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HQ 114340

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May 12, 1998

VES-13-18-RR:IT:EC 114340 GOB

CATEGORY: CARRIER

Port Director of Customs
Attn.: Vessel Repair Liquidation Unit, Room 415 P.O. Box 2450
San Francisco, CA 94126

RE: Vessel Repair Entry No. 718-0000438-5; OVERSEAS JOYCE, V-80; 19 U.S.C. 1466; Petition

Dear Madam:

This is in response to your memorandum of April 6, 1998, which forwarded the petition submitted by Maritime Overseas Corporation ("petitioner") with respect to the above-referenced vessel repair entry.

FACTS:

The evidence of record indicates the following. The OVERSEAS JOYCE (the "vessel"), a U.S.-flag vessel, arrived at the port of Portland, Oregon on September 23, 1997. The subject vessel repair entry was subsequently filed. The vessel underwent certain foreign shipyard work in Ulsan, Korea. The CF 226 indicates that the vessel is owned by OSG Car Carriers Inc.

Your office ruled on the application for relief.

ISSUE:

Whether the costs of the subject items are dutiable pursuant to 19 U.S.C. 1466(a).

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.

The petition groups the items for which relief is requested into five categories and refers to these categories as "notations," based upon the notations made on the spreadsheet, e.g., notations one through five. For the sake of clarity, we will use the same five categories.

Category One - numerous drydock costs and/or general services costs. The petitioner states: "It is our interpretation that services utilized for preparation of the vessel for repairs are except from duty...The items represent costs strictly for the preparation of the vessel for repairs, such as electrical power, potable water, garbage removal, docking and undocking etc."

The items in this group are commonly referred to as drydock costs and/or general services costs. It is our oft-stated position that these costs are to be prorated between dutiable costs and nondutiable costs on the vessel repair entry at issue. The reason for this position is that such costs are typically incurred with respect to "an entire drydocking," which usually includes costs dutiable under 19 U.S.C. 1466 and costs which are not dutiable under 19 U.S.C. 1466.

With respect to the petitioner's statement, above, concerning the exception from duty, we note the following language from 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):

Texaco urges us to reject the Court of International Trade's "but for" approach and to interpret "expenses of repairs" so as to exclude those expenses (e.g., expenses for clean-up and protective covering work) not incurred for work directly involved in the actual making of repairs. Such a reading has no basis in the plain language of the statute, however. Aside from the inapplicable statutory exceptions, the language "expenses of repairs" is broad and unqualified. As such, we interpret "expenses of repairs" as covering all expenses (not specifically exempted in the statute) which, but for dutiable repair work, would not have been incurred. (Emphases supplied.)

Category Two - item 58. The petitioner states that this item "was incurred as a result of a casualty sustained while in the regular course of the vessel's voyage, therefore, requiring repairs during this drydock as mandated by the U.S. Coast Guard."

19 U.S.C. 1466(d)(1) provides in part that the Secretary of the Treasury is authorized to remit or refund such duties if the owner or master of the vessel furnishes good and sufficient evidence that the vessel was compelled by stress of weather or other casualty to put into a foreign port and make repairs to secure the safety and seaworthiness of the vessel to enable her to reach her port of destination. 19 CFR 4.14(c)(3)(I) provides that "port of destination" means such port in the United States and "...only the duty on the cost of the minimal repairs needed for the safety and seaworthiness of the vessel is subject to remission or refund."

19 U.S.C. 1466 and 19 CFR 4.14 essentially set forth a three-part test, each of the elements of which must be established by good and sufficient evidence to qualify for remission:
1. a casualty occurrence;
2. an unsafe and unseaworthy condition; and 3. the inability to reach the port of destination without foreign repairs.

We find that the petitioner has not provided satisfactory documentary evidence to satisfy the three-part test. Indeed, the petitioner has not established any of the three elements.

The mere assertion of the occurrence of a casualty in a petition or on an invoice is not satisfactory documentary evidence. Similarly, an ABS certificate of fitness to proceed, which does not document or describe a casualty, is not documentary evidence with respect to any of the three elements, each of which must be established by good and sufficient evidence.

