HQ 114239 - Vessel Repair; Protest; PRESIDENT ADAMS; Voyage 84E; Entry No. 110-7992205-7; - United States International Trade Commision Rulings

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HQ 114239

June 2, 1998

VES-13-18-RR:IT:EC 114239 GEV

CATEGORY: CARRIER

Chief, Liquidation Section
U. S. Customs Service
P. O. Box 2450
San Francisco, California 94126

RE: Vessel Repair; Protest; PRESIDENT ADAMS; Voyage 84E; Entry No. 110-7992205-7;
Protest No. 3001-98-200002; Fabrication of parts from materials; 19 U.S.C. 1466

Dear Sir:

This letter is in response to your memorandum, dated January 29, 1998, which forwarded for our review a protest concerning assessed duties relating to the above-referenced vessel repair entry. Our ruling follows.

FACTS:

The vessel PRESIDENT ADAMS, a United States-flag vessel owned and operated by American President Lines (APL) of Oakland, California, arrived at the port of Seattle, Washington, on November 28, 1996. A vessel repair entry was timely filed according to Customs records. According to the vessel repair entry and other documents in the file, the vessel underwent certain work in Kaohsiung, Taiwan, as well as Hong Kong. This entry was previously reviewed by Headquarters in the form of a petition for review (Ruling number 113967), and the present protest is an appeal from certain elements of that determination.

The present matter involves a reconsideration of three of the items previously considered, which items are listed below:

1. Waster plates for main salt water cooler.

2. Hold back hooks for fire hose boxes.

3. Resting console for main engine piston. ISSUE:

Whether the cost of items described in the FACTS portion of this ruling is dutiable under the vessel repair statute (19 U.S.C. 1466).

LAW AND ANALYSIS:

Section 466(a), Tariff Act of 1930, as amended (19 U.S.C. 1466(a)) provides, in pertinent part, that:

The equipments, or any part thereof ... 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 to engage in the foreign or coasting trade, or a vessel intended to be employed in such trade, shall, on the first arrival of such vessel in any port of the United States, be liable to entry and the payment of an ad valorem duty of 50 per centum on the cost thereof in such foreign country.

On August 20, 1990, the President signed into law the Customs and Trade Act of 1990 (Pub. L. 101-382), section 484E of which amended the vessel repair statute by adding a new subsection (h). Subsection (h) then included two elements and the amendment was made applicable to:

(1) any entry made before the date of enactment of this Act that is not liquidated on the date of enactment of this Act, and
(2) any entry made--
(A) on or after the date of enactment of this Act, and
(B) on or before December 31, 1992.

Section 112 (b) of Pub. L. 103-382, effective on January 1, 1995, amended the vessel repair statute by reenacting 19 U.S.C. 1466 (h) provisions which had expired and no longer existed as of January 1, 1993. The new law also added for the first time a subsection (h)(3) which exempts from vessel repair duty:

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

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 the main body of the law in 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 of repairs..." (emphasis added). It is clear that the Congress has recognized a distinction between these categories of purchases, and has extended vessel repair duty limitations under subsection (h)(3) only to certain qualifying parts.

In order to ensure proper enforcement of the amended statute, it is necessary that the key terms be defined. In defining parts, materials, and equipment, it is most beneficial to do so in general descriptive terms rather than in the form of specific lists of items which fit into categories. In compiling lists it is inevitable that items will be inadvertently omitted, which result may lead to improper or inconsistent application of the law. These critical definitions were included in the May 31, 1995, issuance by Customs Headquarters.

For purposes of 19 U.S.C. 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 steel which is incorporated into the hull, fittings, and superstructure of a vessel.

A part under section 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.

The term equipment as used in the vessel repair statute is determined to mean something which constitutes an operating entity unto itself. Equipment retains at least the potential for portability. Equipment may be affixed to a vessel in a non-permanent fashion, such as by means of bolts or other temporary methods, which is a feature distinguishing it from being considered an integrated portion of the hull and superstructure of a vessel. Examples of equipment as defined are seen in such items as winches and generators.

The protestant in this case makes several statements in its submission with regard to our previous ruling on this entry. These statements include the claims that one of our findings is "patently false", that "Customs should stop trying to evade the statute, which is the law, by reverting to such falsifications", and that we have engaged in at least one "deliberate act of misrepresentation." These are serious charges for which an accused might reasonably expect to be presented with supporting evidence of evasion, falsification, and deliberate misrepresentation.

Instead we are presented with unsupported, self-serving statements that the protestant did not purchase prefabricated steel by the kilogram, did not order or purchase materials, and did purchase parts, but not by the kilogram. Also included in the file are three letters to the protestant from the foreign shipyard which state, with regard to the items at issue, that the protestant was supplied with named items as spare parts.

Most telling, however, are photocopies of the actual shipyard invoices which we also find in the file, one for each class of section (h)(3) item at issue. Each of these invoices memorializes the presence of and billing for materials and necessary cutting, welding, and drilling tools. The invoices also document the application of labor to these materials and the resultant products. We remain of the opinion that the statute contemplates the purchase of parts which are suited to the particular application at hand, not the construction of objects to order from materials. We believe that the invoices are clear enough such that there remains no need for falsification or deliberate misrepresentation on our part. The (h)(3) items under protest are subject to duty at the 50 percent rate.

HOLDING:

Following a thorough review of the evidence presented as well as analysis of the law and relevant judicial and administrative precedents, we have determined that this protest should be denied as specified in the Law and Analysis portion of this ruling.

In accordance with section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with this decision must be accomplished prior to mailing the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to
Customs personnel via the Customs Ruling Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

Director

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