VES-13-18-RR:IT:EC 115442 GEV
Chief, Vessel Repair Unit
U.S. Customs Service
423 Canal Street
New Orleans, Louisiana 70130
RE: Vessel Repair Entry No. C49-0484402-3; PUNTA TUNA;
19 U.S.C. § 1466
Dear Sir:
This is in response to your memorandum dated July 20, 2001, forwarding for our review an application for relief from duties assessed on certain foreign costs contained within the above-referenced vessel repair entry. Our ruling on this matter is set forth below.
FACTS:
The PUNTA TUNA is a U.S.-flag tug owned by The Great Lakes Towing Company (“GLTC”), an affiliate of the operator, Puerto Rico Towing & Barge Co. (“PRT”). The vessel incurred foreign shipyard costs in September of 2000. The vessel arrived in the United States at Ceiba, Puerto Rico, on September 24, 2000. A vessel repair entry was timely filed as was an application for relief with supporting documentation.
At the time the foreign shipyard costs in question were incurred, the PUNTA TUNA was under a Military Sealift Command (MSC) - contracted long-term charter agreement to provide harbor towing services to the U.S. Navy at Roosevelt Roads, Puerto Rico. It was designated under paragraph C2.4(b) of Contract No. N00033-99-C-1002 (“MSC Contract”), between PRT and the MSC (Exhibit B), as the “Stand-by Tug” for dedicated service at the U.S. Naval Station, Roosevelt Roads, Puerto Rico. As Stand-by tug, the PUNTA TUNA
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was required by the MSC Contract to “…be ready and available for service with an eight hour response time during straight time” and “ready and available for service with an eight hour response time at all other times, twenty-four hours per day, including weekends and holidays.”
The subject tug, classed Harbor Towing, has limited duration and range, and is incapable of operating in open waters, making it impossible to travel any great distance to a shipyard for American Bureau of Shipping (ABS) – required surveys. Several efforts were made to drydock the PUNTA TUNA in Puerto Rico and St. Thomas, U.S.V.I., in order to perform the aforementioned surveys, however, these efforts were unsuccessful because the ship repair facilities at these locations were either closed or incapable of performing the required drydocking. (Exhibits C and D) The PUNTA TUNA was subsequently drydocked at the next closest shipyard, Astilleros Navales Bahia Las Calderas (“ANABALACA”), located at Las Calderas, Dominican Republic, during the period of September 9-22, 2000. The costs at issue were performed during that time. (Exhibit E)
An application for relief, dated December 21, 2000, with supporting documentation (Exhibits A-G) was timely filed by GLTC seeking relief based on the following four alternative arguments: (1) certain work items were not “repairs” for purposes of the vessel repair statute; (2) certain work items were performed in conjunction with a drydocking and survey required by the ABS and pursuant to contract with the U.S. Government to maintain class; (3) certain work items were “consumable supplies” and thus outside the scope of the vessel repair statute; and (4) certain work items were performed for purposes of national security pursuant to the PUNTA TUNA being under contract to the U.S. Government to support U.S. Naval Operations at the U.S. Naval Station, Roosevelt Roads, Puerto Rico. Thus, such items are contended to be outside of the dutiable “repairs” referenced in 19 U.S.C. § 1466(a) and/or constitute “necessary repairs” under 19 U.S.C. § 1466(d) for which remission may be obtained. Furthermore, due to its inability to transit open ocean waters based on design and class restrictions, it was impossible for this vessel to reach a U.S. drydock thereby rendering the provisions of 19 U.S.C. § 1466 unreasonable in this case. Finally, given that repair costs at the foreign shipyard were actually more expensive than similar services were they performed at a U.S. shipyard, the purposes underlying the vessel repair statute would not be served by imposing duties on the foreign shipyard services.
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ISSUE:
Whether the costs for which the applicant seeks relief are dutiable under 19 U.S.C. § 1466.
LAW AND ANALYSIS:
Title 19, United States Code, § 1466(a), 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..."
Section 1466(d)(1) provides that the Secretary of the Treasury is authorized to remit or refund such duties imposed under § 1466(a) if the owner or master of the vessel was compelled by stress of weather or other casualty to put into such foreign port to make repairs to secure the safety and seaworthiness of the vessel to enable her to
reach her port of destination.
Section 1466(d)(2) provides that the Secretary of the Treasury is authorized to remit or refund such duties imposed under § 1466(a) if the equipment or parts thereof or repair parts or materials were U.S.-manufactured or produced and the attendant labor was effected by U.S. residents or the regular crew of the vessel.
Section 1466(d)(3) provides that the Secretary of the Treasury is authorized to remit or refund such duties imposed under § 1466(a) if such equipment, or parts thereof, or materials, or labor were used as dunnage for cargo, or for the packing or storage thereof, or in the erection of temporary bulkheads or other similar devices for the control of bulk cargo, or in the preparation (without permanent repair or alteration) of tanks for the carriage of liquid cargo.
