HQ 111379: Vessel Repair; Protest No. 3001-90-101249; NOSAC RANGER V- 001; Work Prior to U.S. Documentation

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 111379

                        January 11, 1991


VES-13-18-CO:R:P:C 111379 GV

CATEGORY:  Carriers

Chief, Technical Branch
Commercial Operations
Pacific Region
1 World Trade Center
Long Beach, California 90831

RE:  Vessel Repair; Protest No. 3001-90-101249; NOSAC RANGER V-
     001; Work Prior to U.S. Documentation

Dear Sir:

     Your memorandum dated October 31, 1990, forwarded a protest
regarding vessel repair entry no. 928-0005138-2.  Our findings
are set forth below.

FACTS:

     The NOSAC RANGER is a U.S.-flag vessel owned by Carships,
Inc., of Dover, Delaware, and operated by Pacific-Gulf Marine,
Inc., of New Orleans, Louisiana.  The subject vessel, formerly
the NOSAC MASCOT, entered a Singapore shipyard (Sembawang) on May
13, 1988, for various work.  The vessel was under the flag of
Liberia at the time the work was commenced.  The vessel was
redocumented under the U.S. flag on July 7, 1988, and shipyard
operations were completed in Singapore on July 11, 1988.
Additional work was performed on the vessel in Kawasaki, Japan,
on July 19, 1988, in Yokohama, Japan, during July 19-20, 1988,
and in Inchon, Korea, during July 23-24, 1988.

     Subsequent to the completion of the above work, the subject
vessel arrived in Tacoma, Washington, on August 5, 1988.  A
vessel repair entry covering the work in question was filed on
October 14, 1988.  An application for relief, dated November 1,
1988, for certain items listed on the entry was received by
Customs on November 6, 1988.  By letter dated September 19, 1989
(VES-13-18-CO:R:P:C 110206 LLB) Customs Headquarters ruled on the
application.  Copies of this ruling and work sheets were
forwarded to Pacific-Gulf Marine, Inc. by a letter from the San
Francisco Vessel Repair Liquidation Unit dated November 8, 1989.
A petition for review of this ruling, dated November 17, 1989,
was timely filed requesting that the calculations regarding the
dutiability of the items contained in this entry be forwarded to
                              - 2 -

headquarters for review.  By letter dated April 24, 1990 (VES-13-
18-CO:R:P:C 110745 GV) Customs Headquarters denied the petition
in view of the fact that it was a mere two sentence letter which
did not detail the exceptions taken to the decision on the
application as is required per 4.14(d)(2)(i), Custom Regulations
(19 CFR 4.14(d)(2)(i)).  Customs gave formal notice of denial by
letter dated May 30, 1990 (VES-13-SF:O:C:T (BZ)).

     The entry was liquidated on June 22, 1990.  On September 19,
1990, a timely protest was filed stating the following
alternative claims for relief:  (1) Only the Sembawang Shipyard
operations performed after redocumentation are potentially
subject to duty under 19 U.S.C. 1466; (2) Most of the operations
performed at the Sembawang Shipyard while the vessel was under
the U.S. flag were other than repair work and are nondutiable in
any event; (3) The fuel oil heater related costs were required as
a result of a casualty and are not dutiable; (4) The casualty
related items are nondutiable under other grounds (i.e.,
cleaning, disposal, truckage, etc.); and (5) Other of the
remaining work performed in the Kawasaki and Yokohoma Shipyards
is also nondutiable.

ISSUES:

     1.  Whether evidence is presented sufficient to prove that
the foreign work performed on the subject vessel for which the
protestant seeks relief was performed prior to the vessel's
documentation under the U.S. flag and therefore is not subject to
duty under 19 U.S.C. 1466.

     2.  Whether evidence is presented sufficient to prove that
the foreign work performed on the subject vessel for which the
protestant seeks relief constitutes other than dutiable repair
work under 19 U.S.C. 1466.

     3.  Whether evidence is presented sufficient to prove that
the foreign work performed on the subject vessel for which the
protestant seeks relief was necessitated by a casualty
occurrence, thus warranting remission pursuant to 19 U.S.C.
1466(d)(1).

     4.  Whether evidence is presented sufficient to prove that
the foreign work performed on the subject vessel which the
protestant alleges is casualty related also constitutes expenses
otherwise nondutiable under 19 U.S.C. 1466.

     5.  Whether evidence is presented sufficient to prove that
the remaining work performed on the subject vessel in the
Kawasaki and Yokohama Shipyards for the which the protestant
seeks relief is nondutiable under 19 U.S.C. 1466.

                              - 3 -

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 the foreign or
coastwise trade, or vessels intended to engage in such trade.
(emphasis added)

     Customs has long held that in certain cases foreign shipyard
work performed on a vessel prior to its documentation under the
laws of the United States is nondutiable under 1466.  To the
extent that the vessel is clearly intended to engage in the
foreign or coastwise trade, this position is in contravention of
statutory language which specifically places duty upon repairs to
those vessels not so documented at the time of foreign shipyard
work but which are nonetheless intended to engage in those
trades.

     Accordingly, Customs is preparing a notice for publication
in the Federal Register which will state that Customs will apply
1466 in those instances where a vessel is temporarily removed
from United States documentation during the course of, or prior
to, work performed in a foreign shipyard and is then redocumented
for, or used in, or from available evidence deemed intended to be
used in the United States foreign or coastwise 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, 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).

     A leading case in the interpretation and application of
section 1466 is United States v. Admiral Oriental Line et al., 18
C.C.P.A. 137 (T.D. 44359 (1930)).  That case distinguished
between equipment and repairs on one hand and permanent additions
to the hull and fittings on the other, the former being subject
to duty under section 1466.

                              - 4 -

     The Court in Admiral Oriental, supra., cited with approval
an opinion of the Attorney General (27 Op. Atty. Gen. 288).  That
opinion interpreted section 17 of the Act of June 26, 1884, (23
Stat. 57, which allowed drawback on the vessels built in the U.S.
for foreign account, wholly or in part of duty-paid materials.
In defining equipment of a vessel, the Attorney General found
that items which are not equipment are:

          ...those appliances which are permanently attached
          to the vessel, and which would remain on board
          were the vessel to be laid up for a long period...
          [and] are material[s] used in the construction of
          the vessel...

While the opinion of the Attorney General interpreted a provision
of law other than section 1466 or a predecessor thereto, it is
considered instructive and has long been cited in Customs Service
rulings as defining permanent additions to the hull and fittings
of a vessel.

     For purposes of section 1466, dutiable equipment has been
defined as:

          ...portable articles necessary or appropriate for
          the navigation, operation, or maintenance of a
          vessel, but not permanently incorporated in or
          permanently attached to its hull or propelling
          machinery, and not constituting consumable
          supplies.  (T.D. 34150 (1914)).

     It should be noted that the fact that a change or addition
of equipment is made to conform with a new design scheme, or for
the purpose of complying with the requirements of statute or
code, is not a relevant consideration.  Therefore, any change
accomplished solely for these reasons, and which does not
constitute a permanent addition to the hull and fittings to the
vessel, would be dutiable under section 1466.

     In regard to the first issue of this protest, our ruling on
the application stated that, "Customs has held, consistent with
the statute, that only repairs performed on U.S. flag vessels are
subject to section 1466 duties."  Although we regard this as a
fugitive statement which does not represent Customs position on
this matter (see discussion above) we believe the protestant is
entitled to rely on it.

     The application contained a letter from the shipyard, dated
September 9, 1988, which lists eight operations which "were still
in progress" when the vessel was documented under the U.S. flag.
In view of the fact that this document was insufficient to prove
that these operations were the only operations still in progress,
or exactly how many operations may have begun after U.S.
                              - 5 -

documentation, this claim was disregarded and the examination of
the record was directed to whether the various operations in
question constituted nondutiable modifications/alterations/
additions.

     In response to Customs disregard of the claim that various
work was performed before U.S. documentation, the protestant
submitted a letter from Sembawang, signed by the Ship Repair
Manager, stating that the eight items in question were the only
work still in progress as of July 7, 1988, the date the vessel
was documented under the U.S. flag.  The letter also listed the
total cost of each work item and the cost of the portion of the
work remaining as of July 7, 1988.  Accordingly, in view of the
sufficiency of this documentation to establish that these
operations were the only operations still in progress as of the
date of the U.S. documentation, and in view of the statement in
our ruling on the application regarding the inapplicability of
1466 duties prior to U.S. documentation, those costs of the
Sembawang Shipyard letter covering work done prior to the U.S.
documentation of the subject vessel are nondutiable.

     In regard to the second issue of the protest, upon reviewing
the record with regard to the protestant's claims (specifically
Exhibit 4 containing copies of the Sembawang Shipyard invoices
covering the eight post-documentation work items), we note that
the only detailed descriptions of these work items come from
counsel's memorandum attached to the protest, not from the
invoices or any other documentation from Sembawang.  In addition,
the specific dollar amounts counsel states are dutiable to Task 1
(Fire Stations) and Task 3 (Stern Ramp Painting) are not so
apportioned in the shipyard invoices.  Accordingly, the record is
insufficient to support the protestant's claim that the eight
post-documentation work items are other than dutiable repair
work.

