HQ 113608: Protest No. 2809-95-100891; Vessel Repair Entry No. C28-0189424-0; STRONG VIRGINIAN; V-1; Domestic Invoices; Cleaning;Modification; 19 U.S.C. 1466

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 113608

January 26, 1996

VES-13-18-RR:IT:EC 113608 GEV

CATEGORY: Carriers

Chief, Liquidation Section II
U.S. Customs Service
Post Office Box 2450
San Francisco, California 94126

RE: Protest No. 2809-95-100891; Vessel Repair Entry No. C28-0189424-0;
STRONG VIRGINIAN; V-1; Domestic Invoices; Cleaning;
Modification; 19 U.S.C. 1466

Dear Sir:

This is in response to your memorandum dated October 18,
1995, forwarding a protest and supporting documentation
pertaining to the above-referenced vessel repair entry. Our
findings in this matter are set forth below.

FACTS:

The STRONG VIRGINIAN is a U.S.-flagged vessel owned by Van
Ommeren Shipping, Inc. of Stamford, Connecticut. The vessel
incurred foreign repairs and purchases subsequently arriving in
the United States at San Francisco, California on July 7, 1994.
A vessel repair entry was timely filed on July 12, 1994.

Pursuant to an authorized extension of time, an application
for relief, dated November 2, 1994, was timely filed. In
Headquarters ruling 113191, dated December 29, 1994, Customs
granted in part and denied in part the application for relief.
The subject entry was subsequently liquidated on March 31, 1994.
A protest dated June 29, 1994, was timely filed.

The protestant disagrees with Customs decision on the
aforementioned application for relief with respect to the
assessment of duty on certain costs for parts and materials
stated to be purchased in the United States or imported duty paid
prior to their foreign installation on the vessel. The parts and
materials in question specified in the protest for duty-free
treatment are as follows:

- 2 -

Exhibit 2 - C.F. Nienstadt invoice nos. B9390056 and
B9360975
Exhibit 7 - STN Systemtechnik Nord invoice no. 08752276
Exhibit 16 -Serck COMO Gmbh invoice no. 09058
Exhibit 27 - Bismo Bulklift A/S invoice no. 93092
Exhibit 28 - Emder Schiffensausrusting invoice no. 6915
Exhibit 44 - Krupp Mak Diesel, Inc. invoice no. 416926
Exhibit 46 - Imatech invoice no. 83362
Exhibit 47 - Manotherm invoice no. 9301973
Exhibit 59 - Alfa-Laval Separation invoice no.
199305342
Exhibit 60 - Bisma Bulklift invoice no. 93139
Exhibit 66 - Wartsila Diesel invoice no. 705840
Exhibit 73 - Iron Pump invoice no. 59040
Exhibit 75 - Unitor invoice nos. 2295621 and 2296685
Exhibit 78 - Amot Controls Corp. invoice no. 33777
Exhibit 86 - Saacke Gmbh & Co. invoice no. 010169
Exhibit 88 - Seatrade International AB invoice no. 1568
Exhibit 89 - Renk Tacke Gmbh invoice no. 615425/3205
Exhibit 95 - Iron Pump invoice no. 64558
Exhibit 97 - Dixie Bearings invoice no. JA70376
Exhibit 103 - Krupp Mak Diesel, Inc. invoice nos.
418081, 418102 and 418112
Exhibit 104 - Krupp Mak Diesel, Inc. invoice nos.
417790, 417952 and 417399
Exhibit 107 - STN Systemtechnik Nord invoice no.
0861800
Exhibit 111 - Krupp Mak Diesel, Inc. invoice no. 418437
Exhibit 112 - Krupp Mak Diesel, Inc. invoice no. 418607
Exhibit 115 - Krupp Mak Diesel, Inc. invoice no. 418741
Exhibit 121 - Imatech invoice nos. 45059 and 45107
Exhibit 122 - Sandven Electronics A.S. invoice no.
15080
Exhibit 123 - Seatrade International AB invoice no.
1380
Exhibit 130 - Bismo Bulklift AS invoice no. 94005 and
Atlas Elektronik of America, Inc.
invoice no. 1372
Exhibit 134 - Como Gmbh invoice no. 04008
Exhibit 141 - Imatech invoice nos. 45107 and 45130
Exhibit 142 - Imatech invoice nos. 83907, 83908, 83909,
83923 and 45006
Exhibit 143 - Imatech invoice nos. 15438, 45007, 45014,
45059, 45069, 45070 and 84040
Exhibit 145 - Technischer Handel invoice no. 93009

