VES-13-18-CO:R:IT:C 112128 MLR
Deputy Assistant Regional Commissioner
Commercial Operations
423 Canal Street
New Orleans, Louisiana 70130-2341
RE: Vessel Repair; 19 U.S.C. 1466; Vessel Repair Entry No.
C15-0012369-5; Application for Relief; M/V GREEN WAVE V-48
Dear Sir:
This is in response to your memorandum of March 17, 1992,
regarding the application for relief submitted by Central Gulf
Lines, Inc.
FACTS:
The record reflects that the M/V GREEN WAVE, arrived at
Sunny Point, North Carolina, on December 4, 1991. Vessel repair
entry, number C15-0012369-5, was filed on December 10, 1991,
indicating foreign work performed on the vessel. An application
for relief was filed on February 3, 1992. We are asked to review
the dutiability of the following items:
1. Cleaning in Wilton-Fijenoord Invoice 6988/10955, items H1.1,
H15.1-15.6, M1, M4, and M9; and invoice 6888/10964, item
H11.
2. Access in Wilton-Fijenoord invoice 6988/10955, item H3.1.
3. Repair in Wilton-Fijenoord invoice 6988/10955, item H17.
4. Container Sockets in Wilton-Fijenoord invoice 6988/10955,
item 144.
5. CONVER invoice 302180
6. Examination of Hull Repairs listed in ABS Survey invoice
110389.
7. U.S. Source Parts
8. Taxes assessed in DILAGO invoice, entry item 34.
ISSUE:
Whether the foreign work performed on the subject vessel for
which the applicant seeks relief is dutiable under 19 U.S.C. 1466.
LAW AND ANALYSIS:
Title 19, United States Code, section 1466, provides in
pertinent part for payment of duty in the amount of 50 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 engage in such trade.
1. Cleaning in Wilton-Fijenoord Invoice 6988/10955, items H1.1,
H15.1-15.6, M1, M4, and M9; and invoice 6888/10964, item H11.
Certain vessel inspection operations are generally considered
non-dutiable. Where periodic surveys are undertaken to meet the
specific requirements of, for example, a classification society or
insurance carrier, the cost of the surveys is not dutiable even
when dutiable repairs are effected as a result thereof. C.S.D. 79-
277. With increasing frequency, this ruling has been utilized by
vessel owners seeking relief not only from charges appearing on an
A.B.S. or Coast Guard invoice (the actual cost of the inspection),
but also as a rationale for granting non-dutiability to a host of
inspection-related charges appearing on a shipyard invoice.
C.S.D. 79-277 discussed the dutiability of certain charges
incurred while the vessel underwent biennial U.S. Coast Guard
and A.B.S. 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 the 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 A.B.S. 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.
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 American Bureau of Shipping). In the
liquidation process, Customs should go beyond the mere labels of
"continuous" or "ongoing" before deciding whether a part of an
ongoing maintenance and repair program labelled "continuous" or
"ongoing" is dutiable. The cost of cleaning which accompanies the
operator's maintenance and repair program is dutiable.
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.
Turning to the case before us, the applicant contends that
certain cleaning costs are non-dutiable.
Item H1.1 - Hull Cleaning/blasting/painting (owners' supply).
By the fact that the area was waterwashed, spotblasted, and painted
(see item H1.2), a dutiable maintenance operation, the cleaning
done beforehand was clearly in preparation of and an integral part
of the repairs. Examination, inspections and cleaning which
involve no dutiable elements, to include repair or maintenance, are
the only instances in which they are not dutiable. C.D. 1830
(emphasis added).
Items H15.1, H15.2, H15.3, H15.4, (hatchcovers no. 1-4
respectively), and item H15.6 (Control Stations). These items
state that "renewals as per specification" were made. The
applicant concedes that the labor and material are dutiable;
therefore, since the cleaning is an integral part of repairs, the
cost of cleaning is dutiable.
Further, we take this opportunity to caution the applicant of
submitting an invoice from a shipyard that only indicates work was
performed "as per specification," with no other description of the
work performed by the shipyard. What is required is an invoice
with an unbiased description of the work performed by the shipyard.
Item M1 - Seavalves. The cleaning of the various valves
involved dutiable overhauling operations; therefore, the cleaning
involved in this item is dutiable. The only exception is the
subitem pertaining to B.F. valve 350mm, and B.F. valves 300mm,
which solely involved cleaning and checking them without any
dutiable repairs. The "labour for inspection" costs listed several
times in this item remain dutiable. As stated above, the cost
incurred to check the effectiveness of repairs is dutiable.