     In regard to the third issue of the protest, it is claimed
that on July 18, 1988, while en route from Singapore, the vessel
suffered a casualty when several valves blew, spewing black oil
over the interior of the stern areas of the vessel.  The oil
apparently blasted from the valves on the inside of the vessel
and also from the funnel top excess steam line on the outside of
the vessel.  Oil was sprayed throughout the interior of the stern
portion of the vessel and soaked various insulation.

     The protestant 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.  We reiterate what was stated in ruling 110206, that is,
we must look to some verified event which led to the damage, and
in the absence of such evidence, the repairs must be considered
to have been necessitated by normal wear and tear which does not
                              - 6 -

warrant remission under 1466(d)(1).  The only nexus to a
casualty event provided by the protestant is the statement in
counsel's memorandum that "[t]he valves blew from the force of a
pressure spike or surge starting in the fuel oil heater and
flowing through the boiler to the blown valves and to the excess
steam line in the funnel."  This statement, without more, is
insufficient.  In view of the fact that the protestant has
provided no tangible evidence to support a casualty occurrence,
this claim is denied.

     In regard to the fourth issue of the protest, the items
claimed as expenses otherwise nondutiable include cleaning oil-
stained areas of the vessel (Exhibits 5 and 7), and disposal,
truckage, and removing oil-soaked insulation and tin plates and
replacing them with new insulation and plates (Exhibit 6).

     Insofar as cleaning is concerned, Customs has long held the
cost of cleaning is not dutiable unless it is performed as part
of, in preparation for, or in conjunction with dutiable repairs
or is an integral part of the overall maintenance of the vessel;
see C.I.E.'s 18/48, 125/48, 910/59, 820/60, 51/61, 429/61;
569/62, 698/62; C.D. 2514; T.D.'s 45001 and 49531; and numerous
Customs rulings.  In view of the fact that these cleaning costs
were incurred as a result of the blowing of the valves on July
18, 1988, the repairs of which, as discussed above, are dutiable
in view of the fact that they are not casualty related, the
cleaning costs in Exhibits 5 and 7 are dutiable.

     In regard to the costs listed in Exhibit 6, the disposal and
truckage charges are nondutiable under 1466.  The remaining
costs listed therein cover the labor and materials for replacing
oil-soaked insulation and tin plates.  In view of the fact that
these costs, like the cleaning costs discussed above, were
incurred as a result of the blowing of the valves on July 18,
1988, the repairs of which are dutiable in view of the fact that
they are not casualty related, these remaining costs for
replacing insulation and tin plates are dutiable as well.

     In regard to the fifth issue of the protest, it is claimed
that the Anschutz technician attended the vessel for completion
of work to the steering gear system.  Although the protestant
claims this technician was attending to work which constituted a
modification, the record does not support a finding that the
steering gear work was in fact a modification.  Accordingly, in
the absence of evidence to the contrary, the expenses of the
technician are dutiable.

                              - 7 -

     As for the MacGregor representative who surveyed the vessel
stern and ramp hydraulics, upon reviewing this survey it is
apparent that it was to ascertain the extent of damage incurred
in the area where the valves blew, and it preceded dutiable
repairs.  Customs has held that if a survey is to ascertain the
extent of damage sustained the cost of such a survey is dutiable
as part of the repairs which are accomplished pursuant to
holdings in C.I.E. 429/61, C.S.D. 79-2, and C.S.D. 79-277.
Accordingly, the cost of the services of the MacGregor
representative in performing this survey is dutiable.

HOLDINGS:

     1.  Evidence is presented sufficient to prove that a portion
of the cost of the foreign work performed on the subject vessel
for which the protestant seeks relief was performed prior to the
vessel's documentation under the U.S. flag and therefore is not
subject to duty under 19 U.S.C. 1466.

     2.  Evidence is not presented sufficient to prove that the
foreign work performed on the subject vessel for which the
protestant seeks relief constitutes other than dutiable repair
work under 19 U.S.C. 1466.

     3.  Evidence is not presented sufficient to prove that the
foreign work performed on the subject vessel which the protestant
seeks relief was necessitated by a casualty occurrence, thus
warranting remission pursuant to 19 U.S.C. 1466.

     4.  Except for the costs of truckage and disposal, evidence
is not presented sufficient to prove that the foreign work
performed on the subject vessel which the protestant alleges is
casualty related also constitutes expenses otherwise nondutiable
under 19 U.S.C. 1466.

     5.  Evidence is not presented sufficient to prove that the
remaining work performed on the subject vessel in the Kawasaki
and Yokohama Shipyards for which the protestant seeks relief is
nondutiable under 19 U.S.C. 1466.

     Accordingly, the protest is granted in part and denied in
part.

                              Sincerely,




                              Harvey B. Fox
                              Director, Office of Regulations
                              and Rulings