It is the position of the protestant that none of the parts
and materials covered by the above-referenced invoices are
subject to duty under the vessel repair statute for the reason
that subsection (a) of the statute imposes duty on the cost in a
foreign country. The argument is made that since the purchases
in question were made in the United States or imported into the
United States and duty-paid prior to their use, there is no
foreign cost subject to duty under the law. In addition to the
invoices listed above, the protestant has submitted various
import documentation,

- 3 -

including a Customs Entry Summary (CF 7501), in each exhibit
covering parts and materials
stated to be imported and duty-paid. The protestant has also
provided a certification from the Secretary for Strong Virginian
Navigation Company that the parts and materials in question
(excluding those covered in Exhibit 75) were purchased in the
United States and/or imported duty-paid into the United States
(Exhibit 2(b)). The following are cited in support of the
protestant's position: United States v. Wigglesworth, 2 Story
369; 28 Fed.Cas. 595 (1842); Eidman v. Martinez, 184 U.S. 578,
225 S.Ct. 515, 46 L.Ed. 697 (1902); Customs rulings 102154
(Exhibit C); 104700 (Exhibit D); 109408 (Exhibit E); Senate
Reports 1-473, 71st Congress, 1st and 2d Sessions, April 15,
1929-July 3, 1930 (Exhibit F); House Reports 1-495, 71st
Congress, 1st and 2d Sessions 1929-1930 (Exhibit G); Statement of
Rep. Gene Snyder in the Congressional Record, dated March 9, 1982
(Exhibit H).

In regard to Exhibit 75, the protestant has submitted the
following: a one-sentence telefax from an untitled employee of
Unitor that the parts and materials covered by the invoices
listed therein were manufactured in the United States (Exhibit
75(a)); and Customs rulings 110644 (Exhibit A) and 113216
(Exhibit B).

With respect to Exhibit 134, the protestant proffers an
alternative claim for relief in alleging that the parts and
materials referenced therein were incorporated a nondutiable
modification to the vessel. In support of this claim the
protestant has submitted the following: a copy of a letter
explaining the purchase (Exhibit 134(b)); and Customs ruling
107177 (Exhibit M).

In addition to the cost of the parts and materials discussed
above, the protestant also requests relief for cleaning costs
listed on the following:

Exhibit 53 - Metalock Underwater invoice no. UMI1746
Exhibit 125 - Metalock Underwater invoice no. UMI1824

It is the position of the protestant that the cleaning costs
in question are not dutiable since they were not required in
preparation for or as the result of any repairs, and would have
been accomplished regardless of whether repairs were performed.
In support of this position the protestant has cited the
following: Munson Steamship Lines v. United States, 42 Treas.Dec.
242, T.D. 39340 (1922) (Exhibit I); American Hawaiian Steamship
Co. v. United States, 71 Treas.Dec. 1174, Abs. 36292 (1937)
(Exhibit J); Bradley v. Bolles, L Abb., 596, 3 Fed.Cas. 1137)
(Exhibit K); and Customs rulings 106509 (Exhibit L).

It should be noted that in Customs liquidation of the
subject entry, the costs in question covered by Exhibits 53, 59,
66, 75, 78 and 125 were liquidated free of duty. Therefore, the
protestant's claims with respect to these six exhibits is denied.
However, we believe these costs were erroneously given duty-free
treatment and if the protestant files a summons in the U.S. Court
of International Trade pursuant to 28 U.S.C. 1581 contesting
Customs decision on this protest, the Government will
counterclaim with respect to these exhibits.

- 4 -

ISSUES:

1. Whether a domestic purchase of articles which are not
manufactured or produced in the United States and which are
placed aboard a U.S.-flagged vessel in a foreign shipyard, is
subject to duty imposed under 19 U.S.C. 1466(a).

2. Whether evidence is presented sufficient to prove that
the parts and materials referenced in Exhibit 134 were
incorporated in a modification to the hull and fittings of the
vessel so as to render them nondutiable under 19 U.S.C.
1466(a).

