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HQ 112908





October 9, 1996

VES-13-18-RR:IT:EC 112908 GEV

CATEGORY: CARRIER

Chief, Residual Liquidation and Protest Branch U.S. Customs Service
6 World Trade Center
New York, New York 10048-0945

RE: Vessel Repair Entry No. 514-3004865-5; EXPORT FREEDOM; V-179; Casualty;
Repairs; Surveys; 19 U.S.C. ? 1466

Dear Sir:

This is in response to your memorandum dated October 1, 1993, forwarding an application for relief from duties assessed pursuant to 19 U.S.C. ? 1466 with supporting documentation. You request our review of the following items contained within the above-referenced vessel repair entry: Item 139 on Malta Drydocks invoice no. 004271; American Bureau of Shipping (ABS) invoice no. 580073; and ABS invoice no. 580074, items a, c, e, f, g, h, and k. Our findings in this matter are set forth below.

FACTS:

The EXPORT FREEDOM is a U.S.-flag vessel owned and operated by Farrell Lines, Inc. of New York, N.Y. The vessel underwent foreign shipyard work during February of 1993. Subsequent to the completion of the work the vessel arrived in the United States at Newark, New Jersey, on February 25, 1993. A vessel repair entry and an application for relief with supporting documentation were timely filed.

With respect to Item 139 on Malta Drydocks invoice no. 004271, the applicant states that, "[u]pon scheduled departure from Malta Drydocks on 7 February 1993, the No. 1 turbo-generator failed in service upon being started up, necessitating cancellation of the sailing until the unit was repaired." The applicant seeks remission for this item pursuant to 19 U.S.C.

ABS invoice no. 580073 covers the cost of a survey associated with the repairs performed pursuant to Item 139. The applicant likewise seeks remission for this item pursuant to 19 U.S.C. ? 1466(d)(1).

ABS invoice no. 580074 covers the cost of various surveys performed while the vessel was at Malta Drydocks. In regard to the costs listed thereon for which our advice is sought (i.e., (a) Drydock Survey, (c) Annual Survey of Hull, Machinery & Loadline, (e) Starboard Boiler Survey, (f) Special Survey #4-Hull, (g) Special Survey of Machinery and Electrical Equipment, (h) Repairs, and (k) Time outside working hours), we note that for surveys (a), (c), (e), (f) and (g), the applicant states that these should be nondutiable as they are "required for classification in accordance with ABS Rules for Building and Classing Steel Vessels, Section 45 and IMO Resoluttion [sic] A-413 (x1) as amended by Resolution A-465(x11)..." The applicant states that item (k) was devoted to the aforementioned surveys and therefore should also be nondutiable yet concedes that survey (h) should be dutiable since it was performed pursuant to dutiable repairs.

ISSUES:

1. Whether evidence is presented sufficient to prove that the foreign costs incurred pursuant to the repairs on the subject vessel's No. 1 turbo-generator were necessitated by a casualty occurrence thus warranting remission pursuant to 19 U.S.C. ?

2. Whether the costs of the items listed on the ABS surveys for which our review is sought are dutiable under 19 U.S.C. ? 1466.

LAW AND ANALYSIS:

Title 19, United States Code, ? 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. Section 1466(d)(1) provides that the Secretary of the Treasury is authorized to remit or refund such duties if the owner or master of the vessel was compelled by stress of weather or other casualty to put into such foreign port to make repairs to secure the safety and seaworthiness of the vessel to enable her to reach her port of destination. It is Customs position that "port of destination" means a port in the United States. (see 19 CFR ?

The statute sets forth the following three-part test which must be met in order to qualify for remission under the subsection:

1. The establishment of a casualty occurrence.

2. The establishment of unsafe and unseaworthy conditions.

3. The inability to reach the port of destination without obtaining foreign repairs.

The term "casualty" as it is used in the statute, has been interpreted as something which, like stress of weather, comes with unexpected force or violence, such as fire, spontaneous
explosion of such dimensions as to be immediately obvious to ship's personnel, or collision (Dollar
Steamship Lines, Inc. v. United States, 5 Cust. Ct. 28-29, C.D. 362 (1940)). In this sense, a "casualty" arises from an identifiable event of some sort. In the absence of evidence of such casualty event, we must consider the repair to have been necessitated by normal wear and tear (ruling letter 106159, dated September 8, 1983).

In addition, if the above requirements are satisfied by evidence, the remission is restricted to the cost of the minimal repairs 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)). Repair costs beyond that minimal amount are not subject to remission.

In the case under consideration, the applicant has submitted no evidence establishing a casualty occurrence. Consequently, the first part of the three-part test discussed above has not been met. The applicant merely states that "the No. 1 turbo-generator failed in service upon being started up,..." (Emphasis added) In this regard we note that Customs has long-held that a breakdown or failure of machinery may not be regarded as a casualty for purposes of remission pursuant to 19 U.S.C. ? 1466(d)(1) in the absence of a showing that it was caused by some outside force. (C.S.D. 79-32, citing C.I.E. 1829/58)

Accordingly, pursuant to the above authority Item 139 is dutiable.

In regard to the dutiability of inspection/survey costs, we note that C.S.D. 79-277 stated that, "[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 American Bureau of Shipping (ABS) or U.S. 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 ABS 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, or insurance carrier is not dutiable even when dutiable repairs are effected as a result of a 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 ABS. 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 were necessary. Although the invoice indicated 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 ABS). 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 labeled "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.

With respect to ABS invoice no. 580073, we note that the description of the survey services provides as follows: "No. 1 turbo generator damage examination & repairs." In view of the fact that this survey was done solely in conjunction with the dutiable repair work covered by Item 139, it is dutiable as well.

In regard to the remaining items under consideration listed on ABS invoice no. 580074, upon reviewing the record in its entirety it is readily apparent that surveys (a), (c), (e), (f) and (g) are required periodic surveys and are therefore nondutiable. As noted above, the applicant concedes that survey (h) is dutiable as it was performed in conjunction with dutiable repairs. With respect to item (k) (Time outside working hours) the applicant states that it was devoted to the aforementioned nondutiable surveys and therefore should also be nondutiable. We note, however, that the applicant has submitted no documentation supporting this claim, nor is this claim readily
apparent from the ABS documentation submitted. Accordingly, in the absence of evidence to the contrary, item (k) is dutiable.

HOLDINGS:

1. The evidence presented is insufficient to prove that the foreign costs incurred pursuant to the repairs on the subject vessel's No. 1 turbo-generator were necessitated by a casualty occurrence thus warranting remission pursuant to 19 U.S.C. ? 1466(d)(1). Accordingly remission thereon is denied.

2. The costs of the items listed on the ABS surveys for which our review is sought are dutiable under 19 U.S.C. ? 1466 with the exception of items (a), (c), (e), (f) and (g) on ABS invoice no. 580074.

Sincerely,

Chief

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