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HQ 115375

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July 25, 2001

VES-13-18-RR:IT:EC 115375 LLO

CATEGORY: CARRIER

Chief, Liquidation Branch
U.S. Customs Service
P.O. Box 2450
San Francisco, California 94126

RE: Vessel Repair; Entry No. C30-0109469-8; M/V PHILLIPINES; Petition for Review; V-43; 19 U.S.C. §1466;19 C.F.R. 4.14; Duty Remission

Dear Sir:

This is in response to your memorandum dated May 9, 2001, which forwards for our consideration a petition for review from the assessment of vessel repair duties pursuant to 19 U.S.C. §1466. Our findings are set forth below.

FACTS:

The M/V PHILLIPINES is a U.S. flag vessel, which incurred foreign shipyard costs in November of 2000. After the completion of the repairs, the vessel arrived at the port of Los Angeles, California on November 24, 2001. A vessel repair entry was timely filed, as was an application for relief.

By letter dated February 27, 2001, your office rendered its decision on the application for relief and informed the applicant of the right to file a petition for review of the decision.

A petition for review with supporting documentation was filed and forwarded to this office after one extension of time was granted. At issue is item #4 of the entry covering heavy-duty limit switches for lifeboats, and scupper plugs. The petitioner contends that both of the items in question are spare parts rather than equipment.

ISSUE:

Whether the documentation submitted substantiates the petitioner’s claim that heavy-duty limit switches for lifeboats, and scupper plugs on the subject vessel repair entry constitute spare parts under title 19 U.S.C. §1466.

LAW AND ANALYSIS:

Title 19, United States Code, §1466(a), (19 U.S.C. §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 subsection (h)(1) and (2), the wording of which remains unchanged from their previous enactment as part of the Customs and Trade Act of 1990 (484 of Pub.L. 101-382), which had expired by its own 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 title 19 U.S.C. §1466 is determined to be something that 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 would essentially encompass all elements necessary for a vessel to operate in its trade. Examples of parts as defined are seen in such items as piston rings and preformed gaskets.

For purposes of title 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 sheets of steel which are incorporated into the hull and superstructure of a vessel.

The term equipment is defined as something that 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 (CF 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 Trade Tariff of the United States. 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.

In support of its contentions, the petitioner has presented several documents in support of its arguments that the heavy-duty switches and scupper plugs are parts rather than equipment. Three drawings have been submitted indicating the arrangement of remote control, the arrangement of lifeboat davits and a drawing of the limit switches. Additionally, a cargo ship safety equipment certificate, photo of lifeboat davit system, and an excerpt from the international convention for the Safety of Life at Sea were also submitted.

The petitioner contends that the VLRU’s determination to classify a switch as equipment is incorrect, because a switch does not operate as an entity unto itself, but rather as a simple component thereto. Petitioner goes on to contend that “switches do not loose [sic] their essential character when incorporated into a larger whole, they clearly qualify as ‘parts’ under the meaning and intent of 19 U.S.C. §1466(h)(3).” The third argument made by the petitioner is that ”switches cannot operate as entities unto themselves, switches are simply in line components of the system or equipments that they are participants of.”

The petitioner also argues that the holding in HQ 114571 works in its favor by ruling (in the petitioner’s view) that “the permanency and not portability is the operative nature of the incorporation of the switch into the apparatus and that the fact that the switch is attached to the davit system by screws does not lead to portability but rather to positioning of the part and serviceability, in the same manner such as parts such as antennas.”

In addition to the aforementioned argument, the petitioner also mentions HQ 115028, which it feels supports “the fact that the mere attachment of a part by non permanent means does not in an [sic] of itself preclude the permanency of the installation or denote portability.”

Although the heavy-duty limit switches are not permanently attached to the hull of the subject vessel, these parts do not constitute equipment because they are not operating entities unto themselves. The limit switch is a part of the lifeboat davit system, which is incorporated into the vessel without losing its identity as a distinct entity, despite its potential for portability. Indeed, if the lifeboat davit system were taken apart piece by piece, the limit switches would be readily identifiable as a part of the assemblage of pieces constituting the lifeboat davit system. Hence, the heavy-duty limit switches are parts and are dutiable under title 19 U.S.C. §1466(h)(3).

With regard to the scupper plugs, the petitioner argues that “[t]hese items are replaced only when damaged from contamination, exposure or loss. Additionally, is [sic] the deck and vent line systems of a vessel were disassembled to the component level the scupper plugs would be easily identified as parts alongside all other components. Scupper plugs, being subject to these environmental and operational requirements demonstrate required permanency and other criteria as qualifying as parts under 19 U.S.C. §1466(h)(3).”

Despite petitioner’s contentions, the scupper plugs are equipment. These plugs are not only portable, but their main purpose is to plug the scupper of a vessel to prevent or allow water or other materials to run off deck. The plugs, whether put into place to prevent water or other liquids from running off, or removed to allow water to run off, operate as entities unto themselves, they are not a part of a larger apparatus of the vessel. For this reason, the scupper plugs do not fall within title 19 U.S.C. §1466(h)(3), and are therefore dutiable under paragraph (a) of section 1466.

HOLDING:

The heavy-duty limit switches for the lifeboat constitute parts and are dutiable under title 19 U.S.C. §1466(h)(3). The scupper plugs constitute equipment and are dutiable under 19 U.S.C. §1466(a).

Accordingly, the petition is granted in part and denied in part. The petitioner should be informed of the right to file a protest following liquidation of this entry. Protests shall be filed within 90 days after the date of notice of liquidation or reliquidation in accordance with 19 C.F.R. §159.9 or 19 C.F.R. §159.10, with the port director whose decision is protested.

Sincerely,

Larry L. Burton
Chief
Entry Procedures and Carriers Branch

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