HQ 0112008 - Vessel repair; Protest; Surety protest; Warranty; Spare parts; Liquidation null and void by operation of law; Vessel GREEN LAKE, V-9; Entry number C13-0009037-5; Protest numbers 1303-90-000376 and 1303-90-000472 - United States International Trade Commision Rulings

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HQ 112008

April 7, 1992

VES-13-18-CO:R:IT:C 112008 LLB

CATEGORY: CARRIER

Deputy Assistant Regional Commissioner
Commercial Operations
ATTN: Regional Vessel Repair Liquidation Unit New York, New York 10048-0945

RE: Vessel repair; Protest; Surety protest; Warranty; Spare parts; Liquidation null and void by operation of law; Vessel GREEN LAKE, V-9; Entry number C13-0009037-5; Protest numbers 1303-90-000376 and 1303-90-000472

Dear Sir:

Reference is made to your memorandum of November 25, 1991, which forwards for our consideration and determination, two protests on the same matter. One protest was filed on behalf of the vessel operator and the second on behalf of the surety.

FACTS:

Customs Headquarters issued an initial decision in regard to this entry on May 7, 1990. The entry was liquidated by Customs on June 22, 1990, after the time for filing a pre-liquidation appeal had expired. The earlier of the protests under consideration (1303-90-000376, filed by the vessel operator), was filed 89 days after liquidation. The protest filed by the surety was filed more than six months after the date of liquidation. The matters being protested by both parties involve claims of shipyard warranty repairs, and claims of duty-free treatment of spare parts under the most recent amendment to the vessel repair statute. Additionally, the surety claims that the vessel repair entry liquidation was null and void because it did not occur within one year.

ISSUE:

Whether the protests submitted in this matter are reviewable and, further, if reviewable whether sufficient evidence is presented to permit reliquidation of the vessel repair entry in question.

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.

Time limits exist for the submission of a protest and are established under the specific authority of the protest statute itself (19 U.S.C. 1514). As most recently established in the matter of Penrod Drilling Co. v. United States, 727 F. Supp. 1463, (C.I.T. 1989), the merits of a particular case will not be considered unless the 90-day statutory filing deadline is met. In this case, the Protest by the surety (1303-90-000472) was filed with Customs more than six months after liquidation of the entry, but within the 90-day period from the date of mailing of the formal demand on a surety as provided in subsection (c)(2) of the protest statute. Having met the filing deadline in 1514(c)(2), the surety's protest may be considered on its merits.

There was only one point of diversion between the two protests, that being the claim of null and void liquidation which was made by the surety. On that point we will offer some clarification, that being that section 159.11(b), Customs Regulations (19 CFR 159.11(b)), specifically exempts vessel repair entries from the statutory liquidation by operation of law provision relied upon by the surety. Accordingly, the liquidation is not null and void by operation of law.

In our previous consideration of this entry we denied the claim of warranty repairs on the ground that there was no evidence then before us to indicate that the builder acknowledged that the repairs obtained were covered by the warranty clause of the new vessel construction contract. We now note the presence of an acknowledgement from the builder that the repairs were indeed covered by the warranty. In light of this new evidence, we have determined that the claim regarding warranty repairs is meritorious and that duty relating to that portion of the entry should be remitted.

Lastly, we consider the issue of spare parts which are claimed to be duty-free by virtue of subsection (h) of the vessel repair statute (19 U.S.C. 1466(h)). In this case the parts in question were never entered for consumption and only arrived in the United States for the first time aboard the vessel. The parts were not unladen in the United States. There can be no doubt that the language of section 1466(h) which requires duty payment on spare parts under the Harmonized Tariff Schedule of the United States upon first entry, is directed to the entry of the spare parts, not the entry of a United States-flag vessel. In fact the legislative history (Sen. Rept. 101-252, pp. 37-38), in referring to what is now section 1466(h)(2) provides that "[t]his section is intended to ensure that vessel owners will pay duty on such parts and materials only once, at the time of their first entry into the United States." (emphasis supplied). Further, Senator Breaux, author of the legislation, has indicated his concern that the Customs administration of the vessel repair statute prior to the new legislation limited the ability of vessel operators to reduce costs "...by ordering foreign spare parts for delivery in the United States."

It is the apparent position of the vessel operator that the first entry requirement is satisfied at the time that a vessel with installed spare parts or materials which are not duty-paid, executes a vessel repair entry upon its first arrival in this country after such installation. It is essential that it be understood that the purpose of section 1466(h)(2) is not to assure the lowest rate of duty possible but rather to ensure that duty will be paid under the Tariff Act of 1930, as amended, only once. It is also critical to appreciate the distinction between the entry of merchandise and the entry of vessel repairs.

The need for the payment of duty under "...appropriate commodity classifications of the Harmonized Tariff Schedule...", as required by the statute, is initiated at the time a vessel arrives with the limits of a port in the United States with the intent then and there to unlade merchandise. (See section 101.1(h), Customs Regulations (19 CFR 101.1(h)). The special status accorded vessels, their tackle, apparel, equipment, and appurtenances has long been recognized, with vessels being considered sui generis and totally distinct from merchandise. (See The Conqueror, 166 U.S. 110, 17 S. Ct. 510, 41 L. Ed. 937 (1896); United States v. William Herman Wepner, 32 CCPA 30, C.A.D. 282 (1944)). The requirements for the entry of merchandise are provided in section 1484 of title 19, United States Code, wherein exceptions to those requirements are also provided. Among the cited exceptions are those circumstances provided under 19 U.S.C. 1498, subsection (10) of which provides for entries relating to the vessel repair statute.

The result of all of the foregoing is that spare parts and materials of foreign origin were not meant to benefit from nor will they be permitted to benefit from the duty exemption under section 1466(h)(2) unless they are regularly entered as merchandise at the Harmonized Tariff Schedule rates of duty prior to their foreign installation. To hold otherwise would be contrary to the intent of the legislation, and would render meaningless the statutory requirement that a vessel owner or master certify that such imported spare parts and materials are intended for use aboard a qualifying vessel. In addition, such an interpretation would render 1466(a) meaningless with regard to "the repair parts" provision. The rules of statutory construction discourage such a result.

HOLDING:

Following a thorough review of the evidence submitted as well as an analysis of the applicable law and precedents, we have determined that the protests filed by the surety and by the vessel operator should be allowed in part and denied in part, as specified in the Law and Analysis portion of this ruling. The liquidation of the entry under consideration is not null and void as claimed by the surety and should be reliquidated in accord with the findings set forth above.

Sincerely,

Stuart P. Seidel

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