VES-13-18-RR:IT:EC 114340 GOB
Port Director of Customs
Attn.: Vessel Repair Liquidation Unit, Room 415
P.O. Box 2450
San Francisco, CA 94126
RE: Vessel Repair Entry No. 718-0000438-5; OVERSEAS JOYCE, V-80; 19 U.S.C. 1466; Petition
Dear Madam:
This is in response to your memorandum of April 6, 1998,
which forwarded the petition submitted by Maritime Overseas
Corporation ("petitioner") with respect to the above-referenced
vessel repair entry.
FACTS:
The evidence of record indicates the following. The
OVERSEAS JOYCE (the "vessel"), a U.S.-flag vessel, arrived at the
port of Portland, Oregon on September 23, 1997. The subject
vessel repair entry was subsequently filed. The vessel underwent
certain foreign shipyard work in Ulsan, Korea. The CF 226
indicates that the vessel is owned by OSG Car Carriers Inc.
Your office ruled on the application for relief.
ISSUE:
Whether the costs of the subject items are dutiable pursuant
to 19 U.S.C. 1466(a).
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.
The petition groups the items for which relief is requested
into five categories and refers to these categories as
"notations," based upon the notations made on the spreadsheet,
e.g., notations one through five. For the sake of clarity, we
will use the same five categories.
Category One - numerous drydock costs and/or general
services costs. The petitioner states: "It is our
interpretation that services utilized for preparation of the
vessel for repairs are except from duty...The items represent
costs strictly for the preparation of the vessel for repairs,
such as electrical power, potable water, garbage removal, docking
and undocking etc."
The items in this group are commonly referred to as drydock
costs and/or general services costs. It is our oft-stated
position that these costs are to be prorated between dutiable
costs and nondutiable costs on the vessel repair entry at issue.
The reason for this position is that such costs are typically
incurred with respect to "an entire drydocking," which usually
includes costs dutiable under 19 U.S.C. 1466 and costs which are
not dutiable under 19 U.S.C. 1466.
With respect to the petitioner's statement, above,
concerning the exception from duty, we note the following
language from 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):
Texaco urges us to reject the Court of International
Trade's "but for" approach and to interpret "expenses
of repairs" so as to exclude those expenses (e.g.,
expenses for clean-up and protective covering work) not
incurred for work directly involved in the actual
making of repairs. Such a reading has no basis in the
plain language of the statute, however. Aside from the
inapplicable statutory exceptions, the language
"expenses of repairs" is broad and unqualified. As
such, we interpret "expenses of repairs" as covering
all expenses (not specifically exempted in the statute)
which, but for dutiable repair work, would not have
been incurred. (Emphases supplied.)
Category Two - item 58. The petitioner states that this
item "was incurred as a result of a casualty sustained while in
the regular course of the vessel's voyage, therefore, requiring
repairs during this drydock as mandated by the U.S. Coast Guard."
19 U.S.C. 1466(d)(1) provides in part that the Secretary of
the Treasury is authorized to remit or refund such duties if the
owner or master of the vessel furnishes good and sufficient
evidence that the vessel was compelled by stress of weather or
other casualty to put into a foreign port and make repairs to
secure the safety and seaworthiness of the vessel to enable her
to reach her port of destination. 19 CFR 4.14(c)(3)(I) provides
that "port of destination" means such port in the United States
and "...only the duty on the cost of the minimal repairs needed
for the safety and seaworthiness of the vessel is subject to
remission or refund."
19 U.S.C. 1466 and 19 CFR 4.14 essentially set forth a
three-part test, each of the elements of which must be
established by good and sufficient evidence to qualify for
remission:
1. a casualty occurrence;
2. an unsafe and unseaworthy condition; and
3. the inability to reach the port of destination
without foreign repairs.
We find that the petitioner has not provided satisfactory
documentary evidence to satisfy the three-part test. Indeed, the
petitioner has not established any of the three elements.
The mere assertion of the occurrence of a casualty in a
petition or on an invoice is not satisfactory documentary
evidence. Similarly, an ABS certificate of fitness to proceed,
which does not document or describe a casualty, is not
documentary evidence with respect to any of the three elements,
each of which must be established by good and sufficient
evidence.
Evidence which has been helpful to casualty claims under 19
U.S.C. 1466(d)(1) has included affidavits of parties with
firsthand knowledge, official U.S. Coast Guard reports, and other
agency reports bearing on the occurrence of a casualty, the
condition of the vessel and the immediate necessity of the
repairs.
