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HQ 116525

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December 21, 2005

VES-13-18-RR:IT:EC 116525 CK

CATEGORY: CARRIER

Chief, Vessel Repair Unit
U.S. Customs and Border Protection
Louis Armstrong International Airport
900 Airline Highway, Room W-103-400
Kenner, LA 70062

RE: 19 U.S.C. §1466; Vessel Repair Entry C20-0038571-9; Protest 2002-02-101169; M/V MAHIMAHI; V-053

Dear Sir:

This is in response to your memorandum of August 9, 2005 forwarding for our review the protest filed by Matson Navigation Company, Inc. (“protestant”) with respect to Vessel Repair Entry C20-003857-9. Our ruling follows.

FACTS:

The M/V MAHIMAHI, a U.S.-flag vessel owned by the protestant,

The CF 226 reflects that Matson Navigation Company, Inc. is the owner of the vessel. The supplemental submission states that Matson Navigation Company, Inc. is the operator of the vessel. incurred foreign shipyard costs. The vessel arrived in the Port of Los Angeles on June 25, 2001. A vessel repair entry was timely filed. The determination of duty occurred on August 30, 2002.

The ensuing protest, received on November 21, 2002, pertained to duty charged on all repair items used by the regular crew of the vessel during the voyage. The VRU did not finalize the protest, as well as other similar Matson protests and vessel repair entries involving spare parts used by the vessel’s crew, pending the passage of the “Miscellaneous Trade and Technical Corrections Act of 2004” (Public Law No. 108-429). Protestant filed a supplemental protest received by your office on July 7, 2005, in which relief is claimed on items used by the crew for repairs while the vessel was in a foreign port based on 19 U.S.C. §1466(h)(2).

ISSUE:

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

LAW AND ANALYSIS:

Initially, we note that the information in the file indicates that the protest, with application for further review, was timely filed under the statutory and regulatory provisions for protests. 19 U.S.C. 1514(c)(3) and 19 CFR 174.12(e). We further note that counsel for the protestant filed a supplemental submission dated July 7, 2005 with the VRU, pursuant to section 1554 of the “Miscellaneous Trade and Technical Corrections Act of 2004.”

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 1554 of the Miscellaneous Trade and Technical Corrections Act of 2004, signed by the President on December 3, 2004, amended the vessel repair statute by adding the following exemption to §1466(a) found in 19 U.S.C. 1466(h):

(4) the cost of equipment, repair parts, and materials that are installed on a vessel documented under the laws of the United States and engaged in the foreign or coasting trade, if the installation is done by members of the regular crew of such vessel while the vessel is on the high seas.

Declaration and entry shall not be required with respect to the installation, equipment, parts, and materials described in paragraph (4).

This newly-enacted legislation further provides for a retroactive effective date for that equipment, repair parts, and materials installed on or after April 25, 2001.

As noted above, the subject protest was received by the VRU on November 21, 2003 and counsel for the protestant filed a supplemental submission dated July 7, 2005. You have asked us to review the items described below. We will use the T.R. numbers used in the supplemental submission. The protestant seeks relief pursuant to 19 U.S.C. §1466(h)(2) with respect to these items.

Title 19, United States Code, §1466(h)(2) (19 U.S.C. §1466(h)(2)), provides, in pertinent part, that the duty imposed by subsection (a) of this section shall not apply to

“the cost of spare repair parts or materials (other than nets or netting) which the owner or master of the vessel certifies are intended for use aboard a cargo vessel, documented under the laws of the United States and engaged in the foreign or coasting trade, for installation or use on such vessel, as needed, in the United States, at sea, or in a foreign country, 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”

We note that while §1466(h)(2) applies by its terms only to foreign-made imported parts or materials, there was ample reason to extend its effect to U.S.-made parts or materials as well. To fail to do so would act to discourage the use of U.S.-made parts or materials in effecting foreign repairs since continued linkage of remission provisions of subsection 1466(d)(2) with the assessment provisions of subsection (a) of §1466 would obligate operators to pay duty on such materials unless they were installed by crew or resident labor. Consequently, CBP so extended the duty-free treatment of subsection (h) to U.S.-manufactured parts or materials (See, e.g., HQ 110980, dated April 16, 1991).

In order to implement proper enforcement of §(h)(2), it is necessary that the key terms be defined. In defining parts, materials, and equipment, it is most beneficial to do so in descriptive terms rather than in the form of specific lists of items which fit the categories. In compiling lists it is inevitable that items will be inadvertently omitted which may lead to improper or inconsistent application of the law.

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 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.

A part 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 designated 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 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.

The first items at issue are T.R. numbers: 919, 920, 923, 925, 926, 930, 932-933, 935, 1266-1268, 1271, 1273, 1275, 1278, 1282, 1286, 1288, 1290, 1292, 1295, 1296, 1298-1301, 1305, 1307, 1309-1313, 1316, 1318, 1319, 1340, 1348-1349, 1351-1352, 1354, 1359, 1363-1365, and 1369-1373. Protestant seeks relief from duties under 19 U.S.C. §1466(h)(2) or alternately under (h)(4). However, no invoices have been submitted for these items. Relief from duties under section 1466 may not be granted where no evidence has been submitted. See, HQ 116452 (May 10, 2005), HQ 115953 (June 5, 2005), and HQ 116457 (June 20, 2005).

