VES-13-18-RR:IT:EC 114648 GEV
Chief, Residual Liquidation and Protest Branch
U.S. Customs Service
6 World Trade Center
New York, New York 10048-0945
RE: Protest No. 1303-98-100103; Vessel Repair Entry No. C13-0036093-5;
M/V FAUST; V-178; 19 U.S.C. § 1466
Dear Sir:
This is in response to your memorandum dated March 17, 1999, forwarding the above-referenced protest. Our ruling is set forth below.
FACTS:
The U.S.-flag vessel M/V FAUST underwent extensive shipyard operations while outside of the United States. Subsequent to the completion of this work, the vessel arrived in Baltimore, Maryland, on September 18, 1996. A vessel repair entry was timely filed.
Documentation seeking relief from the assessment of vessel repair duties was filed by counsel on behalf of the operator of the subject vessel in connection with the above-referenced vessel repair entry. This documentation consisted of a short cover letter forwarding various invoices (some of which contain unsigned, undated, handwritten notes) and documentation which reflected proposed dispositions, but no specific plea for relief from duty was filed. Pursuant to Headquarters ruling letter 114042, dated November 19, 1997, Customs held that although the aforementioned letter denominated itself an Application for Relief, it did not rise to the requisite level for such a submission as set forth in 19 CFR § 4.14(d)(1). The subject entry was therefore forwarded for liquidation which took place on January 16, 1998, and subsequently reliquidated on March 13, 1998. A protest, dated June 11, 1998, was timely filed seeking relief for various costs contained within the subject vessel repair entry.
- 2 -
ISSUE:
Whether the costs for which the protestant seeks relief are dutiable under 19 U.S.C.
§ 1466.
LAW AND ANALYSIS:
Title 19, United States Code, § 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..."
Section 1466 was amended by the reinstatement of subsections (h)(1) and (2), the wording of which remain unchanged from their previous enactment as part of the Customs and Trade Act of 1990 (§ 484E of Pub.L. 101-382), which had expired by its terms on December 31, 1992. The amendment, which is effective for all vessel entries made on or after January 1, 1995, also added a new subsection (h)(3) which provides as follows:
(3) the cost of spare parts necessarily installed before the first entry
into the United States, but only if duty is paid under appropriate com-
modity classifications of the Harmonized Tariff Schedule of the United
States upon first entry into the United States of each spare part purchased
in, or imported from, a foreign country. (Emphasis added)
The scope of the amendment is narrow. It is useful to bear in mind that the limiting language of (h)(3) refers only to "spare parts", whereas subsection (a) of the statute assesses duty on a broad range of costs including "equipments, or any part thereof, including boats,...or the repair parts or materials to be used, or the expenses or repairs..." (Emphasis added). It is clear that the Congress has extended a vessel repair duty limitation under subsection (h)(3) only to certain qualifying parts.
A part under § 1466 is determined to be something 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 readily identify a part. The term part does not mean part of a vessel, which practically speaking would encompass
all elements necessary for a vessel to operate in its designed trade. Examples of parts as defined are seen in such items as piston rings and pre-formed gaskets, as opposed to gaskets which are cut at the work site from gasket material.
- 3 -
For purposes of § 1466, the term materials is determined to mean something which is consumed in the course of its use, and/or loses its identity as a distinct entity when incorporated into the larger whole. Some examples of materials as defined are seen in such items as a container of paint which is applied to vessel surfaces, and sheets of steel which are incorporated into the hull and superstructure of a vessel.
The term equipment is determined to mean something 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 of equipment as defined are seen in such items as winches and generators.
Subsection (h)(3) is administered by maintaining the requirement that a vessel repair entry (Customs Form 226) must be filed upon first arrival in the United States of vessels covered by the repair statute. Since issuance of instructions by Customs Headquarters on May 31, 1995, in instances in which a vessel operator claims certain foreign parts expenditures to be within the terms of subsection (h)(3), it has been required that continuation sheets normally submitted with entries for consumption (Customs Form 7501-A) must be completed and attached to the vessel repair entry form. The continuation sheets must provide all required information necessary to assign the proper duty rate as listed in the Harmonized Tariff. The vessel repair entry number is the sole number assigned to the entry, and such an entry with continuation sheets attached is considered to be a vessel repair entry.
In the present matter the protestant claims that an exhaust gas boiler (Exhibit D) is classifiable under subheading 9818.00.05, HTSUS (19 U.S.C. § 1466(h)(3)). We have reviewed the record in its entirety and find that rather than constituting a part, this article constitutes equipment therefore precluding the granting of relief under subsection (h)(3). Assuming, arguendo, that the exhaust gas boiler does constitute a part within the meaning of subsection (h)(3), the only document submitted in support of the protestant’s claim (a photocopy of a CF 7501) is of such poor quality as to preclude the granting of relief under this provision. Consequently, the protestant’s claim with respect to the exhaust gas boiler is denied.
Exhibit G is a photocopy of an invoice from The General Ship Repair Corporation of Baltimore, Maryland. The protestant states that this invoice clearly shows that the cost listed thereon was incurred for work performed in the United States and is therefore outside the scope of the vessel repair statute. We agree. Accordingly, this cost is non-dutiable.
The protestant alleges that the painting covered by Götaverken invoice item no.69 is for cosmetic rather than maintenance purposes. Pursuant to C.D. 1430 (41 CCPA 57, CAD 529), the former is non-dutiable whereas the latter is dutiable. Our review of the record supports the protestant’s claim. The cost for this item is therefore non-dutiable.
- 4 -
Götaverken invoice item nos 15, 16, 17, 27, 64 & 74 are alleged to be costs incurred pursuant to non-dutiable mandatory U.S. Coast Guard/class surveyor inspections. While this allegation, if proved correct, would render the cost of such work to be non-dutiable (see C.S.D. 79-277), the record is devoid of any documentation from either the U.S. Coast Guard or a class surveyor (e.g., the American Bureau of Shipping) to corroborate such a claim. Customs has long-held that such supporting documentation is necessary in order to grant a claim for relief for costs incurred for work done pursuant to such surveys/inspections. (See Customs ruling letter 108404, dated August 7, 1986) Accordingly, the costs of these items are dutiable.
With respect to the general services and drydocking costs under consideration (Götaverken invoice item nos. 1-13 & 82), we note that the evidence submitted is insufficient to support the claim that such costs were attributed solely to non-dutiable work. Furthermore, since the subject entry contained both dutiable and non-dutiable costs, the general services and drydocking costs at issue were prorated pursuant to Customs ruling letter 113474 and memorandum 113350 both of which addressed Customs implementation of the decision of the U.S. Court of Appeals for the Federal Circuit in Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc. v. United States, 44 F.3d 1539 (CAFC 1994). The subject general services and drydocking costs are therefore to be prorated in accordance with the holding of our ruling on this protest.
HOLDING:
As detailed above, the protest is granted in part and denied in part.
In accordance with § 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, 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 reliquidation of the entry in accordance with the decision must be accomplished prior to mailing the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.ustreas.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Sandra L. Bell
Director
International Trade Compliance Division