HQ 0223076 - Application for further review of Protest No. 3201-91- 100017; 19 U.S.C. 1313(j)(1); "use" of pleasure craft being offered for sale - United States International Trade Commision Rulings

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HQ 223076

May 27, 1991

DRA-4 CO:R:C:E 223076 CB

CATEGORY: ENTRY

Regional Commissioner
U.S. Customs Service
Pacific Region
One World Trade Center
Long Beach, CA 90831-0700

RE: Application for further review of Protest No. 3201-91- 100017; 19 U.S.C. 1313(j)(1); "use" of pleasure craft being offered for sale

Dear Sir:

The above-referenced protest was forwarded to this office for further review. We have considered the points raised and our decision follows.

FACTS:

Protestant owns a pleasure yacht which arrived in Honolulu, Hawaii on or about January 18, 1990. A formal entry was filed on or about June 15, 1990 and liquidated on December 14, 1990. Customs duties in the amount of $18,263.03 were assessed and paid.

According to protestant, the vessel was brought to Hawaii to offer it for sale to potential Japanese buyers. During the time the vessel was berthed in Honolulu the owner placed advertisements in certain periodicals and contacted certain persons inviting proposals for the purchase of the vessel. Protestant states that throughout the yacht's berthing it was essentially confined to its slip. Other than on the occasions discussed below, the yacht was not physically moved from its berth except as was necessary for its maintenance.

Presumably, on one occasion the vessel was taken for a demonstration sail in Honolulu harbor with prospective buyers aboard. Protestant states that the sail was of limited duration and scope. On another occasion the vessel was featured on a television program. The filming was done during a cruise in Honolulu harbor. During the course of the program it was stated that the yacht was for sale. While in Hawaii, the yacht was manned by a captain and two crew members. Members of the crew remained on board at all times for purposes of operation, maintenance and security.

Protestant asserts that, other than the crew, there were no other persons using the vessel as a primary residence. Apparently, protestant made one seven day visit to the vessel while it was in Hawaii. On or about August 16, 1990, protestant made application for drawback. The yacht departed from Honolulu on or about August 30, 1990 and has not since re-entered the customs territory of the United States. On or about December 14, 1990, Customs issued a "liquidation notice" denying drawback on the basis that the vessel was considered "used" when it was sailed and televised for airing on a local television show.

ISSUE:

Whether a vessel imported for the purpose of being offered for sale remains eligible for same condition drawback if, in conjunction with the sale, the vessel is utilized for promotional purposes?

LAW AND ANALYSIS:

Section 313(j), Tariff Act of 1930, as amended (19 U.S.C. 1313(j)), provides for a refund of duty if a duty-paid article is exported in the same condition as when imported, within three years from date of importation, and was not used in the United States. The statute provides that the performing of incidental operations does not constitute a use for drawback purposes. Incidental operations include, but are not limited to, testing, cleaning, repacking, and inspecting.

The Customs Service administration of the same-condition drawback law is governed by 19 CFR 191.141. That regulation provides that the performing of incidental operations (such as testing and inspecting) on the imported item, not amounting to a manufacture or production, shall not be treated as a use of the merchandise. The prevailing interpretation of "use" of an article under both 19 U.S.C. 1313(j) and 19 CFR 191.141 is that an article is used when it is employed for the purpose for which it was manufactured and intended. See, e.g., C.S.D. 81-222 and C.S.D. 82-135. Articles that have been changed in condition due to deterioration, accidental destruction or damage are also usually ineligible for same-condition drawback under 19 U.S.C. 1313(j). See, e.g., C.S.D. 83-23 and C.S.D. 83-26.

In the instant case, members of the crew remained on board the yacht at all times and the yacht was the location for the filming of a television show. Drawback has been denied because it is the district office's position that the filming of the television show constitutes a use. The Customs Service has previously held that a captain of a yacht being offered for sale,
who remains aboard the yacht, using its living quarters as an incidence to his duties of operation, does not render the yacht ineligible for same condition drawback under 19 U.S.C. 1313(j). See C.S.D. 83-17. We see no reason to reach a different conclusion with respect to the subject protest. Regarding the filming of the television show, after reviewing the supporting evidence, it is Headquarters' position that the filming does not constitute a use as contemplated by the statute and regulations. In C.S.D. 83-17 it was concluded that offering merchandise for sale does not negate the provisions of 1313(j), nor does demonstration connected with such offers render the merchandise ineligible for drawback unless the merchandise becomes significantly deteriorated. In the instant case, the sale of the yacht was advertised during the television show and protestant was not paid for the use of the yacht. Additionally, there is no allegation that the yacht had become significantly deteriorated. Therefore, we see no basis for the denial of drawback.

HOLDING:

The fact that a yacht is filmed in a short documentary, in which it is offered for sale and there is no payment for the documentary, does not constitute a "use" as contemplated by 19 U.S.C. 1313(j) and the applicable regulations. Therefore, you should approve this protest in full. A copy of this decision should be attached to the CF 19 Notice of Action to satisfy the notice requirement of section 174.30(a), Customs Regulations.

Sincerely,

John A. Durant, Director

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