The applicant’s first argument upon which it bases its request for relief is that expenses covering certain work were not “repairs” within the meaning of the vessel repair statute. The work specified by the protestant in this regard includes Items 7-15 and 19-27 on the ANABALCA invoice (Exhibit E). The applicant contends that these items are expenses associated with “routine cleaning” or “restoration because of deterioration and damage” and are therefore not dutiable pursuant to Texaco Marine Services, Inc. v. United States, 44 F.3d 1539 (1994). We disagree not only with the applicant’s
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characterization of these expenses, but also with their interpretation of the court’s decision in Texaco, supra.
As to what constitutes a repair for purposes of 19 U.S.C. § 1466, Customs has long-been guided by the Supreme Court’s decision in Gagon v. United States, 193 U.S. 451 (1904) wherein the Court stated that “[t]he word ‘repair’…contemplates an existing structure which has become imperfect by reason of the action of the elements, or otherwise.” Gagon, 193 U.S. at 457, quoted in United States v. Admiral Oriental Line, 18 C.C.P.A. 137, T.D. 44359 (1930). (see also E.E. Kelly & Co. v. United States, 17 C.C.P.A. 30, 32, T.D. 43322 (1929)) As to the Texaco decision, it is important to note that the court addressed not what constitutes a repair, but rather what is meant by “expenses of repairs” as that term is found in 19 U.S.C. § 1466(a) holding it to “cover all expenses, not specifically excepted in the statute, which, but for dutiable repair work, would not have been incurred,…”
With respect to Items 7-15 and 19-27 on the ANABALCA invoice (Exhibit E), our review of the work descriptions indicates that all such items constitute dutiable maintenance/repairs and/or expenses of repairs. (See Customs ruling letters 112777, dated October 4, 1993, 226737, dated March 12, 1996, and 114676, dated May 10, 1999, see also C.I.E. 910/59, and E.E. Kelly & Co. v. United States, 17 CCPA 30, T.D. 43322 (1929)) Accordingly, the applicant’s first argument is insufficient upon which to grant relief.
The applicant’s second argument is that certain costs appearing on the above-referenced invoice (Exhibit E) were performed in conjunction with a drydocking and survey required by the ABS, and for maintenance of class as required by contract by the U.S. Government. In support of this claim, the applicant has submitted documentation from the ABS to this effect (Exhibit C), and cited to Customs Service Decision (C.S.D.) 79-277 and Customs ruling letter 112779, dated July 23, 1996.
In regard to the dutiability of inspection/survey costs, we note that C.S.D. 79-277 stated that, "[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."
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As discussed in Customs ruling letter 112779 cited by the protestant, with increasing frequency, this ruling has been utilized by vessel owners seeking relief not only from charges appearing on an American Bureau of Shipping (ABS) or U.S. Coast Guard invoice (the actual cost of the inspection) but also as a rationale for granting nondutiability to a host of inspection-related charges appearing on a shipyard invoice. Our position with respect to this ruling is as follows.
C.S.D. 79-277 discussed the dutiability of certain charges incurred while the vessel underwent biennial U.S. Coast Guard and ABS 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, or insurance carrier is not dutiable even when dutiable repairs are effected as a result of such a 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.
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 ABS. 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 were necessary. Although the invoice indicated that the hydraulic unit was "OK," certain related parts and jointings were either repaired or renewed. Therefore, the cost of the testing was dutiable.
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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 ABS). 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.
While we concur that the documentation submitted by the applicant in this regard establishes that a nondutiable drydocking/survey was conducted by the ABS, as discussed above, neither C.S.D. 79-277 nor Customs ruling letter 112779 afford the applicant the requisite authority upon which relief may be granted in regard to the shipyard work and related costs listed on Exhibit E. Furthermore, we note that the ABS documentation also lists a damage/repair survey that was performed in conjunction with miscellaneous hull repairs which are reflected on Exhibit E and for which related drydocking/general services charges also appear thereon. None of the documentation submitted for our review indicates that any of the charges listed on Exhibit E were nondutiable work attributed solely to the nondutiable drydocking/survey as opposed dutiable work attributed to the aforementioned dutiable damage/repair survey. Pursuant to C.I.E.s 1325/58 and 565/55, costs may not be remitted where the invoice does not show a breakdown between those costs that are dutiable and those that are not. Accordingly, the applicant’s second argument does not provide a sufficient justification for the granting of relief.
The applicant’s third argument seeks relief for the following items alleged to be “consumable supplies” and therefore beyond the purview of 19 U.S.C. § 1466: ANABALCA invoice (Exhibit E) Item nos. 4 (shore power during shipyard visit); 5 (provide fresh water to vessel); 6 (Remove trash); and 28 (telephone and fax services). In support of this claim, the applicant cites C.S.D. 80-197 which held that commodities used as a lubricant in the compressor of a refrigeration system and as a refrigerant were “consumable supplies” and therefore not dutiable.
With respect to the applicant’s third argument, it should be noted that C.S.D. 80-197 is premised upon, and cites as authority, Treasury Decision (T.D.) 39340 which provides that, “It appears to be well established that consumable supplies—i.e., provisions consumed by the passengers and crew of a vessel and all commodities which are consumed in their use---constitute ‘sea stores.’” (See also Southwestern Shipbuilding Co. v. United States, 13 Cust. Ct. App. 74,
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T.D. 40934 (1925)) It should be noted that T.D. 39340 further provides that although sea stores are not subject to duty under 19 U.S.C. § 1466, “articles which are purchased for repair purposes on a vessel…though they come under the heading of ‘sea stores,’ would be subject to duty.” In regard to the above-listed items, all of them, as well as Items 1(a) (pilot services), 1(b) (special blocking), 2 (8 laydays
on drydock), and 3 (tug assistance in/out drydock) listed on the same invoice, and all items listed on the Nadelca invoice (except nos. 7 and 7.1), rather than constituting “consumable supplies”, are drydocking/ general services costs which Customs apportions between dutiable and nondutiable costs in accord with our oft-stated position set forth in Customs ruling letter 115024 and 115039, dated June 26, 2000.
As to the applicant’s fourth argument(s), our comments are as follows. At the outset we note that 19 U.S.C. § 1466 provides no exception from the applicability of the duty provisions found therein to vessels under contract to the U.S. Government, either under the auspices of national security or otherwise. To the contrary, § 4.14(a)(2)(ii) (19 CFR § 4.14(a)(2)(ii)), promulgated pursuant to 19 U.S.C. § 1466, specifically provides that U.S. Government-owned or chartered vessels, if documented with a registry or coastwise endorsement, or if not so documented but intended to engage in the foreign or coastwise trade, are subject to the provisions of the vessel repair statute.
With specific regard to the issue of the dutiability of operations required to be performed by the MSC, Customs has long-held that expenses incurred as the result of requirements imposed by a governmental entity are not remissible for that reason alone. Absent some independent grounds justifying remission, agency-ordered operations are dutiable under the statute. (See Customs Service Decision (C.S.D.) 79-272, see also Customs ruling letter 111486, dated October 23, 1991) Furthermore, pursuant to specific authorization from the General Counsel of the Navy, we have held that the MSC bears the financial responsibility for remitting payment to Customs for vessel repairs to ships which are either owned by the MSC or are bareboat chartered to the MSC. Conversely, duties due for repairs to vessels which are either time or voyage chartered to the MSC are the responsibility of individual ship owners or operators. (See Customs ruling letters 109916, dated February 2, 1989; 109260, dated June 15, 1988; and 109347, dated February 12, 1988) The MSC contract in this case (Exhibit B) clearly evidences a time charter for which the applicant maintains financial responsibility for duties assessed pursuant to 19 U.S.C. § 1466.
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As to the applicant’s claim that the repairs in question were “necessary repairs” and therefore not subject to duty pursuant to 19 U.S.C. §§ 1466(d)(1), (2) and (3), we note that not only does the
applicant fail to designate which of the three subsections of § 1466(d) is the basis for its remission claim, the documentation submitted does not support a claim under any of them. As to the applicant’s claim that the vessel was unable to transit open ocean waters based on design and class restrictions making it impossible for it to reach a U.S. drydock, such circumstances are also not provided for in the language of 19 U.S.C. § 1466. Consequently, Customs is without legal authority to waive the assessment of vessel repair duties in this case. In regard to Erie Navigation Company v. United States, 475 F.Supp. 160 (1979), cited by the applicant in support of its position, the court held that 19 U.S.C. § 1466 is not an unconstitutional statute. This decision is therefore of no consequence in this case.
Finally, in regard to the applicant’s argument that repair costs at the foreign shipyard were actually more expensive than similar services were they performed at a U.S. shipyard and therefore duties should not be assessed pursuant to 19 U.S.C. § 1466), the statute does not vest in Customs the requisite discretion to administer such a position. To the contrary, as noted above, the statutory language found in 19 U.S.C. § 1466(a) directs that the duty assessment provisions found therein apply to “…a vessel documented under the laws of the United States..." Since the PUNTA TUNA is a U.S.-flag vessel, the aforementioned statutory provisions apply and the applicant’s argument in this regard is therefore without merit.
HOLDING:
The costs for which the applicant seeks relief are dutiable under 19 U.S.C. § 1466 as discussed in the Law and Analysis portion of this ruling.
Sincerely,
Larry L. Burton
Chief
Entry Procedures and Carriers Branch