HQ 0112580 - Vessel Repair; S/S MARINE RELIANCE V-31; Inspection; Cost; A.B.S. Invoice; Survey; Evidence; Transportation; 19 U.S.C. 1466; Entry No. C05-0000084-6. - United States International Trade Commision Rulings

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HQ 112580

May 25, 1993

VES-13-18 CO:R:IT:C 112580 GFM

CATEGORY: CARRIER

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

RE: Vessel Repair; S/S MARINE RELIANCE V-31; Inspection; Cost; A.B.S. Invoice; Survey; Evidence; Transportation; 19 U.S.C. 1466; Entry No. C05-0000084-6.

Dear Sir:

This ruling is issued in response to your memorandum dated January 22, 1993, which forwards for our review the application for relief filed in conjunction with the above-referenced vessel repair entry.

FACTS:

The subject vessel, the S/S MARINE RELIANCE, is a U.S.-flag transport vessel owned by the applicant, Marine Transport Lines, Inc. of Seacaucus, New Jersey. From July 7, 1992 to July 24, 1992, the vessel undertook shipyard operations at the Sumitomo Heavy Industries Shipbuilding facility in Yokosuka, Japan. The vessel arrived in the United States at Davisville, Rhode Island, on September 17, 1992. Following the approval of a 30-day extension, an application for relief was accepted by the New York Regional Office on December 16, 1992.

ISSUE:

Whether the foreign repairs performed aboard the subject vessel were the result of casualty and thus entitled to remission pursuant to 19 U.S.C. 1466(d)(1).
LAW AND ANALYSIS:

Title 19, United States Code, section 1466, provides in part for payment of an ad valorem duty of 50 percent of 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 engage in such trade.

ITEM 15-5A LIFE BOATS: FALLS.......................? 260,000 ITEM 15-5B LIFE BOATS: PINS........................? 240,000

Item 15-5A involves a renewal of life-boat equipment. Item 15-5B involves the disconnection, and grinding-smooth of support bars. Both activities constitute dutiable repairs performed pursuant to inspection. As these operations are unsegregated from the cost of each item, both are dutiable.

ITEM 15-15 LIFE RAFT INSPECTION.....................? 390,000 ITEM 15-15a INFLATION TEST...........................? 153,000 ITEM 15-16 FIRE EQUIPMENT...........................? 515,000 ITEM 15-16b PIPELINE TEST............................? 697,000 ITEM 16-1 SEA VALVES...............................? 357,000 ITEM 16-3a WASHDOWN.................................? 1,000,000 ITEM 16-3b INTERNAL INSPECTION......................? 200,000 ITEM 16-3c COMPOSITE BOILER INSPECTION..............? 300,000 ITEM 16-3d HYDRO SURVEY.............................? 140,000 ITEM 16-3e SAFETY VALVES............................? 180,000 ITEM 16-3g TUBE GAUGING.............................? 2,700,000 ITEM 16-3h ENGINEERING SURVEY.......................? 850,000 ITEM 16-4a #2 PUMP INSPECTION.......................? 152,000 ITEM 16-4b #2 CROSSHEAD INSPECTION..................? 120,000 ITEM 16-4c #1 COOLING INSPECTION....................? 124,000 ITEM 16-4d FIRE AND GENERAL INSPECTION..............? 124,000 ITEM 16-4e BALLAST AND BILGE INSPECTION.............? 144,000 ITEM 16-4f EMERGENCY FIRE...........................? 144,000 ITEM 17-1a RUDDER CLEARANCE.........................? 340,000 ITEM 17-1e DYE CHECK................................? 240,000 ITEM 17-2a PROPELLER & TAILSHAFT INSPECTION.........? 36,000 ITEM 17-2c PROPELLER TAPER INSPECTION...............? 65,000 ITEM 17-2f AFTER SEAL INSPECTION....................? 650,000 ITEM 17-3b PISTON AND CYLINDER INSPECTION...........? 564,500 ITEM 17-3c PISTON AND CYLINDER INSPECTION...........? 1,840,800 ITEM 17-3d INSPECTIONS..............................? 1,699,000 ITEM 17-3g F.O. PUMP INSPECTION.....................? 417,000 ITEM 17-3h GOVERNOR INSPECTION......................? 480,000 ITEM 18-1 QUAD CARGO GEAR..........................? 2,960,000 ITEM 18-2 RAMP HOSE TEST...........................? 312,000

These items represent charges incurred pursuant to inspections conducted by the American Bureau of Shipping. With regard to inspections, 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.

Each of the above items is purported to relate to an A.B.S. inspection. Although A.B.S. reports were provided, a comparison of A.B.S.'s survey cost breakdown and the applicant's spreadsheet indicates that several inspection items contained in the spreadsheet are absent from the A.B.S. invoice. Moreover, many charges that are listed on the A.B.S. survey cost breakdown are inconsistent with those listed in the application for relief. Accordingly, unless and until such discrepencies are rectified, each of these items is to be considered dutiable.

ITEM 16-3a COMPOSITE BOILER WASHDOWN................? 1,000,000 ITEM 16-3d HYDRO....................................? 140,000 ITEM 17-2b PROPELLER REMOVAL........................? 525,000 ITEM 17-2c PROPELLER REINSTALL......................? 740,000 ITEM 17-2h FAIRWATER................................? 60,000 ITEM 17-3a DEFLECTIONS..............................? 70,000 ITEM 17-3j SUMP CLEANING............................? 290,000 ITEM 17-3k MISC. CLEANING...........................? 500,000 ITEM 18-1 QUAD. CARGO GEAR.........................? 2,960,000 ITEM 18-2 RAMP HOSE TEST...........................? 312,000

Each of the above items is purported to be an incidental operation to the inspections that are alleged to have occurred. Again, however, as evidence regarding survey cost is in question, unless and until said discrepancies are rectified, these items must also be considered dutiable.

ITEM 17-3c TRANSPORT/RIGGING........................? 368,000 ITEM 17-3h GOVERNOR TRANSPORT.......................? 40,000

Applicant seeks to have these items considered non-dutiable on the basis that they constitute transportation costs. According to C.I.E. 1325/58, charges for transportation of parts and materials between a vessel and a workshop are not dutiable if itemized separately. Moreover, it is the position of the Customs Service that "transportation" does not include operations relative to preparing the item for shipping. Thus, labor for such services as removing a part from its housing or mounting, or disconnecting an item, etc., does not constitute transportation and are thus, dutiable. With respect to the case at hand, the invoice contains consolidated transportation charges and includes charges for services which may not be included in transportation costs. Accordingly, the entire cost of these items (? 408,000) is 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 denied.

Sincerely,

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