VES-13-18-CO:R:P:C 110744 KVS
Chief
Residual Liquidation and Protest Branch
6 World Trade Center
Room 701
New York, NY 10048
RE: Vessel: S.S. TEXAS SUN V-701
Date of Arrival: June 12, 1987
Port of Arrival: Philadelphia, PA
Vessel Repair Entry No. C11-0000996-3
Dear Sir:
This is in response to your memorandum of December 18, 1989,
which forwards for our consideration a petition for review filed
in connection with the TEXAS SUN V-701, vessel repair entry no.
C11-0000996-3. Our findings are set forth below.
FACTS:
The TEXAS SUN, a United States-flag vessel, underwent
shipyard operations from March 20, 1987, until May 21, 1987, at
Lisbon, Portugal. The vessel arrived in the United States on
June 12, 1987, at Philadelphia, Pennsylvania. After having
requested and received an extension of time to file an
application for relief from vessel repair duties, the petitioner
filed a timely application on September 3, 1987.
The application for relief was granted in part and denied in
part in Customs Letter Ruling 109990 PH (dated July 10, 1989).
After having requested and received an extension of time to file
a petition for relief, the petitioner filed the petition for
relief currently under consideration on September 29, 1989. The
petition for relief presents several matters for our
determination.
ISSUE:
Whether the described repairs performed and equipment
purchased for the subject vessel are subject to vessel repair
duties pursuant to 19 U.S.C. 1466.
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LAW AND ANALYSIS:
Title 19, United States Code, section 1466(a) provides, in
pertinent part, for payment of duty in the amount of 50 percent
ad valorem on the cost of foreign repairs to vessels documented
under the laws of the United States to engage in the foreign or
coastwise trade, or vessels intended to be employed in such
trade.
In response to requests for advice regarding the dutiability
under section 1466 of equipments, parts, repair material, etc.,
which have been manufactured and purchased in the United States
for installation abroad on U.S.-documented vessels, Customs, by
memorandum dated April 19, 1989, published in the United States
Customs Bulletin and Decisions, Vol. 23, No. 19, dated May 10,
1989, held that the use of foreign labor to install U.S. parts
subjects both the parts and the labor to duty.
The petitioner contends that the above Customs position is
not supported by section 1466, is a departure from Customs long-
standing position on this matter, and its implementation without
prior publication in the Federal Register giving interested
parties an opportunity to comment is violative of the
Administrative Procedures Act (5 U.S.C. 553) and Customs
Regulations (19 CFR 177.10).
Notwithstanding counsel's argument as to the applicability
of section 1466, we note that upon further review of of this
matter, it appears that the implementation of Customs policy as
set forth in the May 10, 1989, Customs Bulletin should have been
preceded by the publication of a notice in the Federal Register
soliciting comments from interested parties. Accordingly, until
such time as said notice is published, Customs will uphold its
position as delineated in T.D. 75-257, which held that where
equipment, parts, repair materials, etc., which have been
manufactured and purchased in the United States are installed
abroad on U.S.-documented vessels by other than U.S. residents or
regular crew, the labor alone is dutiable.
In our adherence to the policy set forth in T.D. 75-257,
however, it has come to our attention that affidavits have been
submitted which misrepresent the place of manufacture of the
article in question. Inasmuch as we have come to learn of this
misrepresentation, it is our policy to require evidence beyond an
affidavit from an interested party to establish U.S. manufacture
and U.S. purchase. Therefore, we require direct evidence of
U.S. manufacture as well as U.S. purchase for remission to be
granted.
In the petition currently under consideration, the
petitioner has submitted invoices for the contested articles
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which indicate purchase in the United States. The only evidence
submitted that addresses the articles' place of manufacture,
however, is an affidavit by an employee of the petitioner. Since
no direct evidence of U.S. manufacture has been submitted, we
find the amounts listed for U.S. materials (i.e. those items
listed on the computer sheet annotated with footnote 6) on the
following items/invoices to be dutiable:
Item/Invoice Number Amount
03............................................$ 6,767.00
04............................................$ 379.00
05............................................$10,014.00
06............................................$ 1,603.00
08............................................$ 514.00
09............................................$ 100.00
11............................................$ 93.00
12............................................$10,100.00
13............................................$ 88.00
14............................................$ 3,831.00
15............................................$ 372.00
16............................................$ 572.00
17............................................$ 1,600.00
18............................................$ 2,035.00
19............................................$77,880.00
20............................................$33,000.00
21............................................$ 151.00
22............................................$ 432.00
23............................................$ 934.00
24............................................$ 151.00
25............................................$ 45.00
26............................................$ 317.00
27............................................$ 1,070.00
28............................................$ 88.00
29............................................$ 243.00
30............................................$ 628.00
31............................................$ 5,673.00
32............................................$14,533.00
33............................................$ 1,184.00
34............................................$ 5,460.00
35............................................$ 996.00
36............................................$ 206.00
37............................................$ 7,253.00
38............................................$ 2,535.00
40............................................$ 732.00
41............................................$ 136.00
42............................................$ 60.00
43............................................$ 1,191.00
44............................................$ 55.00
45............................................$ 658.00
46............................................$ 196.00
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Item/Invoice Number (cont.) Amount
47............................................$ 294.00
48............................................$ 84.00
49............................................$ 84.00
