VES-13-18 RR:IT:EC 115877 RSD
Chief, Vessel Repair Unit
U.S. Customs Service
423 Canal Street
Room 306
New Orleans, Louisiana 70130
RE: Vessel Repair; Petition for Review of Vessel Repair Entry C16-0013401-4;
M/V GUS W. DARNELL; Parts, Materials, Consumables, Certification of U.S. Manufacture; 19 U.S.C. 1466 (d)(2) and 19 U.S.C.1466 (h)(2) and (3)
Dear Sir:
This is in response to your memorandum of December 2, 2002, forwarding for our consideration a petition filed by Counsel on behalf of Ocean Ships, Inc.
You have requested that we consider the petition for review of your decision to deny in part, their application for relief from vessel repair duties. Attached to the petition was a copy of the entry and the application. Our findings are set forth below.
FACTS:
Ocean Ships, Inc. operates the U.S. flag vessel, the M/V GUS W. DARNELL. The vessel departed from Saint Croix, in the U.S. Virgin Islands on August 27, 1999, and returned to Charleston, South Carolina on October 20, 1999. During the course of the voyage, the vessel underwent various kinds of work at foreign shipyards located in Iceland, Belgium, the United Kingdom, and the Netherlands. A bond was posted to cover the estimated vessel repair duties that the vessel had incurred. On February 16, 2000, Ocean Ship’s counsel filed an application for relief of the vessel repair duties. On May 30, 2002, your office issued a decision on the application. This decision granted relief from vessel repair duties in part and denied relief from vessel repair duties in part. In response to the partial denial of the application for relief, counsel filed a petition for review on July 30, 2002, which you have forwarded to us for review.
ISSUE:
Whether the foreign expenses for which the petitioner seeks relief are dutiable under 19 U.S.C. 1466.
LAW AND ANALYSIS: Title 19, United States Code, §1466(a), (19 U.S.C. §1466(a)), provides in part for payment of an ad valorem duty of 50 percent of the foreign cost of equipments, or any part thereof, including boats, purchased for, or the repair parts or materials to be used, or the expenses of repairs made in a foreign country to vessels documented under the laws of the United States to engage in the foreign or coastwise trade, or vessels intended to engage in such trade. Section 1466 was amended by the reinstatement of subsection (h)(1) and (2), the wording of which remains unchanged from their previous enactment as part of the Customs and Trade Act of 1990 (484 of Pub.L. 101-382), which had expired by its own terms on December 31, 1992. The amendment, which is effective for all vessel entries, made on or after January 1, 1995, also added a new subsection (h)(3), which provided as follows:
The duty imposed by subsection (a) of this section shall not apply to--
3) the cost of spare parts necessarily installed before the first entry into the United States, 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 spare part purchased in, or imported from, a foreign country.
A part under title 19 U.S.C. §1466 is determined to be something that does not lose its essential character or its identity as a distinct entity, but which, like materials, is incorporated into a larger whole. It would be possible to disassemble an apparatus and still be able to readily identify a part. The term part does not mean part of a vessel, which would essentially encompass all elements necessary for a vessel to operate in its trade. Examples of parts as defined are seen in such items as piston rings and preformed gaskets.
For purposes of title 19 U.S.C. §1466, the term materials is determined to mean something which is consumed in the course of its use, and or loses its identity as a distinct entity when incorporated into the larger whole. Some examples of materials as defined are seen in such items as a container of paint which is applied to vessel surfaces, and sheets of steel which are incorporated into the hull and superstructure of a vessel. The term equipment is defined as something that constitutes an operating entity unto itself. Equipment retains at least the potential for portability. Equipment may be affixed to a vessel in a non-permanent fashion, such as by means of bolts or other temporary methods, which is a feature distinguishing it from being considered an integrated portion of the hull and superstructure of a vessel. Examples of equipment as defined are seen in such items as winches and generators. Subsection (h)(3) is administered by maintaining the requirement that a vessel repair entry (Customs Form 226) must be filed upon first arrival in the United States of vessels covered by the repair statute. Since issuance of instructions by Customs Headquarters on May 31, 1995 (Headquarters memorandum 113291), in instances in which a vessel operator claims certain foreign parts expenditures to be within the terms of subsection (h)(3), it has been required that continuation sheets normally submitted with entries for consumption (CF 7501-A) be completed and attached to the vessel repair entry form. The continuation sheets must provide all required information necessary to assign the proper duty rate as listed in the Harmonized Trade Tariff of the United States. The vessel repair entry number is the sole number assigned to the entry, and such an entry with continuation sheets attached is considered to be a vessel repair entry.
