VES-13-18-CO:R:IT:C 112211 GFM
Deputy Director
Commercial Operations
Pacific Region
One World Trade Center
Long Beach CA 90731
RE: Cleaning; Computer services; Consulting services;
Consumable items; Emoluments; Foreign labor; Gas-free
certificate; Inspection; Lubricants; Marine chemist;
Modification; Survey; Transportation; U.S. Parts; Vessel
repair
Vessel: SEA-LAND DISCOVERY V-41
Vessel Repair Entry No. 110-0104186-9
Date of Arrival: August 19, 1991
Port of Arrival: Tacoma, WA
Dear Sir:
This is in response to your memorandum of April 9, 1992,
which forwards for our review an application for relief filed in
connection with the above captioned vessel. Our findings are set
forth below.
FACTS:
The record reflects that the above-captioned vessel, the
SEA-LAND DISCOVERY, underwent foreign shipyard operations at
Jurong, Singapore, from March 13, 1991 to August 2, 1991. After
receiving an extension, vessel operator timely filed an
application for relief on November 18, 1991.
ISSUE:
Whether the cost of foreign shipyard work completed aboard
the subject vessel is dutiable pursuant to 19 U.S.C. 1466.
LAW AND ANALYSIS:
Title 19, United States Code, section 1466(a) provides, in
pertinent part, for payment of duty in the amount of 50 per cent
ad valorem on the cost of foreign repairs to vessels engaged,
intended to engage, or documented under the laws of the United
States to engage in the foreign or coastwise trade.
Item 100 MARINE WAREHOUSE REMOVAL....................$ 10,414.00
This item represents charges for valves and bolts in
connection with one warehouse removal notice. 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 and 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 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 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
accompanying documents 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.
In regard to this item, no bill of sale or other document
evidencing prior importation and duty payment is presented. The
record contains only a marine warehouse removal notice which does
not indicate country of origin. Accordingly, the cost of this
item ($10,414.00) is dutiable.
Item 105 SPREADSHEETS FOR SHIPYARD REPAIRS...........$ 1,200.00
Customs has had occasion to consider the dutiability of such
so-called "overhead" charges (see Customs Ruling 111170, February
21, 1991). In that ruling, we cited a published Treasury
Decision of long standing (T.D. 55005(3), December 21, 1959),
wherein it was determined that:
Taxes paid on emoluments received by third
parties for services rendered...and premiums
paid on workmen's compensation insurance,
are not charges or fees within the
contemplation of the decision of the Customs
Court, International Navigation Company v.
United States, 38 USCR 5, CD 1836, and are
therefore subject to duty as components of
the cost of repairs under [section 1466].
"Emoluments" as used in the cited decision would include all
wages, taxes, accounting fees, office space charges, inventory or
mark-up costs, purchasing costs, and management fees (see Customs
Ruling 112091, May 20, 1991). Item 105 represents charges for
computer services incurred during the repair process. Such
services are clear examples of "emoluments" and are, as such,
dutiable.
Item 140 CONSULTING ON AUTOMATION....................$ 3,627.00
Item 161 PROFESSIONAL CONSULTING SERVICES............$ 22,522.00
With regard to professional services rendered by American
labor at a foreign shipyard on behalf of an American shipping
company, the relevant statute, 19 U.S.C. 1466(h), indicates that
remission will lie in cases where American-manufactured
equipment is utilized or where goods were previously imported and
duty-paid. The Customs Service has determined that section (h)
specifically 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."
In Customs Ruling Letter 112069 (May 21, 1992), the Customs
Service ruled that 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.
Item 140 represents charges for professional consulting
services provided by an American consultant at a foreign
shipyard. Regarding this item, the invoice indicates that spare
parts were shipped contemporaneously with the consultant to the
foreign shipyard. However, although it is clear that equipment
was utilized by an American laborer, no evidence is presented
concerning the origin of that equipment. As previously stated,
such purchases require evidence of U.S. manufacture or previous
importation and duty payment. As no such evidence is presented,
we hold the cost of the entire item ($3,627.40) dutiable.
