VES-13-18-CO:R:IT:C 112069 GFM

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

RE: Entry No. C15-0012648-2; S.S. ROVER V-74; Foreign vessel repair; U.S. labor team; Absence of parts in repair work.

Dear Sir:

This is in response to your memorandum of February 26, 1992, which forwards for our review and disposition an application for relief filed in connection with the above captioned vessel repair entry. Our findings are set forth below.

FACTS:

The S.S. ROVER, a U.S.-flag vessel owned by Central Gulf Lines, Inc., of New Orleans, Louisiana, underwent foreign shipyard repairs during the period of September, 1991, through October, 1991. A number of these were completed by an American labor team sent from the U.S. Subsequent to the work's completion, the vessel arrived in the United States and made entry at Sunny Point, North Carolina, on October 30, 1991. Applicant filed a vessel repair entry on November 5, 1991, and seeks remission of duty on several items enumerated therein.

Applicant has placed the items in question into three separate categories:

[1] Regarding the first category, which encompasses items 8, 9, 10, 11, 12, 27, 28, and 29, the applicant seeks relief for parts purchased in the United States and installed foreign, as well as labor charges incurred in effecting those repairs, pursuant to 19 C.F.R. 4.14(c)(3)(i).

[2] Regarding the second category, which encompasses items 4, 16, 17, 18, 19, 20, 21, 23, 24, 25, and 26, the applicant seeks relief on the grounds that the items are consumable goods exempt from duty pursuant to 19 C.F.R. 4.14(c)(3).

[3] Regarding the third category, which encompasses items 6, 7, and 13, the applicant seeks relief based upon their status as classifiably free transactions exempt from duty pursuant to 19 C.F.R. 4.14(a).

ISSUES:

(1) Whether duties paid on the foreign shipyard operations in question, as well as the labor performed pursuant thereto, are non-dutiable under 19 U.S.C. 1466.

(2) Whether the specified goods in question may be properly classified as non-dutiable "consumable goods" pursuant to 19 U.S.C. 1466.

(3) Whether the repairs in question may properly be classified as non-dutiable repairs performed in order to fulfill certification requirements of regulatory bodies pursuant to 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.

According to 19 U.S.C. 1466(d)(2) and implementing regulations, remission or refund of duties is authorized if good and sufficient evidence is furnished showing that the equipment, equipment parts, repair parts or materials used on the vessel were manufactured or produced in the United States and purchased by the owner of the vessel in the United States, and the labor necessary to install such equipment or to make such repairs was performed by residents of the United States or by members of the regular crew of the vessel.

The Customs and Trade Act of 1990 (Pub. L. 101-382), which amends 19 U.S.C. 1466 by creating subsection (h), 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 vessel owner or master must provide a certification that the materials in question 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 must 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 complete 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, certification must be included in 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 cargo 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 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, 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 section (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 of 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 the most recent amendment makes the section applicable to any entry made before the date of enactment of the 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.

Items 8, 9, 10, 11, 12, 27, 28, and 29:

Items 8, 9, 10, and 11 refer to equipment allegedly purchased in the United States and shipped foreign for use in repairs conducted overseas by U.S.-resident labor. According to 19 C.F.R. 4.14(d)(iii), evidence necessary to support a valid claim for remission must include, "all itemized bills, receipts and invoices." With regard to the items in question, the record contains no U.S. bills of sale or other evidence indicating the equipment's origin. Only non-specific shippers' airwaybills were submitted and they provided no evidence whatsoever as to origin. As a result of this failure to meet the regulatory requirements, these items are dutiable.

Item 12, however, which also pertains to U.S. equipment that is shipped foreign, contains a valid domestic bill of sale which meets the burden of proof necessary for relief. The submitted invoice clearly indicates that the materials were purchased in the U.S. from a U.S. company. According to 19 U.S.C. 1466(h)(2), this constitutes sufficient proof of prior importation and HTSUS duty payment. As a result, this item is non-dutiable.

Items 27, 28 and 29 represent labor charges for repairs effected by U.S.-resident labor in a foreign port. With regard to U.S.-resident labor, a careful reading of 19 U.S.C. 1466

indicates that remission will lie in cases where American- manufactured equipment is utilized or where goods were previously imported and duty-paid.

Regarding these items, the record indicates that repairs were indeed effected, but that no equipment or parts were installed onto the ship or utilized in the repair process. We are thus faced with determining whether, in the absence of evidence that U.S. parts were used in the repairs, the U.S.- resident labor that effects such foreign repairs enjoys non- dutiable status.

Within the realm of statutory construction, it is well- settled that "the meaning of the statute must in the first instance, be sought in the language in which the act is framed, and if that is plain...the sole function is to enforce it according to its terms." 2A Sutherland Stat Const 46.01 (4th ed)(quoting from Caminetti v. United States, 242 US 470). This "plain meaning rule" emphasizes the importance of the legislative text and is exemplified by cases like Slavado v. Prudential Property & Casualty Ins. Co., 287 Pa Super 296 (1981), wherein the court stated, "Where the words of the statute are clear and free from ambiguity, the letter of the statute may not be disregarded under the pretext of pursuing its spirit."

With regard to 19 U.S.C. 1466(d)(2), the words of the statute are clear. Section (d)(2) provides that foreign vessel repair duties will be remissible if "the owner or master of such vessel furnishes good and sufficient evidence 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 statute's language contains a conjunctive which mandates the fulfillment of two requirements before duties will be remitted. First, the repair parts utilized must be of U.S.- origin; and second, the repairs must be effected by U.S.-labor. Strictly interpreted, relief under the statute cannot be conferred unless both conditions are met. In the present case, because circumstances did not warrant utilization of parts in the repairs, the statute cannot be relied upon to grant relief.

Based upon the foregoing, we rule that the labor performed in items 27, 28, and 29, that is, labor performed by U.S.-residents upon a foreign vessel in which no parts were utilized, is not amenable to application under 19 U.S.C. 1466 and is thus, dutiable.

Items 4, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, and 26:

The above items represent goods which applicant claims are duty-free due to their status as consumable goods. The term "consumable supplies" refers to two categories of items. The first category encompasses "'supplies for the consumption, sustenance, and medical needs of the crew and passengers during the voyage,' such as medicine and food." H.E. Warner, Trustee v. United States, 28 C.C.P.A. 143, 148, C.A.D. 136 (1940), citing Southwestern Shipbuilding Co. v. United States, 13 C.C.P.A. 74, T.D. 40934 (1925). The second category refers to other items, such as fuel, that "are wholly consumed in their first use." Customs Bureau Letter, dated March 7, 1951. See also Atlas Marine Supply Co. v. United States, 29 C.P.P.A. 20, C.A.D. 165 (1941).

According to the submitted documents, with the exception of item 18, the items above consist of foodstuffs, fuel, cleaning supplies, etc., which can be determined to have been necessary for the sustenance of the crew and passengers during the voyage. Item 18, however, a "universal joint" purchased from a foreign vendor, cannot be classified as a consumable supply. Such an item is neither a supply for the consumption, sustenance, or health of the crew nor an item totally consumed in its first use. As a result, with the exception of item 18, these items are all non-dutiable.

Items 13, 6, and 7:

The above items represent undertakings sought to be declared "classifiably free from duty" based upon their status as operations necessary to fulfill requirements of regulatory bodies.

In Customs Service Decision 79-277, we held that "where a survey is undertaken to meet the specific requirements of a governmental entity, classification society, insurance carrier, etc., the cost is not dutiable even if dutiable repairs are effected as a result thereof. 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..."

Item 13 refers to survey charges incurred while the ship was drydocked during September of 1991. The submitted documents clearly indicate that the survey was not a required, scheduled inspection by a qualifying entity, but merely a survey undertaken to discover damage. Accordingly, such charges are fully dutiable.

Item 6 refers to repairs undertaken incident to a tailshaft inspection. The item specifically refers to a sterntube analysis in connection with the overall inspection. According to C.S.D. 79-277, where the inspection is one undertaken to determine whether repairs are deemed necessary, the costs of the survey, and any repairs resulting therefrom, are dutiable. The repair in question clearly emanates from such an inspection. As stated, because this inspection was not conducted to satisfy regulatory requirements, but to assess damages, this item must be held dutiable.

Item 7 refers to the repair costs enumerated in invoice item WF105. According to the invoice, these repairs were also incurred as a result of the inspection referred to above. Accordingly, these repair charges are also dutiable.

HOLDING:

After thorough review of the evidence presented, and as detailed in the Law and Analysis portion of this ruling, the application for relief is granted in part and denied in part.

Sincerely,

B. James Fritz
Chief
Carrier Rulings Branch