VES-13-18-CO:R:P:C 111169 GV
Deputy Assistant Regional Commissioner
Commercial Operations
c/o Regional Commissioner
New Orleans, Louisiana 70130-2341
RE: Vessel Repair; C53-0012153-6; PRIDE OF TEXAS V-40;
Casualty; U.S Parts; U.S. Technician
Dear Sir:
This is in reference to your memorandum dated July 9, 1990,
transmitting an application for relief from duties assessed
pursuant to 19 U.S.C. 1466. Our findings are set forth below.
FACTS:
The PRIDE OF TEXAS is a U.S.-flag vessel owned by Seahawk
Management, Inc., of Houston, Texas. The subject vessel had the
work in question performed in Cape Town, South Africa, during
February 26 - March 9, 1990. Subsequent to the completion of the
work the vessel arrived in the United States in Houston, Texas on
March 23, 1990. A vessel repair entry was filed on March 24,
1990.
An application dated May 21, 1990, with supporting
documentation was timely filed. The applicant alleges that the
work in question was required as a result of an accident during
the operation of the subject vessel. It is stated that at 10:25
p.m. on February 20, 1990, while the vessel was en route from
Nicalo, Mozambique to the U.S. Gulf, the main engine alarm
sounded and the starboard main engine shut down and declutched.
The starboard main engine was rendered inoperable as a result of
the damage. The vessel thereafter proceeded to Cape Town for
repairs. A survey of the vessel determined that the damage was
the result of a broken exhaust valve stem dropping into the
piston chamber during the operation of the engine.
The applicant claims that the damage in question was caused
by a casualty occurrence and therefore remission on the cost of
the foreign repairs should be granted pursuant to 19 U.S.C.
1466(d)(1). In support of this claim, the applicant has
submitted the following: Vessel Logs (Exhibit 1(a)); Pictures
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(Exhibit 1(b)); USCG Form 2692, Report of Accident (Exhibit 2);
Chief Engineer's Statement (Exhibit 3(a)); Master's Affidavit
(Exhibit 3(b)); Field Survey Report (Exhibit 4); ABS Survey
Report #CT5471 (Exhibit 5); and Senior Port Engineer's letter of
5/15/90 with attachments (Exhibit 6 (A-1)).
In the alternative, the applicant claims that the parts used
to repair the casualty were U.S.-manufactured parts taken from
the vessel's original inventory (or part of the original
inventory of a sister ship) and that the repairs were
accomplished under the direct supervision, control, and with the
active participation of a U.S. technician and therefore remission
should be granted pursuant to 19 U.S.C. 1466(d)(2). In support
of this alternative claim for relief, the applicant has submitted
the following: Letter from Energy Services which states that
their technician who supervised the casualty repairs is a U.S.
citizen/resident (Exhibit 11(b)); List of spares from ship's
inventory for casualty (Exhibit 12); Parts list for original
equipment dated 1/24/79 (Exhibit 14); Memorandum to file by
Senior Port Engineer (Exhibit 15); Current price list for spare
parts (Exhibit 16); 22 Op. Atty. Gen. 360, 361 (1899), which held
that original equipment is part of the construction cost of a
vessel and therefore is not dutiable (Exhibit 17); and a copy of
Sea-Land Service, Inc. v. U.S., 683 F.Supp. 1404 (CIT 1988) which
cites 22 Op. Atty. Gen. 360, 361 (1899).
ISSUES:
1. Whether evidence is presented sufficient to prove that
the foreign repairs performed on the subject vessel for which
relief is sought were necessitated by a casualty occurrence, thus
warranting remission pursuant to 19 U.S.C. 1466(d)(1).
2. Whether evidence is presented sufficient to prove that
the foreign repairs performed on the subject vessel for which
relief is sought were performed with U.S.-manufactured parts
taken from the vessel's original inventory or part of the
original inventory of a sister ship, and U.S. resident labor
thus warranting remission pursuant to 19 U.S.C. 1466(d)(2).
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.
Section 1466(d)(1) provides for remission of the above duties in
those instances where good and sufficient evidence is furnished
to show that foreign repairs were compelled by "stress of weather
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or other casualty" necessary to secure the safety and
seaworthiness of the vessel to enable her to reach her port of
destination.
