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HQ 115083

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August 14, 2000

VES-13-18 RR:IT:EC 115083

CATEGORY: CARRIER

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

Attn: Vessel Repair Liquidation Unit, Room 107

RE: Vessel Repair Entry No. C27-0171350-8, PRESIDENT JACKSON, V118E; Cleaning; Rental lighting; Parts; 19 U.S.C. 1466(h)(3)

Dear Sir/Madam:

This is in response to your memorandum dated June 23, 2000, which forwarded for our review, the petition submitted by AMERICAN SHIP MANAGEMENT, LLC. with respect to the above referenced vessel repair entry.

FACTS:

American Ship Management LLC (ASM) is the ship manager for the M/V PRESIDENT JACKSON, a US flag container vessel trading primarily between the West Coast of the United States and the Far East. During the subject voyage, in January and February of 2000, the vessel underwent certain foreign shipyard work in China. Upon completion of the subject voyage, the vessel arrived in the United States at San Pedro, California, on February 19, 2000. A vessel repair entry and an application for relief from duty were timely filed. On May 23, 2000, your office issued a decision regarding the application for relief from duty on various repairs on the PRESIDENT JACKSON. On June 12, 2000, American Ship Management filed a petition for review of your decision. Our ruling is set forth below.

ISSUE:

Whether the foreign costs contained within the subject entry for which our review is sought are dutiable under 19 U.S.C. § 1466.

LAW AND ANALYSIS:

Title 19, United States Code, § 1466 (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..."

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.

With respect to the petitioner’s specific claims, item no. 2 concerns the cost of portable lamps used during the process of cleaning the fuel tanks. Customs has consistently held that cleaning is not dutiable unless it is performed as part of, in preparation for, or in conjunction with dutiable repairs or is an integral part of the overall maintenance of the vessel. See Headquarters Ruling Letter 111730, September 19, 1991. The file contains an invoice from Hong-Tah Marine Service & Engineering Co., LTD. which indicates that there was a charge for removal of the oily deposits and waste material from both fuel tanks and disposal as necessary. We find that the cleaning cost at issue is segregated from, and unrelated to, the cost of any dutiable work. In addition, we note that the file also contains a letter from Hong-TAH Marine Service & Engineering Co. Ltd, to the petitioner which states, that the explosion-proof lamps were brought on board the vessel for the illumination while the fuel tank was being cleaned, and they were brought back ashore after the job was completed. The letter further states that the charge was for a rental fee and not a purchase. Accordingly, the petitioner’s claim with respect to Item no. 2 is granted.

The remaining cost, for which the petitioner seeks relief also included under Item no. 2, concerns the cost of metric nuts for manhole covers. The Hung Tah Marine Service & Engineering Co., LTD. invoice describes the item as the supply and delivery onboard of 250 M20 metric nuts. The petitioner concedes that the invoice does not mention installation of the metric nuts. Rather the invoices states: “FOLLOWING MATERIAL SUPPLY ONBOARD ONLY: -250 EACH STAINLESS STEEL M20 METRIC NUTS”. The June 9, 2000, letter from HONG-TAH MARINE SERVICE ENGNEERING Co Ltd. states that the 250 pieces of stainless steel M20 metric nuts NT 6,875.00 “were supplied as spares for the vessel without installing any of those nuts.” While we feel that the metric nuts would be considered parts, because the evidence in the record establishes that they were not installed before their first entry into the United States, the exemption from the vessel repair duty under 19 U.S.C. 1466(h)(3) does not apply. Accordingly, the metric nuts remain dutiable.

HOLDING:

The costs contained within the subject entry for which the petitioner seeks relief are dutiable in part under 19 U.S.C. § 1466 as discussed in the Law and Analysis portion of this ruling.

Sincerely,

Acting Chief
Entry Procedures and Carriers Branch

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