VES-13-18-RR:IT:EC 114639 GEV
Chief, Liquidation Branch
U.S. Customs Service
Post Office Box 2450
San Francisco, California 94126
RE: Protest No. 2704-99-100480; Vessel Repair Entry No. C27-0167432-0;
PRESIDENT EISENHOWER; V-118; General Services; Drydocking; Proration;
Parts; Inspection; Modification; 19 U.S.C. § 1466
Dear Sir:
This is in response to your memorandum dated March 9, 1999, forwarding the above-referenced protest. Our ruling is set forth below.
FACTS:
The PRESIDENT EISENHOWER is a U.S.-flag vessel owned by American President Lines. Subsequent to the completion of various foreign shipyard work, the vessel arrived at Los Angeles, California, on February 14, 1998. A vessel repair entry was timely filed.
An application for relief with supporting documentation was timely filed. The applicant sought relief with respect to numerous items listed within the above-referenced vessel repair entry. By letter from your office dated August 11, 1998, Customs rendered its decision on the application for relief granting it in part and denying it in part. Subsequently, a petition was timely filed. Pursuant to Headquarters ruling letter 114481, dated October 20, 1998, Customs rendered its decision on the aforementioned petition. The subject entry was forwarded for liquidation which took place on November 27, 1998. A protest, dated February 22, 1999, was timely filed. Fifteen items for which the protestant seeks relief were forwarded for our review. Our ruling on these items is as follows.
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ISSUE:
Whether the costs for which the protestant seeks relief are dutiable under 19 U.S.C.
§ 1466.
LAW AND ANALYSIS:
Title 19, United States Code, § 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..."
The protestant seeks duty-free treatment with respect to the general services and drydocking costs contained within the subject vessel repair entry. In this regard, we note that at both the application and petition stages the evidence submitted was insufficient to support the claim that such costs were attributed solely to nondutiable work. No additional evidence has been submitted by the protestant to support its claims with respect to these costs. Furthermore, since the subject entry contained both dutiable and nondutiable costs, the general services and drydocking costs at issue were prorated pursuant to Customs ruling letter 113474 and memorandum 113350 both of which addressed Customs implementation of the decision of the U.S. Court of Appeals for the Federal Circuit in Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc. v. United States, 44 F.3d 1539 (CAFC 1994).
Notwithstanding the protestant’s assertions to the contrary, we maintain that the general services and drydocking costs in question were correctly prorated in accordance with the above-cited authority in view of the absence of evidence substantiating a finding that these costs were attributed solely to nondutiable work.
Item no. 503 is claimed to be a modification. 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.
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With respect to the protestant’s claim regarding Item no. 503, we note that identical work on a sister ship was previously held to be a modification. (Customs ruling letter 114344, dated October 21, 1998) Upon reviewing this matter, we believe such treatment should be accorded the same work on the subject vessel. Item no. 503 is therefore nondutiable.
Item no. 302 covers five chemicals. The protestant concedes that chemical nos. 1, 3 and 4 listed under this item are dutiable. With respect to chemical nos. 2 (“Standard fuel microbiocide to kill bacteria and fungus in marine fuels, consumed with the fuel.”) and 5 (“Liquid alkaline amine that is continuously dosed to the boiler’s condensate system to prevent corrosion.”), it is alleged that they are consumables. Customs has held such commodities to be nondutiable if wholly consumed in their first use (i.e., not subject to repeated use) and not used in connection with dutiable repairs. (C.I.E. 196/60) Chemical nos. 2 and 5 under Item no. 302 meet these criteria and are therefore nondutiable.
Item no. 50 covers steering gear bearings for which the protestant claims relief under 19 U.S.C. § 1466(h)(3). Subsection (h)(3) provides, in pertinent part, that the 50% duty imposed by 19 U.S.C. § 1466(a) shall not apply to, “the cost of spare parts necessarily installed before the first entry into the United States,...” In this regard we note that service purchase order #075245 covering these parts states as follows:
The Port Steering Gear Motor bearings were renewed with vessel’s
spares. After the replacement of the two thrust bearings the vessel’s
spares were depleted. For safety of the vessel TWO (2) sets of motor
thrust bearings should be carried in our onboard spares.
