HQ 112241 - Vessel Repair; Application; M/V LIBERTY SEA, V-22; Entry No. VR-CO-0035770-0, Surveys; Protective Coverings; Removal of Debris; 19 U.S.C. §1466 - United States International Trade Commision Rulings

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HQ 112241

October 25, 1995

VES-13-18-RR:IT:EC 112241 BEW

CATEGORY: CARRIER

Port Director
Vessel Repair Liquidation Unit
423 Canal Street
New Orleans, Louisiana 70130-2341

RE: Vessel Repair; Application; M/V LIBERTY SEA, V-22; Entry No. VR-CO-0035770-0, Surveys; Protective Coverings; Removal of Debris; 19 U.S.C. §1466

Dear Sir:

This is in reference to your memorandum of May 7, 1992, that transmitted an application for relief from duties on behalf of Liberty Maritime Corporation, in relation to the above-referenced vessel repair entry dated December 22, 1991. You request our review of the following items contained within the above-referenced entry:

Lisnave invoice No. 1071/91/LISN
Item 101 - Sea Valves (Mc) (A) Survey
Item 106 - Rudder Clearances
Item 133 - Tailshaft Survey

American Bureau of Shipping (ABS) invoice No. PO830090 Special Attendance Fees - 160.45
Expenses - 107.75

Our view of this matter has been delayed pending the outcome of on-going litigation which has now been resolved. Our findings on this matter are set forth below.

FACTS:

The record reflects that the M/V LIBERTY SEA arrived in the port of New Orleans, Louisiana, on December 17, 1991, filed a timely vessel repair entry, and supplemented that entry as required by the Customs Regulations. The vessel M/V LIBERTY SEAunderwent drydocking, survey, and repair operations in the Lisnave Shipyard in Lisbon, Portugal, during the period of November 21 through December 5, 1991.

ISSUES:

Whether sufficient evidence is presented to establish that certain ABS costs are remissible under the vessel repair statute (19 U.S.C. 1466).

Whether certain other foreign shipyard costs for which the applicant seeks relief are 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 trades.

In the U.S. Court of Appeals for the Federal Circuit in Texaco Marine Services, Inc. and Texaco Refining and Marketing, Inc. v. United States, 44 F. 3d 1539 (Fed. Cir. 1994) (affirming the decision of the U.S. Court of International Trade at 815 F.Supp. 1484 (1993)), the Court held that post-repair cleaning and protective coverings for repair work are dutiable under 19 U.S.C. § 1466.

Customs has held that where periodic surveys are undertaken to meet the specific requirements of a classification society, insurance carrier, etc., the cost of the surveys is not dutiable even when dutiable repairs are effected as a result thereof; however, in the liquidation process Customs should go beyond the mere labels of "continuous" or "ongoing" before deciding whether the item is dutiable. If an inspection or survey is conducted as a part of an ongoing maintenance and repair program labelled "continuous" or "ongoing" the cost is dutiable. Also, if the survey is to ascertain the extent of damage sustained, or to ascertain if the work is adequately completed, the costs are dutiable as part of the repairs which are accomplished pursuant to holdings in C.I.E. 429/61, C.S.D. 79-2, and C.S.D. 79-277.

Pursuant to C.I.E. 1325/58 and C.I.E. 565/55, duties may not be remitted where the invoice does not segregate the dutiable costs from the non-dutiable costs.

We have thoroughly reviewed the entry documentation and the documents submitted with the application in this matter. It is our conclusion that the repairs which were made to the subject items were made to replace a current part, fitting or structure which was not in good working order at the time of the inspection and repair. Our findings are as set forth below. With regard to Item No. 101 - Sea Valves Repairs, the invoice shows that the sea valves were opened and closed for inspection, the sea valves were inspected and cleaned and repairs were made to certain sea valves. The sea valves repair cost is listed separately in item No 101 B. The documentation shows that the sea valves were inspected as a part of the ABS required Drydocking/Special Continuous Survey. The repairs were made as a result of this inspection. A review of the invoice shows that the survey cost for the inspection is segregated from the repair cost. Since the survey cost for the inspection was done as a part of the required ABS survey, the survey is non-dutiable. The cost associated with the repairs in item No. 101 B is dutiable.

With regard to Item No. 106 - Rudder Clearances, the invoice shows labor, material and necessary scaffolding were provided to remove by Air-Arc the top and bottom pintle inspection plate weld bead and plates for the purpose of taking the top and bottom pintle clearance reading, to inspect the nut keepers to assure that they were in the same condition as last installed, and to measure the clearance on the underside of the rudder stock bearing. The cost of $2,080 for this inspection is listed separately in item No 106. The documentation shows that cost of $2,080 was for the inspection of the pintle as a part of the ABS required Drydocking/Special Continuous Survey. The repairs listed under the additional work section were made as a result of this inspection. In the additional work listed in item No. 106, the repair work for the cracks and the staging is not segregated. The cost associated with the repairs in the additional work, including the cost for the staging for the access work is dutiable. Accordingly, we find that the invoice cost for the survey cost for the inspection is segregated from the repair cost. Since the survey cost of $2,080 for the inspection was done as a part of the required ABS survey, the survey cost is non-dutiable. The remaining amount of $870 for the repairs and staging is dutiable ( C.I.E. 1325/58 and C.I.E. 565/55).

With regard to item 133 - Tailshaft Survey, the invoice is for operations performed on the vessel in connection with the propeller shaft. The invoice contains itemized costs for crane services which are not subject to the assessment of vessel repair duties. The invoice submitted sustains a finding the propeller shaft was opened for inspection, and that the shaft taper, nut threads, propeller internals and shaft thread areas were cleaned for inspection. There is no indication that repairs were performed. Accordingly, we find this item to be non-dutiable.

With regard to the dutiability of the special attendance fees" and total expenses listed on ABS invoice PO830090, we concur with your recommendation. These fees and expenses are not segregated from the survey costs for the dutiable repairs, therefore the entire amounts are dutiable.

In the May 7, 1992, letter, it is stated, "In our opinion, items 101, 106 and 133 of the Lisnave invoice are dutiable in accordance with previous Headquarters Decisions 111532, 111948 and 111971." Upon review of the survey documents and the subject invoice, it is evident that dutiable repair work was performed during the course of the drydocking survey relating to item No. 101 "Sea Valves Repairs", and item No. 106 Rudder Clearances. However, pursuant to C.S.D. 79-277, cited in all three of these rulings, where a survey is undertaken to meet the specific requirements of a governmental entity, classification society, or insurance carrier, the survey cost is not dutiable even when dutiable repairs are effected as a result of the survey.

Pursuant to the "but for" test enunciated by the U.S. Court of Appeals for the Federal Circuit in Texaco Marine Services, Inc. and Texaco Refining and Marketing, Inc. v. United States, supra, post-repair cleaning and protective coverings for repair work, and removal of debris after repairs are dutiable under 19 U.S.C. § 1466. With regard to item No. 6 - Vinyl Tile Protection, we note that charges were incurred for protective coverings to prevent damage from dust and debris, and charges were incurred in item No. 14 for "all debris which has accumulated during repairs shall be removed and work areas are to be throughly cleaned where work was carried out during shipyard period." Accordingly, in view of the aforementioned court decision, all items of cost listed in item Nos. 6 and 14 are dutiable.

HOLDING:

Following a thorough review of the evidence submitted as well as an analysis of the applicable law and precedent, the application is granted in part and denied in part, as specified in the Law and Analysis portion of this ruling.

Sincerely,

William G. Rosoff
Chief

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