Item M4 - M.E. turbocharger. The cleaning operations are
dutiable in that they are an integral part of repairs.
Item M9 - Main Generators. Since we are unable to determine
whether this item involved repairs, the cleaning is dutiable. The
applicant has the burden to establish that a cleaning operation was
not in preparation of, or an integral part of repairs.
Invoice 6988/10964, Item H11 - Bulbous Bow. The cleaning is
dutiable in that damage repairs, welding and painting, were carried
out.
2. Access in Wilton-Fijenoord invoice 6988/10955, item H3.1.
The item partially states that "2 x 2 Bars of bow thruster
tunnel gratings removed and refitted for access." It appears that
to access the zinc anodes which were supplied and fitted, the bars
of the bow thruster tunnel gratings had to be removed and
replaced. Customs has long held that accessing which is an
integral part of dutiable repairs is likewise dutiable. HQ 108366.
3. Repair in Wilton-Fijenoord invoice 6988/10955, item H17 -
Stores Crane.
The installation of the owner supplied stores crane at a
different location on the vessel is considered a non-dutiable
modification. However, the repair of five damaged control levers
is considered a dutiable repair. Even if an article is considered
to be part of the hull and fittings of a vessel, the repair of that
article, or the replacement of a worn part of the hull and
fittings, is subject to vessel repair duties.
4. Container Sockets in Wilton-Fijenoord invoice 6988/10955,
item 144 - Reefer container power supply.
This item indicates that "24 Owners' supplied reefer container
sockets fitted." It is not clear from this description whether the
container sockets were fitted on the vessel or the reefer. If the
sockets were fitted on the vessel and replaced other sockets, this
would constitute a repair. Absent further information, this item
is dutiable.
5. CONVER invoice 302180
This invoice indicates that bridge fittings, twistlocks, and
turnbuckles were supplied. The record does not reflect that these
items were used to repair a container that is an instrument of
international traffic. Absent such information, the cost of this
invoice is dutiable.
6. Examination of Hull Repairs listed in ABS Survey invoice
110389.
Applicant claims that this ABS survey should be non-dutiable
because "the test performed in connection with surveys or
regulatory examinations is non-dutiable since it is being performed
strictly to comply with the requirements of the survey or
examination....This type of action is not done for the purpose of
maintenance or repair, but is only a consequence of the survey or
examination, and therefore should be non-dutiable."
We find that the survey costs for this item were incurred
because of the bulbous bow damage repairs, depicted in Wilton-
Fijenoord invoice no. 6988/10964. Where periodic surveys are
undertaken to meet the specific requirements of, for example, a
classification society or insurance carrier, the cost of the
surveys is not dutiable even when dutiable repairs are effected as
a result thereof. C.S.D. 79-277. However, if a survey is
conducted 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.
(Emphasis added). This is a situation where repairs to the hull
were conducted and the ABS surveyed the area to ascertain if the
work was adequately completed; therefore, the cost is dutiable.
ABS Survey invoice R0000179 - Part Cont. Machinery Survey.
Since the applicant has only submitted the ABS invoice and not the
ABS Survey Report, we are unable to determine whether the cost
incurred for "Part Cont. Machinery Survey" was conducted solely as
part of a periodic survey to meet the specific requirements of the
ABS, or to determine the adequacy of repairs conducted. In the
liquidation process Customs should go beyond the mere labels of
"continuous" or "ongoing" before deciding whether a part of an
ongoing maintenance and repair program labelled "continuous" or
"ongoing" is dutiable. (Emphasis added). Therefore, the cost of
this item is dutiable absent further information.
7. U.S. Source Parts
Applicant claims that relief on various invoices, depicted
below, should be granted in that they are U.S. parts remissible
under Section 4.14(c)(3)(ii), Customs Regulations, and/or are
consumables classified as duty-free under section 4.14(a), Customs
Regulations.
On August 20, 1990, the President signed into law Pub. L.
101-382, section 484E of which amends section 466, Tariff Act of
1930, as amended (19 U.S.C. 1466), by adding a new paragraph (h)
to the statute {19 U.S.C. 1466(h)}.
Section 1466(h) provides in pertinent part that:
(h) The duty imposed by subsection (a) of this section shall not
apply to--
(2) the cost of spare repair parts or materials (other
than nets or nettings) 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.
The effective date of the amendment is stated as follows:
Effective Date.--The amendment made by this section
shall apply to--
(1) any entry made before the date of enactment of this
Act that is not liquidated on the date of enactment of
this Act, and
(2) any entry made--
(A) on or after the date of enactment of this Act,
and
(B) on or before December 31, 1992.
While section 1466(h) applies by its terms only to foreign-
made imported parts, there is ample reason to extend its effect to
U.S.-made materials as well. To fail to do so would act to
discourage the use of U.S.-made materials in effecting foreign
repairs since continued linkage of remission provisions of
subsection (d)(2) with the assessment provisions of subsection (a)
of section 1466 would obligate operators to pay duty on such
materials unless they were installed by crew or resident labor.
If an article is claimed to be of U.S. manufacture, there
must be proof of its origin in the form of a bill of sale or
domestic invoice. If a foreign manufactured article is claimed to
have been previously entered for consumption, duty paid by the
vessel operator, there must be proof of this fact in the form of a
reference to the consumption entry number for that previous
importation, as well as to the U.S. port of importation. If
imported articles are purchased in the United States from a party
unrelated to the vessel operator, a domestic bill of sale to the
vessel operator must be presented.
Further, with regard to imported articles, there must be
presented a certification on the CF 226 or an accompanying
document by a person with direct knowledge of the fact that an
article was imported or purchased for the purpose of either then-
existing or intended future installation on a company vessel.
Ordinarily, the vessel's master would not have direct knowledge of
that fact, and an agent may also be without such knowledge. The
second certification required by 19 U.S.C. 1466(h)(2) as to the
vessel's documentation (foreign or coasting trades) and service
(cargo vessel), will be made by the master on the vessel repair
entry (CF 226) at the time of arrival.
If the elements stated above are proven to the satisfaction
of Customs, the cost of foreign labor utilized for installation of
U.S.-made or previously imported articles will be subject to duty
under section 1466 in matters concerning repairs, and only the cost
of qualifying materials used in repairs will be free of duty.
A U.S. bill of sale has been submitted for the following;
therefore, the costs associated with these invoices are not subject
to duty provided a certification is presented that the vessel is a
cargo vessel and that the articles were purchased for installation
on the vessel.
General Engineering Entry item 15
Schiller Service Corp. 16
Woodward Governor Co. 17
Hydradyne/Hydraulics 19
William H. Swan 20
Drew Ameroid 23
Baker Lyman 31
Gulf-Best Electric, Inc. - Entry item 18. The invoice
indicates that the items were manufactured in the United States.
No certification as to the intended use of the items is therefore
required.
Emery Worldwide - Entry item 21. The record reflects that
main engine exhaust valve cages, in the amount of $14,942.88, were
sent from Central Gulf Lines in New Orleans, Louisiana, to Wilton-
Fijenoord in Rotterdam, The Netherlands. Only a Central Gulf
shipping manifest is submitted. To avoid the payment of duty
either a U.S. bill of sale with a statement that the exhaust valves
were manufactured in the United States must be presented, or if the
exhaust valves were previously imported by Central Gulf with duty
paid, the consumption entry verifying this with a certification
stating that they were imported for the installation on the subject
vessel must be presented.
Emery Worldwide - Entry item 22. No invoice is submitted for
these items. Absent the required evidence, detailed above, the
items are dutiable.
Emery Worldwide - Entry item 24. Only an air freight bill is
submitted. Again, absent more evidence, the items are dutiable.
Chevron International - Entry items 25 and 27. Entry item 27
in particular states "Warehouse location - Hamburg, Germany." This
indicates that duty on these items were not previously paid, nor is
there a statement made by Chevron that these are U.S. manufactured
items. Absent this evidence, entry item 27 is dutiable. Since
entry item 25 provides no information concerning the "Warehouse
Location", we treat it the same as entry item 27. Further, we are
unsure from the descriptions provided if the items are duty-free
consumables.
Vecom USA Ltd. - Entry item 32. These items are duty-free
consumables.
8. Taxes assessed in DILAGO invoice, entry item 34.
As to the tax paid, in CIE 538/62 we held that taxes paid to a
foreign country are a component part of the expenses of repairs and
are dutiable as such.
HOLDING:
After review of the evidence before us, we recommend that the
application for relief be denied in part and allowed in part, as
specified in the Law and Analysis section of this ruling.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch