VES-13-18-RR:IT:EC 112894 GOB
Port Director of Customs
Attn.: Chief, Residual Liquidation and Protest Branch
Six World Trade Center
New York, N.Y. 10048-0945
RE: Vessel Repair Entry No. C05-0000084-6; 19 U.S.C. 1466;
Petition;
MARINE RELIANCE, V-31; Surveys
Dear Sir:
This is in response to the memorandum from your office dated
September 17, 1993 with respect to the above-referenced vessel
repair entry.
FACTS:
The record reflects that the S/S MARINE RELIANCE (the
"vessel") is a U.S.-flag vessel owned by Marine Transport Lines,
Inc. ("petitioner"). In July 1992 the vessel underwent shipyard
operations in Yokosuka, Japan. The vessel arrived at the port of
Davisville, Rhode Island on September 17, 1992, and filed the
subject vessel repair entry.
In Ruling 112580 dated May 25, 1993, the application for
relief with respect to the subject entry was denied.
ISSUE:
Whether the costs at issue are dutiable pursuant to 19
U.S.C. 1466.
LAW AND ANALYSIS:
19 U.S.C. 1466 provides for the payment of duty at a rate of
fifty 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 be employed in such trade.
The petition for relief is dated July 21, 1993. We note
initially that the petition states with respect to certain items
(i.e., 15-5(b) - pin inspection; 16-3(g) and (h) - tube gauging
and engineer inspection; 16-4(c) - pump inspection; and 17-3(c),
(g), and (h) - main engine inspections): "In accordance with
clarification guidance, provided with letter above, this item is
withdrawn from consideration." We take this to mean that the
petitioner is not contesting the finding of dutiability for each
item with respect to which that statement is made. Accordingly,
these items are not the subject of this petition.
In general, surveys or inspections are nondutiable
under 19 U.S.C. 1466 if they are periodic surveys or inspections
which are required by a governmental entity or classification
society and if they are not resultant from, or associated with,
dutiable repairs.
In CSD 79-277, we stated as follows:
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 when dutiable repairs are effected as a result thereof.
We note that the decision in Texaco Marine Services, Inc.
and Texaco Refining and Marketing, Inc. v. United States, 815
F.Supp. 1484 (CIT 1993), 44 F.3d. 1539 (CAFC 1994) may be
relevant to the dutiability of surveys or inspections in certain
cases. In Texaco, the Court of Appeals for the Federal Circuit
stated in pertinent part:
Texaco urges us to reject the Court of International Trade's
"but for" approach and to interpret "expenses of repairs" so
as to exclude those expenses (e.g., expenses for clean-up
and protective covering work) not incurred for work directly
involved in the actual making of repairs. Such a reading
has no basis in the plain language of the statute, however.
Aside from the inapplicable statutory exceptions, the
language "expenses of repairs" is broad and unqualified. As
such, we interpret "expenses of repairs" as covering all
expenses (not specifically exempted in the statute) which,
but for dutiable repair work, would not have been incurred.
(Emphasis supplied.)
However, as stated in Headquarters memorandum 113350 dated March
3, 1995, which was published in the Customs Bulletin on April 5,
1995, Customs has determined that, except for post-repair
cleaning and protective coverings, Texaco will not apply with
respect to vessel repair entries filed prior to the date of the
appellate decision in Texaco, December 29, 1994. Inasmuch as the
subject entry was filed in 1992, the only
application of Texaco herein would be to issues involving post-repair cleaning and protective coverings.
After a review of the evidence of record, we determine that
the following items are nondutiable because they fall within the
scope of a nondutiable survey or inspection. As stated supra, in
general, surveys or inspections are nondutiable under 19 U.S.C.
1466 if they are periodic surveys or inspections which are
required by a governmental entity or classification society and
if they are not resultant from, or associated with, dutiable
repairs.
15-16 - fire equipment - inspection cost (15-16) and
pipe line test (15-16(b)). The invoice indicates that the
inspection cost in 15-16 was for an annual inspection and testing
in accordance with U.S. Coast Guard ("USCG") and SOLAS rules and
regulations. The renewals in 15-16(a) and the materials in 15-16(b) are dutiable.
16-3 - composite boiler - (a), (b), (c), (d), and (e).
These items are all inspections or tests. No repairs are noted.
Note, however, that 16-3(c) contains a dutiable item -
replacement/repairs cost of 32,000 yen; the inspection cost of
300,000 yen in 16-3(c) is nondutiable. Note further that 16-3(f)
was not included within the scope of the petition. Finally note
that 16-3(g) and (h) were "withdrawn from consideration," as
noted above.
16-4 - pumps. Only the inspection costs are
nondutiable. The inspection costs are nondutiable inspection
costs. No repairs are noted. The costs of new parts and
replacements are dutiable.
17-1(a) and (e) - rudder clearance and dye check. The
invoice indicates that these items are tests or surveys.
17-2 - propeller and tailshaft - (a) - only inspection
cost; (b) propeller removal; (c) - only inspection cost; (f) -
only inspection cost; and (h) - fairwater. The invoice reflects
that these inspection or inspection-related costs are nondutiable
inspection costs which were required for ABS special survey
credit and pursuant to USCG rules and regulations. No repairs
are noted.
17-3 - main engine items. The petition pertains to
(a), (b), (c), (d), (g), and (h), (j), and (k). Except for item
(k), the invoice reflects that all separately itemized inspection
costs are nondutiable inspections. Item 17-3(k), which includes
the cleaning of scavenging air space, is dutiable pursuant to the
authority of Ruling 111571 dated March 4, 1992 (as well as other
rulings on point). Ruling 111571 held that:
The removal of carbon and oil deposits from the main engine
scavenger spaces is a maintenance operation the cost of
which is subject to duty under 19 U.S.C. 1466.
18-1 - quadrennial cargo gear inspection. The invoices
reflects that this is a required ABS inspection.
18-2 - ramp hose test. The invoice reflects that this
item is related to ABS and USCG requirements.
Item 15-5(a) (life boats) is dutiable. The invoice and the
application indicate that this item involved work done to the
life boats per USCG requirements. However, the invoice also
indicates that the work included the renewal of wires, which is
dutiable. The renewal of wires is not separately itemized.
Accordingly, item 15-5(a) is dutiable.
Item 15-15 (life rafts - inspection) is dutiable because it
includes "renewals of all annual replacement items," which is not
separately itemized. Renewals of replacement items are dutiable.
Item 15-15(a), a USCG-required five year inflation test of four
life rafts, is nondutiable because it is a test required by a
governmental entity which is not resultant from or associated
with dutiable repairs.
Item 16-1 - sea valves is dutiable because the invoice
includes dutiable repairs which are not separately itemized,
i.e., the renewal of missing or defective studs and nuts.
On page 10 of the petition, the petitioner refers to certain
items as "purported to be an incidental operation to
inspections." Certain of these items (i.e., 16-3(a) and (d); 18-1; and 18-2) are covered by our findings, supra, that they are
nondutiable.
All transportation costs which are segregated are
nondutiable. The "but-for test" of Texaco, does not apply to
transportation costs herein per Headquarters memorandum 113350,
supra, since the subject entry was filed prior to the date of the
appellate decision in Texaco.
HOLDING:
As detailed supra, the petition is granted in part and
denied in part.
Sincerely,
William G. Rosoff
Chief, Entry and Carrier Rulings
Branch