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HQ 115536

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January 31, 2002

VES-13-18-RR:IT:EC 115536 GEV

CATEGORY: CARRIER

Chief, Vessel Repair Unit
U.S. Customs Service
423 Canal Street
New Orleans, Louisiana 70130

RE: Protest No. 1801-00-100156; Vessel Repair Entry No. C18- 0026056-9; M/V STUYVESANT; Consumables; Modifications; Casualty; 19 U.S.C. § 1466

Dear Sir:

This is in response to your memorandum dated November 15, 2001, forwarding for our review the above-referenced protest. Our ruling on this matter is set forth below.

FACTS:

The M/V STUYVESANT is a U.S.-flag hopper dredge that departed the United States on April 27, 1991, and did not return to this country until it arrived at Tampa, Florida, on February 8, 1996. During this period of time, foreign expenditures were incurred. Upon its return a vessel repair entry and an application for relief from vessel repair duties were timely filed. By your letter dated April 27, 2000, the application was granted in part and denied in part and the applicant was informed of its right to file a petition for review of this decision. A petition for review was never filed. The entry was subsequently forwarded for liquidation which occurred on August 11, 2000.

A protest dated November 9, 2000, with supporting documentation (Appendixes A-E) was timely filed seeking relief for the following: general operational expenses and consumables (Appendix B); work alleged to constitute modifications (Appendixes C and D); and (3) repairs alleged to be due to a casualty (Appendix E).

ISSUE:

Whether the costs for which the protestant seeks relief are dutiable under 19 U.S.C. § 1466.

LAW AND ANALYSIS:

Title 19, United States Code, § 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..."

Section 1466(e) sets forth the so-called “six-month rule” which provides 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(a)] 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.

Section 1466(d)(1) provides that the Secretary of the Treasury is authorized to remit or refund such duties imposed under § 1466(a) if the owner or master of the vessel was compelled by stress of weather or other casualty to put into such foreign port to make repairs to secure the safety and seaworthiness of the vessel to enable her to reach her port of destination. It is Customs position that “port of destination” means a port in the United States. (see 19 CFR

The statute sets forth the following three-part test which must be met in order to qualify for remission under the subsection:

The establishment of a casualty occurrence.

The establishment of unsafe and unseaworthy conditions.

The inability to reach the port of destination without obtaining foreign repairs.

The term “casualty” as it is used in the statute, has been interpreted as something which, like stress of weather, comes with unexpected force or violence, such as fire, spontaneous explosion of such dimensions as to be immediately obvious to ship’s personnel, or collision (Dollar Steamship Lines, Inc. v. United States, 5 Cust.Ct. 28-29, C.D. 362 (1940)). In this sense, a “casualty” arises from an identifiable event of some sort. In the absence of evidence of such casualty event, we must consider the repair to have been necessitated by normal wear and tear (Customs ruling letter 106159, dated September 8, 1983).

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.

At the outset we note the applicability of the above-referenced “six-month rule” in this case. In other words, since the M/V STUYVESANT returned to the United States for the first time on February 8, 1996, since having previously departed the United States on April 27, 1991, it was only subject to the provisions of 19 U.S.C. § 1466 during the period of April 27, 1991, through October 27, 1991 (i.e., the first six months after its last departure from the United States). Having established the parameters of the statute in this case, our review of the record is as follows.

The protestant’s first argument upon which it bases its request for relief is that those costs listed in Appendix B are consumables and general operating expenses and are therefore nondutiable. In regard to consumables, it should be noted that they are defined as "supplies for the consumption, sustenance, and medical needs of the crew and passengers during the voyage, such as medicine and food." (See

C.I.E. 1759/56 and H.E. Warner, Trustee v. United States, 28 C.C.P.A. 143, 148, C.A.D. 136 (1940), citing Southwestern Shipbuilding Co. v. United States, 13 C.C.P.A. 74, T.D. 40934 (1925) A second category of nondutiable consumables refers to other items, such as fuel, that "are wholly consumed in their first use." Customs Bureau Letter, dated March 7, 1951. See also Atlas Marine Supply Co. v. United States, 29 C.C.P.A. 20, C.A.D. 165 (1941). It should be noted, however, that in order to obtain duty-free treatment under either category, the articles in question must be consumed on board the vessel for which they have been purchased and must not be used for repair purposes. (See C.I.E. 196/60; see also Customs memorandum 104352, dated January 10, 1980, citing T.D. 39340, as modified by T.D. 39507)

Upon reviewing the documentary evidence contained within Appendix B concerning those items claimed to be consumables, as well as those claimed to be nondutiable general operating expenses, we are in accord with the protestant’s claims with the exception of certain items discussed below.

Under Item No. 0.13 of Appendix B the documentation submitted indicates that some of these articles constitute “dutiable equipment”. For purposes of 19 U.S.C. § 1466, “dutiable equipment” has been defined to include:

...portable articles necessary or appropriate for the navigation, operation, or maintenance of a vessel, but not permanently incorporated in or permanently attached to its hull or propelling machinery, and not constituting consumable supplies. (Treasury Decision
(T.D.) 34150, (1914))

Consequently, we have determined that in view of the above-referenced definition and previous Customs rulings cited herein, the following items constitute dutiable equipment: woolen blankets (specifically listed as such in T.D. 34150); safety shoes; safety glasses; work gloves; flashlight; flashlight batteries (Customs ruling letter 111654, dated December 24, 1991); rope (Customs ruling letter 111184, dated October 9, 1990); 2 Hong Kong flags (Customs ruling letters 102276, dated September 17, 1976, and 111184, dated October 9, 1990); work gloves; coffee maker; pliers; putty knives; stationery items (pencils, paper, etc.); reflective tape; and the safety notice stencil. We further note that the protestant has requested relief
for shipping charges for items that constitute dutiable equipment or materials (survival suits and log books, power pack, welding wire, and wrenches). Since the underlying costs of these items are dutiable, the charges incurred for their shipping are dutiable as well pursuant to Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc. v. United States, 44 F.3d 1539 (CAFC 1994)

With respect to the port charges listed in Item No. 0.15, all are general services/drydocking costs incurred in conjunction with both dutiable and nondutiable work as reflected on the shipyard invoice. These charges are therefore to be prorated pursuant to our position set forth in Customs ruling letter 113474 and memorandum 113350, with the exception of the following charges which are nondutiable: #s 104, 107, 141, 144, 075, 100, 104, 148, 177, and 187.

In regard to the protestant’s casualty claim, it is alleged that on September 8, 1991, while dredging at the Ya Ma Tei dredge site in Hong Kong, the M/V STUYVESANT ran aground. The impact resulted in severe damage to all propeller blades and also the hub seals of the controllable pitch propellers (CPP) system resulting in failure of the CPP system as well as the loss of oil. In addition, the bilge keel on the port side was partly ripped off over a length of approximately 10 meters and the lower part of the port trailing pipe was badly indented over a length of about two meters.

The Customs Service has consistently held that the grounding of a vessel constitutes a “casualty” as that term is used in § 1466(d)(1), and that duties on repairs necessitated by a grounding are remissible if the repairs are performed to secure the safety and seaworthiness of the vessel (see C.S.D. 89-61, citing C.I.E.s 1822/58, 1823/58 and 1160/60). The preponderance of the evidence in this case (Appendix E) corroborates the protestant’s claim for remission due to a “casualty” and should therefore be granted.

The protestant also claims that certain work covered by the documentation contained within Appendixes C and D which was either conducted or begun during the applicable six-month period constitutes modifications which, as noted above, have been held to be nondutiable. This work includes the following: Item M.1 - New Drain Line (installed to allow excess water to be drained out of the hopper after the release of the dredged materials through the bottom doors and before filling up the hopper with new material); Item M.2 – Pipe Lengthening (the vessel’s two drag arm suction pipes were lengthened from approximately 80 feet to 120 feet in order to increase
the depth of the vessel’s dredging capacity); Item M.3 – Deairation System (this new system was installed to remove entrained air and gases from the dredged fluid in the dredge pumps); Item M.4 – Heavy Fuel System (airheaters were installed and piping altered in order to improve the combustion of heavy fuel when the engine is at less than full load, thus eliminating the need to frequently switch from heavy to diesel); and Item M.5 – Bow Thrust and Poor Mixture Overboard Lines (a new and separate piping system was installed for the purpose of releasing poor mixture (i.e., dredged material with little solid content) overboard instead of being stored in the hopper).

Upon reviewing the work as described in the protestant’s letter in conjunction with the supporting documentation contained within Appendixes C and D in light of the above-referenced authority, it is readily apparent that all of these work items constitute nondutiable modifications to the subject vessel.

HOLDING:

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

The protest is 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
Chief

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