VES-13-18-RR:IT:EC 114010 GOB
Port Director of Customs
Attn.: Vessel Repair Liquidation Unit, Room 107
P.O. Box 2450
San Francisco, CA 94126
RE: 19 U.S.C. 1466; MOKIHANA, V -006; Vessel Repair Entry No.
C27-0158612-8; Petition
Dear Madam:
This ruling is in response to your memorandum dated June 27,
1997, which forwarded the petition for relief submitted by Matson
Navigation Company ("petitioner" or "Matson") with respect to the
above-referenced vessel repair entry.
FACTS:
The MOKIHANA (the "vessel"), a U.S.-flag vessel, arrived at
the port of Los Angeles, California on October 28, 1996. The
subject vessel repair entry was filed on November 5, 1996.
In Ruling 113883 dated April 1, 1997, the application for
relief with respect to the subject entry was granted in part and
denied in part.
ISSUE:
Whether the subject items are dutiable pursuant to 19 U.S.C.
1466.
LAW AND ANALYSIS:
19 U.S.C. 1466 provides for the payment of duty at a rate of
fifty 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 be employed
in such trade.
We will use the numbering system which you employed in your
forwarding memorandum.
The subject entry is a "post-Texaco" entry, i.e., an entry
filed after the appellate decision in Texaco Marine Services,
Inc., and Texaco Refining and Marketing, Inc. v. United States,
44 F.3d 1539 (CAFC 1994), aff'g 815 F.Supp. 1484 (CIT 1993).
Accordingly, the Texaco decision applies to this entry.
The petitioner's claim with respect to the applicability of
the Texaco case was very thoroughly discussed in Ruling 113883.
It is unnecessary to reiterate that discussion here.
1. General Services items. These items should be prorated
between dutiable costs and nondutiable costs.
2. Drydock of Vessel (501). The petitioner asserts that
this item should not be prorated. It claims that the proration
concept, as initially expressed in Ruling 113474, is not in
accord with Texaco.
We find that this is a cost, similar to general services or
other drydock costs, which is appropriately prorated. Our
reasoning for prorating certain costs was explained in Ruling
113474, and it is not necessary to reiterate it here. The
underlying basis of our determination to prorate costs which
appear to relate to both dutiable items and nondutiable items is
fairness and reasonableness.
We note that the pertinent invoice states: "(ABS & USCG
Required Inspection Item)..." If this item related solely to a
nondutiable ABS/U.S. Coast Guard inspection, it would be
nondutiable. However, we are not satisfied that this is the
case. As with general services costs and other drydock costs, we
believe that this item relates to both dutiable and nondutiable
costs. Therefore, we believe it should be prorated. We believe
that this is the most fair and reasonable application of 19
U.S.C. 1466 for this type of cost.
3. Modifications to Upper Longitudinal Hatch Coaming (531).
In its application, Matson stated that this item: "...entails the
permanent installation by welding of previously non-existing
brackets to add strength to the longitudinal hatch coamings to
eliminate the flexing of the hatch covers and fracturing of the
container base sockets." In Ruling 113883, we found that this
item was dutiable because it involved an operation to cure the
fracturing of certain articles. As such, it appears to be a
repair and maintenance item.
In its petition, Matson states that this item was a
permanent modification. It further states: "There also were
structural repairs, but this work was dealt with separately and
duly identified for applicable duties (Item 525-1 Hatch Repairs)
and was not necessarily at the same locations as the
modifications...Again, it should be noted that repairs were dealt
with on a separate and distinct item for which Matson is being
charged the appropriate duty."
We find that this item is dutiable based upon Matson's
statement in its application that this item was performed, at
least in part, "to eliminate ... fracturing of the container base
sockets." Work which is performed to correct a problem or
deficiency is dutiable under 19 U.S.C. 1466.
4. Modifications to Transverse Box Girder (535). The
petitioner states: "This work was accomplished independently of
repairs, that may or may not have been in the same or similar
locations."
In Ruling 113883, we stated: "The invoice reflects that this
item was undertaken as a result of various fractures and cracks.
Therefore, it is a dutiable repair."
The invoice clearly reflects that fractures or cracks
occurred, and that the work involved in this item was related to
the fractures and cracks. As an example, the pertinent invoice
states (and this is just one of the instances on the pertinent
invoice where cracks or fractures are mentioned): "Where
fractures have occurred in transverse box girder plate and/or
where chocks were not properly aligned, installed reinforement
[sic] per sketch 535-1."
This item is clearly dutiable under 19 U.S.C. 1466. Work
performed as a result of fractures, cracks, or other disrepair is
dutiable.
5. 14 items of prefabricated steel. The petitioner claims
that the prefabricated steel is subject to 19 U.S.C. 1466(h)(2)
or (h)(3). We disagree.
The petitioner's claim with respect to 19 U.S.C. 1466(h)(3)
was discussed in Ruling 113883, the ruling on the application for
the subject entry, where we stated: "The applicant has not
established that the prefabricated steel is a part under 19
U.S.C. 1466(h)(3). Therefore, the steel is dutiable under 19
U.S.C. 1466(a)."
We affirm this finding. The petitioner has not established
that prefabricated steel is within the scope of 19 U.S.C.
1466(h)(3). It is our view that prefabricated steel is not a
spare part or part, and is thus not eligible for treatment under
19 U.S.C. 1466(h)(3).
The petitioner appears to make the additional claim that the
prefabricated steel is eligible for treatment under 19 U.S.C.
1466(h)(3) as a "material." This claim is erroneous. A reading
of 19 U.S.C. 1466(h)(3) makes clear that "materials" are not
within the scope of this provision.
We also find that the petitioner's claim with respect to
eligibility of the prefabricated steel under 19 U.S.C. 1466(h)(2)
is without merit. It is our position that 19 U.S.C. 1466(h)(2)
contemplates duty-paid entry of eligible spare repair parts or
materials having been made prior to the vessel repair entry at
issue. The petitioner has not established that this occurred.
Accordingly, the prefabricated steel is dutiable under 19
U.S.C. 1466(a).
6. Item 18 on CF 226. The petitioner claims that item 18
on the CF 226 "is not dutiable because it constitutes accessories
and equipment for containers which are instruments of
international traffic and which therefore may be entered without
duty pursuant to 19 C.F.R. 10.41a(a)(2)." In its petition, the
petitioner describes this item as "container deck sockets."
The petitioner has provided no documentary evidence in
support of this claim. The pertinent invoice does not include
information which would link this item with containers or which
would indicate that the subject item is accessories or equipment
for containers. Therefore, we find that this item is dutiable.
7. Item 25, CF 226. The petitioner asserts that: "Holset
Engineering was engaged to supervise inspection Item No. 542,
Main Engine Vibration Damper. This item is an ABS/USCG
requirement and it has been declared to be nondutiable."
The pertinent invoice supports this claim. Accordingly, we
find that this item is nondutiable.
HOLDING:
As detailed above, the petition is granted in part and
denied in part.
Sincerely,
Director,
International Trade Compliance
Division