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HQ W116696





June 1, 2007

VES-3-02:RR:BSTC:CCI W116696 ALS

CATEGORY: CARRIER

Ms. Patricia Kreider-Burke
Supervisory Import Specialist
U.S. Customs and Border Protection
1515 Poydras Street, Suite 1700
New Orleans, Louisiana 70112

RE: Vessel Repair Entry No. C20-0063201-1; CSX CRUSADER; V-092; Protest No. 2002-06-100073; 19 U.S.C. § 1466

Dear Madam:

This is in response to your memorandum of July 18, 2006. The memorandum forwards an application for further review of a protest, filed by Horizon Lines, LLC (“Horizon”), seeking relief for duties assessed pursuant to 19 U.S.C. § 1466. Our ruling follows.

FACTS:

The CSX CRUSADER (the “vessel”), a U.S.-flag vessel owned by the protestant, incurred foreign shipyard costs. The vessel arrived in the port of Jacksonville on January 30, 2003. A vessel repair entry was timely filed. Horizon filed for relief from duties on the entry. Upon review of the filing, your office determined that Horizon must be granted relief in part and denied relief in part, and notified Horizon of this decision via a duty determination letter dated April 14, 2006. Horizon timely filed the subject application for further review, which your office received on May 16, 2006. At issue is a single line item on invoice 5 of the original entry.

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, section 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 . . . “

As noted above, your office received the subject protest on May 16, 2006. You have asked us to review the items described below. We will use the exhibit numbers used in the supplemental submission. The protestant seeks relief pursuant to 19 U.S.C. § 1466(d)(2) with respect to these items.

Pursuant to 19 U.S.C. § 1466(d)(2), if the owner or master of a vessel produces good and sufficient evidence that equipment or parts thereof or repair parts or materials purchased to make necessary repairs to the vessel were manufactured or produced in the United States, and the labor necessary to install such equipment or to make such repairs was performed by residents of the United States, or by members of the regular crew, then the Secretary of Homeland Security is authorized to remit or refund duties paid on such materials.

With regard to the protestant’s submission, you note that Items 6-16, 18-23, and 25-29 are at issue here. You state that the protestant submitted invoices that correspond to these items in response to your request for more information concerning the line item marked “Material” on a Walashek Industrial & Marine invoice dated February 3, 2003. In your April 14, 2006 letter to Horizon, you stated that “... items considered by CBP to be equipment must be certified as manufactured or produced in the United States. Since no further information or breakdown was provided regarding what was included in the ‘Materials’ line item, this cost was held fully dutiable.”

In response to your April 14 letter, Horizon filed the subject protest. In doing so, Horizon submitted 29 different invoices to cover the various articles generally referred to in the invoice referenced in your April 14 letter (listed as item 5 on the spreadsheet submitted at entry).

The protestant is specifically seeking refund of duties paid on the above-referenced articles as materials manufactured or produced in the United States, and contends that the submitted invoices prove that the articles are “originally of United States purchase and origin.” To support its contention, the protestant cites Treasury Decision (T.D.) 75-257, which he states is reaffirmed under CBP Rulings HQ 110208 and HQ 110869. In response to the protestant’s contention, we offer the following.

T.D. 75-257 erroneously held that when U.S.-made materials, purchased in the U.S., are installed abroad with foreign labor, the labor alone is dutiable under section 1466. See HQ 109914 (April 19, 1989). The statute is clear in permitting remission of duty only when U.S.-made materials are installed by U.S. residents or members of the regular crew of the vessel. 19 U.S.C. § 1466(d)(2). This language precludes the use of foreign labor or labor by any persons other than regular crew members or U.S. residents in granting relief under section 1466(d)(2). At the outset we note that the protestant has made no claim that U.S. residents or regular crew members provided the labor in this case. Furthermore, in regard to the two rulings cited by the protestant, HQ 110208 accurately reflects the aforementioned statutory language, whereas HQ 110869 contains no discussion of this issue. Consequently, these two rulings do not support the protestant’s claim.

You cited 19 U.S.C. § 1466(h)(2) as the applicable provision in your April 14 letter, rather than section 1466(d)(2). Pursuant to section 1466(h)(2), duty that would otherwise be applicable, pursuant to section 1466(a), shall not apply to the cost of parts or materials which a vessel owner or master certifies are intended for use aboard a cargo vessel, documented under the laws of the United States and engaged in foreign or coasting trade, if duty is paid under the appropriate commodity classifications of the Harmonized Tariff Schedule of the United States upon the first entry into the United States of each spare part [or material] purchased.

We considered the applicability of (h)(2) to parts or materials used overseas in a previous case. In that case, we ruled that (h)(2) is applicable to U.S.-made parts or materials as well as foreign materials. CBP Ruling HQ 111394 (August 12, 1991). In doing so, we determined that

[i]f an article is claimed to be of U.S. manufacture, there must be proof of its origin in the form of a bill of sale or domestic invoice. If the article is claimed to have been previously entered for consumption, duty paid by the vessel operator, there must be proof of this fact in the form of a reference to the consumption entry number for that previous importation, as well as to the U.S. port of importation. If imported articles are purchased from third parties in the United States, a domestic bill of sale to the vessel operator must be presented. HQ 111394, supra.

In the present case, all of the invoices submitted by the protestant indicate that the articles were purchased from a domestic supplier within two months before the vessel made entry on January 30, 2003. Thus, despite the protestant’s misguided reliance on HQ 110208 and HQ 110869, and by extension section 1466(d)(2), we find that the subject articles meet this particular criterion set forth in section 1466(h)(2) and discussed above, with the exception of the “hazmat charge” in Item 15.

You also noted that some of the descriptions of the items in the subject invoices did not clearly identify the items enough to determine that they in fact are materials upon which (h)(2) applies. After reviewing the invoices in question, we agree. To determine if the subject items qualify as either spare repair parts or materials under (h)(2), we look to these definitions:

Part – An article 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 identify a part. Examples would include piston rings and pre-formed gaskets.

Material-- An item which is consumed in the course of its use and/or loses its identity as a distinct entity when incorporated into the larger whole, e.g., paint and sheets of steel.

Relief under subsection (h)(2) is not available for "equipment," which we generally define as follows:

Equipment – An article 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 would include winches and generators. CBP Ruling HQ 116301 (September 15, 2004).

Based on the definitions above, we find that Item 7 is appropriately defined as materials that will be consumed in the course of their use, pursuant to section 1466(h)(2). As such, being that these materials were purchased from a domestic supplier, duties that would otherwise be applicable to this item pursuant to section 1466(a) are not applicable in this case. The remaining items are not described sufficiently enough to determine if they are non-dutiable materials or parts, as opposed to dutiable equipment. Consequently, these items remain dutiable. We note that the consumables listed under Items 10 and 13 are non-dutiable.

HOLDING:

Following a thorough analysis of the facts as well as of the law and applicable precedents, we have determined that the protest with respect to the items considered above should be partially granted and partially denied 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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