HQ 0112403 - Casualty; Vessel Repair; Fish Net Caught in Propeller; Survey; 19 U.S.C. 1466(d)(1); 19 C.F.R. 4.14. - United States International Trade Commision Rulings

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HQ 112403

December 16, 1992

VES-13-04-CO:R:IT:C 112403 GFM

CATEGORY: CARRIER

Deputy Assistant Regional Commissioner
Classification and Value Division
ATTN: Regional Vessel Repair Liquidation Unit New York NY 10048-0945

RE: Casualty; Vessel Repair; Fish Net Caught in Propeller; Survey; 19 U.S.C. 1466(d)(1); 19 C.F.R. 4.14.

Vessel Name: S.S. LESLIE LYKES
Vessel Repair Entry Number: 514-3004727-7 Date of Arrival: May 11, 1992
Port of Arrival: Newark NJ

Dear Sir:

This letter is in response to your memorandum of July 31, 1992, which forwards for our review the above referenced application for relief from the assessment of vessel repair duties.

FACTS:

The record reflects that while anchored at Damman, Saudi Arabia, during March of 1992, the above referenced vessel was damaged when the net of an unidentified fishing vessel became entangled in the subject vessel's propeller. An American Bureau of Shipping damage survey was performed pursuant to this event. Applicant seeks relief from the assessment of vessel repair duties on these items on the ground that they were the result of a casualty occurrence.

ISSUE:

Whether the repair operations undertaken are entitled to duty remission under 19 U.S.C. 1466(d)(1) on the ground that they were the result of a casualty occurrence. LAW AND ANALYSIS:

Title 19, United States Code, section 1466, provides in pertinent part for payment of duty in the amount of 50 per cent 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 statute provides for the remission of duties in those instances where good and sufficient evidence is furnished to show that foreign repairs were compelled by "stress of weather or other casualty" and were necessary to secure the safety and seaworthiness of the vessel to enable her to reach her port of destination. 19 U.S.C. 1466(d)(1) (1988). The Customs regulations issued under the authority of this statute are found in 19 C.F.R. 4.14 (1991). The term "casualty", as it is used in the statute, has been interpreted as something, like stress of weather, that comes with unexpected force or violence, such as fire, explosion, or collision. Dollar Steamship Lines, Inc. v. United States, 5 Cust. Ct. 23, 28-29, C.D. 362 (1940). In the absence of evidence of such a casualty causing event, the Customs Service considers such repairs to have been necessitated by normal wear and tear. C.S.D. 89-95, 23 Cust. B. & Dec., No. 43, 4, 5 (1989).

In the present case, the applicant presents three items for our consideration:

REMOVAL OF FISH NET FROM PROPELLER
Zamil Operations and Management, Co.
Invoice 7721 March 22, 1992......................$ 11,340.00

PROPELLER DAMAGE SURVEY
American Bureau of Shipping, Co.
Invoice 160419-03590 March 26, 1992..............$ 5,382.36

With regard to these two items, the Customs Service has held that, in certain situations, the entanglement of another vessel's netting within a vessel's propeller mechanism may properly be considered a casualty occurrence. The case before us is indeed such a situation. The facts indicate that the subject vessel was anchored and in no other respect negligent. A passing fishing vessel allowed its netting to drift, which in turn allowed the netting to become entangled in the subject vessel's propeller mechanism. Such facts constitute a clear example of casualty occurrence which warrants remission of vessel repair duties for repairs effected pursuant thereto. We note that charges for the propeller damage survey are also remissible due to the fact that they were necessitated by the same casualty occurrence. Thus, the combined cost of these items ($ 16,722.36) is non-dutiable.

COFFIN FEED PUMP REPAIR
Marship Engineering, Co.
Invoice item 42219 April 15, 1992................$ 37,021.00

It is the applicant's apparent contention that the charges for this item should be held non-dutiable in accordance with 19 U.S.C. 1466(d)(2). According to Section 1466(d)(2) and implementing regulations, remission or refund of duties is authorized if good and sufficient evidence is furnished showing that the equipment, equipment parts, repair parts or materials used on the vessel were manufactured or produced in the United States and purchased by the owner of the vessel in the United States, and the labor necessary to install such equipment or to make such repairs was performed by residents of the United States or by members of the regular crew of the vessel.

The Customs and Trade Act of 1990 (Pub. L. 101-382), which amends 19 U.S.C. 1466 by creating subsection (h), 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 vessel owner or master must provide a certification that the materials in question 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 must 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 complete 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, certification must be included in 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 cargo 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 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, 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 section (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 of 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 the most recent amendment makes the section applicable to any entry made before the date of enactment of the 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.

With regard to the item under consideration, the provided documentation fails to conclusively establish either the origin of the parts used in the repairs or the relationship among the various parties involved in their sale. Accordingly, unless and
until evidence is presented which reveals such information in a clear and unambiguous manner, the cost of this item ($ 37,021.00) is fully dutiable.

HOLDING:

After thorough review of the evidence presented, and as detailed in the Law and Analysis portion of this ruling, the application for relief is granted in part and denied in part.

Sincerely,

Acting Chief

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