50............................................$ 1,549.00
51............................................$ 1,011.00
52............................................$ 490.00
53............................................$ 509.00
54............................................$ 190.00
55............................................$ 484.00
56............................................$ 385.00
57............................................$ 386.00
58............................................$ 504.00
59............................................$ 79.00
60............................................$ 367.00
61............................................$ 578.00
62............................................$ 1,024.00
63............................................$ 222.00
64............................................$ 86.00
65............................................$ 626.00
66............................................$ 3,876.00
67............................................$ 664.00
68............................................$ 5,010.00
69............................................$ 367.00
70............................................$ 198.00
73............................................$ 7,464.00
74............................................$ 3,514.00
75............................................$ 234.00
78............................................$ 1,856.00
79............................................$ 1,854.00
80............................................$ 1,044.00
81............................................$ 5,382.00
86............................................$ 3,616.00
88............................................$ 5,108.00
89............................................$12,000.00
90............................................$ 4,105.00
91............................................$ 1,910.00
92............................................$ 1,682.00
93............................................$ 955.00
94............................................$ 1,910.00
95............................................$ 96.00
96............................................$ 880.00
98............................................$12,920.00
99............................................$12,920.00
102...........................................$ 255.00
103...........................................$ 1,195.00
104...........................................$ 2,632.00
105...........................................$ 125.00
106...........................................$ 1,344.00
107...........................................$ 650.00
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Item/Invoice Number (cont.) Amount
108...........................................$ 689.00
109...........................................$ 1,088.00
110...........................................$ 41.00
111...........................................$ 141.00
112...........................................$ 230.00
113...........................................$ 1,001.00
114...........................................$ 7,889.00
115...........................................$ 639.00
119...........................................$ 6,650.00
120...........................................$12,859.00
121...........................................$19,392.00
122...........................................$ 1,240.00
123...........................................$ 304.00
124...........................................$ 8,138.00
125...........................................$ 249.00
126...........................................$ 1,325.00
127...........................................$ 608.00
128...........................................$44,376.00
129...........................................$16,125.00
130...........................................$ 3,738.00
131...........................................$ 3,422.00
132...........................................$ 171.00
152...........................................$ 1,155.00
total ............$430,063.00
With regard to item/invoice 95, the petitioner seeks
remission under 1466(d)(2), which requires that a U.S. resident
use materials that have been manufactured and purchased in the
United States. Although evidence is furnished that the party
completing the work is a U.S. resident, the documentation
submitted as to the parts indicates only that the materials were
purchased in the United States. Since no direct evidence has
been submitted which demonstrates that the materials used were
manufactured or produced in the United States, remission can not
be granted. Accordingly, both the cost of labor ($5,721.00) and
materials ($95.00, as included in the above list) are dutiable.
Likewise, the petitioner also seeks relief for item/invoice
159, which lists the costs of labor and expenses for work done by
a U.S. resident to install a cathodic system. In connection with
this installation, the petitioner has submitted the following
documentation: the shipyard invoice (item/invoice 202, A-20),
the invoice for the parts (item/invoice 155), a drawing of the
proposed work (Drawing #611-R259-30) and the corresponding List
of Materials (#611-R259-30L/M). After careful review of the
evidence submitted, we find that the installation of the
computer-controlled cathodic protection system is an alteration
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or modification to the hull and fittings of the vessel.
Accordingly, we find that item/invoice 155 ($20,000.00 for
parts), item/invoice 159 ($8,800.00 for labor by a U.S. resident)
and item/invoice 202, A-20 ($31,696.00 for foreign labor) are not
subject to duty.
In connection with the installation of the cathodic system,
item/invoice 158 is claimed to be duty-free as material utilized
as part of the modification. Our decision on the application
held that the petitioner had submitted insufficient evidence to
establish that the material listed on item/invoice 158 was part
of the installation of the anodes. The only additional
information submitted by the petitioner is an affidavit by an
employee of the petitioner which merely repeats statements made
in another employee affidavit. We find these documents to be
self-serving and, without corroborating documentation from an
independent source, unpersuasive. Accordingly, we find the cost
of the material ($907.00) to be dutiable.
Item/invoice 97 is claimed to be duty-free as material
utilized as part of a modification referenced in item A-1 on
Item/Invoice 202. As part of its application for relief, the
petitioner submitted drawing #610-R140-031, which is an electric
schematic of the aft sewage treatment plant remote alarm panel.
Detailed examination of all documents reveals that item/invoice
97 specifically states that the alarm panel was "assembled and
wired as drawing #610-R140-031." Although the shipyard invoice
(item/invoice 202, listing item A-1) does not specifically state
that an alarm panel was installed, drawing #610-R140-031 is
included in a list of plans apparently utilized by the shipyard
in making the modification. Accordingly, we find the cost of the
material ($576.00) to be non-dutiable.
