HQ 113029: Vessel Repair; 19 U.S.C. 1466; PRESIDENT MADISON, V-180; Entry No. 110-0104113-3; Protest; Overhead; Casualty; Volcanic Ash

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 113029

                            March 22, 1994

VES-13-18-CO:R:IT:C   113029 GOB

CATEGORY:  Carriers

Deputy Regional Director
Commercial Operations
Pacific Region
One World Trade Center
Long Beach, California 90831

RE:  Vessel Repair; 19 U.S.C. 1466; PRESIDENT MADISON, V-180; Entry
     No. 110-0104113-3; Protest; Overhead; Casualty; Volcanic Ash

Dear Sir:

     This is in response to your memorandum dated February 4, 1994,
which forwarded the protest and application for further relief
submitted by American President Lines, Ltd. ("protestant") with
respect to the above-referenced entry.

FACTS:

     The record reflects the following.  The PRESIDENT MADISON
("vessel") is a U.S.-flag vessel owned and operated by the
protestant.  Certain foreign shipyard work was performed on voyage
180.  The vessel arrived at the port of Seattle, Washington on
August 23, 1991 and subsequently filed a vessel repair entry.

     By Ruling 112079 dated May 22, 1992, the application for
relief was granted in part and denied in part.

     By Ruling 112442 dated August 19, 1993, the petition was
granted in part and denied in part.

     In its protest and application for further relief, the
protestant asks for further relief with respect to the following
items:
          Item No.            Description

           2.1-5              Ranging of Anchor Chains
           3.1-9              Staging for Rudder Repairs
           3.2-15             Hydro Test Piping
           3.6-48             Load Testing of Lifeboats
           5.2-23             Main Tube Oil Cooler Cleaning
           7.0-1-8            Volcanic Ash Repairs
           all items          Overhead

                              - 2 -

ISSUES:

     Whether the subject items are dutiable pursuant to 19 U.S.C.
1466.  Whether duty on the volcanic ash repairs is subject to
remission pursuant to 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.

Ranging of Anchor Chains

     The invoice which was originally submitted showed a cost of
HK$13,600 for  "Anchor Chains - ABS/USCG Inspection."  The
protestant subsequently broke down the cost as follows: 

     Range/Inspection...HK$12,540.00
     Marking & Seizing...   1,060.00

     The protestant states in part as follows:

     ...the cleaning of the anchor chains was for anchor chain
     inspection and not for the marking of the shots.
     ...
     Consistently, Customs has ruled that ranging anchor chains for
     inspection by ABS is non-dutiable when subsequent marking and
     repair costs have been segregated and priced separately.    
     
     While we believe that the dutiable status of this item is not
totally clear, we find in this case that the cost of the ranging
of the anchor chains is most properly found to be nondutiable.  

Staging for Rudder Repairs

     This cost in the amount of HK$4,770 is nondutiable.  Staging
is nondutiable when it is segregated.

Hydro Test Piping

     The record reflects that this item is for air pressure testing
and that it is not related to any repairs.  Accordingly, it is
nondutiable.

Load Testing of Lifeboats

     The protestant states that: 

     

                              - 3 -

     The U.S. Coast Guard requires this weight test be performed
at   each occasion for reissue of a certificate of inspection and
     at least once in each two-year period.

     The invoice for this item, no. 3.6-48, reflects that certain
repair work was performed on the lifeboats, e.g., "renewing total
of 16 off bracket plates...refitting lifeboat fall wires."  While
we believe that the dutiable status of this item is not totally
clear, we find that the cost of this item is most properly found
to be nondutiable.
   
Main Lube Oil Cooler Cleaning

     The protestant states that this item is "a straight forward
cleaning operation" which is unrelated to any repairs.  The invoice
supports this claim.  Accordingly, this item is nondutiable.

Volcanic Ash

     In Ruling 112442 dated August 19, 1993, referred to supra, we
stated with respect to the volcanic ash issue:

     This office has previously held that foreign repairs to this
     vessel resulting from the Mount Pinatubo volcano were
     compelled by casualty.  Headquarters Ruling Letter 111879,
     dated January 24, 1992.  We denied the application because the
     entry under consideration was filed for repairs made during
a    voyage subsequent to the voyage during which the vessel
     experienced the casualty.

     The petitioner contends that the damage caused by the volcanic
     ash occurred after the vessel had called in the United States
     and commenced the subject voyage.  The petitioner claims that
     the vessel did not bypass United States shipyards and that the
     vessel was in a seaworthy condition when it left the United
     States...
     ...
     ...The petitioner, however, fails to cite any specific
     problems that developed during the course of the subject
     voyage.  Rather, the work to correct the volcanic ash damage
     appears to be general in nature.  Moreover, statements made
by   the petitioner in the application for relief filed for this
     entry indicate that the work to repair the volcanic ash damage
     was deferred, thus suggesting that the repairs could have been
     performed in the United States.  The vessel operator chose for
     commercial reasons to have the vessel repaired in a foreign
     shipyard:

          Without resorting to the unprecident [sic] event of
          taking the vessel out of service for an extended period
          of time, the repairs were deferred to the pending drydock
          availability...To do otherwise would have been         

                              - 4 -

          detrimental to the entire commercial operation of the  
          vessel and would have resulted in unacceptable loss of
          revenue.
          (Emphasis supplied.)