Item 161 also represents charges for professional consulting
services provided by an American consultant at a foreign
shipyard. Regarding this item, the invoice indicates that spare
parts were shipped contemporaneously with the consultant to the
foreign shipyard. However, no equipment was utilized during the
course of these activities. Again, based on the holding in
Customs Ruling 112069, such charges for services which lack the
contemporaneous use of American-manufactured or duty-paid parts
are held to be dutiable. Accordingly, with the exception of the
charges which relate exclusively to travel, the cost of the item
($15,925.00) is dutiable.
Item 162 SUPERVISION OF TURBINE REPAIRS..............$ 19,249.00
This item represents additional charges for repairs
conducted by an American technician sent foreign. In this case,
the invoice clearly states that a "solenoid part repair kit" was
transshipped with the technician. The invoice further delineates
the repairs undertaken and provides a connection between the
repairs made and the equipment sent. Accordingly, as sufficient
evidence was provided to show that these repairs were effected by
an American laborer using equipment of American origin, the
entire cost of the item ($19,249.00) is non-dutiable.
Item 171 LUBRICANTS..................................$ 4,025.00
This item represents charges for main engine oil which
applicant contends was consumed during the return trip to the
United States and not used in the course of foreign repairs.
Applicant seeks to have this item declared classifiably free from
duty as a consumable supply. "Consumable supplies" are generally
defined as "supplies for the consumption, sustenance, and medical
needs of the crew and passengers during the voyage" H.E. Warner,
Trustee v. United States, 28 CCPA 143, at 150, C.A.D. 136 (1940),
quoting Southwestern Shipbuilding Co. v. United States, 13 Ct.
Cust. App. 74, T.D. 40934 (1925). Consumable supplies are not
generally subject to vessel repair duties unless used in
effecting dutiable repairs (C.I.E. 196/60). In C.I.E. 18/49, it
was determined that oil such as that in question constitutes a
consumable supply that is classifiably free from duty. On this
authority, we hold the entire cost of this item ($4,025.00) to be
non-dutiable.
Item 180 HIGH & LOW PRESSURE TURBINE COUPLING
Sub-item 4.1006..................................$ 1,260.00
Sub-item 4.1007..................................$ 1,260.00
In reviewing these items, we note that the shipyard invoice
states that, in addition to preparing these items for inspection,
"new neoprene rubber (was) installed of proper size to fit for
oil leak free gland ends of covers" of both the high and low
pressure couplings. The Customs Service has held that when costs
of various items are not segregated or separately shown, but are
consolidated, duty will be assessed on the entire cost even
though certain items may be non-dutiable (see C.I.E. 565/55,
C.I.E. 1325/58 and C.D. 1836). Here, the cost of dutiable
repairs is incorporated into the cost of preparing for
inspection. Accordingly, we find the amount listed for these
items ($2,520.00) to be dutiable.
Item 180 PORT AND STARBOARD BOILER MOUNTING INSPECTION
Sub-item 4.1019..................................$ 13,506.00
Regarding this item, we note that the shipyard invoice
indicates that, after completion of a required inspection, "(the
bonnets were) closed in good working order with new gasketing and
owner-furnished bonnet seal rings." In addition, an extensive
list of spare parts is included in this item with no explanation
regarding their deployment. The Customs Service has held that
when costs of various items are not segregated or separately
shown but are consolidated, duty will be assessed on the entire
cost even though certain items may be non-dutiable (see C.I.E.
565/55, C.I.E. 1325/58 and C.D. 1836). Here, the cost of
dutiable repairs is incorporated with the cost of a required
inspection, an item which we have held to be non-dutiable.
Accordingly, in the absence of a segregated cleaning charge, the
entire inspection charge ($13,506.00) is dutiable.