LAW AND ANALYSIS:

Title 19, United States Code, 1466(a) (19 U.S.C.
1466(a)), provides in pertinent part for the payment of an ad
valorem duty of 50 percent of the cost of "...equipments, or any
part thereof, including boats, purchased for, or the repair parts
or materials to be used, or the expenses of repairs made in a
foreign country upon a vessel documented under the laws of the
United States..."

Subsection (d)(2) of 19 U.S.C. 1466 provides that duty is
to be remitted or refunded if the owner or master of a vessel
provides evidence regarding vessel-related expenditures that:

...such equipments or parts thereof or repair parts or
materials
were manufactured or produced in the United States, and
the labor
necessary to install such equipments or to make such
repairs was
performed by residents of the United States, or by
members of the
regular crew of such vessel...

The protestant states, with emphasis, on page 8 of the
protest attachments, that "This is not a request for remission
under 19 U.S.C. 1466(d)(2)...The parts in issue were purchased
in the United States or imported into the United States prior to
their use." The invoices and import documentation submitted make
it quite clear that the articles under consideration are of
foreign manufacture or production and were first imported into
the United States before being purchased for overseas
installation by the vessel operator.

Parts and materials of foreign origin which are imported
into the United States prior to their use in foreign shipyard
operations have been subject to particular treatment by the
Congress of the United States. On August 20, 1990, the President
signed into law the Customs and Trade Act of 1990 (Pub.L. 101-382), 484E of which amended the vessel repair statute by adding
a new subsection (h). Subsection (h) included two elements, the
second of which is relevant to the present matter and provided as
follows:

- 5 -

(h) The duty imposed by subsection (a) of this section shall
not apply to--

(2) the cost of spare repair parts or materials (other
than nets or nettings)
which the owner or master of the vessel certifies are
intended for use
aboard a cargo vessel, documented under the laws of the
United States and
engaged in the foreign or coasting trade, for
installation or use on such
vessel, as needed, in the United States, at sea, or in
a foreign country, but
only if duty is paid under the appropriate commodity
classifications of the
Harmonized Tariff Schedule of the United States upon
first entry into the
United States of each such spare part purchased in, or
imported from, a
foreign country.

The effective date of the amendment was stated as applying
to:

(1) any entry made before the date of enactment of this
Act that is not
liquidated on the date of enactment of this Act, and
(2) any entry made--
(A) on or after the date of enactment of this
Act, and
(B) on or before December 31, 1992.

Section 1466 was more recently amended on December 8, 1994,
by 112(b) of Pub.L. 101-465, in part by reinstatement of the
previously expired subsections (h)(1) and (2), the wording of
which remained unchanged from their previous enactment. The
provision, which expired on December 31, 1992, and again became
effective on January 1, 1995, was non-existent during that
intervening two-year period. The vessel repair entry in question
was filed during that period. Consequently, the provisions of
subsection (h)(2) are inapplicable to the subject entry.

The Congress, in enacting and re-enacting a provision
extending special treatment under the vessel repair statute to
parts and materials proven to have been imported into the United
States prior to their use in foreign vessel repair operations
(i.e., subsection (h)(2)), has provided irrefutable evidence that
domestic purchases of imported parts and materials are subject to
vessel repair duty unless excepted thereunder. The fact that it
was necessary to amend the statute in order to except imported
parts and materials from duty under 1466, trumps any argument
which may be advanced concerning administrative interpretations
of the law prior to amendment.
(See Headquarters ruling 113499, dated December 14, 1995)

Accordingly, since the Customs rulings cited by the
protestant (Exhibits C, D, and E) all pre-date the above-referenced amendment to 1466, they are inapplicable to the
protestant's claim. With respect to the judicial authority cited
for the proposition that the language of
1466(a) is ambiguous and therefore does not authorize or
require duty on purchases made in the United States or on parts
imported prior to their use on a vessel within the purview of the
statute (United States v. Wigglesworth, 2 Story 369; 28 Fed.Cas.
595 (1842); and Eidman v.