     In the subject protest, the protestant states:

     It is true that a casualty did occur.  It has been well-
     documented and acknowledged by Customs.  It is also true that
     an intervening voyage did occur between the date of the
     casualty and the subsequent repairs.  It is unquestioned that
     MADISON sailed on Voyage 180 from Seattle in a seaworthy
     condition...
     ...
     During the course of these regulatory-required surveys,
     numerous items of machinery and equipment were opened up for
     inspection.  These inspections revealed damage clearly
     attributable to the volcanic ash casualty...The failures were
     in the nature of a hidden or latent damage, similar to that
     found in Headquarters Ruling 105674 L.L.B. dated July 19,
     1982.
     
     After a reconsideration of this issue, we find no basis upon
which to make a finding which differs from our previous findings
in Rulings 112079 and 112442 on this issue.  As we stated in Ruling
112442, excerpted supra, the protestant stated in its application
for relief in this case that the work to repair the volcanic ash
damage was deferred, indicating that such repairs could have been
performed in the U.S.  This eliminates the use of 19 U.S.C.
1466(d)(1), which applies only when repairs are necessary to secure
the safety and seaworthiness of the vessel to enable her to reach
her port of destination in the United States.

     We note that the evidence of record, as described supra,
indicates that the repairs at issue were not hidden or latent, but
were deferred for financial reasons.  

     We note further that we typically do not find hidden or latent
defects to be remissible pursuant to 19 U.S.C. 1466(d)(1).  In
Ruling 110499 dated June 7, 1990, we stated:

     It is the intention of Congress, as reflected in the record
of   hearings concerning amendments to sections 3114 and 3115 of
     the Revised Statutes of the United States (the predecessor
     provisions to 19 U.S.C. 1466(a) and (d)), that the statute not
     recognize latent defects...  
     ...
     The quoted legislative history amply demonstrates that latent
     defect will not excuse duty under the statute.




                              - 5 -

Overhead

     As we stated in Ruling 112900 dated November 4, 1993 and
Ruling 112861 dated October 19, 1993, it is Customs position that
overhead relating to repair work is dutiable as part of the cost
of the repair, i.e., the total cost or expense of the repair is
dutiable.  In contrast, overhead relating to a nondutiable item
such as a modification is nondutiable, i.e., the total cost or
expense of a nondutiable item is nondutiable.  While Customs does
not wish to see overhead broken-out or segregated as a separate
item, our position on the dutiability of overhead, as stated supra,
holds whether or not overhead is a separate item.

     In Ruling 112861, we stated as follows:

     It is Customs position that overhead relating to repair work
     is dutiable as part of the cost of the repair.  Overhead is 

     part of the shipyard's cost of doing business.  The total   
     shipyard cost of each repair is dutiable; that total cost
     includes overhead.

     Customs does not wish to see overhead broken-out or segregated
     as a separate item.  Customs believes that overhead should be
     included within the cost of the work performed, whether that
     work be a dutiable repair or a nondutiable modification.  As
     stated supra, the total shipyard cost of each repair item is
     dutiable; that cost includes overhead.   

     In support of its position that the overhead is nondutiable,
     the petitioner has cited two previous rulings, Ruling 109308
     dated May 26, 1988 and Ruling 108953 dated January 7, 1988. 

     In Ruling 112214 dated September 16, 1992, Customs stated as
     follows with respect to the overhead issue:

          Upon further review of this matter, we are of the opinion
          that our interpretation of T.D. 55005(3) as set forth in
          ruling 111170 and discussed above is correct. 
          Accordingly, rulings 108953 and 109308 are hereby
          modified to hold that the costs of "overhead" and/or
          "administrative" charges as described therein are
          dutiable in their entirety in the absence of an
          apportionment of such expense between dutiable and non-
          dutiable work.

     The two rulings cited by the petitioner, Ruling 109308 and
     Ruling 108953, are not, and were not at the time they were
     issued, accurately reflective of Customs position.  These two
     rulings were effectively overruled by Ruling 112214.
         
     In the subject case, the petitioner's claim for relief on this
     issue is granted with respect to any overhead charges which 
                              - 6 -

     are associated with nondutiable charges and which are clearly
     reflected as such on the pertinent invoices.  The petition is
     denied with respect to all other overhead charges. [End of
     excerpt from ruling 112861.]

     Thus, as stated in Ruling 112861 and Ruling 112900, Ruling
108953 and Ruling 109308 were effectively overruled by Ruling
112214, which was not cited by the protestant.

     Our position herein is consistent with numerous other rulings
issued in recent years, e.g., Ruling 111170 dated February 21, 1991
and subsequent rulings which cite Ruling 111170.
       
     Accordingly, any overhead related to dutiable repairs is
dutiable.  Any overhead related to nondutiable items is
nondutiable, provided that it is included in the cost or expense
of the nondutiable items or clearly reflected as related to such
nondutiable items on the pertinent invoices.

HOLDING:

     As detailed supra, the protest is granted in part and denied
in part.



                              Sincerely,



                              Harvey B. Fox
                              Director, Office of