HQ 111362: Vessel Repair Entry No. 514-3003564-5; S.S. MASON LYKES V- 16; Casualty; Underwater Damage; U.S. Parts; U.S. Labor; 19 U.S.C. 1466(d)(1)

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                            HQ 111362

                        January 29, 1991

VES-13-18-CO:R:IT:C 111362 GEV

CATEGORY:  Carriers

Deputy Assistant Regional Commissioner
Classification and Value Division
ATTN:  Regional Vessel Repair Liquidation Unit
6 World Trade Center
New York, New York 10048-002980

RE:  Vessel Repair Entry No. 514-3003564-5; S.S. MASON LYKES V-
     16; Casualty; Underwater Damage; U.S. Parts; U.S. Labor; 19
     U.S.C. 1466(d)(1)

Dear Sir:

     This is in response to your memorandum dated October 17,
1990, transmitting a petition for review of the above referenced
vessel repair entry.  Our findings on this matter are set forth
below.

FACTS:

     The S.S. MASON LYKES is a U.S.-flag vessel owned by American
President Lines and chartered to Lykes Bros. Steamship Co., Inc.,
of New Orleans, Louisiana.  The subject vessel had foreign
shipyard work performed in June of 1989.  Subsequent to the
completion of the work the vessel arrived in the United States at
New York, N.Y. on July 2, 1989.  A vessel repair entry was filed
on the date of arrival.

     An application for relief, dated August 1, 1989, was denied
in full on August 28, 1990.  Pursuant to an authorized extension
of time, a petition dated October 2, 1990, was timely filed.  The
petitioner's claims for relief are set forth below.

     On June 6, 1989, while en route from New York to Alexandria,
Egypt via Leghorn, Italy, it was discovered that water was
leaking into the no. 6 double bottom ballast tank.  The tank was
pumped out and an inspection of the area revealed an 18" crack in
the shell plate between frames 172 and 173 port side.  The vessel
was diverted to Piraeus, Greece for survey and repairs.

                              - 2 -

     On June 19, 1989, while en route from Naples, Italy, to
Leghorn, Italy, the starboard steering gear pump failed.  The
vessel put into Leghorn for repairs.  The petitioner states that
these repairs could not have been done with local labor and
materials and therefore it was necessary to fly a service
engineer and repair parts from New Jersey.

     The petitioner contends that the above repairs were
necessitated as a result of two separate casualties and therefore
the duties assessed thereon are nondutiable.  In support of this
position the petitioner submitted the following enclosures:  (1)
the master's report of the shell plate crack including the U.S.
Coast Guard Report of Marine Accident and an abstract of the deck
log; (2) an ABS report covering the bottom plate repairs; (3) an
abstract of the vessel's casualty log; (4) Lykes service order to
Del Gavio Marine Hydraulics, Inc. of Maywood, New Jersey covering
the costs of a service engineer and repair parts to repair the
steering hydraulic system; (5) Del Gavio Marine Hydraulics, Inc.
invoice no. 2746 itemizing the costs referenced in enclosure (4);
(6) an ABS certificate stating that the repaired starboard
steering gear pump has been surveyed and is operating
satisfactorily with a recommendation that the vessel be retained
as classed; and (7) copies of excerpts from cognizant Lykes port
engineers' reports covering the repairs due to the two alleged
casualties.

ISSUE:

     Whether evidence is presented sufficient to prove that the
foreign repairs performed on the subject vessel for which relief
is sought were necessitated by casualty occurrences, thus
warranting remission pursuant to 19 U.S.C. 1466(d)(1).

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.
Section 1466(d)(1) provides for remission of the above duties in
those instances where good and sufficient evidence is furnished
to show that foreign repairs were compelled by "stress of weather
or other casualty" necessary to secure the safety and
seaworthiness of the vessel to enable her to reach her port of
destination.

     The term "casualty", as it is used in the vessel repair
statute (19 U.S.C. 1466) has been interpreted by the Customs
Court as something which, like stress of weather, comes with
unexpected force or violence, such as a fire, explosion, or
collision (see Dollar Steamship Lines, Inc., v. United States,
                              - 3 -

5 Cust. Ct. 28-29, C.D. 362 (1940)).  It should be noted that
absent specific evidence to the contrary, we consider foreign
repairs to have been necessitated by normal wear and tear, a
result which does not permit remission (see C.S.D. 79-32).

     As a simple reading will reveal, the vessel repair statute
is clear and specific in permitting relief only where "good and
sufficient" evidence is furnished establishing a casualty
occurrence.  In order to be considered a "casualty", an
occurrence must be adequately documented or susceptible of proof
in some fashion at the very least.  Such evidence must indicate
that the subject apparatus was damaged:  (1) to a specifically
stated extent; (2) in a specifically described fashion; and (3)
at a named place on a certain date.

     In regard to the applicant's first claim for relief
regarding the leakage of water into the no. 6 double bottom
ballast tank, we note that although the evidence satisfies the
first criteria mentioned above, it does not satisfy the second
two criteria (i.e., that the damage occurred in a specifically
described fashion, and at a named place on a certain date).

     However, it is apparent that the repairs to the cracked
shell plate resulting in the ingress of water into the no. 6
double bottom ballast tank involved repairs to underwater parts
of the vessel.  In C.I.E. 1202/59, we held that damage to
underwater parts of vessels is usually not easily detectable or
susceptible of definite proof respecting date and place of
occurrence.  We held that relief under section 1466(d)(1) is
therefore warranted for such damage in the absence of evidence
showing that the vessel was grounded, struck bottom, or her
propeller contacted some floating object capable of causing
damage prior to the commencement of the voyage.  However, in
C.I.E. 1202/59 and in ruling 106240, dated July 20, 1983, which
applied C.I.E. 1202/59 in a case of underwater damage, there was
some evidence, or at least an inference could reasonably be made
based upon the damage which had occurred, that the damage
resulted from striking an unknown object rather than from normal
wear and tear (see C.I.E. 1243/60, in which a leak in a vessel's
hull was held to be due to normal wear and tear and therefore
remission of duty was denied).  The lack of evidence, or at least
an inference based on the damage sustained, was the very reason
why relief was denied in ruling 106369, dated February 13, 1984.

     In regard to the repairs to the cracked shell plate, the
evidence seems to indicate that the fracture was situated over a
previous fracture site that was inadequately welded, rather than
that the fracture resulted from striking an underwater object.
Accordingly, in view of the insufficiency of the evidence to
support a casualty occurrence, remission based on section
1466(d)(1) is denied.

                              - 4 -

     In regard to the petitioner's second claim for relief, we
note that although the repairs to the starboard steering gear
pump are necessary for the seaworthiness of the vessel, the
petitioner is apparently equating a finding of unseaworthiness
with a casualty occurrence.  The two are not necessarily
related.  A finding that a vessel is unseaworthy provides no
evidence of exactly how it came to be in such a state.

     Accordingly, upon reviewing the record in its entirety it is
apparent that the damage in question was caused by a breakdown or
failure of machinery which may not by regarded as a casualty for
purposes of remission pursuant to section 1466(d)(1) in the
absence of a showing that it was caused by some outside force
(see C.S.D. 79-32 citing C.I.E. 1829/58), a burden of proof the
petitioner did not meet.

     We note, however, that the petitioner states that the
repairs to the starboard steering gear pump could not have been
done with local materials and labor and as a result it was
necessary to fly a service engineer and repair parts from New
Jersey to Leghorn, Italy.  As proof of this statement the
petitioner has submitted invoice no. 2746 from Del Gavio Marine
Hydraulics, Inc. of Maywood, New Jersey, which itemizes the costs
of a U.S. engineer to perform the repairs, the materials used,
and miscellaneous charges (i.e., air fare, airport transfers,
auto rental, hotel accommodations, meals and airfreight). (see
Enclosure 5)

     The Customs and Trade Act of 1990 (Pub. L. 101-382) which
amends 19 U.S.C. 1466, exempts from duty under the statute, the
cost of spare repair parts or materials which have been
previously imported into the United States as commodities with
applicable duty paid under the Harmonized Tariff Schedule of the
United States (HTSUS).  The amendment specifies that the owner or
master must provide a certification that the materials were
imported with the intent that they be installed on a cargo vessel
documented for and engaged in the foreign or coasting trade.

     The certification required by 19 U.S.C. 1466(h)(2) as to the
vessel's documentation (foreign or coasting trades) and service,
will be made by the master on the vessel repair entry (CF 226)
at the time of arrival.  The fact of payment of duty under the
HTSUS for a particular part will take the form of a positive
statement.  In cases in which the vessel operator or a related
party has acted as the importer of foreign materials, or where
materials were imported at the request of the vessel operator for
later use by the operator, the vessel repair entry will identify
the port of entry and the consumption entry number for each part
installed on the ship which has not previously been entered on a
CF 226.  In cases in which the vessel operator has purchased
imported materials from a third party in the United States, a
bill of sale for the materials shall constitute sufficient proof
of prior importation and HTSUS duty payment.  This evidence of
proof of importation and payment of duty must be presented to
escape duty and any other applicable consequences.

     In addition, we require certification on the CF 226 or an
accompanying document by a person with direct knowledge of the
fact that an article was imported for the purpose of either then-
existing or intended future installation on a company's vessels.
Ordinarily, the vessel's master would not have direct knowledge
of that fact, and an agent may also be without such knowledge.

     Customs has in the past linked this duty remission
provision to the duty assessment provision in subsection (a) of
the statute.  In the face of argument to the contrary we have
held that a two-part test must be met in order for remission of
duty to be granted:  first, that the article must be of U.S.
manufacture; and, second, it must be installed by a U.S.-resident
or regular vessel crew labor.  The reason for this position is
that (d)(2) refers to "such equipments or parts...", etc.,
without any other logical placement for the word "such" occurring
in that subsection. We inferred that "such" articles must refer
to those installed under subsection (a), absent any other
reasonable predication.  The new amendment puts this issue to
rest; it is clear that as concerns foreign-made parts imported
for consumption and then installed on U.S. vessels abroad, the
labor required for their installation is separately dutiable.  A
part may now be considered exempt from vessel repair duty albeit
the foreign cost labor is dutiable.

     Uniform treatment will be accorded to parts sent from the
United States for use in vessel repairs abroad, regardless of
whether they are proven to be produced in the U.S., or have been
proven to have been imported and entered for consumption with
duty paid.  In both cases, the cost of the materials is duty
exempt and only the cost of foreign labor necessary to install
them is subject to duty.  Crew member or U.S.-resident labor
continues to be free of duty when warranted.

     The effective date of this amendment makes this section
applicable to any entry made before the date of enactment of this
Act that is not liquidated on the date of enactment of this Act,
and any entry made--

          (A) on or after the date of enactment of this
              Act, and
          (B) on or before December 31, 1992.


     Since the subject entry has not been liquidated, the new
section 1466(h) is applicable to this entry as it relates to
spare parts.

     Accordingly, in regard to the starboard steering gear pump
repairs, although the petitioner has failed to substantiate
remission based on a casualty within the meaning of section
1466(d)(1), it is apparent that the record (specifically invoice
no. 2746 from Del Gavio Marine Hydraulics, Inc., Maywood, New
Jersey) supports a finding that the parts, labor and
miscellaneous expenses related to such repairs are nondutiable.

HOLDING:

     The evidence presented is insufficient to prove that the
foreign repairs for which the petitioner seeks relief were
necessitated by casualty occurrences.  Accordingly, remission
pursuant to 19 U.S.C. 1466(d)(1) is denied.

     With regard to the costs of labor and materials listed on
invoice no. 2746 from Del Gavio Marine Hydraulics, Inc., these
costs are nondutiable pursuant to Customs administration of 19
U.S.C. 1466(h).  The remaining costs listed thereon (i.e., air
fare, airport transfers, auto rental, hotel accommodations, meals
and airfreight) are otherwise nondutiable under 19 U.S.C. 1466.

                                   Sincerely,




                                   B. James Fritz
                                   Chief
                                   Carrier Rulings Branch