HQ 0112999 - Vessel Repair; Petition for Review; Spare Parts; 19 U.S.C. 1466(h); Vessel Repair Entry No. C53-0020954-7; Date of Arrival: December 21, 1992; Port of Arrival: Corpus Christi, Texas; Vessel: S/S MONTRACHET - United States International Trade Commision Rulings

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HQ 112999

May 23, 1994

VES-13-18-CO:R:IT:C 112999 DEC

CATEGORY: CARRIER

Regional Director
Commercial Operations Division
ATTN: Vessel Repair Liquidation Unit
New Orleans, Louisiana 70130

RE: Vessel Repair; Petition for Review; Spare Parts; 19 U.S.C. 1466(h); Vessel Repair Entry No. C53-0020954-7; Date of Arrival: December 21, 1992; Port of Arrival: Corpus Christi, Texas; Vessel: S/S MONTRACHET

Dear Sir:

This ruling is in response to your memorandum dated January 10, 1994, which forwards the petition for review filed in connection with the assessment of vessel repair duties on the above-referenced vessel for our review.

FACTS:

The S/S MONTRACHET is an American-flag vessel owned by Crest Tankers, Inc. The subject vessel arrived in the United States after having extensive foreign repair work performed at a shipyard in Croatia, during the period of November 4 through December 1, 1992. On December 8, 1993, the vessel operator received the ruling letter on the application for relief (Headquarters Decision 112756 (Nov. 1, 1993)). The vessel operator has timely filed this petition for review.

ISSUE:

Whether the work performed upon the subject vessel involving the use of spare parts is subject to duty pursuant to 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 fifty 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.

Title 19 United States Code, section 1466(d) states that:

If the owner or master of such vessel furnishes good and sufficient evidence that-
. . .
(2) such equipments or parts thereof or repair parts or materials, were manufactured or produced in the United States, and the labor necessary to install such equipments or to make such repairs was performed by residents of the United States, or by members of the regular crew of such vessel . . .
then the Secretary of the Treasury is authorized to remit or refund such duties . . . (emphasis added).

19 U.S.C. 1466(d)(1993).

The provisions set forth in 19 U.S.C. 1466(h) expired on December 31, 1992. In the subject case, the vessel entered the United States prior to the expiration of this statutory provision. Accordingly, this ruling letter on the issue of the dutiability of spare parts will be treated pursuant to the rules of law in effect at the time the vessel formally made entry. Section 1466(h) provided, in pertinent part that:

(h) The duty imposed by subsection (a) of this section shall not apply to--

(2) the cost of spare repair parts or materials (other than nets or nettings) which the owner or master of the vessel certifies are intended for use aboard a cargo vessel, documented under the laws of the United States and engaged in the foreign or coasting trade, for installation or use on such vessel, as needed, in the United States, at sea, or in a foreign country, but only if duty is paid under appropriate commodity classifications of the Harmonized Tariff Schedule of the United States upon first entry into the United States of each such spare part purchased in, or imported from, a foreign country.

While section 1466(h) applies by its terms only to foreign- made imported parts, there is ample reason to extend its effect to U.S.-made materials as well. To fail to do so would act to discourage the use of U.S.-made materials in effecting foreign repairs since continued linkage of remission provisions of subsection (d)(2) with the assessment provisions of subsection (a)
of section 1466 would obligate operators to pay duty on such materials unless they were installed by crew or resident labor.

If an article is claimed to be of U.S. manufacture, there must be proof of its origin in the form of a bill of sale or domestic invoice. If a foreign manufactured article is claimed to have been previously entered for consumption, duty paid by the vessel operator, there must be proof of this fact in the form of a reference to the consumption entry number for that previous importation, as well as to the U.S. port of importation. If imported articles are purchased in the United States from a party unrelated to the vessel operator, a domestic bill of sale to the vessel operator must be presented.

Further, with regard to imported articles, a certification on the CF 226 or an accompanying document prepared by a person with direct knowledge of the fact that an article was imported or purchased for the purpose of either then-existing or intended future installation on a company vessel must be presented. Ordinarily, the vessel's master would not have direct knowledge of this fact, and an agent may also be without such knowledge. The second certification required by 19 U.S.C. 1466(h)(2) as to the vessel's documentation (foreign or coasting trades) and service (cargo vessel), will be made by the master on the vessel repair entry (CF 226) at the time of arrival.

If the elements stated above are proven to the satisfaction of Customs, the cost of foreign labor utilized for installation of U.S.-made or previously imported articles will be subject to duty under section 1466 in matters concerning repairs, and only the cost of qualifying materials used in repairs will be free of duty.

The application for relief was denied and the decision is now petitioned for review with respect to the invoices from Kansas Packing, Inc., the Mariners-Astubeco, Inc., Texas Marine Supply, and World Wide Metric (Order No. 890346). Upon a review of the invoices and supporting evidence, the Customs Service finds that evidence submitted with respect to the Kansas Packing Company, Inc., Mariners-Astubeco, Inc. and Texas Marine Supply supports a finding that the invoiced parts were of U.S.-origin or manufactured in the U.S. While the record contains statements from two of these companies that the origin of the parts is uncertain, it is the position of the Customs Service that since a domestic invoice for the parts was produced, the parts are not subject to duty. The petitioner's request for relief is granted.

The petitioner requests relief from vessel repair duty with respect to certain items which were deemed dutiable because no domestic invoice was submitted to Customs. The vessel operator's purchase order alone is not sufficient evidence upon which the Customs Service will grant relief. Accordingly, relief with respect to the spare parts accounted for on the vessel operator's purchase
order number 1090 (Oct. 23, 1990) is denied. Since the vessel repair statute (19 U.S.C. 1466) applies duty to a vessel's equipment and parts thereof, these unused parts are, presumptively, subject to duty since they were aboard when the vessel entered the U.S. and were a part of the vessel's supply of spares.

HOLDING:

After a thorough review of the record, the petition for relief is granted in part and denied in part based on insufficient documentation as to the origin of the spare parts referenced to in the submitted invoices. The petitioner should be informed of the right to file a protest following liquidation of this entry, as evidenced by the posting of the bulletin notice of liquidation.

Sincerely,

Stuart P. Seidel

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