VES-13-18-CO:R:IT:C 111899 GEV
Deputy Assistant Regional Commissioner
Commercial Operations Division
423 Canal Street
New Orleans, Louisiana 70130-2341
RE: Vessel Repair Entry No. C15-0012302-6; S/S NANCY LYKES
V-114; Surveys; U.S. Parts
Dear Sir:
This is in reference to your memorandum dated September 6,
1991, forwarding an application for relief from duties assessed
pursuant to 19 U.S.C. 1466. Our findings are set forth below.
FACTS:
The S/S NANCY LYKES is a U.S.-flag vessel owned by Lykes
Brothers Steamship Co. of New Orleans, Louisiana. The subject
vessel had foreign shipyard work performed during the period of
November 26 - December 29, 1990. Subsequent to the completion of
the work the vessel arrived in the United States at Wilmington,
North Carolina on February 3, 1991. A vessel repair entry was
filed on February 4, 1991.
Pursuant to an authorized extension of time, an application
for relief, dated April 24, 1991, was timely filed. Further
documentation was submitted pursuant to a request from Customs
New Orleans Vessel Repair Liquidation Unit (VRLU). The applicant
contends that various surveys conducted by the American Bureau of
Shipping (ABS) and radar repairs using U.S. parts and labor are
nondutiable. In support of these claims the applicant has
submitted U.S. invoices covering parts and accompanying freight
and delivery charges, documentation (i.e., invoices and reports)
from the ABS, and evidence of U.S. labor.
ISSUES:
1. Whether evidence is presented sufficient to prove that
vessel parts and/or materials were purchased in the United States
and shipped foreign for installation aboard a U.S.-flag vessel
thereby exempting them from duty pursuant to 19 U.S.C. 1466(h).
- 2 -
2. Whether the cost of certain surveys conducted by the
American Bureau of Shipping (ABS) for which the applicant seeks
relief are dutiable pursuant to 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 trades.
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 labor cost 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 "finally liquidated" (i.e., for which a timely
protest was filed or court action initiated) 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 "finally liquidated" as
noted above, the new section 1466(h) is applicable to this entry
as it relates to spare parts.
In regard to the documentation contained in the application,
we note that although U.S. invoices covering parts and materials
have been submitted, the requisite certifications are not
contained in the record. Absent these certifications, or proof
that any of the parts and materials were manufactured in the
United States, relief pursuant to section 1466(h) is denied.
It should be noted that the invoices from Mackay
Communications sent by the applicant in response to a letter from
the New Orleans VRLU, dated July 2, 1991, which purportedly
establish U.S. origin are insufficient evidence of U.S.
manufacture. They merely evidence shipment of the parts.
Furthermore, there is a notation on page 2 of order no. 72002
which states, "X) COUNTRY OF ORIGIN NORWAY EXCEPT FOR POS. 1 A
AND 1 B ORIGIN USA." Accordingly, this documentation does not
establish that the parts in question are of U.S. manufacture so
as to abrogate the certification requirements of section 1466(h).
Further in regard to the radar repairs discussed above, we
note that they were not declared and entered on the CF 226
submitted by the applicant as required by 19 CFR 4.14(b)(1) and
(2). Appropriate penalty action should therefore be initiated.
In regard to the dutiability of the ABS surveys in question,
we note that C.S.D. 79-277 stated, "[i]f the survey was
undertaken to meet the specific requirements of a governmental
entity, classification society, insurance carrier, etc., the cost
is not dutiable even if dutiable repairs were effected as a
result of the survey."
With increasing frequency, this ruling has been utilized by
vessel owners seeking relief not only from charges appearing on
an ABS or U.S. Coast Guard invoice (the actual cost of the
inspection), but also as a rationale for granting non-dutiability
to a host of inspection-related charges appearing on a shipyard
invoice. In light of this continuing trend, we offer the
following clarification.
C.S.D. 79-277 discussed the dutiability of certain charges
incurred while the vessel underwent biennial U.S. Coast Guard
and ABS surveys. That case involved the following charges:
ITEM 29
(a) Crane open for inspection.
(b) Crane removed and taken to shop. Crane
hob and hydraulic unit dismantled and
cleaned.
(c) Hydraulic unit checked for defects, OK.
Sundry jointings of a vessel's spare
renewed.
(d) Parts for job repaired or renewed.
(e) Parts reassembled, taken back aboard ship
and installed and tested.
In conjunction with the items listed above, we held that a
survey undertaken to meet the specific requirements of a
governmental entity, classification society, or insurance carrier
is not dutiable even when dutiable repairs are effected as a
result of the survey. We also held that where an inspection or
survey is conducted merely to ascertain the extent of damages
sustained or whether repairs are deemed necessary, the costs are
dutiable as part of the repairs which are accomplished (emphasis
added).
n It is important to note that only the cost of opening the
crane was exempted from duty by reason of the specific
requirements of the U.S. Coast Guard and the ABS. The
dismantling and cleaning of the crane hob and hydraulic unit was
held dutiable as a necessary prelude to repairs. Moreover, the
testing of the hydraulic unit for defects was also found dutiable
as a survey conducted to ascertain whether repairs were
necessary. Although the invoice indicated that the hydraulic
unit was "OK," certain related parts and jointings were either
repaired or renewed. Therefore, the cost of the testing was
dutiable.
We emphasize that the holding exempts from duty only the
cost of a required scheduled inspection by a qualifying entity
(such as the U.S. Coast Guard or the American Bureau of
Shipping). In the liquidation process, Customs should go beyond
the mere labels of "continuous" or "ongoing" before deciding
whether a part of an ongoing maintenance and repair program
labelled "continuous" or "ongoing" is dutiable.
Moreover, we note that C.S.D. 79-277 does not exempt repair
work done by a shipyard in preparation of a required survey from
duty. Nor does it exempt from duty the cost of any testing by
the shipyard to check the effectiveness of repairs found to be
necessary by reason of the required survey.
Turning to the case before us, we note that after reviewing
the record in its entirety, the ABS surveys for which relief is
requested are within the class of nondutiable surveys discussed
above. Accordingly, the costs of the surveys are nondutiable.
HOLDINGS:
1. Vessel parts and materials purchased in the United
States and shipped foreign for installation aboard a U.S.-flag
vessel are exempted from duty pursuant to 19 U.S.C. 1466(h),
provided the requisite evidentiary documentation is submitted.
Accordingly, with respect to the application under
consideration, relief should be granted for those parts and
materials covered by U.S. invoices if the required certifications
are submitted, or proof is submitted that the parts and materials
were manufactured in the United States.
n 2. The cost of certain surveys conducted by the American
Bureau of Shipping for which the applicant seeks relief are not
dutiable pursuant to 19 U.S.C. 1466.
Sincerely,
B. James Fritz
Chief