466; Survey; Consumable Supplies

Dear Sir:

This is in response to your memorandum of September 6, 1991, regarding the SS JOSEPH LYKES.

FACTS:

The record reflects that the SS JOSEPH LYKES arrived at the port of Wilington, North Carolina, on May 5, 1991. Vessel repair entry number C15-0012335-8 dated May 17, 1991, was filed reflecting foreign work performed and equipment purchased for the vessel.

The SS JOSEPH LYKES sailed from Baltimore, Maryland, on September 21, 1990 for a regular commercial voyage. However, on December 9, 1990 at Antwerp, Belgium, she was chartered to the U.S. Government due to the Persian Gulf Crisis, and various repairs and purchases were necessary.

The subject of this ruling is an application for relief dated July 15, 1991. The applicant seeks relief on six item:

Item #4 - Intersupply Shipstores
Item #7 - Tuministros Generales, consumable engine items Item #8A - ABS, Annual Surveys
Item #8B - ABS, Survey for Extension of Cargo Ship Item #9A - Yusuf Bin Adined Kanoo, visit charge Item #12 - Mackay Communications, repairs by U.S. residents

ISSUES:

(1) Whether items 8A and 8B are non-dutiable surveys under 19 U.S.C. 1466.

(2) Whether item numbers 4 and 7 constitute non-dutiable consumables.

(3) Whether item numbers 9A and 12 constitute dutiable repairs under 19 U.S.C. 1466.

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.

The applicant claims that item 9A is not a dutiable repair under 19 U.S.C. 1466. Item 9A is an invoice from Yusof Bin Asmed Kanoo for services rendered on service report 1274. That report describes the service as:

Board vessel. Informed by captain, radar repair completed by radio-officer. From, captain, service however not necessary. Left vessel.

Based on the foregoing, we find that no repairs were completed in item 9A. Accordingly, it is non-dutiable. We note, however, that item 9 is dutiable.

The applicant also requests relief from duty on items 8A and 8B, claiming they are non-dutiable surveys. In that regard, C.S.D. 79-277 stated, "[i]f the survey was undertaken to meet the specific requirements of a governmental entity, classification society, insurance carrier, etc., the cost is not dutiable even if dutiable repairs were effected as a result of the survey."

With increasing frequency, this ruling has been utilized by vessel owners seeking relief not only from charges appearing on an A.B.S. or Coast Guard invoice (the actual cost of the inspection), but also as a rationale for granting non-dutiability to a host of inspection-related charges appearing on a shipyard invoice. In light of this continuing trend, we offer the following clarification.

C.S.D. 79-277 discussed the dutiability of certain charges incurred while the vessel underwent biennial U.S. Coast Guard and A.B.S. surveys. That case involved the following charges:

ITEM 29
(a) Crane open for inspection.
(b) Crane removed and taken to shop. Crane hob and hydraulic unit dismantled and cleaned.
(c) Hydraulic unit checked for defects, OK. Sundry jointings of a vessel's spare renewed.
(d) Parts for job repaired or renewed.
(e) Parts reassembled, taken back aboard ship and installed and tested.

In conjunction with the items listed above, we held that a survey undertaken to meet the specific requirements of a governmental entity, classification society, insurance carrier is not dutiable even when dutiable repairs are effected as a result of the survey. We also held that where an inspection or survey is conducted merely to ascertain the extent of damages sustained or whether repairs are deemed necessary, the costs are dutiable as part of the repairs which are accomplished (emphasis added).

It is important to note that only the cost of opening the crane was exempted from duty by reason of the specific requirements of the U.S. Coast Guard and the A.B.S. was exempted from duty. The dismantling and cleaning of the crane hob and hydraulic unit was held dutiable as a necessary prelude to repairs. Moreover, the testing of the hydraulic unit for defects was also found dutiable as a survey conducted to ascertain whether repairs are necessary. Although the invoice indicates that the hydraulic unit was "OK," certain related parts and jointings were either repaired or renewed. Therefore, the cost of the testing was dutiable.

We emphasize that the holding exempts from duty only the cost of a required scheduled inspection by a qualifying entity (such as the U.S. Coast Guard or the American Bureau of Shipping (A.B.S.). In the liquidation process, Customs should go beyond the mere labels of "continuous" or "ongoing" before deciding whether a part of an ongoing maintenance and repair program labelled "continuous" or "ongoing" is dutiable.

Moreover, we note that C.S.D. 79-277 does not exempt repair work done by a shipyard in preparation of a required survey from duty. Nor does it exempt from duty the cost of any testing by the shipyard to check the effectiveness of repairs found to be necessary by reason of the required survey.

Turning to the case before us, the surveys in question are not connected with any repairs. Item 8A is an annual survey hull, machinery & loadline inspection. Item 8B is a survey for extension of cargo ship safety construction certification. Neither survey was performed in conjunction with repairs. Accordingly, items 8A and 8B are non-dutiable.

Additionally, the applicant claims items 4 and 7 constitute non-dutiable consumable supplies. Consumable supplies are generally defined as supplies for the consumption, sustenance, and medical needs of the crew and passengers during the voyage. H.E. Warner, Trustee v. United States, 28 CCPA 143. We find that item 4 on invoice 1516/007 (V belt 3/8" and welders wire brushes) and item 7 on invoice 107/91 (bolts and electrical terminals) constitute dutiable parts and materials, not consumable supplies.

Finally, the applicant states that item 12 (repairs and satellite communications terminal installation) is non-dutiable because it was completed with American labor and materials furnished by Mackay Communication. The applicant further claims that the installation was necessary for employment of MSC charter during the persian Gulf crisis.

Remission for necessary repairs may be granted under the circumstances described, pursuant to 19 U.S.C. 1466(d)(2). That subsection authorizes remission or refund of duties if:

[S]uch equipment or parts thereof or repair parts or materials, were manufactured or produced in the United States, and the labor necessary to install such equipments or to make such repairs was performed by residents of the United States, or by members of the regular crew of such vessel.

We have reviewed the Mackay Communication invoices and letter dated July 17, 1991, and find that the work was performed by a U.S. citizen employed by that company. We further find that the parts were also furnished by Mackay Communications, a U.S. company. Accordingly, item 12 is non-dutiable.

HOLDINGS:

(1) Items 8A and 8B are non-dutiable surveys under 19 U.S.C. 1466.

(2) Items 4 and 7 constitute dutiable parts and materials.

(3) Item 9A does not constitute a dutiable repair under 19 U.S.C. 1466. Item 12 is dutiable.

Sincerely,

B. James Fritz
Chief

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