Item 4(a)
The first item in contention concerns the purchase of two nine-inch mooring ropes. The petitioner claims that under 19 U.S.C. 1466 (h)(2), the mooring ropes should be considered spare parts or materials that the owner or master of the vessel certified are intended for use aboard a cargo vessel, or for installation or use on such vessel. Under 19 U.S.C. 1466(h)(2), the duty owed on the mooring ropes would be limited to the amount owed under the appropriate commodity classification of the Harmonized Tariff Schedule United States (HTSUS). Alternatively, the mooring ropes could also qualify for reduced duty treatment under 19 U.S.C. 1466(h)(3) as spare parts necessarily installed before the first entry in the United States, but only if duty is paid under appropriate commodity classification of the HTSUS upon first entry into the United States.
We disagree that the mooring ropes would fall under the exemption from the vessel repair duties set forth in 19 U.S.C. 1466 (h)(2) or 19 U.S.C. 1466 (h)(3) because we believe that the mooring ropes should be considered equipment rather than parts. A spare part is something that does not lose its essential character or its identity as a distinct entity, and which is incorporated into a whole. A rope is generally something that would be an operating entity unto itself. A rope is potentially portable and could be affixed to a vessel in a non-permanent fashion that would not be integrated into the vessel’s hull and superstructure. Moreover, in Headquarters Ruling Letter 111184 dated October 9, 1990, Customs indicated that items such as ropes are considered equipment. Accordingly, we find that the mooring ropes are not parts and thus would not qualify under 19 U.S.C. 1466 (h)(2) or 19 U.S.C. 1466 (h)(3). Therefore, we find that this item would be subject to vessel repair duties under 19 U.S.C. 1466(a).
Item 4(b)
This invoice for this item indicates that it concerns plywood. The petitioner claims that the plywood should not be considered dutiable because it is a consumable.
In regard to consumables, they are defined as "supplies for the consumption, sustenance, and medical needs of the crew and passengers during the voyage, such as medicine and food." (See C.I.E. 1759/56 and H.E. Warner, Trustee v. United States, 28 C.C.P.A. 143, 148, C.A.D. 136 (1940), citing Southwestern Shipbuilding Co. v. United States, 13 C.C.P.A. 74, T.D. 40934 (1925). A second category of non-dutiable consumables refers to other items, such as fuel, that "are wholly consumed in their first use." Customs Bureau Letter, dated March 7, 1951. See also Atlas Marine Supply Co. v. United States, 29 C.C.P.A. 20, C.A.D. 165 (1941). It should be noted, however, that in order to obtain duty-free treatment under either category, the articles in question must be consumed on board the vessel for which they have been purchased and must not be used for repair purposes. (See C.I.E. 196/60; see also Customs memorandum 104352, dated January 10, 1980, citing T.D. 39340, as modified by T.D. 39507)
Upon reviewing the documentary evidence contained within the record, we believe that the plywood would not be wholly consumed during its first use and rather it appears that the plywood would be considered as a material. Consequently, we have determined that this item would remain fully dutiable.
ITEM 13
This item concerns an Epson printer which the petitioner purchased and claims should be considered not dutiable under 19 U.S.C. 1466(d)(2) or 19 U.S.C. 1466(h)(2). 19 U.S.C. 1466(d)(2) provides for the remission of duties, if the owner or master of such vessel 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. In order to receive remission under 19 U.S.C. 1466(d)(2), U.S. manufacture or production must be established, in addition to the establishment that the labor was performed by U.S. residents or members of the regular crew of the vessel.
