HQ 0112006 - Vessel Repair; Entry No. 718-0000414-6; GREEN BAY V-33; Spare Parts - United States International Trade Commision Rulings

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HQ 112006

February 26, 1992

VES-13-18-CO:R:IT:C 112006 GEV

CATEGORY: CARRIER

Chief, Technical Branch
Commercial Operations
Pacific Region
One World Trade Center
Long Beach, California 90731

RE: Vessel Repair; Entry No. 718-0000414-6; GREEN BAY V-33; Spare Parts

Dear Sir:

This is in response to your memorandum dated November 26, 1991, forwarding an application for relief from duties assessed under 19 U.S.C. 1466. Our findings are set forth below.

FACTS:

The GREEN BAY is a U.S.-flag vessel owned by Central Gulf Lines, Inc., of New Orleans, Louisiana. The subject vessel underwent shipyard work in Japan during the period of August 28- 30, 1991. Subsequent to the completion of the work the subject vessel arrived in the United States in Portland, Oregon, on September 11, 1991. A vessel repair entry was filed on September 16, 1991.

An application for relief was timely filed on November 12, 1991. The applicant has requested relief for various parts claimed to have been imported into the United States, duty paid under the Harmonized Tariff Schedule of the United States, and installed on the vessel in Japan. In support of this claim the applicant has submitted the following: (1) copies of the invoices covering the parts in question; (2) copies of the manifest and bill of lading; (3) a copy of the Customs consumption entry (CF 7501) for these parts; and (4) the vessel owner's certification that the parts in question were purchased from Mitsui Engineering & Shipbuilding Co. in Japan and are intended for use and installation aboard the GREEN BAY, a cargo vessel documented under the laws of the United States to engage in the foreign trade.

The applicant also requests relief from duty assessed on various charges covering travel, transportation and handling listed on the Technomarine Co. Ltd. invoice dated August 27, 1991 (Item No. 17A) and the Kishi Keiki Seisakusho Co., Ltd. invoice dated September 10, 1991 (Item No. 18).

ISSUES:

1. Whether evidence is presented sufficient to prove that vessel parts were imported into the United States and installed foreign aboard a U.S.-flag vessel so as to be exempted from duty pursuant to 19 U.S.C. 1466(h).

2. Whether costs covering travel, transportation and handling are dutiable under 19 U.S.C. 1466.

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.

The Customs and Trade Act of 1990 (Pub. L. 101-382) which amends 19 U.S.C. 1466, exempts from duty under the statute, the cost of spare repair parts or materials which have been previously imported into the United States as commodities with applicable duty paid under the Harmonized Tariff Schedule of the United States (HTSUS). The amendment specifies that the owner or master must provide a certification that the materials were imported with the intent that they be installed on a cargo vessel documented for and engaged in the foreign or coasting trade.

The certification required by 19 U.S.C. 1466(h)(2) as to the vessel's documentation (foreign or coasting trades) and service, will be made by the master on the vessel repair entry (CF 226) at the time of arrival. The fact of payment of duty under the HTSUS for a particular part must be evidenced as follows. In cases in which the vessel operator or a related party has acted as the importer of foreign materials, or where materials were imported at the request of the vessel operator for later use by the operator, the vessel repair entry will identify the port of entry and the consumption entry number for each part installed on the ship which has not previously been entered on a CF 226. In cases in which the vessel operator has purchased imported materials from a third party in the United States, a bill of sale for the materials shall constitute sufficient proof of prior importation and HTSUS duty payment. This evidence of proof of importation and payment of duty must be presented to escape duty and any other applicable consequences.

In addition, we require certification on the CF 226 or an accompanying document by a person with direct knowledge of the fact that an article was imported for the purpose of either then- existing or intended future installation on a company's vessels. Ordinarily, the vessel's master would not have direct knowledge of that fact, and an agent may also be without such knowledge.

Customs has in the past linked this duty remission provision to the duty assessment provision in subsection (a) of the statute. In the face of argument to the contrary we have held that a two-part test must be met in order for remission of duty to be granted: first, that the article must be of U.S. manufacture; and, second, it must be installed by a U.S.-resident or regular vessel crew labor. The reason for this position is that (d)(2) refers to "such equipments or parts...", etc., without any other logical placement for the word "such" occurring in that subsection. We inferred that "such" articles must refer to those installed under subsection (a), absent any other reasonable predication. The new amendment puts this issue to rest; it is clear that as concerns foreign-made parts imported for consumption and then installed on U.S. vessels abroad, the labor required for their installation is separately dutiable. A part may now be considered exempt from vessel repair duty albeit the foreign cost labor is dutiable.

Uniform treatment will be accorded to parts sent from the United States for use in vessel repairs abroad, regardless of whether they are proven to be produced in the U.S., or have been proven to have been imported and entered for consumption with duty paid. In both cases, the cost of the materials is duty exempt and only the cost of foreign labor necessary to install them is subject to duty. Crew member or U.S.-resident labor continues to be free of duty when warranted.

The effective date of this amendment makes this section applicable to any entry made before the date of enactment of this Act that is not "finally liquidated" (i.e., for which a timely protest was filed or court action initiated) on the date of enactment of this Act, and any entry made--

(A) on or after the date of enactment of this Act, and
(B) on or before December 31, 1992.

Since the subject entry has not been "finally liquidated" as noted above, the new section 1466(h) is applicable to this entry as it relates to spare parts.

Upon reviewing the record, it is apparent that the documentation submitted is sufficient to justify relief for the parts in question under 19 U.S.C. 1466(h). In addition, the travel, transportation and handling charges for which the applicant requests relief are not dutiable under 19 U.S.C. 1466.

HOLDINGS:

1. Evidence is presented sufficient to prove that vessel parts were imported into the United States and installed foreign aboard a U.S.-flag vessel so as to be exempted from duty pursuant to 19 U.S.C. 1466(h).

2. Costs covering travel, transportation and handling are not dutiable under 19 U.S.C. 1466.

Sincerely,

B. James Fritz

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