HQ 113968 - Vessel Repair Entry No. 110-7992209-9; PRESIDENT POLK; V-86; Parts; Materials; 19 U.S.C. ? 1466(h)(3) - United States International Trade Commision Rulings

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HQ 113968

December 24, 1997

VES-13-18-RR:IT:EC 113968 GEV

CATEGORY: CARRIER

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

RE: Vessel Repair Entry No. 110-7992209-9; PRESIDENT POLK; V-86; Parts; Materials; 19 U.S.C. ? 1466(h)(3)

Dear Sir:

This is in response to your memorandum dated May 14, 1997, forwarding a petition for review of your decision denying an application for relief from duties assessed pursuant to 19 U.S.C.

FACTS:

The PRESIDENT POLK is a U.S.-flag vessel owned and operated by American President Lines, Ltd. The vessel incurred foreign expenditures in November of 1996. The vessel subsequently arrived in the United States at Seattle, Washington, on December 5, 1996. A vessel repair entry was timely filed.

Pursuant to an authorized extension of time, an application for relief, dated March 25, 1997, with supporting documentation, was timely filed. By letter dated April 8, 1997, your office denied the application for relief and notified the applicant of the right to file a petition for review of this decision. A petition, dated May 1, 1997, with supporting documentation, was timely filed.

At issue are Item nos. 1 and 3 on the subject vessel repair entry covering certain articles alleged to be parts installed on the vessel in conjunction with repairs to the fire station hose protection box and pistons. The articles in question include certain material (i.e., stainless steel and metal pipe) purchased by the petitioner from Hong-Yang Marine Service Machinery Co., Ltd. (Hong-Yang). With respect to the stainless steel, Hong-Yang provided labor and equipment to fabricate it into thirty-six (36) sets of hooks and pads which were subsequently installed on the
vessel pursuant to the fire station hose box repair. The remainder of the material in question was used by Hong-Yang to fabricate a piston stand for piston overhauls. Included with the documentation supporting the petitioner's claim is the following: APL Service Purchase Order Nos. 010267 and 010297; Hong-Yang Invoice Nos. 9611654 and 9611658; an Entry Summary Continuation Sheet (CF 7501-A); and the petitioner's comments with respect to the implementation of 19 U.S.C. ? 1466(h)(3).

ISSUE:

Whether the articles covered by Item nos. 1 and 3 in the subject entry are classifiable under 19 U.S.C. ? 1466(h)(3).

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. (Emphasis added)

The scope of the amendment 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 necessary 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.

For purposes of ? 1466, the term materials is determined to mean something which is consumed in the course of its use, and/or loses its identity as a distinct entity when incorporated into the larger whole. Some examples of materials as defined are seen in such items as a container of paint which is applied to vessel surfaces, and sheets of steel which are incorporated into the hull and superstructure of a vessel.

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 the petitioner claims that the articles covered by Item nos. 1 and 3 of the subject entry are classifiable under the provisions of subsection 1466(h)(3). We have reviewed the the record in its entirety and find that it indisputably reflects the fact that as originally purchased the articles in question constituted materials rather than parts as defined above. Consequently, notwithstanding the subsequent fabrication of these materials by Hong-Yang into hooks/pads and a piston stand, relief under subsection (h)(3) is not warranted in view of the fact that the articles under consideration do not qualify as parts for purposes of subsection (h)(3). (See also Customs ruling letters 113835 and 113908 (the latter published in the Customs Bulletin of November 26, 1997) wherein relief under subsection (h)(3) was denied for foreign-purchased materials subsequently fabricated into parts prior to installation.)

HOLDING:

The articles covered by Item nos. 1 and 3 in the subject entry are not classifiable under 19 U.S.C. ? 1466(h)(3).

Accordingly, the petition is denied.

Sincerely,

Jerry Laderberg
Chief

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