VES-13-18-CO:R:IT:C 112069 GFM
Deputy Assistant Regional Commissioner
Commercial Operations Division
423 Canal Street
New Orleans, Louisiana 70130-2341
RE: Entry No. C15-0012648-2; S.S. ROVER V-74; Foreign vessel
repair; U.S. labor team; Absence of parts in repair work.
Dear Sir:
This is in response to your memorandum of February 26, 1992,
which forwards for our review and disposition an application for
relief filed in connection with the above captioned vessel
repair entry. Our findings are set forth below.
FACTS:
The S.S. ROVER, a U.S.-flag vessel owned by Central Gulf
Lines, Inc., of New Orleans, Louisiana, underwent foreign
shipyard repairs during the period of September, 1991, through
October, 1991. A number of these were completed by an American
labor team sent from the U.S. Subsequent to the work's
completion, the vessel arrived in the United States and made
entry at Sunny Point, North Carolina, on October 30, 1991.
Applicant filed a vessel repair entry on November 5, 1991, and
seeks remission of duty on several items enumerated therein.
Applicant has placed the items in question into three
separate categories:
[1] Regarding the first category, which encompasses items
8, 9, 10, 11, 12, 27, 28, and 29, the applicant seeks relief for
parts purchased in the United States and installed foreign, as
well as labor charges incurred in effecting those repairs,
pursuant to 19 C.F.R. 4.14(c)(3)(i).
[2] Regarding the second category, which encompasses items
4, 16, 17, 18, 19, 20, 21, 23, 24, 25, and 26, the applicant
seeks relief on the grounds that the items are consumable goods
exempt from duty pursuant to 19 C.F.R. 4.14(c)(3).
[3] Regarding the third category, which encompasses items
6, 7, and 13, the applicant seeks relief based upon their status
as classifiably free transactions exempt from duty pursuant to 19
C.F.R. 4.14(a).
ISSUES:
(1) Whether duties paid on the foreign shipyard operations
in question, as well as the labor performed pursuant thereto,
are non-dutiable under 19 U.S.C. 1466.
(2) Whether the specified goods in question may be properly
classified as non-dutiable "consumable goods" pursuant to 19
U.S.C. 1466.
(3) Whether the repairs in question may properly be
classified as non-dutiable repairs performed in order to fulfill
certification requirements of regulatory bodies 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 trade.
According to 19 U.S.C. 1466(d)(2) and implementing
regulations, remission or refund of duties is authorized if good
and sufficient evidence is furnished showing that the equipment,
equipment parts, repair parts or materials used on the vessel
were manufactured or produced in the United States and purchased
by the owner of the vessel in the United States, and the labor
necessary to install such equipment or to make such repairs was
performed by residents of the United States or by members of the
regular crew of the vessel.
The Customs and Trade Act of 1990 (Pub. L. 101-382), which
amends 19 U.S.C. 1466 by creating subsection (h), 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 vessel owner or master must provide
a certification that the materials in question 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
must 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 complete 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, certification must be included in 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 cargo
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 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, 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 section
(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 of 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 the most recent amendment makes the
section applicable to any entry made before the date of enactment
of the 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.
Items 8, 9, 10, 11, 12, 27, 28, and 29:
Items 8, 9, 10, and 11 refer to equipment allegedly
purchased in the United States and shipped foreign for use in
repairs conducted overseas by U.S.-resident labor. According to
19 C.F.R. 4.14(d)(iii), evidence necessary to support a valid
claim for remission must include, "all itemized bills, receipts
and invoices." With regard to the items in question, the record
contains no U.S. bills of sale or other evidence indicating the
equipment's origin. Only non-specific shippers' airwaybills were
submitted and they provided no evidence whatsoever as to origin.
As a result of this failure to meet the regulatory requirements,
these items are dutiable.
Item 12, however, which also pertains to U.S. equipment that
is shipped foreign, contains a valid domestic bill of sale which
meets the burden of proof necessary for relief. The submitted
invoice clearly indicates that the materials were purchased in
the U.S. from a U.S. company. According to 19 U.S.C. 1466(h)(2),
this constitutes sufficient proof of prior importation and HTSUS
duty payment. As a result, this item is non-dutiable.
Items 27, 28 and 29 represent labor charges for repairs
effected by U.S.-resident labor in a foreign port. With regard
to U.S.-resident labor, a careful reading of 19 U.S.C. 1466
indicates that remission will lie in cases where American-
manufactured equipment is utilized or where goods were
previously imported and duty-paid.
Regarding these items, the record indicates that repairs
were indeed effected, but that no equipment or parts were
installed onto the ship or utilized in the repair process. We
are thus faced with determining whether, in the absence of
evidence that U.S. parts were used in the repairs, the U.S.-
resident labor that effects such foreign repairs enjoys non-
dutiable status.
