VES-13-18-RR:IT:EC 114005 GEV
Chief, Liquidation Branch
U.S. Customs Service
Post Office Box 2450
San Francisco, California 94126
RE: Vessel Repair Entry No. 110-7994445-7; SEA-LAND DEVELOPER; V-251/252;
Survey; 19 U.S.C. 1466
Dear Sir:
This is in response to your memorandum dated June 12, 1997,
forwarding an application for relief from duties assessed
pursuant to 19 U.S.C. 1466 with supporting documentation. You
request our review of Item 4 contained within the above-referenced vessel repair entry. Our findings in this matter are
set forth below.
FACTS:
The SEA-LAND DEVELOPER is a U.S.-flag vessel operated by
Sea-Land Service, Inc. The vessel underwent foreign shipyard work
during January of 1997. Subsequent to the completion of the work
the vessel arrived in the United States at Tacoma, Washington on
February 9, 1997. A vessel repair entry and an application for
relief with supporting documentation were timely filed.
Item 4 within the subject entry for which our review is
sought covers costs listed on MHI Marine Engineering, Ltd. bill
no. 96-1193. Included within those costs is work done in con-junction with an American Bureau of Shipping (ABS) inspection of
the no. 10 main engine bearing.
ISSUE:
Whether the foreign costs contained within the subject entry
for which our review is sought are dutiable under 19 U.S.C.
1466.
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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,
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..."
MHI Marine Engineering, Ltd. bill no. 96-1193 covers, inter
alia, shipyard costs associated with an ABS inspection of the no.
10 main engine bearing. In regard to the dutiability of
inspection/survey costs, we note that C.S.D. 79-277 stated that,
"[i]f the survey was undertaken to meet the specific requirements
of a governmental entity, classification society, insurance
carrier, etc., the cost is not dutiable even if dutiable repairs
were effected as a result of the survey."
With increasing frequency, this ruling has been utilized by
vessel owners seeking relief not only from charges appearing on
an American Bureau of Shipping (ABS) or U.S. Coast Guard invoice
(the actual cost of the inspection) but also as a rationale for
granting nondutiability to a host of inspection-related charges
appearing on a shipyard invoice. Our position with respect to
this ruling is as follows.
C.S.D. 79-277 discussed the dutiability of certain charges
incurred while the vessel underwent biennial U.S. Coast Guard and
ABS surveys. That case involved the following charges:
ITEM 29
(a) Crane open for inspection
(b) Crane removed and taken to shop. Crane
hob and hydraulic unit dismantled and
cleaned
(c) Hydraulic unit checked for defects, OK.
Sundry jointings of a vessel's spare renewed.
(d) Parts for job repaired or renewed.
(e) Parts reassembled, taken back aboard ship
and installed and tested.
In conjunction with the items listed above, we held that a
survey undertaken to meet the specific requirements of a
governmental entity, classification society, or insurance carrier
is not dutiable even when dutiable repairs are effected as a
result of a survey. We also held that 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 (emphasis
added).
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It is important to note that only the cost of opening the
crane was exempted from duty by reason of the specific
requirements of the U.S. Coast Guard and the ABS. The
dismantling and cleaning of the crane hob and hydraulic unit was
held dutiable as a necessary prelude to repairs. Moreover, the
testing of the hydraulic unit for defects was also found dutiable
as a survey conducted to ascertain whether repairs were
necessary. Although the invoice indicated that the hydraulic
unit was "OK," certain related parts and jointings were either
repaired or renewed. Therefore, the cost of the testing was
dutiable.
We emphasize that the holding exempts from duty only the
cost of a required scheduled inspection by a qualifying entity
(such as the U.S. Coast Guard or the ABS). In the liquidation
process, Customs should go beyond the mere labels of "continuous"
or "ongoing" before deciding whether a part of an ongoing
maintenance and repair program labeled "continuous" or "ongoing"
is dutiable.
Moreover, we note that C.S.D. 79-277 does not exempt repair
work done by a shipyard in preparation of a required survey from
duty. Nor does it exempt from duty the cost of any testing by
the shipyard to check the effectiveness of repairs found to be
necessary by reason of the required survey.
With respect to Item 4, our review of the costs listed
thereon relating to the no. 10 main engine bearing inspection
indicates that they were performed in conjunction with a non-dutiable ABS survey. However, the remainder of the costs listed
thereon constitute dutiable expenses. Furthermore, the invoice
on which these costs are listed provides no segregation with
respect to these dutiable and non-dutiable costs. Pursuant to
C.I.E.'s 1325/58 and 565/55, costs may not be remitted where the
invoice does not show a breakdown between those that are dutiable
and those that are not. Accordingly, the costs contained within
Item 4 remain dutiable in their entirety.
HOLDING:
The foreign costs for which our review is sought are
dutiable under 19 U.S.C. 1466 as discussed in the Law and
Analysis portion of this ruling.
Sincerely,
Jerry Laderberg
Acting Chief
Entry and Carrier Rulings Branch