HQ 112084: Vessel Repair Entry No. C18-0016845-7; M/V GREEN BAY V-32; U.S. Parts; Travel and Transportation; Consumption Tax; Consumables

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 112084

                         March 11, 1992

VES-13-18-CO:R:IT:C 112084 GEV

CATEGORY:  Carriers

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

RE:  Vessel Repair Entry No. C18-0016845-7; M/V GREEN BAY V-32;
     U.S. Parts; Travel and Transportation; Consumption Tax;
     Consumables

Dear Sir:

     This is in response to your memorandum dated February 11,
1992, forwarding an application for relief from duties assessed
under 19 U.S.C. 1466.  Our findings are set forth below.

FACTS:

     The M/V GREEN BAY is a U.S.-flag vessel owned by Central
Gulf Lines, Inc. of New Orleans, Louisiana.  The subject vessel
underwent foreign shipyard repairs during March - June, 1991.
Subsequent to the completion of the repairs the vessel arrived in
the United States at Jacksonville, Florida, on July 26, 1991.  A
vessel repair entry was filed on August 1, 1991.

     An application for relief was timely filed on September 23,
1991.  The applicant requests relief on various U.S.-supplied
parts and transportation and delivery charges associated
therewith.  Additionally, relief is requested for various other
travel and transportation costs, a foreign consumption tax, and
marine oil purchased in bulk quantities.  In support of these
claims the applicant has submitted following documentation:  (1)
invoices covering the charges in question; (2) a copy of a
Customs consumption entry (CF 7501) covering various vessel
parts, and (3) a certification from the Vice President of Central
Gulf Lines, Inc., that the vessel spare parts purchased from
Technomarine Co. Ltd. are intended for use and installation on
board the cargo vessel M/V GREEN BAY which is documented under
the laws of the United States and is engaged in the foreign
trade.


                              - 2 -

ISSUES:

     1.  Whether evidence is presented sufficient to prove that
vessel parts 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).

     2.  Whether evidence is presented sufficient to prove that
vessel parts were purchased foreign and imported into the United
States to be installed on a U.S.-flag vessel at a later date so
as to be exempt from duty pursuant to 19 U.S.C. 1466(h).

     3.  Whether transportation, travel, freight and delivery
charges are dutiable under 19 U.S.C. 1466.

     4.  Whether a foreign consumption tax is dutiable under 19
U.S.C. 1466.

     5.  Whether marine oil not used in effecting dutiable
repairs 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.

     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 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 "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 submitted for Items 15, 20,
27, 28, 29, and 32 we note the U.S. invoices covering the parts
and accompanying transportation, freight, and delivery charges
are sufficient proof of previously imported spare parts shipped
foreign for installation.  However, in order to obtain relief
under 19 U.S.C. 1466(h), it remains necessary for the vessel
operator to provide the certifications required under the statute
as discussed above.

     Item 31 covers both vessel parts purchased in Japan
(Technomarine Co. Ltd.) and the cost of their air freight from
Japan to Antwerp, Belgium (Herfurth & Boutmy) where they were
placed on board the vessel.  The vessel then proceeded to the
United States where the applicant submitted a consumption entry
(CF 7501) upon the vessel's arrival at Jacksonville.  Customs
subsequently learned, after reviewing a copy of the vessel's
inward manifest (specifically, the cargo declaration), that these
parts were not manifested as cargo and were not unladed from the
vessel.

     In regard to the vessel parts covered by Item 31, we note
that the need for the payment of duty under "...appropriate
commodity classifications of the Harmonized Tariff Schedule...",
as required by 19 U.S.C. 1466(h)(2), is initiated at the time a
vessel arrives within the limits of a port in the United States
with the intent then and there to unlade merchandise. (See
section 101.1(h), Customs Regulations (19 CFR 101.1(h)).
Notwithstanding the submission of the CF 7501, the vessel parts
covered by Item 31 were not unladed at Jacksonville and therefore
cannot be considered to have been imported into the United
States.  Accordingly, these parts are not entitled to exemption
from duty under 19 U.S.C. 1466(h).  We note that the failure to
list these parts on the vessel's inward manifest constitutes a
violation of both 19 U.S.C. 1436 and 1584.  Appropriate penalty
action should be initiated.

