VES-13-18 CO:R:P:C 110911 BEW
Deputy Assistant Regional Commissioner
Commercial Operations
ATTN: Regional Vessel Repair Liquidation Unit
New York, New York 10048-0945
RE: Philadelphia Vessel Repair Entry No. C11-008616-9 dated
November 16, 1989, M/V SEA LION, Voyage No. 23.
Application; maintenance repairs; inspection and cleaning;
cleaning scavenger air boxes; warranty; owner-supplied spare
parts; Customs and Trade Act of 1990; P.L. 101-382; 19
U.S.C. 1466; 19 U.S.C. 1466(h); 19 CFR 4.14
Dear Sir:
This is in reference to a memorandum dated March 5, 1990,
from your office which transmitted an application for relief from
duties filed by Crowley Maritime Corporation relating to vessel
repair entry No. C11-0008616-9, concerning foreign repairs
performed on the M/V SEA LION, voyage 23.
This document contains information relating to owner-
supplied spare parts which should not be released to the public
or other offices at this time. Please do not distribute this
document to the public or such offices.
FACTS:
The record shows that the shipyard work in question was
performed on the subject vessel in Brazil during the month of
October 1989. The subject vessel arrived in the United States
at the port of Philadelphia, Pennsylvania, on November 12, 1989.
The entire vessel repair entry involves a potential duty of
$2,145.
The applicant claims that relief for the subject items
should be granted because the items should be classified as
nondutiable items covered under title 19, United States Code,
section 1466 and section 4.14 of the Customs Regulations.
You have requested our advice concerning repairs listed on
the following invoices:
Imperio Servico Maritimos Invoice No.
Sulzer do Brasil S.A. Invoice No.
Sulzer do Brasil S.A. Invoice
Oficina Romana Ltda. Invoice
ISSUE:
Whether the foreign work performed on the subject vessel is
dutiable under 19 U.S.C. 1466.
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.
With regard to the invoice from Imperio Servico Maritimos
relating to the cleaning of engine scavenger air boxes, the
scavenger air spaces on Sulzer Diesel Engines are subject to an
accumulation of carbon deposits. This is a potential fire hazard
and should be maintained according to the Sulzer maintenance
manual specifications.
In T.D. 43322 which discussed the dutiability of maintenance
painting, the court stated:
It is a matter of common knowledge that the words
"maintain" and "maintenance" are frequently used in the
sense of keeping a thing in good condition by means of
"repairs". For example, to maintain a highway,
ordinarily, means to keep it in a proper state of
repair. Obviously, "maintenance," whether used in
connection with a ship or other thing, means to keep or
preserve in a good condition. This may, and
frequently does, involve the making of repairs.
Cleaning operations which remove rust and deterioration or
worn parts, and which are a necessary factor in the effective
restoration of a vessel to its former state of preservation,
constitute vessel repairs (See C.I.E. 429/61). Insofar as the
cleaning of the scavenger air boxes is concerned, Customs has
long held the cost of cleaning is not dutiable unless 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; see C.I.E.'s 18/48, 125/48, 910/59,
820/60, 51/61, 429/61; 569/62, 698/62; C.D. 2514; T.D.'s 45001
and 49531. Pursuant to C.I.E. 919/60 remission of duty assessed
on the cost or repairs is not warranted under section 1466 where
the repairs are maintenance in nature. Accordingly, we find that
the cleaning of scavenger air boxes constitutes maintenance and
therefore is dutiable.
The Customs and Trade Act of 1990 (Pub. L. 101-382) which
amends 19 U.S.C. 1466, exempts from duty under the statute, the
cost of spare repair parts or materials which have been
previously imported into the United States as commodities with
applicable duty paid under the Harmonized Tariff Schedule of the
United States. The amendment specifies that the owner or master
must provide a certification that the materials were imported
with the intent that they be installed on a cargo vessel
documented for and engaged in the foreign or coasting trade.
Customs also requires that the certification include the
statement that the importation be intended for installation
aboard the vessel of the certifying company. Further, proof of
tariff duty payment upon importation must be supplied by law.
Customs permits proof of this element by the recordation on the
vessel repair entry (CF 226) of the consumption entry number and
the name of the U.S. port of importation.
With regard to the remaining three invoices, the applicant
claims that the costs were for labor performed by representatives
from Sulzer on the Engine Bridge Control and the changing of a
No. 7 cylinder liner. It further claims that the subject items
were warranty repairs and the costs will be charged to Sulzer,
Savannah, Georgia.
Section 1466 assesses liability for duty on the cost of
repairs made in a foreign country. There is no proviso
excepting that cost when it is either prepaid or paid in the
United States. Customs has long held that repairs covered by a
service agreement contract are dutiable under section 1466 even
though the vessel owner was not charged for the repairs. We note
however, that in the case of Sea-Land Service, Inc. v. United
States, 683 F. Supp. 1404 (1988), the Court addressed whether
repair work performed on a newly constructed vessel subsequent to
its delivery to the owner might be considered to be part of the
new construction contract. Simply put, the Court considered
whether "completion of construction" is a viable concept so as to
render the duty provisions of 19 U.S.C. 1466(a) inapplicable if
proven. The Court found completion of new construction to be a
valid concept, subject to specific conditions, which are:
1. "All work done and equipment added [must be] pursuant
to the original specifications of the contract for the
construction of the vessel ...."
2. "This basic standard is limited to work and equipment
provided within a reasonable period of time after
delivery of the vessel."
Absent evidence indicating that the warranty repairs are
considered to be part of the new construction contract, work done
under a warranty agreement is considered repairs under the
vessel repair statute and the cost thereof is dutiable. (See
also C.S.D. 81-50). Accordingly, we find that the costs
associated with the labor and repairs listed on the following
invoices to be dutiable:
Sulzer do Brasil S.A. Invoice
Sulzer do Brasil S.A. Invoice
Oficina Romana Ltda. Invoice
With regard to the owner-supplied No. 7 cylinder liner,
there is no certification and documentation submitted with this
entry to substantiate the fact of payment of duty under the
Harmonized Tariff Schedules of the United States (HTSUS) for
foreign parts imported into the United States for consumption and
then installed abroad or evidence that the subject item is a U.S.
part produced or manufactured in the U.S. Accordingly, the cost
of the No. 7 cylinder liner is also dutiable.
HOLDING:
1. The cleaning of scavenger air boxes of carbon deposits
constitutes maintenance and therefore is a dutiable repair under
19 U.S.C. 1466.
2. Absent evidence indicating that the warranty repairs are
considered to be part of the new construction contract, work done
under a warranty agreement is considered repairs under the
vessel repair statute and the cost thereof is dutiable. The work
performed under the Sulzer do Brasil S.A. invoices and the
Oficina Romana Ltda. invoice is dutiable.
3. The cost of foreign-labor required for the installation
of all parts that are installed abroad, irrespective of origin,
is dutiable. The cost of the materials is duty exempt where the
evidence is sufficient to substantiate the fact of payment of
duty under the HTSUS for foreign parts imported into the United
States for consumption and then installed abroad, or that the
subject item is a U.S. part produced or manufactured in the U.S.
Since the applicant has not submitted the above stated evidence
to sustain that either duty has been paid on or the No. 7
cylinder liner is of U.S. origin, the cost of the No. 7 cylinder
liner is dutiable.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch