HQ 112053: Vessel Repair; 19 U.S.C. 1466; Application for Relief; Vessel Repair Entry No. C16-0008526-5; M/V SEALAND PERFORMANCE V-35

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 112053

                         March 16, 1992


VES-13-18 CO:R:IT:C 112053 MLR

CATEGORY:  Carriers

Deputy Assistant Regional Commissioner
Commercial Operations Division
423 Canal Street
New Orleans, Louisiana 70130-2341

RE:  Vessel Repair; 19 U.S.C. 1466; Application for Relief;
     Vessel Repair Entry No. C16-0008526-5; M/V SEALAND
     PERFORMANCE V-35

Dear Sir:

     This letter is in response to your memorandum of December 9,
1991, which forwards for our consideration the above-referenced
Application for Relief from the assessment of vessel repair
duties submitted by Sea-Land Service, Inc.

FACTS:

     The record reflects that the subject vessel, the M/V
SEALAND PERFORMANCE, arrived at the port of Charleston, South
Carolina, on August 14, 1991.  Vessel repair entry, number C16-
0008526-5, was filed on the same day as arrival indicating work
performed on the vessel in Rotterdam, the Netherlands;
Bremerhaven, Germany, and Felixstowe, England.

     The vessel owner timely filed an application for relief on
October 15, 1991.  Numerous invoice items are claimed
nondutiable.  We are asked to review the dutiability of the
following items:

I.   Lloyd-Werft Invoice 0-200:

     Item 028:  Sea-chest inspection operations which may involve
     some repair elements.

     Item 033:  Coating applied to the fathometer well.

     Items 192, 198, 203 and 204:  The segregated cost of venting
     operations and lighting.

II.  Deep Sea Seals Invoice 21766:  ABS inspection of liners.  We
     also address the dutiability of ABS overtime charges listed
     on ABS invoice PN 6708 no. 3668(B).

III. Lloyd-Werft Invoice 0-211:  Item 039, drawing tailshaft for
     examination

IV.  Fuji Trading Invoice:  Origin of aft stern tube bearing and
     security bolts

ISSUE:

     Whether the foreign work performed on the subject vessel for
which the applicant seeks relief is dutiable under 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 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.

I.   Lloyd-Werft Invoice 0-200

     Certain vessel inspection operations are generally
considered nondutiable.  Where periodic surveys are undertaken
to meet the specific requirements of, for example, a
classification society or insurance carrier, the cost of the
surveys is not dutiable even when dutiable repairs are effected
as a result thereof.  C.S.D. 79-277.  With increasing frequency,
this ruling has been utilized by vessel owners seeking relief not
only from charges appearing on an ABS or Coast Guard invoice (the
actual cost of the inspection), but also as a rationale for
granting non-dutiability to a host of inspection-related charges
appearing on a shipyard invoice.

     Pursuant to published Customs Service rulings (C.I.E.
1325/58 and C.I.E. 565/55), duties may not be remitted in
circumstances in which invoices fail to segregate dutiable from
nondutiable expenditures.  Such is the case in regard to invoice
item 028 which involves opening sea-chests for cleaning and
inspection by the Coast Guard and American Bureau of Shipping.
Included in the item is the unsegregated cost of coating and
renewing defective fasteners, a repair expense.  The presence of
this unsegregated expense renders the entire item subject to duty
as a repair expense.

     The same rationale may be applied to item 033, the
inspection of the fathometer well.  Customs has held that
painting performed on existing portions of a vessel is in the
nature of a dutiable maintenance operation.  C.I.E. 1043/60, and
Treasury Decisions 21670, 39507, and 43322.  Customs has also
held that coating with substances which have protective and
preservative qualities is analogous to painting and therefore is
dutiable (see C.I.E.'s 1203/60, 518/63 and 2045/66).  The process
of chipping, scaling, cleaning, and wire brushing to remove rust
and corrosion that results in the restoration of a deteriorated
item in preparation for painting has also been held to be
dutiable maintenance.  States Steamship Co. v. United States, 60
Treas. Dec. 30, T.D. 45001 (Cust. Ct. 1931).  These precedents
are relevant to the operation performed in invoice item 033 which
details the scaling and coating of the fathometer well.  The item
must be considered dutiable.

     Items 192, 198, 203, and 204 designate segregated costs for
venting operations and lighting.  In the case of United States v.
George Hall Coal Co., 134 F. 1003 (1905), it was held that any of
various types of expenses associated with foreign shipyard
operations are classifiably free from the assessment of duty,
regardless of the character of the overall shipyard work (repair
vs. modification).  The case found that the expense of drydocking
a vessel is not a repair cost.  Drydocking is not an isolated
expense, and is commonly associated with numerous others.  These
may include, but are not limited to, sea water supply (for
firefighting capability), fresh water supply, hose hook-up and
disconnection, fire watch services, shore power hook-up, etc.

     Similarly, pursuant to CD 1836 charges for drydocking, for
furnishing electricity, air and water, fees paid for the use of
tugs and pilots in drydocking and undocking a vessel, and crane
expenses are not dutiable repairs if segregated on the invoice.
We would place the segregated costs of ventilation and lighting
in this category and would thus allow as duty-free such expenses
appearing in items 192, 198, 203 and 204.  However, the cost of
obtaining a gas free certificate constitutes an ordinary and
necessary expense incident to repair operations and is
accordingly dutiable.  C.I.E. 1188/60.  The charge, though,
should be apportioned between the costs which are to be remitted
and those for which relief is not warranted, and duty assessed on
that portion of the charge applicable to items which are not
being remitted.

II. Deep Sea Seals Invoice 21766

     If a survey is conducted to ascertain the extent of damage
sustained, whether repairs are necessary, or if the work was
adequately completed, then the costs are dutiable as part of the
repairs that are accomplished.  C.I.E. 429/61; C.S.D. 79-2, 13
Cust. B. & Dec. 993 (1979); C.S.D. 79-277, 13 Cust. B. & Dec.
1395, 1396 (1979).  Therefore, the ABS charge for inspecting the
dutiable repairs to the liners is dutiable.  Further, we find
that the cost of ABS surveys {ABS PN 6708 Invoice 3668(B)}
conducted "outside normal working hours" is dutiable because the
evidence does not clearly show that the overtime expenses were
not incurred for the survey of damages or repairs.  See Customs
Ruling 109995.

III. Lloyd-Werft Invoice 0-211

     The applicant, citing C.I.E. 429/61, claims that item 039
"drawing the tailshaft for examination" is part of a nondutiable
inspection.  Rather, we find that C.I.E. 429/61 provides an
argument that item 039 is dutiable, particularly the reference
made that testing is dutiable, which is effected for the purpose
of ascertaining whether repairs to certain machinery or parts of
the vessel are required.  As discussed above, increasingly vessel
owners have been seeking relief for a host of inspection-related
charges appearing on a shipyard invoice.  In light of this
continuing trend, we offer the following clarification.

     C.S.D. 79-277 discussed the dutiability of certain charges
incurred while the vessel underwent biennial U.S. Coast Guard
and ABS surveys.  That case involved the following charges:

     ITEM 29
          (a) Crane open for inspection.
          (b) Crane removed and taken to shop.  Crane hob and
              hydraulic unit dismantled and cleaned.
          (c) Hydraulic unit checked for defects, OK.
              Sundry jointings of a vessel's spare
              renewed.
          (d) Parts for job repaired or renewed.
          (e) Parts reassembled, taken back aboard ship
              and installed and tested.

     In conjunction with the items listed above, we held 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 the survey.  We also held that where an inspection or
survey is conducted merely to ascertain the extent of damages
sustained or whether repairs are deemed necessary, the costs are
dutiable as part of the repairs which are accomplished (emphasis
added).

     It is important to note that only the cost of opening the
crane was exempted from duty by reason of the specific
requirements of the U.S. Coast Guard and the ABS.  The
dismantling and cleaning of the crane hob and hydraulic unit was
held dutiable as a necessary prelude to repairs.  Moreover, the
testing of the hydraulic unit for defects was also found dutiable
as a survey conducted to ascertain whether repairs were
necessary.  Although the invoice indicated that the hydraulic
unit was "OK," certain related parts and jointings were either
repaired or renewed.  Therefore, the cost of the testing was
dutiable.

     We emphasize that the holding exempts from duty only the
cost of a required scheduled inspection by a qualifying entity
(such as the U.S. Coast Guard or the American Bureau of
Shipping).  In the liquidation process, Customs should go beyond
the mere labels of "continuous" or "ongoing" before deciding
whether a part of an ongoing maintenance and repair program
labelled "continuous" or "ongoing" is dutiable.

     Moreover, we note that C.S.D. 79-277 does not exempt repair
work done by a shipyard in preparation of a required survey from
duty.  Nor does it exempt from duty the cost of any testing by
the shipyard to check the effectiveness of repairs found to be
necessary by reason of the required survey.

     Turning to the case before us, the Martin & Ottaway surveyor
(invoice no. PN 6718), who evaluated the effectiveness of the
repairs performed on the stern tube bearings, states that the
repairs involved:  the "necessary removals for access to and in
connection with repair including re-fitting afterwards..." of the
"propeller fairwater cap and rope guard, propeller nut and
keeper, outboard and inboard seal assemblies, shaft coupling
bolts, tail shaft, protection covers, hand rail, platform
sections, and pipeline section."  Further, the surveyor states
that the repairs "...consisted of removal of the propeller and
drawing of the tail shaft."  The tailshaft was only found to
have "touched the aft part of the after bearing."

     The Diehl Engineering Tailshaft Alignment survey (invoice
no. PN 6719) concludes that the aft stern bearing was operating
with an excessive angle between it and the tailshaft.  Further,
the ABS report {invoice 3668(B)} indicates that an inspection
titled, "tailshaft (repairs)," was conducted.  Accordingly, we
conclude that the work performed to the tailshaft under item 039
listed on Lloyd-Werft Invoice 0-211 is dutiable, because this
item goes beyond mere operations undertaken to meet the specific
requirements of an ABS periodic survey.  It is also Customs
position, that accessing a part (i.e. the tailshaft) is dutiable,
if it is integral to dutiable repairs.  See Customs Ruling
108366.

IV.  Fuji Trading Invoice

     The applicant claims that various spare parts were either
purchased in the United States or were purchased abroad and
imported into the United States with duty paid.  The vessel
repair statute exempts from duty spare repair parts or materials
that have been manufactured in the United States or have been
previously imported into the United States as commodities with
applicable duty paid under the Harmonized Tariff Schedule of the
United States.  19 U.S.C. 1466(h).  For purposes of this section,
where a part is purchased from a party unrelated to the vessel
owner, a United States bill of sale constitutes sufficient
evidence to demonstrate that the part was either manufactured in
the United States or entered in the United States, duty-paid.  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 Customs Form
226.  It is our policy to require evidence beyond an affidavit
from an interested party to establish U.S. manufacture and U.S.
purchase.

     We have reviewed the invoices included in the application
for relief, and have determined that the evidence presented for
the aft stern tube bearing and security bolts (Fuji Trading
invoice no. 185-457-63-8032) does not satisfy the evidentiary
requirements for duty exemption.  The parts under consideration
are not of U.S. origin (the purchase order indicates delivery
free on board, Kobe, Japan; and the invoice indicates dispatch
from Rotterdam, the Netherlands), nor is there any record of a
Customs Form 226 indicating that duty was paid (as the applicant
has presented for some of the other parts for which duty
exemption is claimed).  For these reasons, the aft stern tube
bearing and security bolts are dutiable.

HOLDING:

     We find that items 028, and 033 of Lloyd-Werft Invoice 0-200
are dutiable, and items 192, 198, 203, and 204 are nondutable
with the gas free certificate to be apportioned.  The ABS survey
cost of inspecting the liners (Deep Sea Seals Invoice 21766) and
the ABS overtime expenses {ABS PN 6708 no. 3668(B)} are dutiable.
Item 039 of Lloyd-Werft Invoice 0-211 is dutiable as a cost of
accessing dutiable repairs, and because the work performed was
integral to repairs.  Further, we find that the Fuji Trading
invoice does not present sufficient evidence to prove that duty
was paid on the aft stern tube bearings.

                                   Sincerely,




                                   B. James Fritz
                                   Chief
                                   Carrier Rulings Branch