Item 180 RECEIVING, TRANSPORTING, AND RIGGING OF MATERIAL
Sub-item 5.10181.................................$ 5,250.00
Sub-item 5.10182.................................$ 2,250.00
These items represent charges for transportation, rigging,
and cleaning of operation tubes, refractory items, and other
material. As previously stated, when remission is sought for
transportation or cleaning, such charges must be clearly
segregated on the invoice. Applicant seeks to have these items
considered non-dutiable on the basis that they constitute
transportation costs. According to C.I.E. 1325/58, charges for
transportation of parts and materials between a vessel and a
workshop are not dutiable if itemized separately. Moreover, it
is the position of the Customs Service that "transportation" does
not include operations relative to preparing the item for
shipping. Thus, labor for such services as removing a part from
its housing or mounting, or disconnecting an item, etc., does not
constitute transportation and are thus, dutiable. With respect
to the case at hand, the invoice contains consolidated
transportation charges and includes charges for services which
may not be included in transportation costs. Accordingly, the
entire cost of the items ($7,500.00) is dutiable.
Item 180 REFRACTORY REMOVAL AND DISPOSAL
Sub-item 5.10191.................................$ 5,100.00
This item represents charges for "removal of all boiler
refractory material" pursuant to "extensive port boiler
renewals" which were performed in preparation for repairs. The
Customs Service has long held that cleaning operations performed
in preparation for, or as an integral part of, repair work are
dutiable (see C.I.E. 51/61). As a result, the entire charge for
this item ($5,100.00) is dutiable.
Item 180 GENERATOR STOP VALVE GRATING
Sub-item 5.1033..................................$ 1,125.00
This item represents charges for installation of a "readily
removable (metal) grate...to prevent walking on insulation." The
applicant contends this charge should be non-dutiable as a
modification. Over the years, the definition of what constitutes
a modification has evolved from judicial and administrative
precedents. In considering whether an operation is a
modification not subject to duty, the following elements may be
considered:
1. Whether there is a permanent incorporation into the hull or
superstructure of a vessel (see Unites States v. Admiral Oriental
Line et al., T.D. 44359 (1930)), either in a structural sense or
as demonstrated by the means of attachment so as to be indicative
of the intent to be permanently incorporated. This element
should not be given undue weight in view of the fact that vessel
components must be welded or otherwise "permanently attached" to
the ship as a result of constant pitching and rolling. It
follows that a "permanent attachment" takes place that does not
necessarily involve a modification to the hull and fittings.
2. Whether, in all likelihood, an item under consideration would
remain aboard a vessel during an extended layup.
3. Whether, if not a first time installation, an item under
consideration replaces a current part, fitting or structure which
is not in good working order.
4. Whether an item under consideration provides an improvement
or enhancement in operation or efficiency of the vessel.
Regarding this item, we are convinced that it is designed to
be utilized as a permanent part of the vessel. The fact that it
may be removed to provide access will not, in this case, detract
from its nature as a permanent fixture. As a result, the entire
cost of the item ($1,125.00) is non-dutiable.
Item 180 AIR EJECTOR CONDENSER COOLING
Sub-item 5.1036..................................$ 1,396.00
Applicant also seeks to have this item considered duty-free
on the basis that it constitutes a modification. Applicant
claims that this activity involves the addition of a main air
ejector recirculation line that will improve the operation of the
condensate recirculation system. Applicant claims this to be a
permanent vessel addition which does not replace any piping. We
find that this item does constitute a modification which enhances
the operation and efficiency of the vessel in accordance with the
previously enumerated guidelines. Accordingly, the entire cost
of the item ($1,396.00) is non-dutiable.
