HQ 115195 - M/V MARGARET LYKES; Vessel Repair Entry No. 514- 3005457-0; Protest No. 1001-00-103680; Modifications; Repairs; Cleaning; Parts; 6-Month rule; 19 U.S.C. § 1466 - United States International Trade Commision Rulings

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HQ 115195

April 2, 2001

VES-13-18-RR:IT:EC 115195 GEV

CATEGORY: CARRIER

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

RE: M/V MARGARET LYKES; Vessel Repair Entry No. 514- 3005457-0; Protest No. 1001-00-103680; Modifications; Repairs; Cleaning; Parts; 6-Month rule; 19 U.S.C. § 1466

Dear Sir:

This is in response to your memorandum dated October 20, 2000, which forwarded for our review the above-referenced vessel repair protest. Our ruling on this matter is set forth below.

FACTS:

The M/V MARGARET LYKES is a U.S.-flag vessel that departed Guam on April 4, 1989, and did not return to the United States until July 2, 1996 (see statement on p. 7 of the protest letter dated August 16, 2000). During this period of time it underwent extensive foreign operations. The vessel arrived in the United States at the port of Newark, New Jersey, on June 29, 1996. A vessel repair entry was timely filed.

An application for relief with supporting documentation was timely filed. By your letter dated July 30, 1999, the application for relief was granted in part and denied in part. A petition for review was filed and subsequently granted in part and denied in part pursuant to Customs ruling letter 114984, dated April 10, 2000. Consequently, the entry was liquidated on May 26, 2000. A protest, dated August 23, 2000, was timely filed. The protestant requests relief for a myriad of expenditures. We have reviewed those expenditures specifically referenced in your memorandum.

ISSUE:

Whether the costs for which the protestant seeks relief are dutiable. Under 19 U.S.C. § 1466(a).

LAW AND ANALYSIS:

Title 19, United States Code, § 1466(a) (19 U.S.C. § 1466(a)), 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”

This statute provides in subsection (e) (19 U.S.C. § 1466(e)), that when a vessel covered by the vessel repair statute:
arrives in a port of the United States two years or more after its last departure from a port in the United States, the duties imposed by [section 1466] shall apply only with respect to[purchases and repairs] made during the first six months after the last departure of such vessel from a port of the United States.

Accordingly, only those foreign expenditures incurred within the first six months after the last departure of the subject vessel from Guam (April 4, 1989) are subject to the provisions of the statute.

At the outset, we note that the protestant seeks relief pursuant to 19 U.S.C. § 1466(h)(3) for certain articles specified in the subject entry. This statutory provision provides relief from duty imposed by § 1466(a) for the following:

(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.

However, subsection (h)(3) referenced above was added pursuant to Pub.L. 103-465, effective for all vessel entries made on or after January 1, 1995. Since Customs has long-held that for purposes of 19 U.S.C. § 1466, duty attaches at the date foreign repairs were made
and/or foreign equipment was purchased (see C.I.E. 114/49), the protestant may not avail himself of relief pursuant to § 1466(h)(3) inasmuch as that provision was not in existence at the time the costs in question were incurred. Consequently, all the protestant’s claims for relief pursuant to subsection 1466(h)(3) are denied.

Upon reviewing the record in its entirety with respect to the remainder of the costs forwarded for our consideration, our position is as follows.

Voyage 20 – Item 2/20-118/A (Cleaning of the cargo holds and engineroom)

The record does not indicate that this cleaning was done pursuant to dutiable repairs. Consequently, pursuant to the decision of the U.S. Court of Appeals for the Federal Circuit (CAFC) in Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc., v. United States, 44 F.3d 1539 (1994), the cost incurred for this cleaning is nondutiable.

Voyage 21 – Item 3/21-110/B (Report on the main engine piston rings)

The record does not indicate that dutiable repairs were done pursuant to this report. Consequently, pursuant to Texaco, supra, the cost of this item is not dutiable.

