VES-13-02/18-R:IT:EC 226486 GOB
Port Director of Customs
Attn: Vessel Repair Liquidation Unit
423 Canal Street, Room 303
New Orleans, LA 70130-2341
RE: Vessel Repair Entry No. C15-0019314-4; 19 U.S.C. 1466; GALVESTON BAY, V- 27; Petition; Surveys
Dear Sir:
This is in response to your memorandum dated October 3, 1995, which forwarded the petition submitted on behalf of Afram Lines (USA) Inc. ("petitioner") with respect to the above-referenced vessel repair entry.
FACTS:
The S.S. GALVESTON BAY ("the vessel") is a U.S.-flag vessel owned and operated by the petitioner. Certain foreign shipyard work was performed on the vessel between March 24, 1992 and August 15, 1992. The vessel arrived at the port of Wilmington, North Carolina on August 24, 1994. The subject entry was filed subsequently filed.
In Ruling 112937 dated February 2, 1994, the application for relief with respect to the subject entry was granted in part and denied in part.
The petition pertains to the costs on the following invoices: ABS invoice no. SP007959, ABS invoice no. SP007961, and ABS invoice no. UK323185.
ISSUE:
Whether the costs at issue are dutiable pursuant to 19 U.S.C. 1466.
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.
In Ruling 112937, we found that the costs on the subject three invoices were dutiable because the invoices included dutiable repairs which were not separately invoiced.
The petitioner has cited C.S.D. 79-277, which states in pertinent part:
Where a survey is undertaken to meet the specific requirements of a governmental entity, classification society, insurance carrier, etc., the cost is not dutiable even when dutiable repairs are effected as a result thereof. 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 per the holding in CIE 429/61.
C.S.D. 89-94 stated in pertinent part:
Customs has held that where periodic surveys are undertaken to meet the specific requirements of a classification society, insurance carrier, etc., the cost of the surveys is not dutiable even when dutiable repairs are effected as a result thereof; however, in the liquidation process Customs should go beyond the mere labels of "continuous" or "ongoing" before deciding whether the item is dutiable. If an inspection or survey is conducted as a part of an ongoing maintenance and repair program labelled "continuous" or "ongoing" the cost is dutiable. Also, if the survey is to ascertain the extent of damage sustained, or to ascertain if the work is adequately completed, the costs are dutiable as part of the repairs which are accomplished pursuant to the holdings in C.I.E. 429/61, C.S.D. 79-2, and C.S.D. 79-277.
In C.I.E. 429/61 dated April 28, 1961 stated in pertinent part:
In this regard, we concur in your opinion that the cost of inspections which are in the nature of surveys are not dutiable incidents coming within the thrust of section 3114, Revised Statutes. However, expenses which are incurred in conducting inspections made subsequent to the repairs, so as to ascertain whether the work has been properly performed, are dutiable as integral parts of the expenses of repairs although separately itemized. Moreover, testing which is effected for the purpose of ascertaining whether repairs to certain machinery or parts of the vessel are required, or are performed in order to ascertain if the work is adequately completed, are also integral parts of the repairs and are accordingly dutiable.
The petitioner has submitted a letter dated April 14, 1994 from ABS Americas/Survey Department to the petitioner with respect to the three invoices which are at issue here. The letter which states in pertinent part:
A. Periodic class surveys and periodic surveys for maintenance of certifications are covered by the listed invoices. These may be considered to be of a routine nature for the purposes of classification and certification purposes.
...
D. The invoiced amounts reflect costs associated with carrying out the periodic inspection services with associated administrative costs and expenses. ABS does not perform repairs and these invoices do not cover repairs carried out by ABS.
E. Where repairs are mentioned in the reports, this is survey of same. ABS as an organization does not carry out the repairs associated with our surveys. The vessel owner is responsible for making arrangements with other parties (such as shipyards) to effect required repairs.
In our consideration of the application with respect to the subject entry (Ruling 112937 dated February 2, 1994), we were not satisfied that the repairs referenced on the subject invoices were not performed by the vendor (ABS) on those invoices. We denied relief with respect to those three invoices for that reason, together with the facts that the repairs referenced thereon were not separately invoiced and were not related to the casualty occurrence.
Based upon the documentation submitted by the petitioner with its petition, we are now satisfied that the record indicates that the repairs referred to on the subject invoices were not performed by ABS and that such repairs were not billed on the ABS invoices which are the subject of this petition.
In the course of our consideration of the subject petition, we requested that the petitioner identify the invoices which covered the actual performing of the repairs referenced on the three ABS invoices which are the subject of this petition. In response to our request, counsel for petitioner submitted a letter dated November 27, 1995. Our examination of the record indicates that counsel's letter of November 27, 1995 is a satisfactory response to our request. In that letter, counsel stated:
The work that is referenced in the ABS reports was done either by the shipyard labor, by independent contractors, or by the crew. The costs for the foreign labor were included as part of the shipyard invoice or as part of the independent contractors' invoices which are discussed herein. The costs for foreign labor were part of the costs declared and entered on the CF 226 that was filed for this entry.
Further, although we believe that the issue is far from clear, we find that most of the evidence indicates that the surveys at issue are more akin to nondutiable periodic surveys (as described in the first sentence of the excerpt from C.S.D. 79-277, supra), than they are akin to dutiable damage surveys (as described in the second sentence of the excerpt from C.S.D. 79-277, supra, and parts of the excerpts of C.S.D. 89-94 and CIE 429/61, supra). We note that while the ABS letter of April 14, 1994 is not totally clear on its face, we find that it is generally supportive of the petitioner's position.
HOLDING:
As detailed supra, the petition is granted.
Sincerely,
William G. Rosoff
Chief
Entry and Carrier Rulings Branch