Item 180 BILGE PUMP DISCHARGE CONNECTION
Sub-item 5.1051..................................$ 8,686.00
Applicant seeks to have this item considered duty-free on
the basis that it constitutes a modification. Applicant claims
that this activity involved the installation of a new slop
discharge connection on the main deck and piping from the bilge
pump discharge line to allow discharge ashore in compliance with
new U.S. Coast Guard regulations. We find that this item
constitutes a modification which enhances the operation and
efficiency of the vessel in accordance with the previously
enumerated guidelines. Accordingly, the entire cost of the item
($8,686.00) is non-dutiable.
Item 180 OILY BALLAST DISCHARGE VALVES
Sub-item 5.1052..................................$ 2,250.00
Applicant seeks to have this item considered duty-free on
the basis that it constitutes a modification. Applicant claims
that this activity involves the permanent addition of blanks in
three overhead discharge lines to satisfy U.S. Coast Guard
regulations and to protect against inadvertent overboard
discharge of oil. We find that this item constitutes a
modification which enhances the operation of the vessel in
accordance with the previously enumerated guidelines.
Accordingly, the entire cost of the item ($2,250.00) is non-
dutiable.
Item 180 #1 and #2 FUEL OIL HEATERS
Sub-item 5.2009..................................$ 3,918.00
Applicant seeks to have this item considered duty-free on
the basis that it constitutes inspection and cleaning charges
undertaken pursuant to an inspection required by a regulatory
body. The record states that labor and materials were provided
to remove the heaters from the vessel, transport them to the
shop, clean them and test them. As previously indicated, C.I.E.
429/61 states, "expenses which are incurred in conducting
inspections made subsequent to the repairs, so as to ascertain
whether the work has been properly performed, are dutiable as
integral parts of the expenses of repairs although separately
itemized." In the case of this item, no segregation of testing
costs exists and as a result, the entire cost of the item
($3,918.00) is dutiable.
Item 180 SSTG EXHAUST EQUALIZER LINES
Sub-item 5.2012..................................$ 520.00
Applicant seeks to have this item considered duty-free on
the basis that it constitutes a modification. This activity
involves the installation of additional piping surrounding each
of the 24-inch exhaust valves to allow for pressure equalization.
We find that this item constitutes a modification which enhances
the operation of the vessel in accordance with the previously
enumerated guidelines. Accordingly, the entire cost of the item
($520.00) is non-dutiable.
Item 180 DECK BITTS MODIFICATION
Sub-item 5.2022..................................$ 6,252.00
Applicant seeks to have this item considered duty-free on
the basis that it constitutes a modification. This activity
involves the fabrication and installation of deck bitts in a
different location than the existing ones. Applicant contends
that installation of bitts at a different point on the vessel
qualifies as a modification since it is an addition to the
vessel. Applicant argues further that such action does not
constitute a replacement of wasted or defective parts as the
removed cleats were in good condition. As this item was not
performed to replace equipment in poor working order but was
performed to enhance the operation of the vessel, we find that,
in accordance with the previously enumerated guidelines, it
constitutes a modification. Accordingly, the entire cost of the
item ($6,252.00) is non-dutiable.
Item 180 RADAR MAST ACCESS WALKWAY
Sub-item 5.2031..................................$ 4,742.00
Applicant seeks to have this item considered duty-free on
the basis that it constitutes a modification. This activity
involves the permanent installation of a steel walkway to improve
safety in accessing the radar mast. We find that this item
constitutes a modification which enhances the operation of the
vessel in accordance with the previously enumerated guidelines.
Accordingly, the entire cost of the item ($4,742.00) is non-
dutiable.
Item 180 HATCH COVER UPGRADE
Sub-item 5.2053..................................$ 71,666.00
Applicant seeks to have this item considered duty-free on
the basis that it constitutes a modification. This activity
involves the upgrade of hatch covers to increase their weight
capacity. We find that this item constitutes a modification
which enhances the operation of the vessel in accordance with the
previously enumerated guidelines. Accordingly, the entire cost
of the item ($71,666.00) is non-dutiable.
Item 180 X-RAY CHARGES
Sub-item 5.2155..................................$ 2,650.00
Applicant seeks to have this item considered non-dutiable on
the basis that such charges were incurred pursuant to an
inspection required by a regulatory body. The activity in
question involved charges for x-rays allegedly required as part
of an ABS hull inspection. C.D. 79-277 states that "[where a]
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." Further, C.D. 79-277 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).
Regarding this item, although the shipyard invoice indicates
that x-rays were taken, there is no mention of such x-rays in
the ABS survey documentation. Moreover, it is not clear from the
shipyard invoice whether the x-rays were necessitated by the ABS
inspection or whether they were performed in order to discover
defects as a prelude to repairs. If the applicant wishes to
submit additional documentation in a petition clarifying the
nature of these x-rays, we will reconsider our position on this
item. In the interim, however, we find the entire cost of this
item ($2,650.00) to be dutiable.
Item 180 ELECTRICAL AND PIPING MODIFICATIONS
Sub-item 904.1...................................$ 2,250.00
Sub-item 904.2...................................$ 11,000.00
Applicant seeks to have these items considered duty-free on
the basis that they constitute modifications. These activities
involve the installation of an oily slops handling system to
comply with U.S. Coast Guard safety regulations. We find that
these items constitute modifications which enhance the operation
of the vessel in accordance with the previously enumerated
guidelines. Accordingly, the entire combined cost of the items
($13,250.00) is non-dutiable.
Item 180 SIDE PORT DOOR MODIFICATION
Sub-item 910.....................................$ 12,300.00
Applicant seeks to have this item considered non-dutiable on
the basis that it constitutes a modification. This activity
involves the installation of inward-opening side port doors which
will replace existing outward-opening doors. We find that this
item constitutes a modification which enhances the operation of
the vessel in accordance with the previously enumerated
guidelines. Accordingly, the entire cost of the item
($12,300.00) is non-dutiable.
Item 180 SALT WATER SERVICE PIPING REGULATING LINE
Sub-item 911.....................................$ 15,338.00
Applicant seeks to have this item considered non-dutiable on
the basis that it constitutes a modification. This activity
involves the installation of a system designed to regulate salt
water service pump pressure. We find that this item constitutes
a modification which enhances the operation of the vessel in
accordance with the previously enumerated guidelines.
Accordingly, the entire cost of the item ($15,338.00) is non-
dutiable.
Item 180 TANK COMBINATION MODIFICATIONS/NEW COFFERDAM
Sub-item Deep 5..................................$ 52,350.00
Sub-item CD New..................................$ 21,720.00
Although these items are claimed to be duty-free
modifications, the applicant has submitted no evidence indicating
that the work was part of a new design feature, and not as a
replacement or restoration of parts now performing a similar
function. The only evidence indicating the nature of the work
performed is contained on the shipyard invoice. Item "Deep 5"
involves combining the No. 5 D.B. tank with the No. 5 deep tank
according to shipyard drawings. Item "CD New" involves the
installation of new cofferdams between frames 156 and 157 of the
double bottom hull. In light of the brief descriptions provided
by the invoice, and in the absence of such drawings in the
record, we are unable to conclude that the work performed
constituted modifications to the hull and tanks of the vessel.
Accordingly, the entire combined cost of both items ($74,070.00)
is dutiable.
Item 180 STACKING PEDESTALS
Sub-item HC & CM.................................$ 16,800.00
Applicant seeks to have this item considered non-dutiable on
the basis that it constitutes a modification. This activity
involves the installation of hatch cover stacking pedestals to
permit stacking hatch covers on top of the other. Applicant
claims that such modifications began in the United States, but
were completed in Singapore. We find that this item constitutes
a modification which enhances the operation of the vessel in
accordance with the above enumerated guidelines. Accordingly,
the entire cost of the item ($16,800.00) is non-dutiable.
Item CLEANING OF FUEL OIL TANKS
Sub-item 181 DI-0113.............................$ 63,205.00
Sub-item 188 DI-0131.............................$139,170.00
Sub-item 193 DI-0156.............................$ 37,230.00
Sub-item 198 DI-0164.............................$256,530.00
Sub-item 224 DI-0211.............................$ 22,043.00
Sub-item 236 DI-0226.............................$ 10,660.00
Sub-item 256 DI-6833.............................$ 22,000.00
Applicant asserts that the cost of these items should not be
dutiable as they were unrelated to any repairs. The Customs
Service held in C.I.E. 51/61 that cleaning operations are not
subject to duty unless performed in preparation for, or as an
integral part of repairs. The relevant shipyard invoices state
that each of the above items involves a cleaning operation which
was conducted pursuant to a required inspection by regulatory
bodies. Accordingly, such items would normally be non-dutiable.
Here, however, close examination of the shipyard invoices
indicates that several entries were submitted concerning fuel oil
tank cleaning. Each of the above items represents "cleaning of
fuel oil tanks" but the invoices fail to indicate with a
satisfactory degree of specificity the exact tanks cleaned and
which inspections they were cleaned pursuant thereto.
Accordingly, due to the lack of adequate indicia of segregation,
each of the items enumerated above is fully dutiable.
Item 192 CLERICAL ASSISTANCE
Sub-item DI-0154.................................$ 5,600.00
As previously stated in this ruling, in accordance with
Customs Ruling 111170, the Customs Service maintains that
certain overhead charges constitute "emoluments" which are
dutiable. In that ruling, we relied on T.D. 55005(3) (December
21, 1959) in holding that "emoluments" include items such as
wages, taxes, accounting fees, office space charges, inventory or
mark-up costs, purchasing costs, and management fees (see Customs
Ruling 112091, May 20, 1991). Item 192 represents charges for a
computer operator's services for the months of April, May, and
June, 1991. It is clear that such charges are "emoluments
received by third parties for services rendered" as part of the
contract for foreign shipyard services. Accordingly, the entire
cost of the item ($5,600.00) is dutiable.
Item 194 BURNER REGISTER MODIFICATION
Sub-item DI-0159.................................$ 5,970.00
Applicant seeks to have this item considered non-dutiable on
the basis that it constitutes a modification. This activity
involves the installation of a Worcester actuator system. We
find that this item constitutes a modification which enhances the
operation of the vessel in accordance with the previously
enumerated guidelines. Accordingly, the entire cost of the item
($5,970.00) is non-dutiable.
Item 202 SURVEYS
Sub-item DI-6903.................................$ 1,360.00
Sub-item DI-6902.................................$ 1,472.00
Sub-item DI-0176.................................$ 1,227.00
Sub-item DI-0176.................................$ 1,398.00
Sub-item DI-0176.................................$ 1,710.00
Sub-item DI-6903.................................$ 16,112.00
Sub-item DI-0176.................................$ 2,007.00
Sub-item DI-0176.................................$ 4,369.00
Applicant asserts that these items should be non-dutiable
as required inspections or surveys. 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 and subsequent
rulings citing it, have been utilized by vessel owners seeking
relief not only from charges appearing on an ABS or 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, 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).
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 are
necessary. Although the invoice indicates 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
(ABS). 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 from
duty the cost of maintenance or repair work done by a shipyard in
preparation of a required survey. Nor does it exempt from duty
the cost of any testing by the shipyard to check the
effectiveness of repairs completed previous to, or found to be
necessary by reason of, the required survey.
Looking to the items in question, it is urged that they be
considered non-dutiable as required surveys. Each is followed on
the invoice by a long list of both dutiable and non-dutiable
transactions. In addition to survey entries indicating that
repairs were made, an addendum consisting of three pages of
transactions entitled "structural repairs" is attached to the
survey report. From the documents submitted, it is impossible
to ascertain whether the repairs in question were made in
anticipation of the surveys, made in order to test repairs made
as a result of inspections, or made as a result of the survey's
recommendation. As the determination as to the dutiability of
each survey cannot be made without additional information, each
of the above surveys must be held dutiable.
Item 222 CLERICAL AND COMPUTER SERVICES
Sub-item DI-0208.................................$ 2,855.00
As previously stated in this ruling, pursuant to Customs
Ruling 111170, the Customs Service maintains that certain
overhead charges constitute "emoluments" which are dutiable.
Item 222 represents charges for computer and clerical services
for the months of July, 1991. It is clear that such charges are
"emoluments received by third parties for services rendered" as
part of the contract for foreign shipyard services.
Accordingly, the entire cost of the item ($2,855.00) is dutiable.
Item 232 AIR CONDITIONING
Sub-item DI-0222.................................$ 7,125.00
Applicant seeks to have this item considered non-dutiable on
the basis that it constitutes a modification. This activity
involves the installation of an air conditioner on the bridge
where one had not been before. We find that this item
constitutes a modification which enhances the operation of the
vessel in accordance with the above enumerated guidelines.
Accordingly, the entire cost of the item ($7,125.00) is non-
dutiable.
Item 245 MAINTENANCE AND REPAIRS/ABS SURVEY
Sub-item DI-0237.................................$ 9,045.00
Applicant asserts that these items should be considered non-
dutiable inspections or surveys within the meaning of Customs
Letter Ruling 105047 (June 10, 1981). Specifically, that ruling
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."
In so holding, the ruling exempts from duty the cost of a
required inspection by a qualifying entity (such as the U.S.
Coast Guard or the American Bureau of Shipping). The ruling does
not include repair work done by a shipyard in preparation for a
required survey. Nor does it include any testing by the shipyard
to check the effectiveness of repairs found to be necessary by
reason of the required survey. Moreover, in C.I.E. 429/61 we
held that when inspections in the nature of surveys disclose
items which result in non-dutiable repairs, the charges are
dutiable.
Turning to the case before us, we note the invoice
indicates that, in addition to the inspection performed, systems
engineers and instrument mechanics supplied labor for maintenance
and repairs which included "[taking valves back to a workshop
for overhaul]." Additionally, the valves were "reassembled and
tested...in the workshop." Accordingly, the cost of the item
($13,162.55) less the stated cost for transportation ($120.00)
equals the amount of ($13,042.55) which is fully dutiable.
Item 247 DE-IONIZED WATER
Sub-item DI-0239.................................$ 34,400.00
This item represents charges for de-ionized water utilized
during boiler repair and welding operations. Applicant seeks
duty-free status for this item on the ground that the water is a
consumable item. As stated previously in this ruling,
"consumable supplies" are generally defined as "supplies for the
consumption, sustenance, and medical needs of the crew and
passengers during the voyage" H.E. Warner, Trustee v. United
States, 28 CCPA 143, at 150, C.A.D. 136 (1940), quoting
Southwestern Shipbuilding Co. v. United States, 13 Ct. Cust. App.
74, T.D. 40934 (1925). Consumable supplies are not generally
subject to vessel repair duties, unless used in effecting
dutiable repairs (C.I.E. 196/60). From the documentation
submitted, it is unclear whether the de-ionized water was a
consumable item or merely a necessary appurtenance to said boiler
repairs. In the face of such equivocal documentation, we must
hold the entire cost of the item ($34,400.00) dutiable.
Item 254 MARINE CHEMIST SERVICES
Sub-item 1.10022.................................$ 9,952.00
Item 256 MARINE CHEMIST SERVICES
Sub-item 2.10022.................................$ 1,187.00
Item 274 MARINE CHEMIST
Sub-item 1.002...................................$ 12,561.00
Each of these items represents charges for the services of a
certified marine chemist incurred in acquisition of a gas-free
certificate. Applicant seeks duty-free status for these items on
the ground that they constitute a charge normally associated
with the cost of drydocking. According to C.I.E. 1188/60,
charges for drydocking, for furnishing electricity and air and
water to the vessel, and fees paid for the use of tugs and pilots
in drydocking and undocking are not subject to duty. However,
C.I.E. 1188/60 further states that "the cost of obtaining a gas-
free certificate constitutes an ordinary and necessary expense
incident to repair operations and is accordingly dutiable. In
liquidation, this charge should be apportioned between the costs
which are to be remitted and those for which relief is not
warranted, and duty [should attach] to that portion of the charge
applicable to items which are not being remitted." Accordingly,
the combined cost of each of these items ($23,700.00) should be
reliquidated in accordance with those guidelines.
Item 254 FUEL OIL TANK VENTS
Sub-item 3.1050..................................$ 1,904.00
Applicant seeks to have this item considered non-dutiable on
the basis that it constitutes a modification. This activity
involves the installation of a section of pipe to allow
installation of fuel oil containments. Applicant claims that
this action will improve safety and enhance the operation of the
vessel in accordance with the above enumerated guidelines. We
believe this to be the case and hold the entire cost of the item
($1,904.00) to be non-dutiable.
Item 254 HATCH COVER STOOL FABRICATION
Sub-item 3.1059..................................$ 31,200.00
Applicant seeks to have this item considered non-dutiable on
the basis that it constitutes a modification. This item involves
the fabrication of hatch cover stacking pedestals which permit
the stacking hatch covers on top of the other. We find that this
item constitutes a modification which enhances the operation of
the vessel and find accordingly that the entire cost of the item
($32,200.00) is non-dutiable.
Item 254 SPECIAL PURPOSE NAVIGATION LIGHTS
Sub-item 3.1072..................................$ 9,682.00
Applicant seeks to have this item considered non-dutiable on
the basis that it constitutes a modification. This item involves
the fabrication of a mount for the flying bridge navigation
lights which were previously run up the halyard line. We find
that this item constitutes a modification which enhances the
operation of the vessel and find accordingly that the entire cost
of the item ($9,682.00) is non-dutiable.
Item 254 LONGITUDINAL HATCH COAMING VOIDS
Sub-item 3.1085..................................$ 28,050.00
Applicant seeks to have this item considered non-dutiable on
the basis that it constitutes a modification. This item involves
the installation of hatch plates over void tops to help prevent
corrosion in voids. We find that this item constitutes a
modification which enhances the operation of the vessel and find
accordingly that the entire cost of the item ($28,050.00) is non-
dutiable.
Item 256 REFIT AND REPAIR OF SERVICE PROPELLER
Sub-item 2.1015..................................$ 7,050.00
Applicant seeks to have this item considered non-dutiable on
the basis that it constitutes a transportation cost. The
shipyard invoice states that this item involves the removal of
the in-service propeller, its rigging to the pier, its loading
out for repairs, and upon completion of repairs, its rigging to
the dock and fitting into position. As previously stated, when
remission is sought for transportation or cleaning, such charges
must be clearly segregated on the invoice. Additionally,
prepatory costs in anticipation of transportation are not
includible in transportation costs. With respect to the case at
hand, no separate itemization of the transportation charges
exists; they are lumped together with the charges for repair
functions. Moreover, the item contains charges for work
impermissibly categorized as transportation costs. Accordingly,
the entire cost of the item ($7,050.00) is dutiable.
Item 273 SEAL SERVICING
Sub-item DI-6905.................................$ 4,135.00
Applicant seeks to have this item considered duty-free on
the basis that it constitutes a repair performed pursuant to a
required inspection by regulatory bodies. The item represents
labor charges for technical services allegedly made pursuant to
an ABS inspection. No supporting documentation is supplied which
supports this representation. As a result, the entire cost of
the item ($4,135.00) is 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