VES-13-18-CO:R:P:C 110426 BEW
Deputy Assistant Regional Commissioner
Commercial Operations
ATTN: Regional Vessel Repair Liquidation Unit
New York, New York 10048-0945
RE: New York Seaport, Vessel Repair Entry No. 514-3003744-3, S/S
AMERICAN RESOLUTE, Voyage 23
Dear Sir:
This is in reference to an application for relief from
duties with accompanying documentation filed by Daniel F. Young,
Inc., on behalf of Farrell Lines, Inc., in relation to the above
referenced vessel repair entry dated April 29, 1989. The vessel
arrived at the port of New York on April 22, 1989.
FACTS:
The record shows that the shipyard work in question was
performed on the subject vessel at the Malta Dry Docks shipyard
in Valetta, Malta, during the period March 20 through April 4,
1989.
The entire vessel repair entry involves a potential duty of
$173,884.50.
The applicant claims that relief for the subject items
should be granted because the items are modifications, cleaning
operations and inspections which are not dutiable.
You have referred a total of three (3) items to us for our
review and comments. We will refer to the work using the item
numbers and invoice descriptions shown on the invoices submitted
with your memorandum.
ISSUE:
Whether the evidence as presented is sufficient to show that
the items claimed are duty-free under the terms of the statute.
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.
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.
An early case, United States. v. George Hall Coal Co., 134
F. 1003 (1905), was the first to find any expenses associated
with repairs to be classifiably free from the assessment of
vessel repair duties. The case established that the expenses of
drydocking a vessel (regardless of the underlying need to
drydock) is not an element of dutiable value in foreign repair
costs. Many associated expenses and services which are necessary
adjuncts to drydocking are logically inseparable from the
drydocking rule. These include such items as drydock block
arrangement, sea water supply (for fire-fighting equipment), hose
hook-up and disconnection charges, fire watch services, the
services of a crane for drydocking-related operations, the
provision of compressed air, cleaning of the drydock following
repairs, and numerous others.
In Headquarters ruling 106543 JM, Customs held that mere
cleaning operations are not dutiable. However, cleaning
operations which remove rust and deterioration or worn parts, and
which are a necessary factor in the effective restoration of a
vessel to its former state of preservation, constitute vessel
repairs (See C.I.E. 429/61).
In the case of E. E. Kelly & Co. v. United States, T.D.
43322 (1929), the United States Court of Customs and Patent
Appeals determined in a vessel repair case that the meaning of
the word "maintenance" in the trade and commerce context is the
same as in the common meaning, "in the sense of keeping a thing
in good condition by means of repairs". The Court found that:
... the language 'the expenses of repairs made in a
foreign country', contained in section 466, supra, is
sufficiently comprehensive to include money paid to a
foreign contractor for [maintenance].
With regard to item 48 (After Mooring Capstan). The invoice
shows that the motor was cleaned; that the stator was baked and
varnished; that the bearing house was rebushed; and that the
motor reassembled and tested. During the test of the motor, a
fault developed. The motor had to be again dismantled. The
squirrel cage was found to be defective. The squirrel case was
temporarily repaired and dynamically balanced. Even though the
motor faulted during the test of the motor after it had been
cleaned, rebushed and tested, the work performed on the subject
items was in the nature of maintenance to keep or preserve the
motor in good condition. Duty assessed on the cost of repairs
which are maintenance in nature may not be remitted (see C.I.E.
1537/60). We now come to the temporary repairs of the squirrel
case. Temporary repairs which are completely in effective and of
no value to the vessel are not repairs dutiable under section
1466 (see T.D. 55193(24) and C.I.E. 1156/62). There is no
evidence that any of the repair work performed on the subject
items was ineffective. Accordingly, the entire cost associated
with this item is dutiable.
With regard to item 96 (Radar scanner). The invoice shows
that the scanner was totally stripped. The ball bearings were
renewed, and the fan was repaired by renewing the blades. The
scanner was spray painted. Since repairs were made to this item,
the cost of the associated repairs is dutiable except for the
cost for transportation.
Farrell Lines has submitted documentation in which it is
stated that certain items were owned-supplied items furnished to
Malta Drydocks. It claims that these items total $51,396.24.
Section 1466(d)(2), provides that the Secretary of the
Treasury is authorized to remit or refund such vessel repair
duties if the owner or master provides good and sufficient
evidence that the repair parts or materials were manufactured or
produced in the United States and the labor necessary to make
these repairs was performed by residents of the United States, or
by members of the regular crew of the vessel. (emphasis added)
Pursuant to C.I.E. 1257/60, "The fact that repair material
used in accomplishing repairs is of United States manufacture is
irrelevant unless the work is performed by residents of the
United States or by regular members of the crew of the vessel
within the contemplation of 3115(2), Revised Statutes." (R.S.
3115(2) now appears as 19 U.S.C. 1466(d)(2)). The record shows
that foreign labor was used to install the owner-supplied parts
shown on the invoices listed above. Accordingly, the entire
cost, except transportation and staging, is dutiable under the
provisions of section 1466(a)(2).
HOLDING:
Following a thorough review of the law and analysis of the
evidence, we recommend that the application be granted with the
exception of the items enumerated above.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch