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HQ 115027




June 7, 2000

VES-13-18-RR:IT:EC 115027 GEV

CATEGORY: CARRIER

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

RE: Vessel Repair Entry No. C27-0171307-8; Parts; PRESIDENT GRANT; V-16; 19 U.S.C. § 1466(h)(3)

Dear Sir:

This is in response to your memorandum dated April 14, 2000, which forwards for our consideration a petition for review of your office’s decision on an application for relief from duty assessed pursuant to 19 U.S.C. § 1466. Our finding is set forth below.

FACTS:

The PRESIDENT GRANT is a U.S.-flag vessel that incurred foreign shipyard costs in November of 1999. Subsequent to the completion of the work the vessel arrived in the United States at San Pedro, California, on November 22, 1999. A vessel repair entry was timely filed as was an application for relief with supporting documentation.

By letter dated February 24, 2000, your office rendered its decision on the application for relief and informed the applicant of the right to file a petition for review of this decision.

A petition for review was timely filed and forwarded to this office for review. At issue is Item no. 11 of the entry (Yokogawa Denshikiki Co., Ltd. Invoice no. B9L8019) covering a “CPU” (i.e., Central Processing Unit) which your office deemed to be dutiable. The petitioner contends that the CPU is a part and seeks treatment under 19 U.S.C. § 1466(h)(3). In support of this claim the petitioner has submitted,
in addition to the above-referenced invoice, additional documentation including a copy of the Service Purchase Order and a copy of an Entry Summary Continuation Sheet (CF 7501-A).

ISSUE:

Whether Item no. 11 of the subject vessel repair entry is classifiable under subheading 9818.00.05, HTSUS (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 remains 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 provided 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 commodity 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.

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.

The term equipment 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.

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 (Headquarters Memorandum 113291), 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) 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.

With respect to Item no. 11 for our consideration, upon further review of the record we have determined that the CPU is a part of the vessel’s navigational system and therefore falls within the duty-free exemption of 19 U.S.C. § 1466(h)(3).

HOLDING:

Item no. 11 of the subject vessel repair entry is classifiable under subheading 9818.00.05, HTSUS (19 U.S.C. § 1466(h)(3)).

Sincerely,

Acting Chief

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