     Customs has long-held that travel and transportation costs
are nondutiable (see C.I.E.'s 1325/58, 204/60, 970/60, 695/62,
518/63, 601/67).  Accordingly, the travel and transportation
costs listed on the following invoices are not dutiable:  Item 3
(Tokimec Inc.); Item 4 (Kaigai Gijyutsu K.K.); Item 8 (IHI Marine
Co., Ltd.); Item 10 (Ihon Digital Governor); Item 11 (Kaigai
Gijyutsu K.K.); Item 19 (Sait Marine International); Item 21
(Maritime Engineering); Item 22 (Kaigai Gijyutsu K.K.).

     In addition, Customs has also held that shipping costs are
nondutiable (C.D. 1830).  Accordingly, the freight and delivery
costs on Item 16 (Radio Holland Group), Item 24 (Technomarine
Co.), and Item 31 (Herfurth & Boutmy) are nondutiable.

     The Customs Court in International Navigation Co., Inc. v.
United States (38 Cust. Ct. 5, C.D. 1836) held that fees or
charges paid to a foreign government are not dutiable as expenses
of repairs.  Customs has held, however, that the doctrine
enunciated by the Customs Court in C.D. 1836 does not apply to
taxes levied by foreign governments or premiums paid on workmen's
compensation insurance since such exactions do not constitute
"fees or charges" paid to such governments within the meaning of
the decision and therefore are part of the dutiable expenses of
repairs.  (See C.I.E. 62/60 published as Treasury Decision (T.D.)
55005(3), and C.I.E.'s 94/60 and 196/60).  Accordingly, the
consumption tax listed on Item 1 (Tomakomai Hokuso Koun Kaishai
Ltd.) is dutiable.

     Items 5 and 14 (both from Chevron International Oil Co.,
Inc.) cover the purchase of marine oil in bulk quantities which
the applicant claims is nondutiable as a consumable.  Customs has
held that consumable supplies are not dutiable unless used in
effecting dutiable repairs (C.I.E.'s 1759/56 and 196/60).
Generally, consumables include articles wholly consumed in their
first use such as food, medicine, etc. (Customs rulings 109285,
104352 and T.D. 40934).  Furthermore, Customs has held that oil
is a consumable article (Bureau Letter dated March 7, 1951).
Upon reviewing the record there is no indication that the marine
oil under consideration was used in effecting dutiable repairs.
Accordingly, Items 5 and 14 are nondutiable.

HOLDINGS:

     1.  Vessel parts 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 covered
by a U.S. invoice (i.e., Items 15, 20, 27, 28, 29, and 32) if the
required certification is submitted, or proof is submitted that
the parts in question were manufactured in the United States.
(see ruling 111205).

     2.  Evidence is not presented sufficient to prove that the
vessel parts covered in Item 31 were imported into the United
States to be installed on a U.S.-flag vessel at a later date so
as to be exempt from duty pursuant to 19 U.S.C. 1466(h).  To
receive that exemption such parts must be unladed at a U.S. port,
in addition to their being listed on a consumption entry (CF
7501), in order to prove their importation into the United
States.

     3.  Transportation, travel, freight and delivery charges are
not dutiable under 19 U.S.C. 1466.

     4.  A foreign consumption tax is dutiable under 19 U.S.C.
1466.

     5.  Marine oil not used in effecting dutiable repairs is a
consumable so as to be exempt from duty under 19 U.S.C. 1466.

                                   Sincerely,


                                   B. James Fritz
                                   Chief
                                   Carrier Rulings Branch