The next items in dispute are TR# 931 and Exhibit 8 (TR# 1287). Purchase orders for these items have been submitted, but protestant has not submitted corresponding invoices for them. Absent any other documentation, the purchase order submitted alone is insufficient to grant relief. See, e.g., U.S. Customs and Border Protection (CBP) Rulings HQ 111309 (March 5, 1991) and HQ 116482 (July 19, 2005). Consequently, this item is also dutiable.

The next item in dispute is Exhibit 2 (T.R.# 1272). This item consists of 6 “spring, valve dampeners (item numbers 03-360-04-AF).” Protestant seeks relief for these items under section 1466(h)(2). However, the invoice states in regard to these items “THIS ITEM IS NOT NEEDED FOR THE HEAD REBUILD AND IS CANCELED PER THE AUTHORIZATION OF WALTER PETERS 4/6/2001.” Thus, relief on this item is denied.

Protestant claims relief on 9 items in T.R.# 1276, evidenced by Exhibit 3. The 9 items are “dowels/ GC 004.” However, Exhibit 3, offered as evidence of U.S. origin and purchase, consisting of an invoice from Powerhouse Diesel Services, Inc. lists only a quantity of 3 dowels/ GC 004. Thus, relief under 1466(h)(2) should only be granted on the 3 items listed on the invoice, and denied as to the other 6.

Protestant claims relief on 8 items in T.R.# 1279. The 5 items are “cotton pin/ GC 002 023 (Engine Part).” However, Exhibit 3, offered as evidence of U.S. origin and purchase, consisting of an invoice from Powerhouse Diesel Services, Inc. lists only a quantity of 5 cotton pin/ GC 002 023 pieces. Thus, relief under 1466(h)(2) should only be granted on the 5 items listed on the invoice, and denied as to the other 3.

Protestant claims relief on 4 items in T.R.# 1289. The 4 items are “dowel pins/ GC 106 007 (Engine Part).” However, Exhibit 3, offered as evidence of U.S. origin and purchase, consisting of an invoice from Powerhouse Diesel Services, Inc. lists only a quantity of 2 dowel pins/ GC 106 007. Thus, relief under 1466(h)(2) should only be granted on the 2 items listed on the invoice, and denied as to the other 2.

Protestant claims relief on 8 items in T.R.# 1302. The 8 items are “cotter pins/ GC 002 024.” However, Exhibit 3, offered as evidence of U.S. origin and purchase, consisting of an invoice from Powerhouse Diesel Services, Inc. lists only a quantity of 6 cotter pins/ GC 002 024. Thus, relief under 1466(h)(2) should only be granted on the 6 items listed on the invoice, and denied as to the other 2.

Protestant claims relief on 22 items in T.R.# 1283. The 22 items are “washer/ Idler gear to hub DCX #3 engine/ GA 001 027.” However, Exhibit 6, offered as evidence of U.S. origin and purchase, consisting of an invoice from Brunner Enterprises, Inc. lists only a quantity of 12 washer/ Idler gears GC 001 027. Thus, relief under 1466(h)(2) should only be granted on the 12 items listed on the invoice, and denied as to the other 10.

Protestant claims relief on 11 items in T.R.# 1284. The 11 items are “bolt/ Idler gear to hub DCX #3 engine/ part 9167.” However, Exhibit 7, offered as evidence of U.S. origin and purchase, consisting of an invoice from Brunner Enterprises, Inc. lists only a quantity of 6 bolts/ part 9167. Thus, relief under 1466(h)(2) should only be granted on the 6 items listed on the invoice, and denied as to the other 5.

Protestant claims relief on 7 items in T.R.# 1291. The 7 items are “Gasket/ DG #3 engine/ part 94652.” However, Exhibit 9, offered as evidence of U.S. origin and purchase, consisting of an invoice from Brunner Enterprises, Inc. lists only a quantity of 1 gasket/ part 94652. Thus, relief under 1466(h)(2) should only be granted on the 1 item listed on the invoice, and denied as to the other 6.

Protestant claims relief for T.R.#1317. However, Exhibit 13 relating to that T.R. number is dated August 21, 2001, almost 2 months after the arrival of the M/V MAHIMAHI at the Los Angeles port. Relief may not be granted for items delivered after the arrival of the vessel at an U.S. port, as per HQ 115953, dated March 9, 2004.

Protestant claims relief on 17 items in T.R.# 1350. The 17 items are “sight glass gasket, 584, IHI DWG M/W turbocharger #1/ part 584.” However, Exhibit 15, offered as evidence of U.S. origin and purchase, consisting of an invoice from ABB Turbocharger lists only a quantity of 12 sight glass gaskets/ part 584. Thus, relief under 1466(h)(2) should only be granted on the 12 items listed on the invoice, and denied as to the other 5.

HOLDING:

Following a thorough review of the evidence as well as well as an analysis of the law and applicable precedents, we have determined that the protest should be allowed in part and denied in part, as specified in the Law and Analysis portion of this ruling.

In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2002, pp. 18 and 21), 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 the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Glen E. Vereb
Chief

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