VES 13-18-CO:R:P:C 110763 LLB
Category: Carriers
Deputy Assistant Regional Commissioner
Classification and Value Division
ATTN: Regional Vessel Repair Liquidation Unit
New York, New York 10048-0945
RE: Vessel Repair; Casualty; Testing; Survey; Cleaning;
Transportation; Latent Defect; 19 U.S.C. 1466; 19 CFR 4.14;
SEALAND NEWARK BAY, V-14; Entry Number 559-1236859-8
Dear Sir:
Reference is made to your memorandum of October 23, 1989,
and additional transmittal of December 29, 1989, which forward
for our consideration the application for relief filed by Sea-
Land Service, Inc., concerning the assessment of vessel repair
duties associated with the April 26, 1989, arrival of the vessel
SEALAND NEWARK BAY in the port of Boston, Massachusetts.
FACTS:
The vessel arrived in Boston, Massachusetts, and reported
the fact of various repairs and purchases having been made in a
foreign shipyard. These items are as follows:
1. Repairs to cylinder head cover (#NY 5203).
2. Fuel oil analysis (# NY 5204).
3. Cylinder head cover inspection/consultation (# NY
5205).
4. Cleaning of piston cylinder buffer space (# NY 5206).
5. Shipping charges (# NY 8700).
6. Purchase of charts (# NY 8202).
7. Cylinder head transportation charges (# NY 8703).
With respect to items 1 and 3, it is claimed that damage to
the cylinder head was due to casualty since the item is expected
to have an unlimited useful life expectancy. There is no "event"
as such which has been identified, but it is suggested that the
breakdown could not be other than casualty-related. This is, in
effect, a claim of latent defect.
ISSUE:
Whether establishment of a latent defect is tantamount to
the occurrence of a casualty which will permit remission of
duties under 19 U.S.C. 1466(d).
LAW AND ANALYSIS:
Section 466, Tariff Act of 1930, as amended (19 U.S.C. 1466)
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
foreign or coastwise trade, or vessels intended to engage in such
trade.
Paragraph (1), subsection (d) of section 1466 provides that
duty may be remitted if good and sufficient evidence is furnished
establishing that the vessel was compelled by stress of weather
or other casualty to put into a foreign port to make repairs to
secure the safety and seaworthiness of the vessel to enable her
to reach her port of destination. Thus, it is necessary that in
order qualify for duty remission, the party seeking relief must
show both the occurrence of a casualty, and that repair was
necessary for safety and seaworthiness.
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, explosion 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 a casualty-causing event, we must consider a
repair to have been necessitated by normal wear and tear (ruling
letter 105159), September 8, 1983).
Customs holds that the costs of certain surveys and
inspections are not dutiable, even though dutiable repair may be
performed in connection with their execution. Such operations
are generally limited to surveys required to keep a vessel in
class. Other surveys or inspections, such as those performed to
ascertain whether repairs are either necessary or adequately
accomplished, are dutiable.
One early case (United States v. George Hall Coal Co., 134
F. 1003 (1905)), was the first to find any of various types of
expenses associated with foreign shipyard operations to be
classifiably free from the assessment of vessel repair duties.
These operations include cleaning not associated with repairs
(either preceeding or following), and shipping/transportation
expenses (so long as they are separately invoiced).
The main question to be addressed in this case is whether
the presence of a latent defect which leads to a breakdown may be
equated with the occurrence of a casualty arising from an
identifiable event. Since neither the statute nor court cases
address this point, resort is made to legislative history to
resolve the issue. It is the intention of the Congress, as
reflected in the record of hearings concerning amendments to
sections 3114 and 3115 of the Revised Statutes of the United
States (the predecessor provisions to 19 U.S.C. 1466(a) and (d)),
that the statute not recognize latent defects. At that time, the
House of Representatives and the Senate were considering
different amendatory language. The following is recorded in
regard to the latent defect issue:
[Senator] Barkley. In other words, as I
understand the Senator, according to the
House provisions if some portion of the ship
on the voyage over wears out or a defect is
disclosed prior to the sailing of the ship
from the home port, that repair may be made
in a foreign port without paying the 50
percent tax?
[Senator] Fletcher. Yes.
[Senator] Barkley. But under the Senate
committee amendment, no such circumstances
could exist. The only repairs that could be
exempted from payment of a 50 percent tax are
repairs made necessary by reason of stress of
storm or weather. In other words ... she can
not repair any ordinary wear and tear of
machinery or appliances that could not have
been reasonably discovered prior to the
sailing of the vessel ...
[Senator] Fletcher. That is exactly what it
means. (Congressional Record, September 19,
1929, p. 3782)
The quoted legislative history amply demonstrates that
latent defect will not excuse duty under the statute. The Senate
version was, of course, the version which was adopted and is
incorporated in the present statute.
The finding that latent defects are not considered under
the statute disposes of items 1 and 3 on the application for
relief. Item 1 is considered to be a repair item, and item 3 is
the pre-repair inspection concerning that item where cost is
dutiable because it is associated with that dutiable operation.
In the case of item 2, it appears to be a routine fuel oil
analysis of the type previously considered on numerous
occasions. Since it is not repair or maintenance related, it
should be considered duty-free.
Items 4, 5, and 7 are among the types of expenses which are
considered "classifiably free", as previously discussed. These
include the non-repair-related cleaning expenses for the piston
cylinder buffer space, and the segregated shipping and transpor-
tation charges for parts and materials.
In regard to item 6, under long-standing administrative
precedent, charts for the vessel are considered dutiable vessel
equipment (Ruling Letter MS 212.6c, May 11, 1967).
HOLDING:
Following thorough review of the facts and analysis of the
law and precedents in this case, we recommend that the
application be allowed in part and denied in part, as specified
above.
Sincerely,
B. James Fritz
Chief
Carrier Ruling Branch