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HQ 114010

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October 3, 1997

VES-13-18-RR:IT:EC 114010 GOB

CATEGORY: CARRIER

Port Director of Customs
Attn.: Vessel Repair Liquidation Unit, Room 107 P.O. Box 2450
San Francisco, CA 94126

RE: 19 U.S.C. 1466; MOKIHANA, V -006; Vessel Repair Entry No. C27-0158612-8; Petition

Dear Madam:

This ruling is in response to your memorandum dated June 27, 1997, which forwarded the petition for relief submitted by Matson Navigation Company ("petitioner" or "Matson") with respect to the above-referenced vessel repair entry.

FACTS:

The MOKIHANA (the "vessel"), a U.S.-flag vessel, arrived at the port of Los Angeles, California on October 28, 1996. The subject vessel repair entry was filed on November 5, 1996.

In Ruling 113883 dated April 1, 1997, the application for relief with respect to the subject entry was granted in part and denied in part.

ISSUE:

Whether the subject items are dutiable pursuant to 19 U.S.C. 1466.

LAW AND ANALYSIS:

19 U.S.C. 1466 provides for the payment of duty at a rate of fifty 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 be employed in such trade.

We will use the numbering system which you employed in your forwarding memorandum.

The subject entry is a "post-Texaco" entry, i.e., an entry filed after the appellate decision in Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc. v. United States, 44 F.3d 1539 (CAFC 1994), aff'g 815 F.Supp. 1484 (CIT 1993). Accordingly, the Texaco decision applies to this entry.

The petitioner's claim with respect to the applicability of the Texaco case was very thoroughly discussed in Ruling 113883. It is unnecessary to reiterate that discussion here.

1. General Services items. These items should be prorated between dutiable costs and nondutiable costs.

2. Drydock of Vessel (501). The petitioner asserts that this item should not be prorated. It claims that the proration concept, as initially expressed in Ruling 113474, is not in accord with Texaco.

We find that this is a cost, similar to general services or other drydock costs, which is appropriately prorated. Our reasoning for prorating certain costs was explained in Ruling 113474, and it is not necessary to reiterate it here. The underlying basis of our determination to prorate costs which appear to relate to both dutiable items and nondutiable items is fairness and reasonableness.

We note that the pertinent invoice states: "(ABS & USCG Required Inspection Item)..." If this item related solely to a nondutiable ABS/U.S. Coast Guard inspection, it would be nondutiable. However, we are not satisfied that this is the case. As with general services costs and other drydock costs, we believe that this item relates to both dutiable and nondutiable costs. Therefore, we believe it should be prorated. We believe that this is the most fair and reasonable application of 19 U.S.C. 1466 for this type of cost.

3. Modifications to Upper Longitudinal Hatch Coaming (531). In its application, Matson stated that this item: "...entails the permanent installation by welding of previously non-existing brackets to add strength to the longitudinal hatch coamings to eliminate the flexing of the hatch covers and fracturing of the container base sockets." In Ruling 113883, we found that this item was dutiable because it involved an operation to cure the fracturing of certain articles. As such, it appears to be a repair and maintenance item.

In its petition, Matson states that this item was a permanent modification. It further states: "There also were structural repairs, but this work was dealt with separately and duly identified for applicable duties (Item 525-1 Hatch Repairs) and was not necessarily at the same locations as the modifications...Again, it should be noted that repairs were dealt with on a separate and distinct item for which Matson is being charged the appropriate duty."

We find that this item is dutiable based upon Matson's statement in its application that this item was performed, at least in part, "to eliminate ... fracturing of the container base sockets." Work which is performed to correct a problem or deficiency is dutiable under 19 U.S.C. 1466.

4. Modifications to Transverse Box Girder (535). The petitioner states: "This work was accomplished independently of repairs, that may or may not have been in the same or similar locations."

In Ruling 113883, we stated: "The invoice reflects that this item was undertaken as a result of various fractures and cracks. Therefore, it is a dutiable repair."

The invoice clearly reflects that fractures or cracks occurred, and that the work involved in this item was related to the fractures and cracks. As an example, the pertinent invoice states (and this is just one of the instances on the pertinent invoice where cracks or fractures are mentioned): "Where fractures have occurred in transverse box girder plate and/or where chocks were not properly aligned, installed reinforement [sic] per sketch 535-1."

This item is clearly dutiable under 19 U.S.C. 1466. Work performed as a result of fractures, cracks, or other disrepair is dutiable.

5. 14 items of prefabricated steel. The petitioner claims that the prefabricated steel is subject to 19 U.S.C. 1466(h)(2) or (h)(3). We disagree.

The petitioner's claim with respect to 19 U.S.C. 1466(h)(3) was discussed in Ruling 113883, the ruling on the application for the subject entry, where we stated: "The applicant has not established that the prefabricated steel is a part under 19 U.S.C. 1466(h)(3). Therefore, the steel is dutiable under 19 U.S.C. 1466(a)."

We affirm this finding. The petitioner has not established that prefabricated steel is within the scope of 19 U.S.C. 1466(h)(3). It is our view that prefabricated steel is not a spare part or part, and is thus not eligible for treatment under 19 U.S.C. 1466(h)(3).

The petitioner appears to make the additional claim that the prefabricated steel is eligible for treatment under 19 U.S.C. 1466(h)(3) as a "material." This claim is erroneous. A reading of 19 U.S.C. 1466(h)(3) makes clear that "materials" are not within the scope of this provision.

We also find that the petitioner's claim with respect to eligibility of the prefabricated steel under 19 U.S.C. 1466(h)(2) is without merit. It is our position that 19 U.S.C. 1466(h)(2) contemplates duty-paid entry of eligible spare repair parts or materials having been made prior to the vessel repair entry at issue. The petitioner has not established that this occurred.

Accordingly, the prefabricated steel is dutiable under 19 U.S.C. 1466(a).

6. Item 18 on CF 226. The petitioner claims that item 18 on the CF 226 "is not dutiable because it constitutes accessories and equipment for containers which are instruments of international traffic and which therefore may be entered without duty pursuant to 19 C.F.R. 10.41a(a)(2)." In its petition, the petitioner describes this item as "container deck sockets."

The petitioner has provided no documentary evidence in support of this claim. The pertinent invoice does not include information which would link this item with containers or which would indicate that the subject item is accessories or equipment for containers. Therefore, we find that this item is dutiable.

7. Item 25, CF 226. The petitioner asserts that: "Holset Engineering was engaged to supervise inspection Item No. 542, Main Engine Vibration Damper. This item is an ABS/USCG requirement and it has been declared to be nondutiable."

The pertinent invoice supports this claim. Accordingly, we find that this item is nondutiable.

HOLDING:

As detailed above, the petition is granted in part and denied in part.

Sincerely,

Director,
International Trade Compliance

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