VES-3-18-RR:BSTC:CCI H068756 GOB
Supervisory Import Specialist
c/o Vessel Repair Unit
U.S. Customs and Border Protection
1515 Poydras Street, Suite 1700
New Orleans, LA 70112
RE: 19 U.S.C. §1466; Vessel Repair Entry NF4-2380930-2; Protest 2002-09-100021
Dear Sir:
This is in response to your memorandum of July 8, 2009, forwarding for our review the protest filed on behalf of Interocean Shipping Company (“protestant”) with respect to Vessel Repair Entry NF4-2380930-2. Our ruling follows.
FACTS:
The INTEGRITY (the “vessel”), a U.S.-flag vessel, incurred foreign shipyard costs. The vessel arrived in the port of Bayonne, New Jersey on September 30, 2007. A vessel repair entry was timely filed.
Your office issued a letter of duty determination on August 29, 2008 with respect to the application for relief. A protest was subsequently filed seeking relief from duty on numerous expenditures.
ISSUE:
The issue presented is whether the costs for which the protestant seeks relief are dutiable under 19 U.S.C. § 1466.
LAW AND ANALYSIS:
Initially, we note that the information in the file indicates that the protest, with application for further review, was timely filed under the statutory and regulatory provisions for protests. 19 U.S.C. 1514(c)(3) and 19 CFR 174.12(e).
Title 19, United States Code, section 1466 (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.
In Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc. v. United States, 44 F.3d 1539 (Fed. Cir. 1994), aff’g 815 F.Supp. 1484 (Ct. Int'l Trade 1993), the court stated in pertinent part as follows with respect to the reach of 19 U.S.C. § 1466:
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. [Emphases supplied.]
Title 19, United States Code, section 1466(h)(2) and (3) provide as follows:
The duty imposed by subsection (a) of this section shall not apply to-
. . .
(2) The cost of spare parts or materials (other than nets or nettings) which the owner or master of the vessel certifies are intended for use aboard a cargo vessel, documented under the laws of the United States and engaged in the foreign or coasting trade, for installation or use on such vessel, as needed, in the United States, at sea, or in a foreign country, but only if duty is paid under appropriate commodity classifications of the Harmonized Tariff Schedules of the United States upon first entry into the United States of each such spare part purchased in, or imported from, a foreign country, or
(3) the cost of spare parts necessarily installed before the first entry into the United States, but only if duty is paid under appropriate commodity classifications of the Harmonized Tariff Schedules of the United States upon first entry into the United States of each such spare part purchased in, or imported from, a foreign country[.]
In its administration of the vessel repair statute, Customs and Border Protection (“CBP”) has frequently used the following definitions:
Equipment – An article which constitutes an operating entity unto itself. Equipment retains at least the potential for portability. Equipment may be affixed to a vessel in a non-permanent fashion, such as by means of bolts or other temporary methods, which is a feature distinguishing it from being considered an integrated portion of the hull and superstructure of a vessel. Examples would include winches and generators.
Material – An item which is consumed in the course of its use and/or loses its identity as a distinct entity when incorporated into the larger whole, e.g., paint and sheets of steel.
Part – An article which does not lose its essential character or its identity as a distinct entity but which, like materials, is incorporated into a larger whole. It would be possible to disassemble an apparatus and still be able to identify a part. Examples would include piston rings and pre-formed gaskets.
In its administration of the vessel repair statute, CBP has held that modifications, alterations, or additions to the hull of a vessel are not subject to vessel repair duties. The identification of work constituting modifications vis-a-vis work constituting repairs has evolved from judicial and administrative precedent. In considering whether an operation has resulted in a nondutiable modification, the following factors have been considered. These factors are not by themselves necessarily determinative, nor are they the only factors which may be relevant in a given case. However, in a given case, these factors may be illustrative, illuminating, or relevant with respect to the issue of whether certain work may be a modification of a vessel which is nondutiable under 19 U.S.C. 1466:
1. Whether there is a permanent incorporation into the hull or superstructure of a vessel, either in a structural sense or as demonstrated by means of attachment so as to be indicative of a permanent incorporation. See United States v. Admiral Oriental Line, 18 C.C.P.A. 137 (1930). However, we note that a permanent incorporation or attachment does not necessarily involve a modification; it may involve a dutiable repair or dutiable equipment.
Whether in all likelihood an item would remain aboard a vessel during an extended lay-up.
3. Whether an item constitutes a new design feature and does not merely replace a part, fitting, or structure that is performing a similar function.
4. Whether an item provides an improvement or enhancement in operation or efficiency of the vessel.
You request our review with respect to the items discussed below.