Evidence which has been helpful to casualty claims under 19 U.S.C. 1466(d)(1) has included affidavits of parties with firsthand knowledge, official U.S. Coast Guard reports, and other agency reports bearing on the occurrence of a casualty, the condition of the vessel and the immediate necessity of the repairs.

Category Three - items seven, 10, 11, 36, and 51 on Hyundai Mipo Dockyard Co., Ltd. Invoice #97-10-20A. The petitioner states that these "items represent expenses incurred for the sole purpose of inspection required by regulatory authorities (USCG and ABS) as deemed necessary to maintain the vessel's classification."

The invoice for item seven reflects "Sea Valve Repairs" (the heading of this item) and the removal of valves for overhaul. This item is dutiable as an item incident to repairs.

The invoice for item 10 provides: "Range our port and Starboard anchor chain for inspection and ABS required guaging [sic], no repair...After inspection heavily blast links in way of shots and Mark each shot as per Mark for Anchor Chain'...Inspect anchor head pin and (2) retaining pins, check anchors for any sign of fracture at shoulders." [Emphasis in original.] We find that this item is nondutiable as an item incident to a nondutiable inspection or survey. The invoice contains no indicia of repair or maintenance work, and reflects our finding of an item incident to a nondutiable inspection or survey.

The invoice for item 11 reflects an ABS and/or U.S. Coast Guard inspection and preparation therefor. The invoice does not reflect repairs. We find that this item is nondutiable.

The invoice for item 36 reflects lighting, gas freeing, and "mucking out." These items are to be prorated in the same manner as other drydock costs and/or general services costs.

The invoice for item 51 includes two sub-items. The first sub-item reflects the opening up of a turbocharger for a continuous ABS survey. This sub-item is nondutiable as an item incident to a nondutiable survey. The invoices reflect that dutiable repairs were performed on the turbocharger (See Category Four, below, and "assistance with turbocharger overhaul."), but because this sub-item (which reflects the opening of a turbocharger for a continuous ABS survey) is separately invoiced, and not combined with dutiable repairs, it is nondutiable.

The second sub-item reflects work incident to a repair ("rigged elbow ashore for repair") and is dutiable.

Category Four. The petitioner states that this "item represents the cost of transportation, lodging and inspection of the attending surveyor of the main engine. No repairs were made by the MAN B&W representative."

The invoice reflects that the service engineer provided "assistance with turbocharger overhaul." We find that this item is dutiable as a repair, repair-related item, or maintenance item.

Category Five. The petitioner states: "The attached GATT Form 7501-A represents spare parts supplied to the vessel and used by the ship's crew. We request a reduction in duty for these items under the harmonized tariff regulation."

19 U.S.C. 1466(h)(3) provides:

The duty imposed by section (a) of this section shall not apply to -
...
(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 Schedules of the United States upon first entry into the United States of each such spare part purchased in, or imported from, a foreign country.

For the purpose of 19 U.S.C. 1466(h), we have defined a "part" as follows:

A part 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 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. [Emphases in original.]

The issue here is whether the subject items are dutiable under 19 U.S.C. 1466(a) at a rate of duty of fifty percent ad valorem or under 19 U.S.C. 1466(h)(3) under the appropriate commodity classification of the Harmonized Tariff Schedule of the United States.

We have reviewed the pertinent documentation, including the invoices, CF 7501A's, and the spreadsheet compiled by your office indicating the treatment of each item. We note that treatment under 19 U.S.C. 1466(h)(3) was granted at the application stage to the large majority of the items on the spreadsheet for which such treatment was requested.

We concur with the treatment of these items as indicated on your spreadsheet. The items for which treatment under 19 U.S.C. 1466(h)(3) was correctly denied are either not "parts," or were not installed on the vessel.

HOLDING:

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

Sincerely,

Jerry Laderberg
Chief,
Entry Procedures and Carriers

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