- 6 -

Martinez, 184 U.S. 578, 225 S.Ct. 515, 46 L.Ed. 697 (1902)), we
note that counsel cited the same authority in Texaco Marine
Services, Inc. and Texaco Refining and Marketing, Inc. v. United
States, 44 F.3d. 1539 (1994). In refuting counsel's argument
that the aforementioned judicial precedents support the position
that the language of 1466(a) is ambiguous, the court stated, in
pertinent part:

"That the language is broad and general in nature does
not mean
it is ambiguous. To the contrary, the meaning is quite
clear--the
broad, general language means its application is broad
in scope.
Absent the impossible task of having Congress list in
the statute
every type of repair expense that it intended be
encompassed
within the statute the statute, the statute could not
be any clearer
on its face. Hence, this is not a case like...United
States v.
Wigglesworth, 28 Fed.Cas. 595, 96-597
(C.C.D.Mass.1842)
(No. 16,690) or Eidman v. Martinez, 184 U.S. 578, 590-591,
22 S.Ct. 515, 520-521, 46 L.Ed. 697 (1902))...where the
statutory language was unclear or where an attempt was
made
to have read into it words which were not there." 44
F.3d at 1544

Assuming, arguendo, the ambiguity proffered by counsel, we
note that the legislative history contained within the subject
protest (Exhibits F, G, and H) submitted for the purpose of
determining the intent of Congress in enacting the statute
pertains to subsequent amendments to the statute as originally
enacted. In this regard, the U.S. Court of Appeals for the
Federal Circuit (CAFC) has stated that "[o]ther than the words of
the statute that Congress enacted in 1866, we know of no
statement made by the 1866 Congress which sheds light upon the
purpose behind the statute." (footnote 3 at 44 F.3d 1544).
However, the CAFC at 44 F.3d 1544, 1545, goes on to state that
the courts have consistently held that the vessel repair statute
was enacted "to equalize, by imposition of the prescribed duty,
the relative costs of repairs performed by foreign versus
domestic labor, in order to encourage U.S. ship owners to employ
U.S. labor whenever possible." Mount Washington Tanker Co. v.
United States, 665 F.2d 340, 344 (CCPA 1981); see also South
Corp. v. United States, 690 F.2d 1368, 1372, 1 Fed.Cir. (T) 1, 5
(1982) ("In enacting 1466(a) Congress sought to protect and
encourage American ship repair facilities."; Sea-Land Service,
Inc. v. United States, 683 F.Supp. 1404, 1409 (CIT 1988) ("It is
evident from the legislative history of 19 U.S.C. 1466, a
revision of section 466 of the Tariff Act of 1930, that the basic
purpose of the foreign repair statute was to protect American
labor."); Erie Navigation Co. v. United States, 475 F.Supp. 160,
163 (Cust.Ct. 1979) ("It is clear that the purpose of section
1466(a) was to protect the American shipbuilding and repairing
industry."); United States v. Gissel, 353 F.Supp. 768, 772
(S.D.Tex.1973) (noting that "it was Congressional policy to
encourage the obtaining of American flag vessel repairs in
American shipyards"), aff'd, 493 F.2d 27 (5th Cir.), cert.
denied, 419 U.S. 1012, 95 S.Ct. 332, 42 L.Ed.2d 286 (1974). It
is noteworthy that the protection of American labor and
industries is in fact reflected in Exhibit G.

- 7 -

Accordingly, Customs position that the foreign-manufactured
parts and materials in question which were purchased in the U.S.
or imported duty-paid and subsequently installed overseas are
dutiable is supported by the fact that the provisions of
1466(h)(2) were non-existent at the time of the subject entry and
later re-enacted, the inapplicability of the remaining statutory
exceptions to the assessment of duty, the judicial rejection of
the alleged ambiguity
of the language of 1466(a), and the intent of Congress that the
purpose of the vessel repair statute is to protect and encourage
the use of U.S. shipbuilding and repair facilities.

With respect to the alternative claim pertaining to Exhibit
134 (i.e., that the invoiced articles referenced therein were
incorporated in a nondutiable modification), we note that in its
application of the vessel repair statute, Customs has held that
modifications to the hull and fittings of a vessel are not
subject to vessel repair duties. Over the course of years, the
identification of modification processes has evolved from
judicial and administrative precedent. In considering whether an
operation has resulted in a modification which is not subject to
duty, the following elements may be considered.

1. Whether there is a permanent incorporation into the hull or
superstructure of a vessel (see United States v. Admiral Oriental
Line et al., T.D. 44359 (1930)), either in a structural sense or
as demonstrated by the means of attachment so as to be indicative
of the intent to be permanently incorporated. This element
should not be given undue weight in view of the fact that vessel
components must be welded or otherwise "permanently attached" to
the ship as a result of constant pitching and rolling. In
addition, some items, the cost of which is clearly dutiable,
interact with other vessel components resulting in the need,
possibly for that purpose alone, for a fixed and stable
juxtaposition of vessel parts. It follows that a "permanent
attachment" takes place that does not necessarily involve a
modification to the hull and fittings.