Contractor is to supply the vessel with the following:
FOUR (4) each - 7316-2 THRUST BEARINGS
Upon reviewing the above purchase order description, it is readily apparent that the steering gear bearings in question were not “necessarily installed” as is required in order to obtain relief under subsection (h)(3) but were merely purchased to replace the vessel’s spares which were installed. The protestant’s claim regarding Item no. 50 is therefore denied.
Item no. 54, which covers the servicing of the vessel’s fire extinguishers, is alleged to be nondutiable pursuant to a mandatory U.S. Coast Guard inspection. While the costs of regulatory inspections by a qualifying entity are nondutiable (see C.S.D. 79-277), such a determination is contingent upon the submission of the relevant documentation to that effect. With respect to Item no. 54, the record is devoid of supporting U.S. Coast Guard documentation. Accordingly, Item no. 54 remains dutiable.
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Item no. 57 covers the service and repair of an annunciator card. While conceding the dutiability of the foreign labor involved with the installation of this item, the protestant contends that the following articles listed on Keiso Giken Automation (S) PTE LTD invoice no. KGAO996-06 are parts entitled to relief pursuant to 19 U.S.C. § 1466(h)(3): “TWO NOS OP-AMP I.C.”. However, our review of the aforementioned invoice indicates that it is contradictory with respect to the protestant’s claim in view of the fact that these articles are listed under the heading, “MATERIALS AND EQUIPMENT”. Neither materials nor equipment are accorded relief under subsection (h)(3). Accordingly, in the absence of evidence to the contrary, we conclude that Item no. 57 is dutiable in its entirety.
Item no. 79 covers the main engine tachometer mounted at the engine side control station which indicates the engine’s true RPM. The tachometer cannot function independent of the main engine parts nor can the main engine be controlled in the maneuvering mode without the RPM speed indicator. The protestant claims relief for this item pursuant to 19 U.S.C. § 1466(h)(3). We concur. Item no. 79 is therefore accorded treatment under subsection (h)(3).
Item no. 114 covers main engine RTDs for which the protestant claims relief under 19 U.S.C. § 1466(h)(3). The documentation submitted in support of this claim indicates that the parts at issue were purchased to replace the vessel’s spares which were installed. Consequently, since the RTDs were not “necessarily installed” as is required for relief under subsection (h)(3), the protestant’s claim with respect to this item is denied.
Item no. 255 covers the testing and servicing of the vessel’s fire fighting equipment. Notwithstanding the protestant’s claim that this cost was incurred pursuant to a mandatory U.S. Coast Guard inspection, the record contains no USCG documentation to that effect. Accordingly, Item no. 255 retains its status as a dutiable maintenance cost.
Item no. 273 covers “O” rings purchased to repair ballast tank gauges. The protestant alleges these articles are parts that should be accorded relief under 19 U.S.C. § 1466(h)(3). Upon further review, we concur with the protestant. Item no. 273 is therefore accorded treatment under subsection (h)(3).
Item no. 387 covers a hand microphone with cable and plug for which the protestant claims relief under 19 U.S.C. § 1466(h)(3). Our position with respect to this item remains unchanged. It is not a part for purposes of subsection (h)(3) and therefore the protestant’s claim for relief is denied.
Item no. 395 covers four chemicals. The protestant concedes that chemical no. 4 is dutiable. With respect to chemical nos. 1 (“Standard fuel microbiocide to kill bacteria and fungus in marine fuels, consumed with the fuel.”), 2 (“Hydrocarbon solvent use in regular cleaning applications by the ship’s crew).” and 3 (“Quick separating degreaser used for regular engine room cleaning.”), it is alleged that they are nondutiable consumables. Upon further review, we agree that chemical nos. 1, 2 and 3 meet these criteria and are therefore nondutiable.
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Item no. 396 covers a lifeboat fuel tank purchased to replace a failed fuel tank in the vessel’s motorized lifeboat. We concur with the protestant’s claim that this fuel tank is a part that qualifies for relief pursuant to 19 U.S.C. § 1466(h)(3).
Item no. 407 covers the purchase of a Motorola 7.5 volt battery. We maintain our position that a battery is not a part for purposes of 19 U.S.C. § 1466(h)(3) and relief thereunder is denied.
HOLDING:
As detailed above, the protest is granted in part and denied in part.
In accordance with § 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will make the
decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.ustreas.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Sandra L. Bell
Director
International Trade Compliance Division