VES-13-18 CO:R:IT:C 111040 BEW
Chief, Residual Liquidation Branch
U.S. Customs Service
6 World Trade Center
New York, New York 10048-0945
RE: Petition for Review on Bath, Maine, Vessel Repair Entry No.
345-0005074-4 dated November 14, 1989, vessel OCEAN KING.
Casualty; owner-supplied spare parts; non-segregated costs;
portable fire extinguishers.
Dear Sir:
This is in reference to a memorandum from your office which
forwards a petition for relief filed by Chase Leavitt, Inc., on
behalf of Farrell Ocean Service, Inc., on a partial denial of an
application for relief for duties assessed on repairs made to the
vessel OCEAN KING. The vessel arrived at the port of Bath on
October 11, 1989.
FACTS:
The petitioner's request for review centers on the cost for
damage to the Engine Cylinder Liner alleged to be caused by a
"casualty" suffered by the vessel at approximately 3.55 a.m. off
the coast of Nova Scotia while enroute to Bath, Maine.
In a decision dated February 12, 1990, you ruled that the
application was approved in part and denied as to items Nos. 4,
5, 6, 7, 10, 11, and 13 because of insufficient documentation.
The said items are as follows:
Item 4 - To Supply Miscellaneous materials to ships
crew
Item 5 - Liner
Item 6 - Repairs to liferaft and shipping cost
Item 7 - Repairs to fire extinguisher
Item 10 - Repair to exhaust pipe
Item 11 - Repair to drip trays
Item 13 - Overtime costs
Notwithstanding correspondence between officials of Chase
Leavitt and Customs, we note the following. A completed entry
was filed on November 14, 1989, thirty-four (34) days after the
vessel arrived at the port of entry. An application for relief,
dated January 5, 1990, was filed on the same date with the
District office in Portland, Maine.
The petitioner has submitted additional evidence and an
explanation of the damage to the vessel's engine.
In addition, the petitioner has submitted documentation and
invoices relating to cost of certain foreign repairs which it
claims to be U.S. made owner-supplied parts.
ISSUES:
1. Whether sufficient evidence is presented to establish
that the subject repairs were necessitated by a
"casualty" which is remissible under the vessel repair
statute (19 U.S.C. 1466).
2. Whether sufficient evidence is presented to establish
that parts used in the repair of the Engine Cylinder
Liner are owner-supplied spare parts which are free
under the vessel repair statute (19 U.S.C. 1466(h)).
LAW AND ANALYSIS:
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.
Section 4.14(b)(2), Customs Regulations (19 CFR 4.14(b)(2))
provides, in pertinent part, that entry shall be filed with the
appropriate Customs officer within five working days after the
vessel's arrival. The subject entry, dated November 11, 1989,
is untimely filed.
Furthermore, pursuant to section 4.14(d)(1)(ii), Customs
Regulations, the application for relief, with supporting
evidence, shall be filed within 60 days from the date of first
arrival of the vessel, unless Customs grants an extension. The
application under consideration was filed more than two (2)
months from the date of first arrival of the OCEAN KING.
Furthermore, it was incomplete as to documentation for various
items for which relief was sought.
Although an application for relief need not be in any
particular form, pursuant to section 4.14(d)(1)(i), Customs
Regulations, it should allege that an item or a repair expense is
not subject to duty under either paragraph (a) of section 4.14
(items that are not subject to duty) and/or paragraph (c)
(circumstances allowing remission of duty otherwise due).
The applicant should be informed for future reference that
in light of the Court's holding in Penrod Drilling Co. v. United
States, (Slip Op. 89-168, dated December 13, 1989) anything less
than strict adherence to the time requirements set forth in
section 4.14 will result in the issuance of penalties for
untimely filing. In view of the apparent assurances/extensions
of time given by officials of the New York VRLU during various
meetings and correspondence, we recommend no penalty action be
taken regarding this particular entry. Notwithstanding the
procedural deficiencies noted above, our determinations regarding
the dutiable status of the work included on the subject entry are
as follows:
Paragraph (1), subsection (d) of section 1466 provides that
duty may also be remitted if good and sufficient evidence is
furnished establishing that the vessel was compelled by stress of
weather or other casualty to put into a 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."
The statute thus sets a three-part test which must be met in
order to qualify for remission under the subsection, these being:
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, 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
from an identifiable event of some sort. In the absence of
evidence of such a casualty event, we must consider the repair to
have been necessitated by normal wear and tear (ruling letter
106159, September 8, 1983).
The petitioner describes the repairs as follows:
The vessel broke down at sea and could not continue to
its destination without the repairs. On September 17,
1989, approximately 11 miles southeast of western head,
an engine problem was noticed. Exhaust gas was
escaping into the cooling water jackets. The Captain
expected that they were having cylinder liner or
manifold problems. At 6:15 hours a decision was made
to head for shore because the engine was heating up
rapidly. On September 20, an inspection of the engine
showed water leaking in from a cracked cylinder.
