VES-13-18-CO:R:P:C 110759 KVS

Residual Liquidation and Drawback Branch
ATTN: Vessel Repair Liquidation Unit
6 World Trade Center
New York, New York 10048-0945

RE: Vessel: ADM WM M CALLAGHAN; Claim # 1001-9-202453 Vessel Repair Entries: 1001-79-388116-7 5/13/79 1001-80-786181-1 3/10/80 1001-80-790365-6 4/21/80 1001-81-103050-2 12/27/80 1001-81-514752-7 5/6/81 1001-81-514811-5 5/23/81 1001-81-515071-8 7/30/81

Dear Sir:

This is in response to your memorandum of December 22, 1989, which transmits for our consideration a request for reconsideration regarding the seven vessel repair entries listed above. Our findings are set forth below.


The ADM WM M CALLAGHAN (hereinafter abbreviated as CALLAGHAN) is owned by Sunexport Holding Corp. By contract number MST-TC-253(X), the CALLAGHAN was time chartered to the Department of the Navy, Military Sealift Command, for a term of 20 years (upon the exercise of all time options) commencing December 19, 1967.

From May 3, 1979 to July 24, 1981, while under time charter to the Military Sealift Command, the vessel underwent various repair operations in Bremerhaven, West Germany and entries were submitted for these repairs. By telex dated June 11, 1981, the liquidation of the entries listing those repairs was suspended. By telex dated August 24, 1983, the suspension of those entries was lifted and the entries were finally liquidated on November 4, 1983. Upon liquidation, the bills for duty were sent to the Counsel for the Military Sealift Command as per the August 24, - 2 -

1983, telex. Subsequently, a telex dated April 31, 1984 was issued directing that all bills for time chartered vessels be sent directly to the owner of the vessel.

In the case before us, the petitioner claims that the CALLAGHAN was under the complete control of the U.S. Navy. It is also alleged that the vessel is experimental in nature due to the installation of a gas turbine engine, that artificial stress conditions were imposed on the vessel and that because of these factors, the repairs to the vessel are not ordinary. It is further alleged that the repairs were emergency in nature and necessary for the safety of the vessel and that the repaired equipment was serviced in the U.S. six months prior to the emergency repair.


Whether the repairs performed on the subject vessel for which the petitioner seeks relief are dutiable under 19 U.S.C. 1466.


Title 19, United States Code, section 1466(a), provides in pertinent part for payment of duty in the amount of 50 percent ad valorem on the cost of foreign repairs to vessels documented under the laws of the United States to engage in the foreign or coastwise trade, or vessels intended to be employed in such trade.

Although 19 U.S.C. 1466(d) provides for the remission of duty in certain circumstances, we know of no provision that would permit remission of duty by reason of the "experimental" nature of a vessel. Such an exemption would necessarily have to be created by legislative action. In the absence of such action, we must examine the petitioner's claim in light of the existing statutory exemptions.

However, 19 U.S.C. 1466 (d)(1) does provides that the Secretary of the Treasury is authorized to remit or refund vessel repair duties if the owner or master furnishes good and sufficient evidence that the vessel was compelled, by stress of weather or other casualty, to put into a foreign port and make repairs to secure the safety and seaworthiness of the vessel to enable her to reach her port of destination.

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, explosion or collision (Dollar Steamship Lines, Inc. v. United States, 5 Cust. Ct. 28-29, C.D. 362 (1940). In this sense, a "casualty" arises - 3 -

from an identifiable event of some sort. In the absence of evidence from such a casualty event, we must consider the repair to have been necessitated by normal wear and tear (see Customs Letter Ruling 106159 LLB (dated 9/8/83)).

Section 4.14(c)(3)(i), Customs Regulations (19 CFR 4.14(c)(3)(i)), provides that the term "casualty" includes a part's failure to function if satisfactory evidence shows that the specific part was repaired or serviced immediately before starting the voyage from the United States and that the part failed to function within six months of such repair or servicing.

While the petitioner claims that the repairs to the CALLAGHAN were emergency repairs and that the repaired parts were serviced in the United States six months prior to the foreign repair, the statute and corresponding regulations provide for remission of duties only upon the submission of "good and sufficient evidence" of such casualty and U.S. servicing. The petitioner, despite requests from the Customs Service, has not produced evidence in support of its claim. Since the requirements allowing the remission of duty have not been met, we find the costs to be dutiable.

Having determined that vessel repair duties are due, we now turn to the issue of the party responsible for the payment of those duties. It is the petitioner's contention that it is not responsible for the duty since the vessel was completely under the control of the Department of the Navy, Military Sealift Command.

We have held that under an MSC bareboat charter, the charterer retains responsibility for the payment of duties. When a vessel is chartered under a demise or time charter, the vessel owner retains responsibility for the payment of vessel repair duties (see Customs Letter Rulings 109916 KMF (dated 2/2/1989); 109260 LLB (dated 6/15/88); 109347 (dated 2/12/88)).

An examination of the contract involved in this case reveals that Contract no. MST-TC-253(X) states, on Attachment A, "Contract for: TIME CHARTER OF VESSEL FOR SPECIFIED TIME". The contract, then, clearly evidences in unambiguous terms the nature of the agreement created. Accordingly, the vessel owner remains liable for the vessel repair duties assessed.


1) Without good and sufficient evidence establishing that vessel repairs were occasioned by casualty or that the parts requiring repair were serviced or repaired in the United States immediately before the voyage and that the part failed within 6 months of such servicing, the foreign repairs performed on the - 4 -

subject vessel are dutiable under 19 U.S.C. 1466.

2) When a vessel is chartered under a time charter agreement, the vessel owner, not the charterer, remains liable for Customs duties.


B. James Fritz
Carrier Rulings Branch