VES-13-18-CO:R:IT:C 112728 DEC
Regional Director
Commercial Operations Division
ATTN: Vessel Repair Liquidation Unit
New Orleans, Louisiana 70130
RE: Vessel Repair; Petition for Review; Spare Parts; U.S. Labor
Vessel Repair Entry No. C15-0012648-2
Date of Arrival: October 30, 1991
Port of Arrival: Sunny Point, North Carolina
Vessel: S/S ROVER V-74
Dear Sir:
This ruling is in response to your memorandum dated May 6,
1993, which forwards for our consideration a petition for review
filed in connection with the assessment of vessel repair duties on
the above-referenced vessel.
FACTS:
The S/S ROVER, an American-flag vessel owned by Central Gulf
Lines, Inc. underwent foreign shipyard repairs during September and
October, 1991. An American labor team sent from the United States
carried out many of the repairs. Subsequently, the vessel arrived
in the United States on October 30, 1991. A timely vessel repair
entry was filed on November 5, 1991.
Headquarters Ruling 112069, dated May 21, 1992, addressed the
vessel operator's application for relief from vessel repair duties.
On April 29, 1993, the vessel operator timely filed a petition
challenging the dutiability of items 10, 11, 27, 28, and 29 as they
appear in the submitted materials.
ISSUE:
Whether the work performed upon the subject vessel is subject
to duty pursuant to 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 fifty percent ad
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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.
According to 19 U.S.C. 1466(d)(2) and implementing
regulations, remission or refund of duties is authorized if good and
sufficient evidence is furnished showing that the equipment,
equipment parts, repair parts or materials used on the vessel were
manufactured or produced in the United States and purchased by the
vessel owner in the United States, and the labor necessary to
install such equipment or to make such repairs was performed by U.S.
residents or by the vessel's regular crew members.
With the enactment of 19 U.S.C. 1466(h) (this statute which
recently expired on December 31, 1992, was in effect on the date the
subject vessel made entry), the duty climate relative to parts and
materials was altered. Under subsection (h), materials and parts
were considered as a separate component of a shipyard bill entitled
to duty-free consideration, regardless of the character of the
operation in which they were utilized, so long as they had been
previously imported into the United States with appropriate
consumption entry duties having been paid. Other than crew labor
under subsection (a) of the statute, this was the first time that
qualified labor was not required in order that the cost of materials
in an installation be accorded duty-free status.
Since section 1466(h) applied by its terms only to foreign-
made imported parts, Customs found 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 19 U.S.C.
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.
Even though 1466(h) is not currently in effect, Customs has
come to recognize that a dichotomy exists in analyzing the
dutiability of materials and labor under 19 U.S.C. 1466(d)(2).
Section 1466(d) states that:
If the owner or master of such vessel furnishes good and
sufficient evidence that-
. . .
(2) such equipments or parts thereof or repair
parts or materials, were manufactured or
produced in the United States, and the labor
necessary to install such equipments or to
make such repairs was performed by residents
of the United States, or by members of the
regular crew of such vessel . . .
then the Secretary of the Treasury is authorized to
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remit or refund such duties . . . (emphasis added).
19 U.S.C. 1466(d)(1993).
While a literal reading of the statute appears to require that
materials used in repairs to be of U.S.-origin and that the
installation be performed by U.S.-resident labor or by members of
the vessel's regular crew, it is Customs position that such a
reading serves to frustrate the intent of the vessel repair statute.
In United States v. Gissel, the court stated the following regarding
the legislative history of the modern day vessel repair statute.
The Tariff Act of 1930 included within its formal
title the following purpose: "An Act to provide
revenue, to regulate commerce with foreign countries,
to encourage the industries of the United States, to
protect American labor, and for other purposes." 46
Stat. 590 (1930). This statute provides for the
imposition and collection of customs duties upon entry
of various foreign merchandise into the United States.
