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HQ 113796

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March 12, 1997

VES-13-01/18-RR:IT:EC 113796 GEV

CATEGORY: CARRIER

Chief, Liquidation Branch
U.S. Customs Service
Post Office Box 2450
San Francisco, California 94126

RE: Vessel Repair Entry No. C28-0200669-5; M/V STRONG VIRGINIAN; Parts;
19 U.S.C. ? 1466(h)(3)

Dear Sir:

This is in response to your memorandum dated December 30, 1996, forwarding a petition for review of Customs ruling letter 113689 denying in part an application for relief from duties assessed pursuant to 19 U.S.C. ? 1466. You request our review of Item nos. 100 and 165 listed on the spreadsheets and contained within the above-referenced vessel repair entry. Our findings in this matter are set forth below.

FACTS:

The M/V STRONG VIRGINIAN is a U.S.-flag vessel operated by Strong Virginian Navigation Company. Subsequent to the completion of various foreign shipyard work, the vessel arrived in the United States at Oakland, California, on July 19, 1995. A vessel repair entry and an application for relief with supporting documentation were timely filed.

By Customs ruling letter 113689, dated October 3, 1996, the application for relief was granted in part and denied in part. A petition for review of the aforementioned decision was timely filed seeking relief with respect to Item nos. 100 and 165, covered by ABB Industry PTE Ltd. invoice nos. 951113 and 951549, respectively. The former covers articles installed on the vessel in one of the Wartsila R22HF turbocharged diesel generators. The latter covers articles installed on the vessel in the turbocharger on the MAK Model 601 port main engine. The petitioner requests that the subject costs for these articles be classified pursuant to 19 U.S.C.

In support of its claim, the petitioner has submitted various documentation including invoices, letters, diagrams, statements and supporting documentation from a naval architect/ mechanical engineer (Exhibit 1) and the Fleet Technical Manager of the owner and operator of the subject vessel (Exhibit 2), and an Entry Summary Continuation Sheet listing the articles in question (Exhibit 3).

ISSUES:

Whether the articles covered by Item nos. 100 and 165 are classifiable under 19 U.S.C.

LAW AND ANALYSIS:

Title 19, United States Code, ? 1466(a), provides in part for payment of an ad valorem duty of 50 percent of the foreign cost of equipments, or any part thereof, including boats, purchased for, or the repair parts or materials to be used, or the expenses of repairs made in a foreign country 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 was amended by the reinstatement of subsections (h)(1) and (2), the wording of which remain unchanged from their previous enactment as part of the Customs and Trade Act of 1990 (? 484E of Pub.L. 101-382), which had expired by its terms on December 31, 1992. The amendment, which is effective for all vessel entries made on or after January 1, 1995, also added a new subsection (h)(3) which provides as follows:

(3) the cost of spare parts necessarily installed before the first entry into the United States, but only if duty is paid under appropriate com- modity classifications of the Harmonized Tariff Schedule of the United
States upon first entry into the United States of each spare part purchased in, or imported from, a foreign country.

The scope of the amendments is narrow. It is useful to bear in mind that the limiting language of (h)(3) refers only to "spare parts", whereas subsection (a) of the statute assesses duty on a broad range of costs including "equipments, or any part thereof, including boats,...or the repair parts or materials to be used, or the expenses or repairs..." (Emphasis added). It is clear that the Congress has extended a vessel repair duty limitation under subsection (h)(3) only to certain qualifying parts.

A part under ? 1466 is determined to be something which does not lose its essential character or its identity as a distinct entity but which, like materials, is incorporated into a larger whole. It would be possible to disassemble an apparatus and still be able to readily identify a part. The term part does not mean part of a vessel, which practically speaking would encompass
all elements for a vessel to operate in its designed trade. Examples of parts as defined are seen in such items as piston rings and pre-formed gaskets, as opposed to gaskets which are cut at the work site from gasket material.

Subsection (h)(3) is administered by maintaining the requirement that a vessel repair entry (Customs Form 226) must be filed upon first arrival in the United States of vessels covered by the repair statute. Since issuance of instructions by Customs Headquarters on May 31, 1995, in instances in which a vessel operator claims certain foreign parts expenditures to be within the terms of subsection (h)(3), it has been required that continuation sheets normally submitted with entries for consumption (Customs Form 7501-A) must be completed and attached to the vessel repair entry form. The continuation sheets must provide all required information necessary to assign the proper duty rate as listed in the Harmonized Tariff. The vessel repair entry number is the sole number assigned to the entry, and such an entry with continuation sheets attached is considered to be a vessel repair entry. For entries which followed the January 1, 1995, effective date of the statutory amendments, but which preceded the issuance of Headquarters guidance, the form of entry was guided by local Customs practice, and most commonly saw a vessel repair entry accompanied by an entry for consumption.

As noted above, in the present matter, claims for relief under the provisions of subsection (h)(3) are made with respect to Item nos. 100 and 165. We have reviewed the supporting invoices for the items listed above and find that they represent the purchase of qualifying parts as required under subsection

HOLDING:

The articles covered by Item nos. 100 and 165 are classifiable under 19 U.S.C. entirety.

Sincerely,

Jerry Laderberg
Acting Chief

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