2. Whether in all likelihood, an item under consideration would
remain aboard a vessel during an extended lay up.

3. Whether, if not a first time installation, an item under
consideration replaces a current part, fitting or structure which
is not in good working order.

4. Whether an item under consideration provides an improvement
or enhancement in operation or efficiency of the vessel.

Very often when considering whether an addition to the hull
and fittings took place for the purpose of 19 U.S.C. 1466, we
have considered the question from the standpoint of whether the
work involved the purchase of "equipment" for the vessel. It is
not possible to compile a complete list of items that might be
aboard a ship that constitute its "equipment". An unavoidable
problem in that regard stems from the fact that vessels differ as
to their services. What is required equipment on a large
passenger vessel might not be required on a fish processing
vessel or offshore rig.

- 8 -

"Dutiable equipment" has been defined to include:

...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. Admiral Oriental,
supra., (quoting T.D. 34150, (1914))

By defining what articles are considered to be equipment,
the Court attempted to formulate criteria to distinguish non-dutiable items which are part of the hull and fittings of a
vessel from dutiable equipment, as defined above. These items
might be considered to include:

...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... Admiral Oriental,
supra., (quoting 27 Op. Atty. Gen. 228).

A more contemporary working definition might be that which
is used under certain circumstances by the Coast Guard; it
includes a system, accessory, component or appurtenance of a
vessel. This would include navigational, radio, safety and,
ordinarily, propulsion machinery.

Upon reviewing the documentation submitted with respect to
Exhibit 134, it is apparent that Exhibit 134(b) contains merely a
scintilla of an explanation of the work involved (i.e., a single
passage highlighted by the protestant which only states
"CONVERSION FROM ENG. COOLING WATER OPERATION INTO STEAM JET
LIQUID HEATING"). In regard to Customs ruling 107177 (Exhibit
M), it holds that, "...the work on the No. 5A hold, the cargo
pump, the slop line, the cargo main block valve, the remote
operator actuator and the spectacle block constitute additions to
the hull and fittings rather than repairs." However, the protest
fails to prove the relevance between that ruling and the costs at
issue in Exhibit 134. Accordingly, the evidence presented is
insufficient to prove that the invoiced articles covered by
Exhibit 134 meet the criterion of a nondutiable modification as
discussed above.

HOLDINGS:

1. Absent the applicability of 19 U.S.C. 1466(h)(2), a
domestic purchase of articles which are not manufactured or
produced in the United States and which are placed aboard a U.S.-flagged vessel in a foreign shipyard is subject to duty imposed
under 19 U.S.C. 1466(a). Accordingly those invoiced articles
covered by the following exhibits are dutiable: Exhibits 2, 7,
16, 27, 28, 44, 46, 47, 60, 73, 86, 88, 89, 95, 97, 103, 104,
107, 111, 112, 115, 121, 122, 123, 130, 134, 141, 142, 143, 145.

- 9 -

2. Evidence is presented insufficient to prove that the
parts and materials referenced in Exhibit 134 were incorporated
in a modification to the hull and fittings of the vessel so as to
render them nondutiable under 19 U.S.C. 1466(a).

Accordingly, the protest is denied in its entirety.

In accordance with 3A(11)(b) of Customs Directive 099
3550-065, dated August 4, 1993, Subject: Revised Protest
Directive, this decision should be mailed by your office no later
than 60 days from the date of this letter. Any reliquidation of
the entry in accordance with this
decision must be accomplished prior to mailing the decision.
Sixty days from the date of the
decision the Office of Regulations and Rulings will take steps to
make the decision available to customs personnel via the Customs
Ruling Module in ACS and the public via the Diskette Subscription
Service, Freedom of Information Act and other public access
channels.

Sincerely,

Director
International Trade Compliance
Division

HQ 113608: Protest No. 2809-95-100891; Vessel Repair Entry No. C28-0189424-0; STRONG VIRGINIAN; V-1; Domestic Invoices; Cleaning;Modification; 19 U.S.C. 1466

Continue sua pesquisa no ChatGPT ou Claude