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HQ 114005

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September 3, 1997

VES-13-18-RR:IT:EC 114005 GEV

CATEGORY: CARRIER

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

RE: Vessel Repair Entry No. 110-7994445-7; SEA-LAND DEVELOPER; V-251/252; Survey; 19 U.S.C. ? 1466

Dear Sir:

This is in response to your memorandum dated June 12, 1997, forwarding an application for relief from duties assessed pursuant to 19 U.S.C. ? 1466 with supporting documentation. You request our review of Item 4 contained within the above-referenced vessel repair entry. Our findings in this matter are set forth below.

FACTS:

The SEA-LAND DEVELOPER is a U.S.-flag vessel operated by Sea-Land Service, Inc. The vessel underwent foreign shipyard work during January of 1997. Subsequent to the completion of the work the vessel arrived in the United States at Tacoma, Washington on February 9, 1997. A vessel repair entry and an application for relief with supporting documentation were timely filed.

Item 4 within the subject entry for which our review is sought covers costs listed on MHI Marine Engineering, Ltd. bill no. 96-1193. Included within those costs is work done in con-junction with an American Bureau of Shipping (ABS) inspection of the no. 10 main engine bearing.

ISSUE:

Whether the foreign costs contained within the subject entry for which our review is sought are dutiable under 19 U.S.C. ? 1466.

LAW AND ANALYSIS:

Title 19, United States Code, ? 1466 (19 U.S.C. ? 1466), provides in pertinent part for the payment of an ad valorem duty of 50 percent of the 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 upon a vessel documented under the laws of the United States..."

MHI Marine Engineering, Ltd. bill no. 96-1193 covers, inter alia, shipyard costs associated with an ABS inspection of the no. 10 main engine bearing. 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 nondutiability to a host of inspection-related charges appearing on a shipyard invoice. Our position with respect to this ruling is as follows.

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 Item 4, our review of the costs listed thereon relating to the no. 10 main engine bearing inspection indicates that they were performed in conjunction with a non-dutiable ABS survey. However, the remainder of the costs listed thereon constitute dutiable expenses. Furthermore, the invoice on which these costs are listed provides no segregation with respect to these dutiable and non-dutiable costs. Pursuant to C.I.E.'s 1325/58 and 565/55, costs may not be remitted where the invoice does not show a breakdown between those that are dutiable and those that are not. Accordingly, the costs contained within Item 4 remain dutiable in their entirety.

HOLDING:

The foreign costs for which our review is sought are dutiable under 19 U.S.C. ? 1466 as discussed in the Law and Analysis portion of this ruling.

Sincerely,

Jerry Laderberg

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