Item 6/21-121D (Smoke Indicating Periscope) Item 10/21-130/D (Drinking Water Cooler)
Item 13/20-111/D (Cold Beverage Dispenser) Item 16/21-126/D (ME Oil Mist Detector)
Item 18/21-133/D (Main Engine Camshaft Viewing Ports)

The protestant claims that each of these items constitutes an “improvement” to the vessel. In view of the fact that Customs does not recognize that an “improvement” to a vessel, per se, is nondutiable, we assume that the protestant is alleging that these work items constitute modifications. In its application of the vessel repair statute, Customs has held that modifications, alterations, or additions to the hull and fittings of a vessel are not subject to vessel repair duties. The identification of work constituting modifications vis-à-vis work constituting repairs has evolved from judicial and administrative precedent. (See Otte v. United States, 7 Ct. Cust. Appls. 166, T.D. 36489 (1916);

United States v. Admiral Oriental Line et al., 18 C.C.P.A. 137, T.D. 44359 (1930); and Customs Bulletin and Decisions, Vol. 31, Number 40, published October 1, 1997.) The factors discussed within the aforementioned authority are not by themselves necessarily determinative, nor are they the only factors which may be relevant in a given case. However, in a given case, these factors may be illustrative, illuminating, or relevant with respect to the issue of whether certain work may be a modification of a vessel which is nondutiable under 19 U.S.C. § 1466.

With respect to the items in question, the evidence submitted is insufficient to support a finding that the work they cover constitutes modifications. Accordingly, the costs of these items represent dutiable purchases of equipment.

Voyage 22 - Item 8/21-129/D (Video Training Tapes)

We are not in accord with the protestant’s claim that these tapes are merely a supply of information. The tapes are equipment the purchase of which is dutiable.

Item 16/22-116/D (Reefer Van Power Supply)

The protestant alleges that this is an “improvement” to the vessel and is therefore nondutiable. The protestant has not supported its claim in this regard (see discussion above regarding a modification claim). In the absence of evidence to the contrary, this item constitutes the dutiable purchase of equipment.

Voyage 23 - Item 12/24-104/D (Cleaning of the cargo holds and engine room)

The record does not indicate that this cleaning was done pursuant to dutiable repairs. Consequently, pursuant to the decision of the U.S. Court of Appeals for the Federal Circuit (CAFC) in Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc., v. United States, 44 F.3d 1539 (1994), the cost incurred for this cleaning is nondutiable.

Item 22/25-107/D (Garbage Removal)
Item 50/26-106/D (Garbage Removal)

The record is unclear as to whether the garbage referenced under these items that was removed was generated pursuant to the dutiable or nondutiable work contained within this vessel repair entry. Accordingly, these costs are to be prorated pursuant to Customs ruling letter 113474 and memorandum 113350 both of which address Customs implementation of Texaco, supra.

Item 27/25-105/D (Chesterton Packing)

This item covers materials and equipment alleged to be nondutiable due to their being of U.S origin. In regard to Customs administration of claims regarding U.S.-manufactured parts prior to August 20, 1990, the provisions of Treasury Decision (T.D.) 75-257 are controlling. That decision provides that when materials of U.S.-manufacture are purchased by the vessel owner in the United States for installation abroad by foreign labor, the labor cost alone is subject to duty under 19 U.S.C. § 1466. When those same materials are purchased by the owner overseas or purchased in the United States by parties other than the owner, the cost of materials themselves (even though of U.S.-manufacture) is also subject to vessel repair duty. With respect to claims for relief under T.D. 75-257, it is Customs policy to require direct evidence of U.S. manufacture (e.g., an affidavit by the manufacturer) as well as U.S. purchase (e.g., bill of sale or domestic invoice) for relief to be granted. (Customs ruling letter 111272, dated November 2, 1990)

In this regard, we note that the record only contains an invoice from Sonoco [Private] Limited covering Item 27/25-105/D which originated from Singapore and merely has the notation “U.S.A. Origin”, without more, next to the subject materials and equipment listed thereon. This documentary evidence, without more, is insufficient to support the protestant’s claim for relief for Item 27/25-105/D. The cost of this item is therefore dutiable.

Item 8/22-119/D (H.F.O. Purifier Control Unit EP-30) Item 26/24-118/B (Engine Room Crane Platform)

The protestant alleges that each of these two work items is an “improvement” to the vessel and is therefore nondutiable. The protestant has not supported its claim in this regard (see discussion above regarding a claim for a modification). In the absence of evidence to the contrary, these items constitute the dutiable purchases of equipment.

Item 33/156-132 (Charts)
Item 55/156-248/D (Charts)

Both of these items cover the purchase of charts for the vessel and therefore constitute dutiable purchases of equipment under 19 U.S.C. § 1466(a).

HOLDING:

As discussed in the Law and Analysis portion of this ruling, the costs for which the protestant seeks relief are dutiable in part under 19 U.S.C. § 1466(a).

Accordingly, the protest should be granted in part and denied in part.

In accordance with § 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with the Customs Form 19, to the protestant 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 this decision. Sixty days from the date of the decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Larry L. Burton

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