The term "casualty", as it is used in the vessel repair
statute (19 U.S.C. 1466) has been interpreted by the Customs
Court as something which, like stress of weather, comes with
unexpected force or violence, such as a fire, explosion, or
collision (see Dollar Steamship Lines, Inc., v. United States, 5
Cust. Ct. 28-29, C.D. 362 (1940)). It should be noted that
absent specific evidence to the contrary, we consider foreign
repairs to have been necessitated by normal wear and tear, a
result which does not permit remission (see C.S.D. 79-32).
In regard to the applicant's first claim for relief, we note
that although the repairs in question were necessitated by the
breaking of the exhaust valve stem which created further damage
thereby rendering the vessel unseaworthy, the applicant is
apparently equating a finding of unseaworthiness with a casualty
occurrence. The two are not necessarily related. A finding that
a vessel is unseaworthy provides no evidence of exactly how it
came to be in such a state. The applicant relies heavily on a
Field Survey Report (Exhibit 4) signed by officials (titles
unknown) from the ABS and The Salvage Association which states
that, "The damage is not a result of normal wear and tear."
However, we note that this statement appears under a heading
entitled "ALLEGATION" which renders its probative weight subject
to speculation. Furthermore, the formal ABS survey report
(Exhibit 5) contains no such statement.
Accordingly, upon reviewing the record in its entirety it is
apparent that the damage in question was caused by a breakdown or
failure of machinery (i.e., exhaust valve stem) which may not be
regarded as a casualty for purposes of remission pursuant to
section 1466(d)(1) in the absence of a showing that it was caused
by some outside force (see C.S.D. 79-32, cited above), a burden
of proof the applicant did not meet.
In regard to the applicant's second claim for relief, we
note that the Customs and Trade Act of 1990, section 484(2), Pub.
L. No. 101-382 (to be codified at 19 U.S.C. 1466(h)(2)), amended
the vessel repair statute to except from duty spare repair parts
or materials that have entered the United States duty-paid and
are used aboard a cargo vessel engaged in foreign or coastwise
trade. This amendment is inapplicable to the case under
consideration in view of the fact that the applicant claims the
spare parts are U.S.-manufactured and part of the subject
vessel's original inventory and/or that of a sister ship.
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
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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 and/or
other documentation has been submitted which misrepresent the
place of manufacture of the articles 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 (e.g., an affidavit
by the equipment manufacturer) as well as U.S. purchase for
remission to be granted.
In the application currently under consideration, the
applicant has submitted documentation to establish that a U.S.
resident did travel overseas to Cape Town (see Exhibits 10(E-1),
11(a) and 11(b)). Upon reviewing the record in its entirety,
however, we note that it is not clear that this technician
actually did the repairs (see other labor charges on Exhibit
10(G-8)) or was merely a supervisor as is stated in the
application for which remission pursuant to section 1466(d)(2)
may not be granted. Furthermore, although we agree that a
vessel's original equipment is not dutiable under section 1466
since it is part of the construction cost of the vessel (see Sea-
Land Service, Inc. v. U.S., 683 F.Supp. 1404 (1988), citing 22
Op. Atty. Gen. 360, 361) the documentation pertaining to the
parts involved is insufficient to prove either that they were
part of the vessel's original inventory, or that they were U.S.-
manufactured. Specifically, Exhibits 12 and 14 are merely lists
of parts with no references whatsoever to the subject vessel,
much less evidence that they were even placed on the subject
vessel or manufactured in the U.S. In addition, Exhibit 15 is
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merely a self-serving statement from the Senior Port Engineer
that these parts were part of either the ship's stock or from a
sister ship's stock (the latter of which would remove such a part
from the duty-free status accorded a vessel's original equipment
pursuant to Sea-Land Service, Inc. v. U.S., supra). Accordingly,
remission pursuant to section 1466(d)(2) is denied.
In regard to the remaining foreign costs for which the
applicant seeks relief (see Items 4 and 5 on p. 6 of the
application) we agree that these are classifiably free.
HOLDINGS:
1. The evidence presented is insufficient to prove that the
foreign repairs performed on the subject vessel for which the
applicant seeks relief were necessitated by a casualty
occurrence. Accordingly, remission pursuant to 19 U.S.C.
1466(d)(1) is denied.
2. The evidence presented is insufficient to prove that the
foreign repairs on the subject vessel for which relief is sought
were performed with U.S.-manufactured parts taken from the
vessel's original inventory or part of the original inventory of
a sister ship, and U.S. resident labor thus warranting remission
pursuant to 19 U.S.C. 1466(d)(2).
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch