VES-13-18 CO:R:IT:C 112580 GFM
Deputy Assistant Regional Commissioner
Classification and Value Division
ATTN: Regional Vessel Repair Liquidation Unit
New York, New York 10048-0945
RE: Vessel Repair; S/S MARINE RELIANCE V-31; Inspection; Cost;
A.B.S. Invoice; Survey; Evidence; Transportation;
19 U.S.C. 1466; Entry No. C05-0000084-6.
Dear Sir:
This ruling is issued in response to your memorandum dated
January 22, 1993, which forwards for our review the application
for relief filed in conjunction with the above-referenced vessel
repair entry.
FACTS:
The subject vessel, the S/S MARINE RELIANCE, is a U.S.-flag
transport vessel owned by the applicant, Marine Transport Lines,
Inc. of Seacaucus, New Jersey. From July 7, 1992 to July 24,
1992, the vessel undertook shipyard operations at the Sumitomo
Heavy Industries Shipbuilding facility in Yokosuka, Japan. The
vessel arrived in the United States at Davisville, Rhode Island,
on September 17, 1992. Following the approval of a 30-day
extension, an application for relief was accepted by the New York
Regional Office on December 16, 1992.
ISSUE:
Whether the foreign repairs performed aboard the subject
vessel were the result of casualty and thus entitled to remission
pursuant to 19 U.S.C. 1466(d)(1).
LAW AND ANALYSIS:
Title 19, United States Code, section 1466, provides in part
for payment of an ad valorem duty of 50 percent of 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 engage in such trade.
ITEM 15-5A LIFE BOATS: FALLS....................... 260,000
ITEM 15-5B LIFE BOATS: PINS........................ 240,000
Item 15-5A involves a renewal of life-boat equipment. Item
15-5B involves the disconnection, and grinding-smooth of support
bars. Both activities constitute dutiable repairs performed
pursuant to inspection. As these operations are unsegregated
from the cost of each item, both are dutiable.
ITEM 15-15 LIFE RAFT INSPECTION..................... 390,000
ITEM 15-15a INFLATION TEST........................... 153,000
ITEM 15-16 FIRE EQUIPMENT........................... 515,000
ITEM 15-16b PIPELINE TEST............................ 697,000
ITEM 16-1 SEA VALVES............................... 357,000
ITEM 16-3a WASHDOWN................................. 1,000,000
ITEM 16-3b INTERNAL INSPECTION...................... 200,000
ITEM 16-3c COMPOSITE BOILER INSPECTION.............. 300,000
ITEM 16-3d HYDRO SURVEY............................. 140,000
ITEM 16-3e SAFETY VALVES............................ 180,000
ITEM 16-3g TUBE GAUGING............................. 2,700,000
ITEM 16-3h ENGINEERING SURVEY....................... 850,000
ITEM 16-4a #2 PUMP INSPECTION....................... 152,000
ITEM 16-4b #2 CROSSHEAD INSPECTION.................. 120,000
ITEM 16-4c #1 COOLING INSPECTION.................... 124,000
ITEM 16-4d FIRE AND GENERAL INSPECTION.............. 124,000
ITEM 16-4e BALLAST AND BILGE INSPECTION............. 144,000
ITEM 16-4f EMERGENCY FIRE........................... 144,000
ITEM 17-1a RUDDER CLEARANCE......................... 340,000
ITEM 17-1e DYE CHECK................................ 240,000
ITEM 17-2a PROPELLER & TAILSHAFT INSPECTION......... 36,000
ITEM 17-2c PROPELLER TAPER INSPECTION............... 65,000
ITEM 17-2f AFTER SEAL INSPECTION.................... 650,000
ITEM 17-3b PISTON AND CYLINDER INSPECTION........... 564,500
ITEM 17-3c PISTON AND CYLINDER INSPECTION........... 1,840,800
ITEM 17-3d INSPECTIONS.............................. 1,699,000
ITEM 17-3g F.O. PUMP INSPECTION..................... 417,000
ITEM 17-3h GOVERNOR INSPECTION...................... 480,000
ITEM 18-1 QUAD CARGO GEAR.......................... 2,960,000
ITEM 18-2 RAMP HOSE TEST........................... 312,000
These items represent charges incurred pursuant to
inspections conducted by the American Bureau of Shipping. With
regard to inspections, 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 A.B.S. 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
A.B.S. 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 A.B.S. was exempted
from duty. 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
(A.B.S.). 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.
Each of the above items is purported to relate to an A.B.S.
inspection. Although A.B.S. reports were provided, a comparison
of A.B.S.'s survey cost breakdown and the applicant's spreadsheet
indicates that several inspection items contained in the
spreadsheet are absent from the A.B.S. invoice. Moreover, many
charges that are listed on the A.B.S. survey cost breakdown are
inconsistent with those listed in the application for relief.
Accordingly, unless and until such discrepencies are rectified,
each of these items is to be considered dutiable.
ITEM 16-3a COMPOSITE BOILER WASHDOWN................ 1,000,000
ITEM 16-3d HYDRO.................................... 140,000
ITEM 17-2b PROPELLER REMOVAL........................ 525,000
ITEM 17-2c PROPELLER REINSTALL...................... 740,000
ITEM 17-2h FAIRWATER................................ 60,000
ITEM 17-3a DEFLECTIONS.............................. 70,000
ITEM 17-3j SUMP CLEANING............................ 290,000
ITEM 17-3k MISC. CLEANING........................... 500,000
ITEM 18-1 QUAD. CARGO GEAR......................... 2,960,000
ITEM 18-2 RAMP HOSE TEST........................... 312,000
Each of the above items is purported to be an incidental
operation to the inspections that are alleged to have occurred.
Again, however, as evidence regarding survey cost is in question,
unless and until said discrepancies are rectified, these items
must also be considered dutiable.
ITEM 17-3c TRANSPORT/RIGGING........................ 368,000
ITEM 17-3h GOVERNOR TRANSPORT....................... 40,000
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 these items ( 408,000)
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 denied.
Sincerely,
Acting Chief
Carrier Rulings Branch