We believe that relief would not be available under 19 U.S.C. 1466(h)(2), because the printer such as one described on the invoice should be considered as equipment rather than a part or a material. The printer would be an operating entity unto itself that is potentially portable and could be affixed to a vessel in a non-permanent fashion that would not be integrated into the vessel’s hull and superstructure. Thus the printer would not eligible for the reduced duty under 19 U.S.C 1466(h)(2).
With respect to the petitioners claim under 19 U.S.C. 1466(d)(2) we note that in Headquarters Ruling Letter 112827, dated July 8, 1997, we indicated that vessel repair duty is not imposed on materials or labor when good and sufficient evidence indicates that the equipment, parts, or materials were manufactured or produced in the United States and installed by U.S. residents or by members of the regular crew of the vessel. The origin and the residency/crew member elements must both be present for relief to be granted under this provision….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 a domestic invoice. Absent acceptable documentary evidence of U.S. production or manufacture, a petitioner cannot claim remission under 19 U.S.C. 1466(d)(2).
In this instance, although the petitioner has presented a U.S. invoice, the document does not indicate the country of origin of the printers. Thus we find that the petitioner has not established that the printer was manufactured or produced in the U.S. Moreover, there is no evidence that the labor used to install the printer was performed by residents of the United States or by members of the regular crew of the vessel. Accordingly, the item at issue is not remissible pursuant to 19 U.S.C. 1466(d)(2), and this item would remain fully subject to vessel repair duties.
ITEM 18
This item concerns the purchase of Master Locks. There is no description regarding the type of locks that were purchased. However, upon review, we conclude that this item is not eligible for relief under 19 U.S.C. 1466 (d)(2) because although the petitioner did furnished an invoice from a U.S. company, the invoice does not indicate the country of origin of the locks. In addition, the petitioner has not presented a certification or other evidence that the locks were manufactured or produced in the United States. We also find that the item would not be entitled to relief under 19 U.S.C. 1466 (h)(2) or (h)(3) because we consider the locks to be equipment rather than parts. There is no indication that the locks would be permanently attached to the vessel. A lock appears to be an operating entity unto itself, which would retain at least the potential for portability and thus would not qualify as a part. Therefore this item will remain fully dutiable.
ITEM 19
This item concerns pipes, elbows and bolt flanges. The petitioner claims that this item should be eligible for the relief from vessel repair duties under 19 U.S.C. 1466(h)(2). The items have been classified on Customs 7501A and should qualify for a duty lower than the 50 percent ad valorem duty. We agree that the pipes, elbows and bolt flanges should be considered parts and thus should be eligible for the reduced duties under 19 U.S.C. 1466(h)(2)
ITEM 20
This item concerns power-supply suppressors for computers. The petitioner has presented an invoice from Best Computer and claims that the power-supply suppressors should not be dutiable based on 19 U.S.C. 1466(d)(2). However, again the petitioner has not presented evidence that these items were manufactured or produced in the United States nor was any evidence presented to show that the U.S. residents or the regular crew of the vessel installed the power-supply suppressors. Therefore, the item would remain fully dutiable.
ITEM 21
This item concerns miscellaneous supplies and sundries that were supplied for the vessel. You ask us to review the dutiability of a number of articles that were listed on the invoice. We find that the various foodstuffs and condiments that were listed on the detailed invoice would be considered consumables that would not be dutiable. Articles that were used for cleaning such as a broom, deck scrubbing broom, corn broom, broom handle and round mops would be considered equipment and would be fully dutiable. Various other articles that are listed include dinner forks, dinner knives, a bowl scraper, a 6” Teflon omelet pan, pastry brush, an egg pan, mattress covers, pillow cases, flat sheets, fitted sheets, shower curtain, bar towels, dish towels, and face towels would be considered equipment and would be fully dutiable. (See T.D. 40934). We also find tufton mats and scupper plugs to be fully dutiable as equipment.
HOLDING:
Following a thorough analysis of the facts as well as of the law and applicable precedents, we have determined that the petition for relief with respect to the items
considered should be denied and granted in part as specified in the Law and Analysis portion of this ruling.
Sincerely,
Gina Grier
Acting Chief
Entry Procedures and Carriers Branch