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HQ 114525

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November 4, 1998

VES-13-18-RR:IT:EC 114525 LLB

CATEGORY: CARRIER

Chief, Residual Liquidation and Protest Branch U.S. Customs Service
6 World Trade Center
New York, New York 10048-0945

RE: Vessel Repair Entry No. 514-3005725-0; Vessel SEALAND INDEPENDENCE; V-234; Petition for Review; Inspections and surveys; 19 U.S.C. 1466

Dear Sir:

This is in response to your memorandum dated October 22, 1998, forwarding a Petition for Review of your decision of September 18, 1998, concerning duties assessed pursuant to the vessel repair statute, 19 U.S.C. 1466. Our findings are set forth below.

FACTS:

The SEALAND INDEPENDENCE returned to the United States following certain foreign shipyard operations and filed an Application for Relief from the assessment of vessel repair duties. That request for relief was reviewed and disposed of by the Vessel Repair Liquidation Unit in New York, and the claim for relief was denied in part. Two of the items for which relief was denied involve the cost of survey and inspection work which was claimed in the application to be required and to be unconnected with any dutiable repair operations. The claim with respect to the inspection elements (items 2 and 15 on the liquidation spreadsheet) was denied for the reason that evidence in support of the claim was lacking from the submission at that time.

ISSUE:

Whether sufficient evidence is now presented to demonstrate that the expenditures under review should be considered to be duty-free under the vessel repair statute for the reason that they are not related to repair operations as defined in judicial and administrative opinions.

LAW AND ANALYSIS:

Section 466, Tariff Act of 1930, as amended (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...

With respect to the dutiability of testing, inspections, and surveys, Customs has held pursuant to C.S.D. 79-277 that where periodic surveys are undertaken to meet the specific requirements of a classification society, insurance carrier, etc., the cost of the survey is not dutiable even when dutiable repairs are effected as a result of survey findings. Likewise, cleaning in preparation for or following a duty-free survey not including any unsegregated repair elements is also free. This result is to be distinguished from a survey whose source is carrier-initiated maintenance and repair, scheduled or otherwise.

We now find evidence in the file before us that the two inspection elements under review were performed as part of a sequence required to maintain the vessel in its service classification. The offered evidence is in the form of the survey reports themselves. Further, we find no evidence that any repairs which might be subject to duty under the vessel repair statute were performed in connection with the surveys. As such, we find that the costs associated with items 2 and 15 are not subject to duty under the statute. The Petition for Review is granted.

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 Petition for Review should be granted in full for the reasons specified in the Law and Analysis portion of this ruling.

Sincerely,


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