HQ 112245: Vessel Repair Entry No. C20-0037405-1; M/V MARINE PRINCESS V-48; Repairs; Inspections; U.S. Parts; Drydocking charges

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 112245

                          July 22, 1992

VES-13-18-CO:R:IT:C 112245 GEV

CATEGORY:  Carriers

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

RE:  Vessel Repair Entry No. C20-0037405-1; M/V MARINE PRINCESS
     V-48; Repairs; Inspections; U.S. Parts; Drydocking charges

Dear Sir:

     This is in response to your memorandum dated May 7, 1992,
forwarding an application for relief from duties assessed
pursuant to 19 U.S.C. 1466.  Our findings are set forth below.

FACTS:

     The M/V MARINE PRINCESS is a U.S.-flag vessel operated by
Marine Transport Lines, Inc. of Secaucus, New Jersey.  The
subject vessel had foreign shipyard work performed at Sembawang
Shipyard in Singapore during the period of October 28 - December
12, 1991.  Subsequent to the completion of the work the vessel
arrived in the United States at New Orleans, Louisiana on January
20, 1992.  A vessel repair entry covering the work in question
was filed on January 21, 1992.

     Pursuant to an authorized extension of time, an application
for relief, dated April 10, 1992, was timely filed.  Relief is
requested on the basis that various costs, including drydocking
charges, do not constitute dutiable repairs and/or are otherwise
nondutiable under the vessel repair statute (19 U.S.C. 1466).
The applicant also claims relief for U.S. parts and materials.
In support of these claims the applicant has submitted work
sheets, invoices, drydock specifications, and documentation from
the American Bureau of Shipping (ABS).

ISSUES:

     1.  Whether certain expenses incurred during the course of
repairs to the subject vessel when it was drydocked in a foreign
shipyard are dutiable pursuant to 19 U.S.C. 1466.

                              - 2 -

     2.  Whether evidence is presented sufficient to prove that
vessel parts and/or materials were purchased in the United States
and shipped foreign for installation aboard a U.S.-flag vessel
thereby exempting them from duty pursuant to 19 U.S.C. 1466(h).

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 trades.

     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 must be evidenced as follows.  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 labor cost 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 "finally liquidated" (i.e., for which a timely
protest was filed or court action initiated) 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 "finally liquidated" as
noted above, the new section 1466(h) is applicable to this entry
as it relates to spare parts.

     In regard to the documentation contained in the application,
we note that although U.S. invoices covering parts and materials
have been submitted, the requisite certifications are not
contained in the record.  Absent these certifications, or proof
that any of the parts and materials were manufactured in the
United States, relief pursuant to section 1466(h) is denied.

     In regard to the dutiability of various drydocking expenses,
we note that Customs has long-held such costs (e.g., staging,
telephone, shore power, etc.), to be nondutiable.  Upon
reviewing the record in its entirety, we note that we are in
accord with the applicant's claims for relief regarding the
aforementioned expenses (as delineated on the application) as
well as the remaining costs for which relief is requested, with
the exception of those items discussed below.

     Several items listed on the invoices cover costs relating to
surveys, inspection and testing either before, during or after
repair work.  In regard to the dutiability of these costs, we
note that C.S.D. 79-277 stated, "[i]f the survey was undertaken
to meet the specific requirements of a governmental entity,
classification society, insurance carrier, etc., the cost is not
dutiable even if dutiable repairs were effected as a result of
the survey."

     With increasing frequency, this ruling has been utilized by
vessel owners seeking relief not only from charges appearing on
an ABS or U.S. 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.  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, we note that the ABS surveys
for which relief is requested are dutiable with the exception of
the annual hull, machinery and load line surveys.  In addition,
the inspection-related costs in the following items are dutiable:
D1, D2, D7, E1, E2, E3, E4, E5, E8, E9, E14, E16, E17, E21, E22,
E23, E24, E25, and 14-10.  Furthermore, the cost of ultrasonic
gauging listed in Shin-Toyo Engineering Private Limited invoice
no. STI/1935/91, dated November 30, 1991 (and set forth in the
section of the application marked "MISC INVOICES") is also
dutiable under the rationale discussed above.

HOLDINGS:

     1.  Certain expenses incurred during the course of repairs
to the subject vessel when it was drydocked in a foreign shipyard
are not within the purview of 19 U.S.C. 1466 as noted above.

     2.  Vessel parts and materials purchased in the United
States and shipped foreign for installation aboard a U.S.-flag
vessel are exempted from duty pursuant to 19 U.S.C. 1466(h),
provided the requisite evidentiary documentation is submitted.

     Accordingly, with respect to the application under
consideration, relief should be granted for those parts and
materials covered by U.S. invoices if the required
certifications are submitted, or proof is submitted that the
parts and materials were manufactured in the United States.

                                   Sincerely,




                                   B. James Fritz
                                   Chief
                                   Carrier Rulings Branch