VES-13-18 RR:IT:EC 116061 CK
Chief, Vessel Repair Unit
Bureau of Customs and Border Protection
423 Canal Street, Room 303
New Orleans, Louisiana 70130-2341
RE: Application for further review; Protest No. 2002-02-101201; Vessel Repair entry number C20-0038543-8; PAUL BUCK; V-339; 19 U.S.C. §1466
Dear Sir:
This is in response to your memorandum of September 22, 2003 that forwarded the protest submitted by counsel on behalf of Ocean Ships, Inc. with respect to the above-referenced vessel repair entries.
FACTS:
The PAUL BUCK departed Pearl Harbor, Hawaii on July 18, 2000 and returned to the Port of Norfolk, Virginia on May 14, 2001. A vessel repair entry was filed on May 16, 2001. An application for relief was received by the Vessel Repair Unit (VRU) New Orleans on September 13, 2001. By letter dated August 30, 2002, the VRU denied and in part and granted in part the application for relief. Counsel timely filed a protest on November 29, 2002 in response to the partial denial of the application for relief.
The items in dispute are numbers: 26, 39, 7, 16, 20, 22, 32, 40, 46, 49, 66, 75, 76, 82, 83, 85, 90, 91, 94, 105, 108, and 110.
ISSUE:
Whether the items listed above, for which the protestant seeks relief, are dutiable under 19 U.S.C. §1466.
LAW AND ANALYSIS:
Title 19, United States Code, §1466(a) (19 U.S.C. §1466(a)) states in pertinent part:
The equipments, or any part thereof ... 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 to engage in the foreign or coasting trade, or a vessel intended to be employed in such trade, shall, on the first arrival of such vessel in any port of the United States, be liable to entry and the payment of an ad valorem duty of 50 per centum on the cost thereof in such foreign country.
Title 19, United States Code, §1466(h)(2) (19 U.S.C. §1466(h)(2)), provides, in pertinent part, that the duty imposed by subsection (a) of this section shall not apply to…
“…the cost of spare repair parts or materials (other than nets or netting) which the owner or master of the vessel certifies are intended for use aboard a cargo vessel, documented under the laws of the United States and engaged in the foreign or coasting trade, for installation or use on such vessel, as needed, in the United States, at sea, or in a foreign country, but only if duty is paid under appropriate commodity classifications of the Harmonized Tariff Schedule of the United States upon first entry into the United States of each such spare part purchased in, or imported from a foreign country…”
In regard to the administration of 19 U.S.C. §1466(h)(2) we note that it contemplates entry of the pertinent part or material, and the payment of duty under the appropriate commodity classification of the HTSUS, prior to its use. We further note that while §1466(h)(2) applies by its terms only to foreign-made imported parts or materials, there was ample reason to extend its effect to U.S.-made parts or materials as well. To fail to do so would act to discourage the use of U.S.-made parts or materials in effecting foreign repairs since continued linkage of remission provisions of subsection 1466(d)(2) with the assessment provisions of subsection (a) of §1466 would obligate operators to pay duty on such materials unless they were installed by crew or resident labor. Consequently, CBP so extended the duty-free treatment of subsection (h) to U.S.- manufactured parts or materials. (See, e.g., HQ 110980, dated April 16, 1991).
In order to implement proper enforcement of §(h)(2), it is necessary that the key terms be defined. In defining parts, materials, and equipment, it is most beneficial to do so in descriptive terms rather than in the form of specific lists of items which fit the categories. In compiling lists it is inevitable that items will be inadvertently omitted which may lead to improper or inconsistent application of the law.
For purposes of 19 U.S.C. §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 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.
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 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 designated 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.
The term equipment is determined to mean something which constitutes an operating entity unto itself. Equipment retains at least the potential for portability. Equipment may be affixed to a vessel in a non-permanent fashion, such as by means of bolts or other temporary methods, which is a feature distinguishing it from being considered an integrated portion of the hull and superstructure of a vessel. Examples of equipment as defined are seen in such items as winches and generators.
ITEM 26: is listed on the foreign invoice as a 14” monitor. Item 26 is a line item on the CF 7501A. Protestant seeks relief pursuant to 19 U.S.C. §1466(h)(2). However, the monitor is equipment. Equipment is not entitled to relief from duties under §1466(h)(2).
ITEM 39: is listed on the foreign invoice as various valves. Item 39 is listed on the CF 7501A. Protestant seeks relief pursuant to 19 U.S.C. §1466(h)(2). We agree that the valves are parts entitled to relief under §1466(h)(2), which would make the valves dutiable at the lower HTSUS rate. However, the port has already granted relief on this item and duty was assessed at the lower HTSUS rate. No further relief for this item is warranted.
ITEM 7: is an illegible US invoice. As there is no evidence that this invoice lists parts, rather than equipment no relief can be granted under §1466(h)(2).
ITEM 16: is listed on the US invoice as a water clock. There is no evidence that this item is a part to a larger whole, rather than a clock, which would constitute equipment. As there is no evidence that this item is a part, it is not entitled to relief under §1466(h)(2).
ITEM 20: consists of a US invoice which lists: a socket head cap screw, valve, air motor, worm gear speed reducer, and an air valve. These items are parts that are entitled to relief under §1466(h)(2) as the protestant has supplied an invoice from a US company.
ITEM 22: consists of two US invoices, one for an ultraviolet water purifier, and another for a replacement sleeve for the water purifier. The ultraviolet water purifier is equipment, therefore no relief under §1466(h)(2) can be granted. However, the replacement sleeve is a part, for which a US invoice was supplied, therefore, relief under §1466(h)(2) can be granted for the sleeve.
ITEM 32: consists of a US invoice for 1000w ballast lights. The lights are equipment, therefore no relief under §1466(h)(2) can be granted.
ITEM 40: consists of a US invoice with no information listed other than a reference to two attached invoices which were not included. As there is no evidence that this invoice is for parts, rather than equipment, this item is not entitled to relief under §1466(h)(2)
ITEM 46: consists of a US invoice listing a variety of items such as: worm wheels, worms, cutter bundle felt, bowl pin, grease screw, screw handle, key and washers, woodruff keys, guard screen and washers, rod valve, plug valve, bolts, and washers. These items are parts, and as a US invoice was provided they are entitled to relief under §1466(h)(2).
ITEM 49: consists of a US invoice that lists P-traps, and soap dishes. The P-traps are plumbing parts that are entitled to relief under §1466(h)(2). However, the soap dishes are equipment that are not entitled to relief under §1466(h)(2).
ITEM 66: consists of a US invoice that refers to a reconditioned impeller and a hydraulic motor. However, no description is contained regarding the use of such items, therefore, they stand on their own, and are considered equipment. As equipment, no relief from duty should be allowed under §1466(h)(2).
ITEM 75: consists of a US invoice for a DGPS System. Attached is a certificate from the seller that the goods were either US made or imported duty-paid before sale to Ocean Ships. The DGPS System is equipment, and is not entitled to relief under §1466(h)(2).
ITEM 76: consists of a US invoice for a “AQ/Flamm. Assy, in blue housing.” The invoice is from Status Scientific Controls Inc., which according to its website is the “World leaders in the design and manufacture of gas detection products.” Since there is no evidence that the merchandise is a part rather than equipment, no relief from duty should be allowed under §1466(h)(2).
ITEM 82: consists of a US invoice for a voltage hour meter. The voltage meter is equipment, and is not entitled to relief under §1466(h)(2).
ITEM 83: consists of a US invoice for respirators, ½ masks, and strap/clamp brackets. The respirators, and ½ masks are equipment, which are not entitled to relief under §1466(h)(2). However, the strap/clamps are parts that are entitled to relief under §1466(h)(2).
ITEM 85: consists of a US invoice for polyethylene Jerry can, chemical light, mini flashlights, hazardous location waterproof light, and a replacement bulb. These items are equipment, which are not entitled to relief under §1466(h)(2).
ITEM 90: consists of a US invoice for a t-strainer with ss screens, u-bolts with nuts, hex nuts and fasteners. These items are parts, and as a US invoice was provided they are entitled to relief under §1466(h)(2).
ITEM 91: consists of a US invoice for items described as “spool pc fixed with float.” Since there is no evidence that the merchandise is a part rather than equipment, no relief from duty should be allowed under §1466(h)(2).
ITEM 94: consists of a US invoice for, “Inspection of the Tk coatings…for repair.” We note, however, that although the protestant includes this item under the heading “Requirement of U.S. Manufacture for Equipment purchased in the United States,” no equipment is listed on this invoice. Accordingly, the protestant’s argument with respect to this item is misplaced and its treatment by the VRU is unchanged.
ITEM 105: consists of a US invoice for a keyboard RAF/TRM and fans. As there is no explanation or evidence that these items are parts, they instead stand alone, and are considered equipment. Equipment is not entitled to relief under §1466(h)(2).
ITEM 108: consists of a US invoice for a pre-focus bulb, lamp, remote speaker microphone, and headset. These items are equipment, and are therefore not entitled to relief under §1466(h)(2).
ITEM 110: consists of a US invoice for two liferaft inspections and various items. The inspections are alleged to be US Coast Guard (USCG) required surveys, however, the record is devoid of USCG documentation to support this claim. Furthermore, this item includes the costs of batteries, hand flares, parachute flares, smoke signals, battery tests, first aid kits, tape, decals, straps, and document crating are all equipment. Equipment is not entitled to relief under §1466(h)(2). However, the nuts and bolts assembly is a part, which is not dutiable pursuant to §1466(h)(2). Finally, seasick pills are consumables and are also not dutiable.
The final item from which protestant seeks relief is the dutiability of “shipping costs” incurred in sending US items abroad while the vessel was being repaired abroad. The port assessed duty on all freight invoices submitted since those freight invoices covered numerous purchase orders and the freight costs were not itemized. In HQ 113813, dated October 15, 1998, we stated that US prepaid freight/shipping costs for identified non-dutiable parts are non-dutiable. In this case, the freight invoices cover numerous merchandise invoices and a plentitude of articles, without any itemized costs of freight for each article. Pursuant to C.I.E.’s 1325/58 and 565/55, relief may not be granted where the invoices do not show a complete breakdown of what is dutiable and what is not. See, HQ 108567, dated September 10, 1986. The freight/shipping costs are therefore dutiable in their entirety.
HOLDING:
Following a thorough analysis of the facts as well as of the law and applicable precedents, we have determined that the protest with respect to the items considered should be denied in part and granted in part as specified in the Law and Analysis portion of this ruling.
Sincerely,
Glen E. Vereb
Chief
Entry Procedures and Carriers Branch