VES-13-18-RR:IT:EC 113046 PH
Port Director
U.S. Customs Service
423 Canal Street
New Orleans, Louisiana 70130
ATTN: Vessel Repair Liquidation Unit
RE: Vessel Repair; Application for relief; M/V LIBERTY SPIRIT,
Voyage 27; Entry No. C53-0028012-6; United States Parts;
Inspection; Staging; Segregation of Costs; Survey; 19 CFR
4.14; 19 U.S.C. 1466; 19 U.S.C. 1466(d)(2)
Dear Sir:
This letter is in response to your memorandum dated March 16,
1994, which forwarded for our review an application for relief
from duties relating to the above-referenced vessel repair entry.
Our ruling follows.
FACTS:
The vessel LIBERTY SPIRIT, a United States-flag vessel owned by
Liberty Shipping Group Limited Partnership and operated by
Liberty Maritime Corporation, arrived at the port of Houston,
Texas, on June 14, 1993. A vessel repair entry was timely filed
(June 14, 1993, according to Customs records). According to the
vessel repair entry and other documents in the file, the vessel
underwent certain work at the Lisnave shipyard in Lisbon,
Portugal.
On July 12, 1993, the vessel operator submitted an application
for relief from vessel repair duties (dated July 8, 1993)
regarding this entry of the vessel. The applicant claimed that
certain items (identified in the application) were non-dutiable.
You requested that we review certain items in the entry and
provide you with our determination as to the dutiability of those
items. Those items, with descriptions and other information from
the invoice and other materials in the file, are listed below:
Item no. Invoice description, etc.
103 Sea chest survey. This item consists of
scaffolding necessary to open the sea chests
for American Bureau of Shipping (ABS) and
United States Coast Guard (USCG) inspection,
high pressure washing of the sea chest area to
allow proper surveying, reinstallation of
strainers in good order, "renewing any
defective fastenings", suctioning, and certain
scraping. The costs are segregated as
follows: opening and closing for survey
$1,360; cleaning by scraping $180, and staging
$540. The applicant does not request relief
for the scraping portion of this item.
104 Zinc replacement. The invoice states that
this item was canceled, cites order no. 16,
and describes the work as consisting of
covering with grease 30 anodes and the
cleaning of the grease upon completion. The
costs in this item are not segregated. The
applicant does not request relief for this
item.
330 Main engine sump cleaning. This item is
described as inspecting and cleaning of the
main engine sump, including removal of 6
manholes for access, pumping down of oil (by
the vessel's crew) to a holding tank, cleaning
the sump, wiping down with lint-free rags,
notifying the Chief Engineer prior to closing
for his approval, installing manhole covers
with new gaskets, and surveying. The costs in
this item are not segregated. The applicant
does not request relief for this item.
ABS "dry- This item consists of five parts of a survey
docking" performed by ABS. The five parts are:
survey dry-docking survey, intermediate survey,
special continuous survey (hull No. 2),
special continuous survey (machinery &
electrical equipment), and "repairs". The
"repairs" survey (ABS Report LB 7225-E) refers
to repairs to identified cargo holds,
identified wing tanks, the rudder blade, and
the main engine bracing system. The "repairs"
survey describes the repairs made and
inspection of the repairs afterwards finding
the repaired articles in good order. There is
no indication in the ABS Surveys that the
surveys, other than the "repairs" survey, were
performed to ascertain the extent of damages
sustained, whether repairs were necessary, or
to inspect repairs made. The invoices for the
ABS surveys segregates the cost of the surveys
of "repairs, tank cargo h. dmn. eng. [and] the
bracing system" from the cost of the other
surveys. The applicant first states that
"[a]ll the ABS Survey costs are claimed as
exempt from duty" but then appears to concede
that the cost of the "repairs" survey, per the
ABS invoice, is dutiable.
5423661 Jotun Valspar Marine Coatings. The customer
invoice for this item lists paints and marine
coverings, as well as related items (cleaner
and thinner). Also in the file is a shipping
order form for the same material. According
to the customer invoice, the material was sold
to the applicant and shipped from Louisiana on
April 8, 1993, to the vessel, care of an
address in Louisiana. The applicant claims
non-dutiable treatment for this item, citing
19 U.S.C. 1466(h).
ISSUES:
Whether the work described in the FACTS portion of this ruling is
dutiable under the vessel repair statute (19 U.S.C. 1466).
LAW AND ANALYSIS:
Initially we note that the vessel repair entry and the
application for relief in this matter were timely filed (see 19
CFR 4.14(b) and 4.14(d)(1)(ii)).
Under 19 U.S.C. 1466:
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.
Section 1466 also provides, generally, for remission or refund of
such duties if it is established that the purchases or repairs
were compelled by stress of weather or other casualty, that the
equipments or repairs were manufactured or produced in the United
States and the labor necessary to install them or make the
repairs was performed by United States residents or members of
the regular crew of the vessel, or that the equipments or
materials or labor were used as dunnage for cargo, or similar
purposes. In addition, section 1466 provides for the exemption
from vessel repair duties for certain materials with respect to a
vessel which arrives in a United States port two years or more
after its last departure from a United States port, and for
certain materials for LASH (Lighter Aboard Ship) barges, or
certain spare parts or materials subject to various specified
conditions. The Customs Regulations issued under section 1466
are found in 19 CFR 4.14.
The Customs Service has issued many rulings applying and
interpreting 19 U.S.C. 1466. See, e.g., HQ 112851, dated March
22, 1996, copy enclosed. Ruling HQ 112851, includes statements
of the general rules for the determination of what are
modifications to the hull and fittings of a vessel (held not to
be dutiable under section 1466), and the dutiability under
section 1466 of the cost of inspections or surveys done by the
American Bureau of Shipping (ABS). In regard to surveys or
inspections, the general rule is 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 a survey. When
an inspection or survey is conducted to ascertain the extent of
damages sustained, whether repairs are necessary, or to inspect
repairs made, the costs are dutiable as part of the repairs which
are accomplished. The LAW AND ANALYSIS portion of ruling HQ
112851 is incorporated by reference into this ruling, in regard
to its description of the interpretation of this issue (i.e., the
dutiability of surveys or inspections of a vessel).
Insofar as cleaning operations are concerned, Customs has held
that cleaning operations which remove rust and deterioration or
worn parts, and which are a necessary factor in the effective
restoration of a vessel to its former state of preservation,
constitute vessel repairs. Analogous to Customs position
regarding the dutiability of surveys, Customs has long held that
the cost of cleaning is not dutiable unless it is performed as
part of, in preparation for, or in conjunction with dutiable
repairs or is an integral part of the overall maintenance of the
vessel (see C.I.E.'s 18/48; 125/48; 910/59; 820/60; 51/61;
569/62; and 698/62).
Also pertinent in this case are Customs positions regarding the
segregation of dutiable and non-dutiable costs and the
dutiability of accessing work. Pursuant to C.I.E. 1325/58 and
C.I.E. 565/55, duties may not be remitted where the invoice does
not segregate the dutiable costs from the non-dutiable costs.
Where accessing work is integral to dutiable repairs, the
accessing work is also dutiable (see HQ ruling 108366).
Insofar as the applicability of 19 U.S.C. 1466(d)(2) is
concerned, that provision provides for remission or refund of
vessel repair duties "[i]f the owner or master ... furnishes good
and sufficient evidence that ... 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 ...." As you note, this provision was interpreted by
Treasury Decision (T.D.) 75-257. Under T.D. 75-257, when
material of United States manufacture is purchased by the vessel
owner in the United States for installation abroad by foreign
labor, the labor cost alone is subject to duty under section 1466
and the material is free of duty (see, e.g., ruling HQ 112756).
This remains Customs position (see, e.g., rulings HQ 110741 and
112756).
We note that this treatment is consistent with the Customs
treatment of certain foreign-manufactured vessel parts, under 19
U.S.C. 1466(h). Customs has stated that these provisions (i.e.,
19 U.S.C. 1466(d) and 1466(h)) will be accorded uniform treatment
(see, e.g., rulings HQ 111692 (concerning the same vessel as is
involved in this case) and HQ 112066). In regard to section
1466(h), we note that section 1466(h) expired on December 31,
1992, and again became effective on January 1, 1995 (i.e.,
section 1466(h) was ineffective as to vessel repair entries in
the intervening period). Since the entry under consideration was
during the intervening period, section 1466(h) is inapplicable to
the entry under consideration.
(As for the possible applicability of the decision in Texaco
Marine Services, Inc. v. United States, 44 F. 3d 1539 (Fed. Cir.
1994), to surveys or inspections (see above), we note that,
except for post-repair cleaning and protective coverings, the
decision in that case will not apply to vessel repair entries
filed prior to the date of that decision (December 29, 1994).
Since the vessel repair entry under consideration was filed prior
to that date, Texaco would not affect Customs position regarding
surveys in the entry under consideration.)
The items about which you request advice are item 103, 104, 330,
ABS "dry-docking" survey, and 5423661. In the case of item 103,
although this is a survey, we note that among the work described
in the invoice is "renewing any defective fastenings". This is a
dutiable repair (see, e.g., ruling HQ 112894, in which we ruled
that the renewal of missing or defective studs and nuts was
dutiable). Therefore, the opening and closing for survey portion
and the cleaning by scraping portion of this item are dutiable,
as cleaning operations and accessing work in preparation for or
in conjunction with dutiable repairs (see above). The costs for
staging are non-dutiable, as segregated staging costs (see C.I.E.
1822/58).
In the case of item 104, we note that the applicant does not seek
relief for this item. We are concerned that this item may
represent preparatory work for dutiable repairs and cleaning
operations after repairs (i.e., the work is described as "anodes
covered with grease for protection [and] [g]rease cleaned on
completion"). We note the repairs described in invoice items 110
and 111 (hull cleaning and surface preparation and hull painting)
and the references to protection of anodes against blasting and
painting in the Wilson Walton invoice. In view of this evidence,
and in the absence of any explanatory evidence, this item is
dutiable.
The applicant also did not seek relief for item 330. In this
case, however, we agree with your recommendation that the item be
treated as non-dutiable. The only possible indication that this
item included repair is the reference to installing manhole
covers with new gaskets. Customs has long ruled, consistent with
the decision in American Viking Corp. v. United States, 37 Cust.
Ct. 237, 247, C.D. 1830 (1956), that articles necessarily
destroyed in the course of opening an area for inspection may be
replaced without duty consequence if no otherwise dutiable repair
accompanies the operation (see, e.g., rulings HQ 109349 and HQ
112507). In the former of the cited rulings, we stated about
this rule that "[it] is normally applied to seals, gaskets, and
the like." We have previously held the work described in item
330 to be non-dutiable (see, e.g., ruling HQ 112454). This item
is non-dutiable.
In the case of the "dry-docking" survey, as stated above, the
costs of the "repairs" survey are segregated from the costs of
the other surveys. There is no evidence that any of the other
surveys were performed to ascertain the extent of damages
sustained, whether repairs were necessary, or to inspect repairs
made. Therefore, in accordance with the above described Customs
positions on surveys and the segregation of dutiable and non-dutiable costs, the costs for the "repairs" survey are dutiable
and the costs for the remaining surveys in the "dry-docking"
survey are non-dutiable (see, e.g., rulings HQ 112871 and 112851
for similar treatment of such surveys).
In the case of item 5423661, an invoice is provided for the
materials for which non-dutiable treatment is claimed by the
vessel operator under 19 U.S.C. 1466(h). As noted above, section
1466(h) is inapplicable to this entry (because the vessel repair
entry under consideration was filed during the interval when that
provision was ineffective (see above)). Insofar as the
applicability of 19 U.S.C. 1466(d) is concerned (you requested
our advice on the applicability of that provision), under T.D.
75-257 and the rulings discussed above, the materials covered in
invoice 5423661 may be accorded non-dutiable treatment, provided
that "good and sufficient" evidence is provided that the
materials were manufactured or produced in the United States.
The only evidence in the file in this regard is the invoice.
Since such evidence, by itself, does not establish that the
materials were manufactured or produced in the United States
(i.e., the materials could have been manufactured or produced
elsewhere and imported by the company which sold them to the
vessel operator), this item is dutiable, unless the applicant
provides such "good and sufficient" evidence (e.g., a letter
signed by a responsible official of the company which sold the
materials to the vessel operator that all of the materials
(specifically referencing invoice 5423661) were manufactured by
the company in the United States (see ruling HQ 111309)).
HOLDING:
Among the items about which you requested advice, items 103
(staging only) and 330, the "dry-docking" survey (except for the
"repairs" survey), and item 5423661 (provided that the vessel
operator supplies "good and sufficient" evidence, as described in
the FACTS AND ANALYSIS portion of this ruling, that the materials
were manufactured or produced in the United States) are NON-DUTIABLE. Items 103 (portions other than staging) and 104, the
"dry-docking" survey ("repairs" survey only), and item 5423661
(if no "good and sufficient" evidence, as described in the FACTS
AND ANALYSIS portion of this ruling, is supplied that the
materials were manufactured or produced in the United States) are
DUTIABLE.
Sincerely,
William G. Rosoff Chief
Entry and Carrier Rulings Branch
Enclosure