Since foreign repair parts on vessels were generally
thought of and classified as dutiable merchandise and
since it was Congressional policy to encourage the
obtaining of American flag vessel repairs in American
shipyards, such repairs were expressly included as
dutiable merchandise within a provision of the Tariff
Act.
United States v. Gissel, 353 F. Supp. 768, 772 (S.D. Tex. 1973),
aff'd, 493 F.2d 27 (5th Cir. 1974).
It is apparent that the objective of the vessel repair statute
was not only to "encourage" the U.S. shipbuilding industry, but to
"protect American labor" as well. Consequently, while section
1466(d)(2) contains a requirement regarding the origin of parts and
labor, it is Customs position that the word "and" in the context of
this particular statutory provision is not conjunctive.
Running through all the decisions involving issues
similar to the one at bar there is found the well-
settled principle that courts may construe the words
"and" and "or" to have a meaning different from that
arrived at by a strict grammatical construction, if
by so doing the different provisions of the paragraph
or act can be harmonized, and anomalous results avoided.
Of course, in considering language used in a tariff
act, there need be no construction if there exists no
ambiguity, but if anomalous results flow from the
language when given its ordinary grammatical meaning,
and if such construction throws different parts of the
paragraph or act out of harmony, its use unquestionably
has produced ambiguity and uncertainty to the extent and
degree which makes applicable the rule that courts may
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ignore the technical grammatical meaning and ascertain
the real intent of the legislature.
Doughten Seed Co. v. United States, T.D. 48686 (1936).
In Mount Washington Tanker, Co. v. United States, the United
States Court of Customs and Patent Appeals addressed the issue of
whether repairs performed by foreign labor who signed on as crew in
a foreign port and completed their work while the vessel was in
international waters was subject to duty. In finding these
operations dutiable, the court approved of the trial court's
analysis that the legislative purpose of the vessel repair statute
would be frustrated if the vessel operator elected to forego U.S.
labor to have repairs performed by foreign workers hired as special
crew and these costs were deemed non-dutiable. Essentially, the
court found that the vessel operator used "foreign labor to the
detriment of the U.S. workers that Congress sought to protect."
Mount Washington Tanker, Co. v. United States, 69 C.C.P.A 23, 28-
29, 665 F.2d 340, 345 (1981).
Analogously, it is Customs position that the cost of U.S.-
resident labor is not subject to duty under 19 U.S.C. 1466 when no
equipments, parts, or materials are used in conjunction with the
expertise of U.S. labor. To do so would frustrate the intent of the
vessel repair statute. Consequently, duty with respect to items 27,
28, and 29, which were deemed dutiable based on a strict reading of
the 19 U.S.C. 1466(d)(2), are not subject to duty. Headquarters
Ruling 112069 (May 21,1992) is, therefore, modified to reflect the
statutory interpretation outlined above.
While Items 10 and 11 referred to equipment allegedly purchased
in the United States and shipped foreign for use in repairs
conducted overseas by U.S.-resident labor, these items were
initially deemed dutiable at the application stage because the
applicant failed to produce a U.S. bill of sale or other evidence
indicating the equipment's origin. Since the petitioner has now
produced a U.S. bill of sale with respect to Item 10, duty with
respect to this item may be remitted.
Item 11, however, remains dutiable. The petitioner claims that
the shipment of spare parts represented by this item was incomplete.
Furthermore, the petitioner refers to the alleged fact that the
entry indicates that the spares were not shipped nor were they
received. Review of Item 11 and the entry on file with Customs does
not reveal this statement. Unless and until the petitioner can
produce authenticated evidence that the spares were not shipped,
this item shall remain dutiable.
HOLDING:
After a thorough review of the record and the additional
evidence presented, the petition for relief is granted in part and
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denied in part as detailed in the Law and Analysis portion of this
ruling. The petitioner should be informed of the right to file a
protest following liquidation of this entry, as evidenced by the
posting of the bulletin notice of liquidation.
Sincerely,
Stuart P. Seidel
Director, International Trade
Compliance Division