Within the realm of statutory construction, it is well-
settled that "the meaning of the statute must in the first
instance, be sought in the language in which the act is framed,
and if that is plain...the sole function is to enforce it
according to its terms." 2A Sutherland Stat Const 46.01 (4th
ed)(quoting from Caminetti v. United States, 242 US 470).
This "plain meaning rule" emphasizes the importance of the
legislative text and is exemplified by cases like Slavado v.
Prudential Property & Casualty Ins. Co., 287 Pa Super 296 (1981),
wherein the court stated, "Where the words of the statute are
clear and free from ambiguity, the letter of the statute may not
be disregarded under the pretext of pursuing its spirit."
With regard to 19 U.S.C. 1466(d)(2), the words of the
statute are clear. Section (d)(2) provides that foreign vessel
repair duties will be remissible if "the owner or master of such
vessel furnishes good and sufficient evidence that such
equipments or parts thereof or repair parts or materials, were
manufactured or produced in the United States, and the labor
necessary to install such equipments or to make such repairs was
performed by residents of the United States, or by members of the
regular crew of such vessel."
The statute's language contains a conjunctive which
mandates the fulfillment of two requirements before duties will
be remitted. First, the repair parts utilized must be of U.S.-
origin; and second, the repairs must be effected by U.S.-labor.
Strictly interpreted, relief under the statute cannot be
conferred unless both conditions are met. In the present case,
because circumstances did not warrant utilization of parts in the
repairs, the statute cannot be relied upon to grant relief.
Based upon the foregoing, we rule that the labor performed
in items 27, 28, and 29, that is, labor performed by
U.S.-residents upon a foreign vessel in which no parts were
utilized, is not amenable to application under 19 U.S.C. 1466 and
is thus, dutiable.
Items 4, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, and 26:
The above items represent goods which applicant claims are
duty-free due to their status as consumable goods. The term
"consumable supplies" refers to two categories of items. The
first category encompasses "'supplies for the consumption,
sustenance, and medical needs of the crew and passengers during
the voyage,' such as medicine and food." H.E. Warner, Trustee v.
United States, 28 C.C.P.A. 143, 148, C.A.D. 136 (1940), citing
Southwestern Shipbuilding Co. v. United States, 13 C.C.P.A. 74,
T.D. 40934 (1925). The second category refers to other items,
such as fuel, that "are wholly consumed in their first use."
Customs Bureau Letter, dated March 7, 1951. See also Atlas
Marine Supply Co. v. United States, 29 C.P.P.A. 20, C.A.D. 165
(1941).
According to the submitted documents, with the exception of
item 18, the items above consist of foodstuffs, fuel, cleaning
supplies, etc., which can be determined to have been necessary
for the sustenance of the crew and passengers during the voyage.
Item 18, however, a "universal joint" purchased from a foreign
vendor, cannot be classified as a consumable supply. Such an
item is neither a supply for the consumption, sustenance, or
health of the crew nor an item totally consumed in its first
use. As a result, with the exception of item 18, these items are
all non-dutiable.
Items 13, 6, and 7:
The above items represent undertakings sought to be declared
"classifiably free from duty" based upon their status as
operations necessary to fulfill requirements of regulatory
bodies.
In Customs Service Decision 79-277, we held that "where a
survey is undertaken to meet the specific requirements of a
governmental entity, classification society, insurance carrier,
etc., the cost is not dutiable even if dutiable repairs are
effected as a result thereof. 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..."
Item 13 refers to survey charges incurred while the ship was
drydocked during September of 1991. The submitted documents
clearly indicate that the survey was not a required, scheduled
inspection by a qualifying entity, but merely a survey undertaken
to discover damage. Accordingly, such charges are fully
dutiable.
Item 6 refers to repairs undertaken incident to a tailshaft
inspection. The item specifically refers to a sterntube analysis
in connection with the overall inspection. According to C.S.D.
79-277, where the inspection is one undertaken to determine
whether repairs are deemed necessary, the costs of the survey,
and any repairs resulting therefrom, are dutiable. The repair in
question clearly emanates from such an inspection. As stated,
because this inspection was not conducted to satisfy regulatory
requirements, but to assess damages, this item must be held
dutiable.
Item 7 refers to the repair costs enumerated in invoice item
WF105. According to the invoice, these repairs were also
incurred as a result of the inspection referred to above.
Accordingly, these repair charges are also dutiable.
HOLDING:
After thorough review of the evidence presented, and as
detailed in the Law and Analysis portion of this ruling, the
application for relief is granted in part and denied in part.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch