VES-13-18-RR:IT:EC 114111 GOB
Port Director of Customs
Attn.: Vessel Repair Liquidation Unit, Room 415
P.O. Box 2450
San Francisco, CA 94126
RE: Vessel Repair Entry No. 110-6461867-8; PRESIDENT KENNEDY, V-78; 19 U.S.C. 1466; Petition
Dear Madam:
This is in response to your memorandum of September 16,
1997, which forwarded the petition submitted on behalf of
American President Lines, Ltd. ("petitioner") with respect to the
above-referenced vessel repair entry.
FACTS:
The evidence of record indicates the following. The
PRESIDENT KENNEDY ("vessel"), a U.S.-flag vessel owned and
operated by the petitioner, arrived at the port of Seattle,
Washington on February 16, 1996. The subject vessel repair entry
was subsequently filed. The vessel underwent certain foreign
shipyard work in numerous locations in Asia.
In Ruling 113680 dated July 17, 1997, which contained our
determinations on the application for relief with respect to the
above-referenced entry, we found certain items dutiable and
certain items nondutiable.
ISSUE:
Whether the costs of the certain items are dutiable pursuant
to 19 U.S.C. 1466(a). Whether the costs of certain items are
subject to remission under 19 U.S.C. 1466(d)(1).
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.
19 U.S.C. 1466(d)(1) provides that the Secretary of the
Treasury is authorized to remit or refund such duties if the
owner or master of the vessel furnishes good and sufficient
evidence that the vessel was compelled by stress of weather or
other casualty to put into a foreign port and make repairs to
secure the safety and seaworthiness of the vessel to enable her
to reach her port of destination.
Items For Which Relief Is Requested
Items 101-111;113-115 - General Services Items. The
petitioner asserts that the proration of these costs is contrary
to the statute and case law. We disagree. Our position with
respect to the proration of general services and/or drydock
costs, which was first enunciated in Ruling 113474 dated October
24, 1995 (and which has been reiterated in many subsequent
rulings), was undertaken after considerable analysis and thought
with respect to the most equitable manner consistent with the
statute in which to administer these costs.
Our determination that these costs should be prorated is
affirmed.
We note additionally that the petitioner states that
proration is "unworkable administratively." It asks: "How can
the charges be apportioned? Should the charges of dry-docking,
etc. be included in the determination of charges which are
dutiable or non-dutiable? What would charges which are dutiable
at a lesser rated [sic] than 50% because of the operations of 19
U.S.C. 1466(h)(2) and (3)? How does the apportionment formula
work in this case?"
In Ruling 226873 dated October 29, 1996, we stated:
In accordance with Ruling 113474 and Memorandum 113350,
and as your forwarding memorandum states, the
drydocking charges should be prorated between the
dutiable and nondutiable costs associated with the
drydocking. The method of prorating was described in
Ruling 113474, supra: the drydocking costs "should be
apportioned to reflect the dutiable and non-dutiable
foreign costs in this entry." For example, if, aside
from the subject "drydocking costs," as described
supra, fifty percent of the costs of that particular
drydocking were dutiable and fifty percent were
nondutiable, then fifty percent of the subject
"drydocking costs," as described supra, would be
dutiable and fifty percent would be nondutiable.
The costs of general services and/or drydock costs to be
prorated are not involved in the calculation of what portion of
the costs is dutiable and what portion is nondutiable.
With respect to the inclusion of 19 U.S.C. 1466(h)(3) duties
in the proration calculation, in Ruling 226873 we stated:
Duty assessed under 19 U.S.C. 1466(h)(3) is vessel
repair duty (i.e., 19 U.S.C. 1466 duty), albeit
assessed at a rate of duty different from the fifty
percent rate of 19 U.S.C. 1466(a). As such, the
dutiable amount with respect to duty assessed under 19
U.S.C. 1466(h)(3) is to be included in the dutiable
component for the purpose of the proration calculation
which is described supra on pages four through six of
this ruling.
Item 117 - Drydock of Vessel. These costs should be
prorated in the same manner as the above costs.
Item 117.1 - Drydock - 3 Lay Days, Tail Shaft Casualty and
Item 129 - Dock Trial. The petitioner states that these items
are directly related to item 324, with respect to which duty has
previously been found to be subject to remission pursuant to 19
U.S.C. 1466(d)(1) based on casualty. The petitioner has
submitted a memorandum dated June 6, 1996 from the attending port
engineer of the vessel to the fleet manager with respect to the
casualty. The memorandum states, in pertinent part:
In addition to the cost of Item #324 is the associated
and related costs of Item #117.1 for three additional
days drydocking to accomplish Item #324 and the cost of
Item 129 for dock trial to prove the satisfaction of
the stern bearing renewal.
We find that the duty on the costs of item 117.1 and item
129 is subject to remission pursuant to 19 U.S.C. 1466(d)(1).
Item 208 and Item 208.1 - Shell Connection Pipe Gauging.
The invoice for item 208 states: "Only as required for ABS & USCG
Inspection, No Repairs[.]" The invoice for item 208.1 provides:
"...as required by ABS...Add gaugings required by ABS..."
We find that these items are nondutiable because they are
items incident to a nondutiable ABS inspection.
Item 209 - Anchor Chain Inspection. The invoice states:
"ABS & USCG Inspection, No Repairs ... Rouse and range P/S Anchor
Chains in dry-dock ... NOTE: Any coating or repairs of chain will
be on a separate item. Marking and seizing shots to be done as a
separate item."
We find that this item is nondutiable as an item incident to
a nondutiable ABS inspection.
Item 502 - No. 3 Cargo Hold Structural Modifications. The
invoice states, in pertinent part: "Crop-out and insert ... near
the aft edge in way of the fractures at both Port and Stbd
locations for Web Frame 236 in Hold No. 3."
This item is dutiable. Work performed to remedy fractures
is dutiable.
Item 504 - Hatch Coaming Stays Modification. The invoice
states, in pertinent part: "Several of these stays have suffered
fractures at the connection weld to the Upper Deck or above the
connection weld."
This item is dutiable. Work performed to remedy fractures
is dutiable.
Item 509 - Renewal Swash Bulkheads Fr. 296, 300 and 304 and
Item 509.1 - No. 1 Deep Tank Swash Bulkheads A/C Increase Wt.
The petitioner claims that these items are dutiable under 19
U.S.C. 1466(h)(2) and/or (h)(3).
We disagree. We find that these costs are dutiable under 19
U.S.C. 1466(a).
It is our position, as stated in Ruling 113673 dated July 7,
1997, that 19 U.S.C. 1466(h)(2) contemplates entry of the
pertinent part or material, and the payment of duty under the
appropriate commodity classification of the HTSUS, prior to the
use of the pertinent part or material in the foreign shipyard.
The petitioner has not established this.
19 U.S.C. 1466(h)(3) applies to "spare parts ..." It does
not apply to materials. We have held previously that
prefabricated steel is a material and is not within the scope of
19 U.S.C. 1466(h)(3). See, for example, Ruling 113883 dated
April 1, 1997, Ruling 113673 dated July 7, 1997, and Ruling
113938 dated August 22, 1997. Accordingly, this item is not
eligible for treatment under 19 U.S.C. 1466(h)(2) or (h)(3). It
is dutiable under 19 U.S.C. 1466(a).
CF 226 Item 11 - International Paint Representative. The
petitioner states that the International Paint representative is
a U.S. citizen and U.S. resident. It has submitted a memorandum
from International Paint which states that the representative
provided technical service and further states that the
representative is a U.S. resident, residing at 2131 N.W. Pacific
Elm Drive, Issaquah, Washington.
We find that this item is nondutiable.
HOLDING:
As detailed above, the petition is granted in part and
denied in part.
Sincerely,
Jerry Laderberg
Chief,
Entry Procedures and Carriers
Branch