The evidence is clear that the vessel suffered a break down
due to a cracked cylinder. The vessel's log reflects that the
vessel put in at Shelburne, Nova Scotia, Canada, for casualty
repairs.
It is clear from the evidence that the vessel was in need of
repairs to secure her safety and seaworthiness, however,
the evidence is insufficient to show what actually caused the
break down of the cylinder liner. Absent clear proof of an
identifiable event to show an unexpected force or violence, such
as fire, explosion, or collision resulting in damage, such cost
of repairs is not remissible (see C.I.E. 1826/58). The
documentation submitted is insufficient to support a finding of a
casualty as provided in section 1466(d)(1). The petitioner has
not submitted documentation to substantiate that the damage was
due to an identifiable event of some sort which caused the
damage. Accordingly, the petition is denied as to the repairs
performed on the engine cylinder liner.
With regard to the items of cost relating to these items
which are alleged to be U.S. owner-supplied parts, we have found
that the Customs administration of duty assessment issues under
section 1466 regarding U.S.-made materials purchased in the U.S.
had for some time been guided by the terms of Treasury Decision
75-257 (T.D. 75-257). That decision provides that when
materials of U.S.-manufacture are purchased by the vessel owner
in the U.S. for installation abroad by foreign labor, the labor
cost alone is subject to duty under section 1466. When those
same materials are purchased by the owner overseas or purchased
in the U.S. by parties other than the owner, the cost of the
materials themselves (even though of U.S.-manufacture) was also
subject to vessel repair duty.
The climate with regard to parts shipped abroad from the
United States for foreign installation was transformed on August
20, 1990, when the President signed Public Law 101-382 which
added a new subsection (h) to section 1466. While this
provision applies by its terms only to foreign-made imported
parts, there is ample reason to extend its effect to U.S.-made
materials as well. To fail to do so would act to discourage the
use of U.S.-made materials in effecting foreign repairs since
continued linkage of remission provisions of subsection (d)(2)
with the assessment provisions of subsection (a) of section 1466
would obligate operators to pay duty on such materials unless
they were installed by crew or resident labor. If an article is
claimed to be of U.S. manufacture, there must be proof of its
origin in the form of a bill of sale or domestic invoice. If an
article is claimed to have been previously entered for
consumption, duty paid by the vessel operator, there must be
proof of this fact in the form of a reference to the consumption
entry number for that previous importation, as well as to the
U.S. port of importation. If imported articles are purchased
from third parties in the United States, a domestic bill of sale
to the vessel operator must be presented. Further, with regard
to imported articles, there must be presented a certification
from the owner or master that the vessel at issue is a cargo
vessel and that the imported articles were purchased for
installation aboard the company's vessels.
If the elements stated above are proven to the satisfaction
of Customs, the cost of foreign labor utilized for installation
of U.S.-made or previously imported articles will be subject to
duty under section 1466 in matters concerning repairs, and only
the cost of qualifying materials used in repairs will be free of
duty. Modifications will of course continue to be treated as
duty-free, both materials and labor.
The documents reveal that the cost for the work performed in
item 6 was for repairs to the liferaft and for shipping costs.
The shipping cost is not segregated from the repair cost.
Under the provisions of CD 1836, the fees for shipping and
customs clearance is non-dutiable. Pursuant to C.I.E. 1325/58
and C.I.E. 565/55, duties may not be remitted where the invoice
does not segregate the dutiable costs from the non-dutiable
costs. Accordingly, the cost for the work performed in item 6
including the shipping cost is dutiable. The petition is denied
as to item 6.
Installation of fire fighting equipment which is not
permanently attached or the installation of apparatus which
replaces worm out parts of a vessel is not an alteration to the
hull and fittings. The documents state that the cost relating
to item 7 was for the removal of (7) fire extinguishers from the
vessel and transportation of the same to the shop for servicing,
and replacing the extinguishers on board the vessel after
service had been perfprmed. After reviewing the record, we
considered the work done under item 7 dutiable (see C.I.E.
233/60). The petition is denied as to this item.
With regard to the remaining items, No. 10, 11, and 13,
these items of cost were for repairs performed on the exhaust
pipe and (5) drip trays, and for overtime cost for foreign labor.
These items are all dutiable. The petition is denied as to these
3 items.
HOLDING:
The evidence presented is not sufficient to prove that the
foreign repairs performed on the subject vessel were
necessitated by a casualty occurrence, thus warranting remission
pursuant to 19 U.S.C. 1466. The petition is denied as to the
casualty.
After a thorough review of the evidence submitted, and as
detailed in the Law and Analysis portion of this ruling, we
recommend that the Petition for Review be denied in with regard
to those items specifically enumerated.
Since the applicant has not submitted the above stated
evidence to sustain that either duty has been paid on or that
certain other owner-supplied parts are of U.S. origin, the cost
of the owner supplied parts is dutiable. The petition is denied
as to these items. If, prior to liquidation, the proper
certification and/or proof of prior importation is presented, the
said items considered under section 1466(h) may be considered
free of duty.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch