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HQ 115154

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January 23, 2001

VES-13-90:RR:IT:EC 115154 LLO

CATEGORY: CARRIER

Chief, Liquidation Section
U.S. Customs Service
P.O. Box 2450

San Francisco, CA 94126

RE: Vessel Repair Protest; PRESIDENT JACKSON;V-79; Vessel Repair Entry No. 110-6461898-3; Duty Remission;19 USC §1466(d);19 CFR §4.14

Dear Sir:

We received your memorandum regarding the President Jackson V/79, requesting we review a protest regarding the dutiability of a high pressure hull water wash and the rudder stock carrier bearing packing. Additionally, we note the protestant’s disagreement with our method of pro rata calculations. Our ruling on these matters follows.

FACTS:

The President Jackson arrived at the port of Seattle, Washington, on May 23, 1996. Entry papers were timely filed in accordance with 19 C.F.R. 4.14 (b)(2). Duties for repairs to the vessel were liquidated on June 9, 2000 in the amount of $320,170.00. A protest to the June 9, 2000 liquidation was timely filed on August 2, 2000.

ISSUES:

Whether a high pressure hull water wash and rudder stock carrier bearing packing are dutiable under 19 U.S.C. §1466.

2) What constitutes the proper method of pro-rata calculation under 19 U.S.C. §1466?

LAW & ANALYSIS:

Title 19, U.S.C. §1466 (a) provides in part for payment of an ad valorem duty of 50% of the foreign cost of equipment, or any part thereof, including boats, purchased for, or the repair parts of 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.

On March 3, 1995, the Assistant Commissioner, Office of Regulations and Rulings, issued a memorandum that was published in the Customs Bulletin on April 5, 1995 (Customs Bulletin and Decisions, vol. 29, no. 14 at p. 24). It provided that all vessel repair entries filed with Customs on or after the date of that decision were to be liquidated in accordance with the full weight and effect of the court decision. See, Texaco Marine Services, Inc. v. United States, 44 F3.d 1539 (1994). That decision states that costs of post-repair cleaning and protective coverings incurred pursuant to dutiable repairs are dutiable and all other foreign expenses contained within such entries are subject to the “but for” test. For vessel repair entries filed before December 29, 1994, all costs for post-repair cleaning and protective coverings incurred pursuant to dutiable repairs are dutiable.

With regard to Item No. 205 H.P. Water Wash, the protestant alleges that:

-this identical item has been declared a non-dutiable mandatory regulating item on various vessels even though subsequently painted following the mandatory inspection.

-there is a misunderstanding between H.P. Water Wash for inspection and hull surface preparation for painting.

The protestant goes on to note that hull washing, constitutes a non-dutiable inspection-related charge rather than a dutiable repair.

High Pressure Hull Water Wash (205). The invoice indicates hull cleaning for inspection purposes only, however, we note that the next invoice item 206 covers the cost of hull painting.

In this situation, it is necessary to consider whether the cleaning is done in conjunction with dutiable or non-dutiable elements. Customs has consistently held that cleaning is dutiable if 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. (HQ 113939) The facts presented here demonstrate the close proximity in time between the hull wash and the painting. The hull wash took place at essentially the same time or in conjunction with the painting, a dutiable repair, making it necessary to consider the cost of the hull wash to be dutiable.

Secondly, the protestant takes issue with Customs’ categorization of the rudder stock carrier bearing packing as materials rather than parts, the substance of the argument being that, “[i]f the packing on a valve stem is considered to be a non-dutiable part, the packing on a rudder stock should also be considered to be a non-dutiable part qualifying for (h)(3) exemption.” The protestant further states that the rudder carrier bearing will not function without the packing and that the packing is designated as a part and has a part number.

C.O. No. 10 Rudder Stock Carrier Bearing Packing. It is claimed that this should be a duty-free item under the terms of subsection (h)(3) of the vessel repair statute. The protestant states that the “packing” in this case may have been misinterpreted.

In this situation, the protestant claims that the rudder stock carrier will not function properly without the packing, and provided a diagram (Enclosure “F”) of the rudder stock carrier bearing packing demonstrating its intrinsic nature to the part. We are of the opinion that the packing at issue is a part for purposes of 19 U.S.C. §1466(h)(3). Since 19 U.S.C. §1466 (h)(3) contemplates pre-entry installation of “parts” only, the cost of this item is not subject to vessel repair duty.

Finally, the protestant notes its disagreement with the pro-ration calculation and its obligation on a case by case basis to exhaust the administrative procedure related to this subject.

Customs, when deciding the procedures which would govern the administration of subsection §1466(h)(3) of the vessel repair statute, determined that a qualifying article would be dutiable at the applicable rate of duty under the Harmonized Tariff Schedule of the United States (HTSUS) rather than at the normal 50 percent rate applicable to other vessel repair expenses under paragraph (a) of the statute. The pro-ration of expenses is intended to take into account the totality of foreign repair-related expenditures, the cost noted is what Customs considers in the calculation, not the possible duty rate. For this reason, it is proper to include any §1466(h)(3) expenses as dutiable amounts. Pro-ration should include the cost of so-called GATT items (HQ 115039).

HOLDING:

Following a thorough analysis of the facts, the law and applicable precedents, we have determined that the protest should be granted in part and denied in part as specified in the Law and Analysis portion of the ruling.

Sincerely,

Larry L. Burton
Chief

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