VES-13-18-RR:IT:EC 114344 GEV
Chief, Liquidation Branch
U.S. Customs Service
Post Office Box 2450
San Francisco, California 94126
RE: Vessel Repair Entry No. C27-0167411-4; PRESIDENT ROOSEVELT;
V-136
Painting; Modification; Parts; 19 U.S.C. 1466
Dear Sir:
This is in response to your memorandum dated April 3, 1998,
forwarding an application for relief from duties assessed
pursuant to 19 U.S.C. 1466. You request our review of Item
nos. 338, 241, 245, 501, 502, and 503, as well as various costs
for which relief is sought pursuant to 19 U.S.C. 1466(h)(3).
Our findings are set forth below.
FACTS:
The PRESIDENT ROOSEVELT a U.S.-flag vessel owned by American
President Lines, Inc. ("APL"). Subsequent to the completion of
foreign shipyard work the vessel arrived in the United States at
San Pedro, California, on December 9, 1997. A vessel repair
entry was timely filed as was an application for relief with
supporting documentation.
ISSUE:
Whether the foreign costs contained within the subject entry
for which our review is sought are dutiable under 19 U.S.C.
1466.
LAW AND ANALYSIS:
Title 19, United States Code, 1466 (19 U.S.C. 1466),
provides in pertinent part for the payment of an ad valorem duty
of 50 percent of the cost of "...equipments, or any part thereof,
including boats, purchased for, or the repair parts or materials
to be used, or the expenses of repairs made in a foreign country
upon a vessel documented under the laws of the United States..."
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Item no. 338 covers engine room cleaning alleged by the
applicant to be nondutiable. We note, however, that the record
indicates that this cleaning was in preparation for dutiable
painting. Customs has long-held that cleaning in preparation of
dutiable painting is dutiable as well (C.I.E. 820/60). Item no.
339 is therefore dutiable.
Item nos. 241 (Modification to Hand Railing), 245 (Cargo
Hold Modifications for 20 Foot Containers), 501 (Modification of
Outboard Longitudinal Stiffener of Box Girder), 501 (Modification
of Inboard Longitudinal Bulkhead of the Box Girder), and 503 (New
Fuel Oil System) are alleged by the applicant to be nondutiable
modifications.
In its application of the vessel repair statute, Customs has
held that modifications, alterations, or additions to the hull
and fittings of a vessel are not subject to vessel repair duties.
The identification of work constituting modifications vis-a-vis
work constituting repairs has evolved from judicial and
administrative precedent. (See Otte v. United States, 7 Ct.
Cust. Appls. 166, T.D. 36489 (1916); United States v. Admiral
Oriental Line et al., 18 C.C.P.A. 137, T.D. 44359 (1930); and
Customs Bulletin and Decisions, Vol. 31, Number 40, published
October 1, 1997.) The factors discussed within the
aforementioned authority are not by themselves necessarily
determinative, nor are they the only factors which may be
relevant in a given case. However, in a given case, these
factors may be illustrative, illuminating, or relevant with
respect to the issue of whether certain work may be a
modification of a vessel which is nondutiable under 19 U.S.C.
1466.
Upon reviewing the work as described on Hyundai Mipo
Dockyard Co., Ltd. invoice no. 961511, it is readily apparent
that each of the above-described alleged modifications are
permanent installations replacing existing
parts/fittings/structures currently in good working order.
Accordingly, Item nos. 241, 245, 501, 502 and 503 are nondutiable
modifications.
With respect to the applicant's claims pursuant to
1466(h)(3), it should be noted that the vessel repair statute was
amended by the reinstatement of subsections (h)(1) and (2), the
wording of which remain unchanged from their previous enactment
as part of the Customs and Trade Act of 1990 ( 484E of Pub.L.
101-382), which had expired by its terms on December 31, 1992.
The amendment, which is effective for all vessel entries made on
or after January 1, 1995, also added a new subsection (h)(3)
which provides as follows:
(3) the cost of spare parts necessarily installed
before the first entry
into the United States, but only if duty is paid under
appropriate com-
modity classifications of the Harmonized Tariff
Schedule of the United
States upon first entry into the United States of each
spare part purchased
in, or imported from, a foreign country. (Emphasis
added)
The scope of the amendment is narrow. It is useful to bear
in mind that the limiting language of (h)(3) refers only to
"spare parts", whereas subsection (a) of the statute assesses
duty on a broad range of costs including "equipments, or any part
thereof, including boats,...or the
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repair parts or materials to be used, or the expenses or
repairs..." (Emphasis added). It is clear that the Congress has
extended a vessel repair duty limitation under subsection (h)(3)
only to certain qualifying parts.
A part under 1466 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 readily 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.
For purposes of 1466, the term materials is determined to
mean something which is consumed in the course of its use, and/or
loses its identity as a distinct entity when incorporated into
the larger whole. Some examples of materials as defined are seen
in such items as a container of paint which is applied to vessel
surfaces, and sheets of steel which are incorporated into the
hull and superstructure of a vessel.
Subsection (h)(3) is administered by maintaining the
requirement that a vessel repair entry (Customs Form 226) must be
filed upon first arrival in the United States of vessels covered
by the repair statute. Since issuance of instructions by Customs
Headquarters on May 31, 1995, in instances in which a vessel
operator claims certain foreign parts expenditures to be within
the terms of subsection (h)(3), it has been required that
continuation sheets normally submitted with entries for
consumption (Customs Form 7501-A) must be completed and attached
to the vessel repair entry form. The continuation sheets must
provide all required information necessary to assign the proper
duty rate as listed in the Harmonized Tariff. The vessel repair
entry number is the sole number assigned to the entry, and such
an entry with continuation sheets attached is considered to be a
vessel repair entry. For entries which followed the January 1,
1995, effective date of the statutory amendments, but which
preceded the issuance of Headquarters guidance, the form of entry
was guided by local Customs practice, and most commonly saw a
vessel repair entry accompanied by an entry for consumption.
As noted above, in the present matter the applicant claims
that certain articles contained within the subject entry are
classifiable under the provisions of subsection 1466(h)(3). We
have examined the record regarding those articles specified for
our review (Repair Item #s 178, 179, 206, 229, 231, 248 and 249
marked as such on the CF 7501-A) and find that it supports the
applicant's claim that as originally purchased the articles in
question constituted uninstalled parts and are classifiable under
19 U.S.C. 1466(h)(3).
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HOLDING:
The foreign costs contained within the subject entry for
which our review is sought are dutiable in part under 19 U.S.C.
1466 as discussed in the Law and Analysis portion of this ruling.
Sincerely,
Jerry Laderberg
Chief
Entry Procedures and Carriers
Branch