Tabs 8 through 13. The items for which the protestant requests relief with respect to these tabs include the following: tab 8 - “provide and install Furuno FAR2817 3cm Radar w/antenna, gyro conv, perf mont, pedestal”; tab 10 – “provide and install FE700 echo sounder, matching box, and transducer”;
tab 12 – “provide and install Furuno S-VDR”; and tab 13 – “Provide one ship-set Furuno SVDR system/suite as per … Seacoast Electronics quotation …”
We find that these items are not modifications to the hull and fittings of the vessel. We find that these items are vessel equipment (See the definitions of equipment, above) and are therefore dutiable under 19 U.S.C. § 1466. This issue, or this particular type of issue, has been thoroughly considered by CBP. See, for example, the discussion, including the authorities cited, in the following rulings: HQ 113798 dated January 9, 1997, where we found a radar system to be dutiable as vessel equipment; HQ 226688, dated July 29, 1997, where we found a radar system to be dutiable as vessel equipment; HQ 114092, dated September 12, 1997 (revoking HQ 111425), where we found a radar system and a satellite communications system to be dutiable as vessel equipment; and HQ 114093, dated September 12, 1997 (modifying Memorandum 109936), where we found a satellite communications system to be dutiable as vessel equipment. In these rulings, we considered whether the item at issue was a nondutiable modification to the vessel or vessel equipment. Recently, in HQ H052778, dated May 7, 2009, we held that a Furuno simplified voyage data recorder system (“SVDR”) was dutiable under 19 U.S.C. § 1466 as vessel equipment. We find similarly in this entry and protest – the subject items are dutiable under 19 U.S.C. § 1466 as vessel equipment. We believe the items at issue here are very similar (or identical, in the case of the SVDR) in nature to the items in the above rulings. Much more importantly however, we believe the subject items are vessel equipment, dutiable under 19 U.S.C. § 1466.
In tabs 8, 10, and 12, the protestant has included a short letter or form (“form letter”), dated January 16, 2009 and signed by a representative of a U.S. company. In pertinent part, the form letter provides: “We are familiar with the
purchases made by Interocean American Shipping Corp. from our company for the M/V INTEGRITY as indicated on the attached invoice. This involved products which were: [the box is checked for] made in the United States[.]”
The protestant cites the following language of HQ 115561, dated April 8, 2002:
The vessel repair statute exempts from duty spare repair parts or materials that have been manufactured in the United States or entered the United States duty-paid, and are used aboard a cargo vessel engaged in foreign or coastwise trade.
While the protestant does not cite a specific exemption within 19 U.S.C. § 1466, it is presumably referring to 19 U.S.C. § 1466(h)(2) or (h)(3). Vessel equipment is not eligible for treatment under 19 U.S.C. § 1466(h)(2) or (3). Therefore, the subject items, which are vessel equipment, are not eligible for relief under 19 U.S.C. § 1466(h)(2) or (h)(3).
Tabs 9 and 11 include invoices for labor for the items discussed above. The protestant claims that “[t]he labor is not dutiable because this was a modification …” As indicated above, we have determined that the subject items are vessel equipment. Therefore, we find that the costs for this foreign labor are dutiable.
Tab 12 to the protest includes copies of promotional materials and photographs with respect to the Furuno SVDR. The first sheet of these materials provides an address in Japan for the Furuno Electric Co., Ltd. One of the sheets provides a close-up photograph or look at the overhead microphone which is a part of the SVDR and which provides the name and address of the Furuno Electric Co., Ltd. The plate which provides the name and address includes the words: “Made in Japan.” While the subject equipment is not eligible for relief under 19 U.S.C. § 1466(h)(2) or (h)(3) because equipment is not eligible under those provisions, we further note, based on the documentation of record, that we are not satisfied that the subject items were made in the United States.
Tab 26. The protestant has submitted an invoice from Solec Corporation of Norfolk, Virginia to it for nine four-volt batteries. The protestant states that these goods are exempt from duty as spare repair parts or materials that have been manufactured in the U.S. or entered into the U.S. duty paid. The protestant also states that it tried to obtain a certificate from Soltec Corporation, but it is no longer in business and its successor corporation has no records of sales by Solec Corporation. Batteries are “equipment” (see HQ 111654, dated December 24, 1991) and equipment is not eligible for treatment under 19 U.S.C. § 1466(h)(2) or (3). We find that there is no basis for relief.
Tab 28. The protestant has submitted a CBP Form 7501A for articles which it states “are dutiable under HTSUS in accordance with 19 USC 1466(h)(3).” It has also submitted a vendor’s invoice dated October 11, 2007 (the due date for payment was November 10, 2007; the invoice was stamped received on October 16, 2007). We note that the vessel concluded the subject voyage when it arrived in the United States on September 30, 2007. An invoice dated after the date of arrival of a vessel is not probative evidence with respect to a claim that an item listed thereon is eligible for an exemption from any provision of 19 U.S.C. §1466 with regard to the subject voyage. We ruled similarly in HQ 116510 dated July 28, 2005. Accordingly, we find that the subject articles are not eligible for relief under 19 U.S.C. § 1466(h)(3).
HOLDING:
The costs which you have asked us to review are dutiable under 19 U.S.C. § 1466 as discussed in the Law and Analysis section of this ruling.
You are instructed to deny the protest.
In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2007), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any final duty determination of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Glen E. Vereb
Chief
Cargo Security, Carriers and Immigration Branch