Category Three - items seven, 10, 11, 36, and 51 on Hyundai
Mipo Dockyard Co., Ltd. Invoice #97-10-20A. The petitioner
states that these "items represent expenses incurred for the sole
purpose of inspection required by regulatory authorities (USCG
and ABS) as deemed necessary to maintain the vessel's
classification."
The invoice for item seven reflects "Sea Valve Repairs" (the
heading of this item) and the removal of valves for overhaul.
This item is dutiable as an item incident to repairs.
The invoice for item 10 provides: "Range our port and
Starboard anchor chain for inspection and ABS required guaging
[sic], no repair...After inspection heavily blast links in way of
shots and Mark each shot as per Mark for Anchor Chain'...Inspect
anchor head pin and (2) retaining pins, check anchors for any
sign of fracture at shoulders." [Emphasis in original.] We find
that this item is nondutiable as an item incident to a
nondutiable inspection or survey. The invoice contains no
indicia of repair or maintenance work, and reflects our finding
of an item incident to a nondutiable inspection or survey.
The invoice for item 11 reflects an ABS and/or U.S. Coast
Guard inspection and preparation therefor. The invoice does not
reflect repairs. We find that this item is nondutiable.
The invoice for item 36 reflects lighting, gas freeing, and
"mucking out." These items are to be prorated in the same manner
as other drydock costs and/or general services costs.
The invoice for item 51 includes two sub-items. The first
sub-item reflects the opening up of a turbocharger for a
continuous ABS survey. This sub-item is nondutiable as an item
incident to a nondutiable survey. The invoices reflect that
dutiable repairs were performed on the turbocharger (See Category
Four, below, and "assistance with turbocharger overhaul."), but
because this sub-item (which reflects the opening of a
turbocharger for a continuous ABS survey) is separately invoiced,
and not combined with dutiable repairs, it is nondutiable.
The second sub-item reflects work incident to a repair
("rigged elbow ashore for repair") and is dutiable.
Category Four. The petitioner states that this "item
represents the cost of transportation, lodging and inspection of
the attending surveyor of the main engine. No repairs were made
by the MAN B&W representative."
The invoice reflects that the service engineer provided
"assistance with turbocharger overhaul." We find that this item
is dutiable as a repair, repair-related item, or maintenance
item.
Category Five. The petitioner states: "The attached GATT
Form 7501-A represents spare parts supplied to the vessel and
used by the ship's crew. We request a reduction in duty for
these items under the harmonized tariff regulation."
19 U.S.C. 1466(h)(3) provides:
The duty imposed by section (a) of this section shall
not apply to -
...
(3) the cost of spare parts necessarily installed
before the first entry into the United states, but only
if duty is paid under appropriate commodity
classifications of the Harmonized Tariff Schedules
of the United States upon first entry into the United
States of each such spare part purchased in, or
imported from, a foreign country.
For the purpose of 19 U.S.C. 1466(h), we have defined a
"part" as follows:
A part is determined to be something which does not
lose its essential character or its identity as a
distinct entity but which, like materials, is
incorporated into a larger whole. It would be possible
to disassemble an apparatus and still be able to
identify a part. The term part does not mean part of a
vessel, which practically speaking would encompass all
elements necessary for a vessel to operate in its
designed trade. Examples of parts as defined are seen
in such items as piston rings and pre-formed gaskets,
as opposed to gaskets which are cut at the work site
from gasket material. [Emphases in original.]
The issue here is whether the subject items are dutiable
under 19 U.S.C. 1466(a) at a rate of duty of fifty percent ad
valorem or under 19 U.S.C. 1466(h)(3) under the appropriate
commodity classification of the Harmonized Tariff Schedule of the
United States.
We have reviewed the pertinent documentation, including the
invoices, CF 7501A's, and the spreadsheet compiled by your office
indicating the treatment of each item. We note that treatment
under 19 U.S.C. 1466(h)(3) was granted at the application stage
to the large majority of the items on the spreadsheet for which
such treatment was requested.
We concur with the treatment of these items as indicated on
your spreadsheet. The items for which treatment under 19 U.S.C.
1466(h)(3) was correctly denied are either not "parts," or were
not installed on the vessel.
HOLDING:
As detailed above, the petition is granted in part and
denied in part.
Sincerely,
Jerry Laderberg
Chief,
Entry Procedures and Carriers
Branch