VES-13-18-RR:IT:EC 113797 GEV
Chief, Liquidation Branch
U.S. Customs Service
Post Office Box 2450
San Francisco, California 94126
RE: Vessel Repair Entry No. C27-0147674-2; MOKIHANA; V-3;
Repairs; Expenses of Repairs; Casualty; 19 U.S.C. 1466
Dear Sir:
This is in response to your memorandum dated December 19,
1996, forwarding a petition for review of your decision denying
an application for relief from duties assessed pursuant to 19
U.S.C. 1466 on those expenses contained within the above-referenced vessel repair entry. Our findings are set forth
below.
FACTS:
The MOKIHANA is a U.S.-flag vessel owned and operated by
Matson Navigation Company ("Matson"). The vessel incurred
expenditures in Nagoya and Yokohama, Japan, in May and June of
1996. The vessel subsequently arrived in the United States at
San Pedro, California, on June 10, 1996. A vessel repair entry
was timely filed on June 11, 1996.
Pursuant to an authorized extension of time, an application
for relief, dated October 10, 1996, with supporting
documentation, was timely filed. By letter dated October 29,
1996, your office denied the application for relief and notified
the applicant of the right to file a petition for review of this
decision. Pursuant to an authorized extension of time, a
petition for review, dated December 18, 1996, was timely filed.
The facts of the case as we understand them are as follows.
From May 7 - June 10, 1996, the subject vessel was on a
regular voyage in a loop between San Pedro and Oakland,
California; Honolulu, Hawaii; Guam; Busan, Korea; Hakata, Nagoya
and Yokohama, Japan; and back to San Pedro. An initial fracture
was found in the No. 1 Fuel Oil Wing Tank Port in Honolulu on or
about May 15, 1996. A second fracture was
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discovered en route to Nagoya from Hakata in the No. 3B Fuel Oil
Wing Tank Starboard on or about May 29, 1996. The second
fracture was discovered when oil was observed bubbling up from
the side of the vessel abreast the tank. Following the
appearance of the second fracture, the seaworthiness of the
vessel was questioned dictating examination and possible repairs
at Nagoya. The tank contents were transferred to prevent further
leaking and the vessel commenced Shipboard Oil Pollution
Emergency Procedures. Matson was required by Japanese
environmental requirements to install an oil boom to prevent
possible pollution of the Nagoya harbor and an underwater diver
surveyed the crack. The Japanese Maritime Safety Agency
investigated the incident. They concluded the investigation and
allowed the vessel to proceed to Yokohama for further inspection
and repair as may be required by the American Bureau of Shipping
(ABS). Following further inspection by the ABS and a marine
chemist in Yokohama, the ABS inspector recommended the repairs be
completed in San Pedro and the vessel was allowed to proceed, but
the ABS stipulated that the damaged areas required daily
inspection by the vessel officers until completion of the repairs
at the next U.S. port.
The above-referenced inspections revealed significant
structural damage. The petitioner believes that the cracks in
the No. 1 tank were probably caused by heavy weather on the prior
voyage and that the No. 3 tank may have been damaged by a tug
during dock mooring activities.
The petitioner states that the expenditures listed on the
vessel repair entry relate to the environmental services obtained
to prevent oil pollution in Nagoya harbor and the inspection work
performed in Nagoya and Yokohama to determine whether the vessel
was safe to proceed. These expenditures include the cost of an
oil boom and an underwater diver in Nagoya, and an ABS inspection
of the fuel tanks and marine chemist services in Yokohama. The
petitioner claims that these costs should not be dutiable under
the vessel repair statute since no actual repair work was ever
performed in Japan as the vessel was determined to be safe for
the trip to the United States. Alternatively, the petitioner
claims that the aforementioned costs were attributed to a
casualty and are therefore remissible.
In support of these claims, the petitioner has submitted
invoices covering the costs in question (including documentation
from the ABS), a statement from the Master, and a declaration
from Matson's General Manager for Marine Operations.
ISSUE:
Whether the costs for which the petitioner seeks relief are
dutiable under 19 U.S.C.
1466.
LAW AND ANALYSIS:
Title 19, United States Code, 1466 (19 U.S.C. 1466),
provides in pertinent part for the payment of an ad valorem duty
of 50 percent of the cost of "...equipments, or any part thereof,
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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..."
Section 1466(d)(1) provides that the Secretary of the
Treasury is authorized to remit or refund such duties if the
owner or master of the vessel was compelled by stress of weather
or other casualty to put into such foreign port to make repairs
to secure the safety and seaworthiness of the vessel to enable
her to reach her port of destination. It is Customs position
that "port of destination" means a port in the United States.
(see 19 CFR 4.14(c)(3)(i))
The statute sets forth the following three-part test which
must be met in order to qualify for remission under the
subsection:
1. The establishment of a casualty occurrence.
2. The establishment of unsafe and unseaworthy conditions.
3. The inability to reach the port of destination without
obtaining foreign repairs.
The term "casualty" as it is used in the statute, has been
interpreted as something which, like stress of weather, comes
with unexpected force or violence, such as fire, spontaneous
explosion of such dimensions as to be immediately obvious to
ship's personnel, or collision (Dollar Steamship Lines, Inc. v.
United States, 5 Cust. Ct. 28-29, C.D. 362 (1940)). In this
sense, a "casualty" arises from an identifiable event of some
sort. In the absence of evidence of such casualty event, we must
consider the repair to have been necessitated by normal wear and
tear (ruling letter 106159, dated September 8, 1983).
Upon reviewing the record in its entirety, it is readily
apparent that the subject foreign expenditures reflected on the
CF 226 cover only the booming of the vessel and underwater and on
board inspection costs. These services do not constitute
"repairs" for purposes of 1466 (see T.D. 43322 and C.D. 2514
discussing "repairs" as that term is used in the vessel repair
statute). Per the recommendation of the ABS inspector, the
necessary repairs were deferred until the vessel returned to the
United States thereby rendering inapplicable the provisions of 19
U.S.C. 1466. Consequently, the aforementioned services also do
not constitute dutiable "expenses of repairs" within the meaning
of that statute. (See Texaco Marine Services, Inc. v. U.S., 44
F.3d 1539, 1544, wherein the court held "...we interpret
expenses of repairs' as covering all expenses (not excepted in
the statute) which, but for dutiable repair work, would not have
been incurred.")
Accordingly, the costs for which the petitioner seeks relief
are not within the scope of those expenditures on which duties
are assessed pursuant to 19 U.S.C. 1466. Consequently, any
discussion of casualty relief under 19 U.S.C. 1466(d)(1) is not
germane to the resolution of this matter.
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HOLDING:
The costs for which the petitioner seeks relief are not
dutiable under 19 U.S.C. 1466.
Accordingly, the petition is granted in its entirety.
Sincerely,
Jerry Laderberg
Acting Chief
Entry and Carrier Rulings Branch