VES-13-18-CO:R:IT:C 111338 GEV
Chief, Technical Branch
Commercial Branch
Pacific Region
1 World Trade Center
Long Beach, California 90831
RE: Vessel Repair Entry No. 906-1511589-7; NORTHERN EAGLE V-1;
U.S. Parts; U.S. Labor; 19 U.S.C. 1466
Dear Sir:
This is in response to your memorandum dated September 28,
1990, transmitting a supplemental petition regarding the above
referenced vessel repair entry. Our findings on this matter are
set forth below.
FACTS:
The NORTHERN EAGLE is a U.S.-flag vessel owned by Northern
Eagle Partners, L.P., of Seattle, Washington. The subject vessel
was converted from a container vessel to a surimi factory stern
trawler in Ulsteinvik, Norway, during the period of February 26,
1987, through April 1, 1988.
Subsequent to the completion of the above work the subject
vessel arrived in the United States at Seattle, Washington on
April 29, 1988. A vessel repair entry was filed on the date of
arrival. Pursuant to an authorized extension of time, an
application for relief, dated July 27, 1988, was timely filed.
By letter dated June 29, 1989 (ruling 110073) Customs ruled on
the application. This ruling was forwarded by letter dated
October 16, 1989, from Customs San Francisco VRLU to the
applicant. A petition for review, dated November 13, 1989, was
timely filed. By letter dated July 17, 1990 (ruling 110684)
Customs ruled on the petition, however, those electronic
materials purchased from Harris Electric, Inc., and Item 66.1
covering the installation of refrigeration plants, were
inadvertently omitted from consideration. Subsequently, a
supplemental petition was submitted requesting relief for these
items.
- 2 -
ISSUE:
Whether the work performed on the subject vessel for which
the petitioner seeks relief is 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.
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 (HTSUS). 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.
The certification required by 19 U.S.C. 1466(h)(2) as to the
vessel's documentation (foreign or coasting trades) and service,
will be made by the master on the vessel repair entry (CF 226)
at the time of arrival. The fact of payment of duty under the
HTSUS for a particular part must be evidenced as follows. In
cases in which the vessel operator or a related party has acted
as the importer of foreign materials, or where materials were
imported at the request of the vessel operator for later use by
the operator, the vessel repair entry will identify the port of
entry and the consumption entry number for each part installed on
the ship which has not previously been entered on a CF 226. In
cases in which the vessel operator has purchased imported
materials from a third party in the United States, a bill of sale
for the materials shall constitute sufficient proof of prior
importation and HTSUS duty payment. This evidence of proof of
importation and payment of duty must be presented to escape duty
and any other applicable consequences.
In addition, we require certification on the CF 226 or an
accompanying document by a person with direct knowledge of the
fact that an article was imported for the purpose of either then-
existing or intended future installation on a company's vessels.
Ordinarily, the vessel's master would not have direct knowledge
of that fact, and an agent may also be without such knowledge.
Customs has in the past linked this duty remission
provision to the duty assessment provision in subsection (a) of
the statute. In the face of argument to the contrary we have
held that a two-part test must be met in order for remission of
duty to be granted: first, that the article must be of U.S.
manufacture; and, second, it must be installed by a U.S.-resident
or regular vessel crew labor. The reason for this position is
that (d)(2) refers to "such equipments or parts...", etc.,
without any other logical placement for the word "such" occurring
in that subsection. We inferred that "such" articles must refer
to those installed under subsection (a), absent any other
reasonable predication. The new amendment puts this issue to
rest; it is clear that as concerns foreign-made parts imported
for consumption and then installed on U.S. vessels abroad, the
labor required for their installation is separately dutiable. A
part may now be considered exempt from vessel repair duty albeit
the foreign cost labor is dutiable.
Uniform treatment will be accorded to parts sent from the
United States for use in vessel repairs abroad, regardless of
whether they are proven to be produced in the U.S., or have been
proven to have been imported and entered for consumption with
duty paid. In both cases, the cost of the materials is duty
exempt and only the cost of foreign labor necessary to install
them is subject to duty. Crew member or U.S.-resident labor
continues to be free of duty when warranted.
The effective date of this amendment makes this section
applicable to any entry made before the date of enactment of this
Act that is not liquidated on the date of enactment of this Act,
and any entry made--
(A) on or after the date of enactment of this
Act, and
(B) on or before December 31, 1992.
Since the subject entry has not been liquidated, the new
section 1466(h) is applicable to this entry as it relates to
spare parts.
In regard to the electronic materials purchased from Harris
Electric, Inc. of Seattle, Washington, we note that the record
contains a letter, dated November 14, 1989, from the Manager,
Electronics Division, Harris Electric, Inc., stating that the
electronic materials in question included both foreign and U.S.-
manufactured materials which were shipped from the United States
to Ulsteinvik, Norway, for delivery to the NORTHERN EAGLE. The
letter further states that all of the materials were installed by
employees of Harris Electric, Inc., all of whom were U.S.
citizens who travelled to Norway for the installation. A five
page invoice dated August 11, 1987, listing the electronic
materials was included with the aforementioned letter.
Accordingly, the record supports a finding that the
electronic materials purchased from Harris Electric, Inc. and the
labor necessary to install them are nondutiable.
In regard to Item 66.1 covering the installation of
refrigeration plants, we note the following. 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
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 petitioner's
claim, we note that Item 66.1 covering the installation of
refrigeration plants constitutes nondutiable modifications.
HOLDING:
The work for which the petitioner seeks relief is
nondutiable under 19 U.S.C. 1466.
Accordingly, the supplemental petition is granted.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch