VES-13-18-CO:R:IT:C 112024 LLB
Deputy Assistant Regional Commissioner
Commercial Operations Division
423 Canal Street
New Orleans, Louisiana 70130-2341
RE: Vessel repair; Application for Relief; Repair; Segregation;
Painting; Vessel SEALAND ATLANTIC, V-35; Vessel repair entry
number 16, 0008523-2; Port of arrival Charleston, South
Carolina
Dear Sir:
Reference is made to your memorandum of December 4, 1991,
which forwards for our review and consideration the Application
for Relief from the assessment of vessel repair duties submitted
by Sea-Land Service, Inc., in regard to the above-captioned
vessel repair entry.
FACTS:
The vessel arrived in the United States after having
undergone various operations in three European shipyards. A
timely vessel repair entry and Application for Relief were filed
and have been reviewed by the Vessel Repair Liquidation Unit. We
are asked to review the dutiability of three items. These are:
1. Item 028, Sea-chest inspection operations which may involve
some repair elements.
2. Item 033, Coating applied to the fathometer well.
3. Item 189, The segregated cost of venting operations.
ISSUE:
Whether sufficient evidence is submitted to permit a finding
that relief from the assessment of vessel repair duties should be
granted in regard to the items under review.
LAW AND ANALYSIS:
Title 19, United States Code, section 1466(a), 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 the foreign or
coastwise trade, or vessels intended to be employed in such
trade.
Certain vessel inspection operations are generally
considered non-dutiable. However, pursuant to published Customs
Service rulings (C.I.E. 1325/58 and C.I.E. 565/55), duties may
not be remitted in circumstances in which invoices fail to
segregate dutiable from non-dutiable expenditures. Such is the
case in regard to invoice item 028 which involves opening sea-
chests for cleaning and inspection by the Coast Guard. Included
in the item is the unsegregated cost of renewing missing or
defective fasteners, a repair expense. The presence of this
unsegregated expense renders the entire item subject to duty as a
repair expense.
"Expenses of repairs" is sufficiently comprehensive to
include money paid to the foreign contractor for labor performed
in painting the ship. E.E. Kelly & Co. v. United States, T.D.
43322 (1929). Customs has held that painting performed on
existing portions of a vessel is in the nature of a dutiable
maintenance operation (C.I.E. 1043/60, and Treasury Decisions
21670, 39507, and 43322). These precedents are relevant to the
operation performed in invoice item 033 which details the
scraping and coating of the fathometer well. The item must be
considered dutiable.
In the case of United States v. George Hall Coal Co., 134 F.
1003 (1905), it was held that any of various types of expenses
associated with foreign shipyard operations are classifiably free
from the assessment of duty, regardless of the character of the
overall shipyard work (repair vs. modification). The case found
that the expense of drydocking a vessel is not a repair cost.
Drydocking is not an isolated expense, and is commonly associated
with numerous others. These may include, but are not limited to,
sea water supply (for firefighting capability), fresh water
supply, hose hook-up and disconnection, fire watch services,
shore power hook-up, etc. We would place the segregated cost of
venting in this category and would thus allow as duty-free such
an expense as it appears in invoice item 189.
HOLDING:
Following a thorough review of the evidence submitted as
well as an analysis of the law and applicable precedents, we have
determined to allow in part and deny in part, the Application for
Relief under consideration. Our reasons for so finding are set
forth in the Law and Analysis portion of this ruling.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch