VES-13-18 CO:R:IT:C 111339 JBW
Chief, Technical Branch
Commercial Operations
Pacific Region
1 World Trade Center
Long Beach, CA 90831
RE: Vessel Repair; United States Parts; Modification; Spare
Parts; Life Raft; GOLDEN ALASKA; Entry No. C31-0004898-3; 19
U.S.C. 1466.
Dear Sir:
This letter is in response to your memorandum of September
28, 1990, which forwards for our review and ruling the above-
referenced petition for review of the assessment of vessel
repair duties.
FACTS:
The record reflects that the subject vessel, the GOLDEN
ALASKA, arrived at the port of Anchorage, Alaska, on July 18,
1988. Vessel repair entry, number C31-0004898-3, was filed on
the same day as arrival. The entry and subsequent application
for relief showed that the vessel underwent foreign shipyard work
in Sumitomo Shipyard, Tokyo, Japan, for the purpose of converting
the vessel to a surimi factory processing vessel. This office
first addressed the dutiability of this work in Headquarters
Ruling Letter 110860, dated June 22, 1990. The vessel owner
contests certain of our previous holdings.
ISSUES:
(1) Whether a surimi factory processing vessel is a cargo
vessel for purposes of excepting parts from vessel repair duty
under section 484E of the Customs and Trade Act of 1990.
(2) Whether the cost of material and labor that the
petitioner contends were integral to modifications to the vessel,
which were previously held to be non-dutiable, is dutiable under
19 U.S.C. 1466.
(3) Whether the cost of parts and materials that were
purchased for a vessel, but were never installed 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 fifty 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 petitioner states that many of the materials used in the
work performed on the vessel were either manufactured in the
United States or were imported into the United States duty-paid.
The petitioner claims that, under the recent amendments to the
vessel repair statute, the cost of this material is not dutiable.
Section 484E of the Customs and Trade Act of 1990, Pub. L.
No. 101-382, 104 Stat. 629, 709-10 (1990)(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 been
manufactured in the United States or entered the United States
duty-paid and are used aboard a cargo vessel engaged in foreign
or coasting trade. The Customs Service interprets the use of the
term cargo to limit the exception contained in the amendment to
vessels whose sole service is the transportation of cargo and
which are actually engaged in that service while documented for
the foreign or coasting trade. Headquarters Ruling Letter
110953, dated September 19, 1990. This interpretation excludes
vessels such as factory processors that process, store, and
transport as cargo marine products, but does not exclude those
bona fide cargo vessels that may incidentally carry that number
of passengers allowed under Coast Guard guidelines. The GOLDEN
ALASKA is a factory processor and consequently does not qualify
for the exceptions contained in the amendment.
Failing qualification for the exceptions accorded to cargo
vessels, we must evaluate the petitioner's claims regarding duty
treatment of parts under the previously established statutory
rules. Customs administration of duty assessment issues under
section 1466 regarding United States manufactured materials
purchased in the United States has been guided by the terms of
Treasury Decision 75-257. T.D. 75-257, 9 Cust. B. & Dec. 576
(1975). That decision provides that when materials of United
States manufacture are purchased by the vessel owner in the
United States for installation abroad by foreign labor, the
labor cost alone is subject to duty under 19 U.S.C. 1466. Id.;
Headquarters Ruling Letter 111065, dated February 4, 1991. The
owner or master must submit written documentation or other
physical evidence, such as an affidavit by the equipment
manufacturer, that the equipment was manufactured in the United
States. See Headquarters Ruling Letter 110953, dated September
19, 1990. Absent such documentation, the material is deemed
foreign and consequently is dutiable.
In an effort to establish duty-exemption, the petitioner
sent to its United States suppliers a form affidavit. These
affidavits all state that the parts are "either U.S. manufactured
goods or, that, if they were imported into the U.S, [the supplier
had] already paid all related duty on the goods." With two
exceptions relating to importation of the parts, the suppliers
all signed the affidavits without further elaboration or
documentation. The origin of these parts is indeterminate. The
petitioner thus has not established United States manufacture of
the materials. The cost of the materials that the petitioner
contends are of United States manufacture is therefore dutiable.
The petitioner makes two specific arguments regarding United
States manufactured parts, both of which we reject for the above-
described reasons. First, invoice reference items 0066 to 0069
are claimed to be United States parts installed by United States
labor. Failing to establish United States origin of the parts is
fatal to this claim. 19 U.S.C 1466(d)(2) (1988). Second,
invoice reference item 0072 states that the materials contained
in this invoice were imported "C & F Seattle." The petitioner
acknowledges that this material is not of United States
manufacture, and we conclude that this material is dutiable.
In our ruling on the application, we concluded that a number
of invoice items constituted nondutiable modifications to the
vessel. Certain invoice items were not clearly associated with
the modifications at the time of our initial ruling that the
petitioner now claims were in fact related to the modification.
We have reviewed the record and determine that the following
items were integral to the non-dutiable modifications and are not
repair related:
Invoice No. 0021: Crane Hydraulic Parts
Invoice No. 0301: Testing to determine whether modified
surimi plant performs properly
Invoice No. 0543: Belly Flap Pumps
Invoice No. 0546: Glassmaster
Invoice No. 0633: Representing Equipment supplied by
Nichiro that also appears on the
Sumitomo invoice for the surimi factory
modification (Petitioner's Exhibit B)
The petitioner claims that contained on invoice number 0076
are items that "were part of the modification." This claim is
vague, however, for the petitioner does not explain the
relationship between these parts and the modifications. Absent
an explanation for what function these products played in the
modification, we find the cost to be dutiable.
Finally, the petitioner argues that various invoiced parts
and equipment were never installed while the vessel was in
Japan. Invoice Number 0080, duplicated as invoice number 0560,
is for an inflatable life raft and signal, which appears to be
part of the life raft. The vessel repair statute explicitly
states that "boats" are subject to duty; the cost of the life
raft and the signal are therefore dutiable.
Invoices 0111 and 0112 are for incinerator parts that the
petitioner claims was never installed. Invoices 0130 and 0131
are for spare parts to be carried with the vessel. The
dutiability of these items depends in part on their disposition
in the United States. If the parts are taken off the ship upon
arrival, then a consumption entry must be filed and duty must be
paid under the Harmonized Tariff Schedule of the United States.
However, if the parts remain with the vessel as spares, that is
the parts are not required to enable the vessel to reach its port
of destination, then the determination of duty depends on where
those parts were loaded. If spare parts are loaded outside of
the United States, then the cost of the parts is dutiable.
Headquarters Ruling 103364, dated August 14, 1978.
Alternatively, if the spare parts are loaded on the vessel in the
United States, then the cost of the parts, assuming duty was
paid, is not subject to duty.
HOLDINGS:
(1) A surimi factory processing vessel is not a cargo
vessel for purposes of excepting parts from vessel repair duties
under section 484E of the Customs and Trade Act of 1990.
(2) The cost of labor and material integrally related to
the modifications of the vessel and not repair related are not
dutiable.
(3) The dutiability of the cost of parts and material
purchased for the vessel, but never installed depends on specific
circumstances as outlined in the body of this ruling.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch