United States International Trade Commision Rulings And Harmonized Tariff Schedule

faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers

faqs.org > Rulings and Tariffs Home > Rulings By Number > 1992 HQ Rulings > HQ 0112009 - HQ 0112144 > HQ 0112084

Previous Ruling Next Ruling

---

HQ 112084

March 11, 1992

VES-13-18-CO:R:IT:C 112084 GEV

CATEGORY: CARRIER

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

RE: Vessel Repair Entry No. C18-0016845-7; M/V GREEN BAY V-32; U.S. Parts; Travel and Transportation; Consumption Tax; Consumables

Dear Sir:

This is in response to your memorandum dated February 11, 1992, forwarding an application for relief from duties assessed under 19 U.S.C. 1466. Our findings are set forth below.

FACTS:

The M/V GREEN BAY is a U.S.-flag vessel owned by Central Gulf Lines, Inc. of New Orleans, Louisiana. The subject vessel underwent foreign shipyard repairs during March - June, 1991. Subsequent to the completion of the repairs the vessel arrived in the United States at Jacksonville, Florida, on July 26, 1991. A vessel repair entry was filed on August 1, 1991.

An application for relief was timely filed on September 23, 1991. The applicant requests relief on various U.S.-supplied parts and transportation and delivery charges associated therewith. Additionally, relief is requested for various other travel and transportation costs, a foreign consumption tax, and marine oil purchased in bulk quantities. In support of these claims the applicant has submitted following documentation: (1) invoices covering the charges in question; (2) a copy of a Customs consumption entry (CF 7501) covering various vessel parts, and (3) a certification from the Vice President of Central Gulf Lines, Inc., that the vessel spare parts purchased from Technomarine Co. Ltd. are intended for use and installation on board the cargo vessel M/V GREEN BAY which is documented under the laws of the United States and is engaged in the foreign trade.

ISSUES:

1. Whether evidence is presented sufficient to prove that vessel parts were purchased in the United States and shipped foreign for installation aboard a U.S.-flag vessel thereby exempting them from duty pursuant to 19 U.S.C. 1466(h).

2. Whether evidence is presented sufficient to prove that vessel parts were purchased foreign and imported into the United States to be installed on a U.S.-flag vessel at a later date so as to be exempt from duty pursuant to 19 U.S.C. 1466(h).

3. Whether transportation, travel, freight and delivery charges are dutiable under 19 U.S.C. 1466.

4. Whether a foreign consumption tax is dutiable under 19 U.S.C. 1466.

5. Whether marine oil not used in effecting dutiable repairs is 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.

In regard to the documentation submitted for Items 15, 20, 27, 28, 29, and 32 we note the U.S. invoices covering the parts and accompanying transportation, freight, and delivery charges are sufficient proof of previously imported spare parts shipped foreign for installation. However, in order to obtain relief under 19 U.S.C. 1466(h), it remains necessary for the vessel operator to provide the certifications required under the statute as discussed above.

Item 31 covers both vessel parts purchased in Japan (Technomarine Co. Ltd.) and the cost of their air freight from Japan to Antwerp, Belgium (Herfurth & Boutmy) where they were placed on board the vessel. The vessel then proceeded to the United States where the applicant submitted a consumption entry (CF 7501) upon the vessel's arrival at Jacksonville. Customs subsequently learned, after reviewing a copy of the vessel's inward manifest (specifically, the cargo declaration), that these parts were not manifested as cargo and were not unladed from the vessel.

In regard to the vessel parts covered by Item 31, we note that the need for the payment of duty under "...appropriate commodity classifications of the Harmonized Tariff Schedule...", as required by 19 U.S.C. 1466(h)(2), is initiated at the time a vessel arrives within 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)). Notwithstanding the submission of the CF 7501, the vessel parts covered by Item 31 were not unladed at Jacksonville and therefore cannot be considered to have been imported into the United States. Accordingly, these parts are not entitled to exemption from duty under 19 U.S.C. 1466(h). We note that the failure to list these parts on the vessel's inward manifest constitutes a violation of both 19 U.S.C. 1436 and 1584. Appropriate penalty action should be initiated.

Customs has long-held that travel and transportation costs are nondutiable (see C.I.E.'s 1325/58, 204/60, 970/60, 695/62, 518/63, 601/67). Accordingly, the travel and transportation costs listed on the following invoices are not dutiable: Item 3 (Tokimec Inc.); Item 4 (Kaigai Gijyutsu K.K.); Item 8 (IHI Marine Co., Ltd.); Item 10 (Ihon Digital Governor); Item 11 (Kaigai Gijyutsu K.K.); Item 19 (Sait Marine International); Item 21 (Maritime Engineering); Item 22 (Kaigai Gijyutsu K.K.).

In addition, Customs has also held that shipping costs are nondutiable (C.D. 1830). Accordingly, the freight and delivery costs on Item 16 (Radio Holland Group), Item 24 (Technomarine Co.), and Item 31 (Herfurth & Boutmy) are nondutiable.

The Customs Court in International Navigation Co., Inc. v. United States (38 Cust. Ct. 5, C.D. 1836) held that fees or charges paid to a foreign government are not dutiable as expenses of repairs. Customs has held, however, that the doctrine enunciated by the Customs Court in C.D. 1836 does not apply to taxes levied by foreign governments or premiums paid on workmen's compensation insurance since such exactions do not constitute "fees or charges" paid to such governments within the meaning of the decision and therefore are part of the dutiable expenses of repairs. (See C.I.E. 62/60 published as Treasury Decision (T.D.) 55005(3), and C.I.E.'s 94/60 and 196/60). Accordingly, the consumption tax listed on Item 1 (Tomakomai Hokuso Koun Kaishai Ltd.) is dutiable.

Items 5 and 14 (both from Chevron International Oil Co., Inc.) cover the purchase of marine oil in bulk quantities which the applicant claims is nondutiable as a consumable. Customs has held that consumable supplies are not dutiable unless used in effecting dutiable repairs (C.I.E.'s 1759/56 and 196/60). Generally, consumables include articles wholly consumed in their first use such as food, medicine, etc. (Customs rulings 109285, 104352 and T.D. 40934). Furthermore, Customs has held that oil is a consumable article (Bureau Letter dated March 7, 1951). Upon reviewing the record there is no indication that the marine oil under consideration was used in effecting dutiable repairs. Accordingly, Items 5 and 14 are nondutiable.

HOLDINGS:

1. Vessel parts purchased in the United States and shipped foreign for installation aboard a U.S.-flag vessel are exempted from duty pursuant to 19 U.S.C. 1466(h), provided the requisite evidentiary documentation is submitted.

Accordingly, with respect to the application under consideration, relief should be granted for those parts covered by a U.S. invoice (i.e., Items 15, 20, 27, 28, 29, and 32) if the required certification is submitted, or proof is submitted that the parts in question were manufactured in the United States. (see ruling 111205).

2. Evidence is not presented sufficient to prove that the vessel parts covered in Item 31 were imported into the United States to be installed on a U.S.-flag vessel at a later date so as to be exempt from duty pursuant to 19 U.S.C. 1466(h). To receive that exemption such parts must be unladed at a U.S. port, in addition to their being listed on a consumption entry (CF 7501), in order to prove their importation into the United States.

3. Transportation, travel, freight and delivery charges are not dutiable under 19 U.S.C. 1466.

4. A foreign consumption tax is dutiable under 19 U.S.C. 1466.

5. Marine oil not used in effecting dutiable repairs is a consumable so as to be exempt from duty under 19 U.S.C. 1466.

Sincerely,

B. James Fritz
Chief
Carrier Rulings Branch

Previous Ruling Next Ruling