Item/invoice 108, in addition to being claimed duty-free as
a part manufactured in the U.S., is also claimed to be duty-free
as related to a modification referenced in Item/invoice 202, A-2.
Our decision on the application held that insufficient evidence
had been submitted to establish that the pump unit listed on
item/invoice 108 was a part of the modification performed in
items A-2 listed on item/invoice 202. In an affidavit submitted
with the petition for review, the petitioner asserts that the
listing of pump model #34401 on the Smith-Koch, Inc. purchase
invoice and the listing of Robbins & Myers pump model #34401 on
the list of materials for Drawing #611-R140-012 indicate that
item/invoice 108 was part of the modification performed in
item/invoice 202, A-2.
However, the shipyard invoice (item/invoice 202, A-2) does
not list the Drawing #611-R140-012 as the specifications for the
installation of any pump as is the case with other drawings
(i.e., item/invoice 202, A-2 paragraph E states, "Install owner
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furnished Hamworthy Model ST-1 sewage treatment unit on bedplate
fitted in paragraph (D) above...[r]efer to Sun Dwg. No. 610-R140-
011.") Nor is this drawing included in the list of plans
utilized by the shipyard in performing the modification. The
shipyard invoice (item/invoice 202, A-2) contains references to
three types of pumps: a refurbished shore discharge pump, two
owner-furnished Gast rotary air pumps, and a starboard transfer
pump. None of these references supports the conclusion that the
pump listed in item/invoice 108 was utilized in the modification
performed. Therefore, we find the cost ($689.00, previously
included in our list above) to be dutiable.
Item/invoice 153 is also claimed to be related to a
modification (see item/invoice 202, items A-5, A-8, and A-10).
As with the previous items, we held in our decision on the
application that insufficient evidence had been presented to
establish that the calibrations and other services listed on
item/invoice 153 were a part of the modification performed. In
an affidavit submitted with the petition for review, the
petitioner contends that the services were an integral part of
the modifications performed. Although the shipyard invoice (202,
A-5, A-8, and A-10) does indicate that modifications were
performed to Tank 8 center, the invoice also lists repairs made
to tank 8, including tank 8 center (item/invoice 204, R-10). In
the absence of evidence that demonstrating that the services
were not related to the dutiable repairs performed, we find the
cost of the actual services ($1,372.00) to be dutiable.
Item/invoice 161 is claimed to be free as a boiler survey
undertaken by a classification society. This claim was denied in
our decision on the application due to a lack of evidence
establishing that the survey was undertaken to meet specific
requirements of the American Bureau of Shipping or the United
States Coast Guard. The petitioner has submitted an untitled
document which is purported to be the list of boiler surveys
required by the American Bureau of Shipping (section 45.15).
Even if we were to assume this to be true, the petitioner still
has not established that the particular boiler survey in question
is one of the required surveys and not a damage survey for the
purpose to ascertain needed repairs. Without such evidence, we
find the cost of the survey ($1,298.00) and the non-segregated
cost for overtime ($1,350.00) to be dutiable.
Item/invoice 200, items 25 (sea trial) and 27 (scale and
muck removal) were held to be dutiable in our decision on the
application due to a lack of satisfactory evidence establishing
that these items were not part of dutiable repairs performed.
The petitioner has submitted no additional evidence, other than
an employee affidavit, on which to base a finding that the items
were not part of dutiable repairs performed, thus, we find the
cost of the sea trial ($668.00) and the scale and muck removal
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($45,821.00) listed on item/invoice 200 to be dutiable.
Item A-15 listed on item/invoice 202 (removal of deck
awning) is asserted to be non-dutiable on the basis that this
item was a modification. In our decision on the application for
relief, we noted that evidence had been submitted indicating
that the existing awning structure had been condemned by a United
States Coast Guard inspector as a safety hazard.
The court in United States v. Admiral Oriental T.D. 44359
(1930), in addressing the terms "repairs" and "maintainence",
turned to the definitions supplied by Funk and Wagnalls New
Standard Dictionary:
Repair, vt. 1. To mend, add or make over...
2. To restore to a sound or good state...
Maintain, v. 1. To hold or preserve in any
particular state or condition; keep effective
and from falling, declining, or ceasing...
2. To supply with means of support; provide
for; sustain; keep up...
Furthermore, the court in Admiral Oriental, supra, (quoting
Gagon v. United States, 193 U.S. 451, 457) added that, "repair...
contemplates an existing structure which has become imperfect by
reason of the action of the elements or otherwise." Placing the
facts given to us within the definitional framework provided by
Admiral Oriental, supra, the removal of an awning which was
condemned as a safety hazard is clearly a repair. Accordingly,
we find that the cost ($6,230.00) to be dutiable.
HOLDING:
Following a thorough review of the documentation submitted
by the petitioner, and as detailed in the Law and Analysis
section of this ruling, petition for review granted in part and
denied in part.
Sincerely,
Stuart Seidel
Director
Regulatory Procedures
and Penalties Division