VES-13-18-CO:R:P:C 111072 GV
Chief, Technical Branch
Commercial Region
Pacific Region
1 World Trade Center
Long Beach, California 90831
RE: Vessel Repair; Entry No. 906-1514386-5; GREAT LAND;
Modifications; U.S. parts; Storage; Ineffective Repairs
Dear Sir:
This is in response to your memorandum dated May 21, 1990,
transmitting an application for relief from duties assessed
pursuant to 19 U.S.C. 1466. You request that we review nineteen
(19) items contained in the above entry. Our findings are set
forth below.
FACTS:
The GREAT LAND is a U.S.-flag vessel owned by 673 Leasing
Co. of Wilmington, Delaware. The subject vessel had shipyard
work performed on her in Victoria, British Columbia, Canada from
January 14, 1990 through January 26, 1990. Subsequent to the
completion of this work the vessel arrived in the United States
at Tacoma, Washington on January 26, 1990. A vessel repair entry
was filed on the date of arrival.
Pursuant to an authorized extension of time, an application
for relief, dated April 25, 1990, was timely filed. The
applicant claims, inter alia, that various work performed on the
vessel constitutes nondutiable modifications and expenses that
are otherwise classifiably free, and that U.S.-made material is
nondutiable. In support of this claim the applicant submitted an
affidavit from the Vice President, Marine Operations, Totem Ocean
Express, Inc. (the operators of the vessel), shipyard invoices,
survey reports, and spreadsheets of the work in question.
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ISSUE:
Whether the foreign expenses for which the applicant seeks
relief are dutiable under 19 U.S.C. 1466.
LAW AND ANALYSIS:
Title 19, United States Code, section 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.
A leading case in the interpretation and application of
section 1466 is United States v. Admiral Oriental Line et al., 18
C.C.P.A. 137 (T.D. 44359 (1930)). That case distinguished
between equipment and repairs on one hand and permanent additions
to the hull and fittings on the other, the former being subject
to duty under section 1466.
The Court in Admiral Oriental, supra., cited with approval
an opinion of the Attorney General (27 Op. Atty. Gen. 288). That
opinion interpreted section 17 of the Act of June 26, 1884, (23
Stat. 57, which allowed drawback on the vessels built in the U.S.
for foreign account, wholly or in part of duty-paid materials.
In defining equipment of a vessel, the Attorney General found
that items which are not equipment are:
...those appliances which are permanently attached
to the vessel, and which would remain on board
were the vessel to be laid up for a long period...
[and] are material[s] used in the construction of
the vessel...
While the opinion of the Attorney General interpreted a provision
of law other than section 1466 or a predecessor thereto, it is
considered instructive and has long been cited in Customs Service
rulings as defining permanent additions to the hull and fittings
of a vessel.
For purposes of section 1466, dutiable equipment has been
defined as:
...portable articles necessary or appropriate for
the navigation, operation, or maintenance of a
vessel, but not permanently incorporated in or
permanently attached to its hull or propelling
machinery, and not constituting consumable
supplies. (T.D. 34150 (1914)).
It should be noted that the fact that a change or addition
of equipment is made to conform with a new design scheme, or for
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the purpose of complying with the requirements of statute or
code, is not a relevant consideration. Therefore, any change
accomplished solely for these reasons, and which does not
constitute a permanent addition to the hull and fittings to the
vessel, would be dutiable under section 1466.
Upon reviewing the record with regard to the applicant's
claims, we note that the following items constitute nondutiable
modifications:
Item 20 - viewing ports
Item 27 - main switchboard
Item 40 - evaporator piping
Item 45 - boiler piping
Item 59 - flood lights
Item 75 - service pump
Item 76 - main mast halyard brackets
Item 77 - trailer securement
Item 78 - control air system
Item 80 - watertight door
Item 81 - draft motor
Item 84 - portable deck opening
Item 86 - access to 3rd deck
Item 92 - ballast tank
In regard to the remaining item claimed to be a
modification for which our review is requested (Item 44), the
record does not support such a finding. The invoice indicates
that dutiable repairs took place under this item (i.e., "Cropping
off existing eroded 3/4" plate doubler on external shell"
(emphasis added)). Accordingly, this item is dutiable.
Item 68 covers the cost of correcting an ineffective repair.
While Customs has long held the cost of ineffective repairs to be
nondutiable under section 1466 (see C.I.E.'s 1128/60, 1156/62,
and T.D. 55193(24)) that holding does not extend to the cost of
correcting such repairs. Accordingly, Item 68 is dutiable.
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In regard to Item 102 covering various paint and paint
products, the basis for which relief is sought is that these
items were manufactured, purchased and delivered in the United
States or delivered directly to the ship at the foreign shipyard
and installed by U.S. residents or the regular ship's crew (see
footnotes 4 and 14 of the worksheets).
In response to requests for advice regarding the dutiability
under section of 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, and published in the
Customs Bulletin of May 10, 1989, held that the use of foreign
labor to install U.S. parts subjects both the parts and labor to
duty. The memorandum further held that the installation of such
parts by U.S. residents or regular crew labor warrants remission
pursuant to section 1466(d)(2).
Upon further review of this matter, however, 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,
only the labor alone is dutiable. If the installation of such
articles is performed by U.S. residents or the regular crew,
remission is warranted pursuant to section 1466(d)(2).
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 application currently under consideration, the
applicant has submitted invoices for the contested articles which
indicate purchase in the United States. However, the record is
devoid of evidence as to the articles' place of manufacture and
the residency or crew status of the laborers involved with the
exception of the reference to footnotes 4 and 14 in the
applicant's worksheets. Since no direct evidence of U.S.
manufacture or the source of labor has been submitted, we find
the articles in Item 102 and the labor associated with their
installation to be dutiable.
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Item 107 covers repairs which, contrary to the applicant's
claim, were not performed entirely in the U.S. but in both the
U.S. and Canada. While the itemized cost of repair work
performed on January 4, 1990 at Tacoma, Washington is not
dutiable, the labor costs incurred during the period of January
15-23, 1990 in Victoria, British Columbia, Canada are dutiable.
Item 109 covers storage costs. Customs has previously held
such costs to be nondutiable under the vessel repair statute (see
Customs rulings 108474, 109414 and 109465).
HOLDING:
The foreign work for which the applicant seeks relief is
dutiable under 19 U.S.C. 1466 with the exception of those items
noted above.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch