VES-13-18-CO:R:IT:C 111692 LLB
Deputy Assistant Regional Commissioner
Commercial Operations Division
ATTN: Regional Vessel Repair Liquidation Unit
New Orleans, Louisiana 70130
RE: Vessel repair; Application for relief; Modifications;
Overhead expenses; U.S.-manufactured paint; Vessel
repair entry number C20-0035720-5; M/V LIBERTY
SPIRIT, V-14C
Dear Sir:
Reference is made to your memorandum of May 7, 1991, which
forwards for our review and consideration the Application for
Relief from vessel repair duties filed by Liberty Maritime
Corporation, in regard to the above-captioned vessel repair
entry.
FACTS:
The vessel underwent various repairs and American Bureau of
Shipping surveys without repair, both in drydock and afloat. The
foreign shipyard also completed the first time installation of a
hull cathodic protection system, and applied paint to the hull
and stack of the vessel. The only matters in question concern
the dutiability of certain specified overhead charges, and of
certain paints and thinners.
ISSUE:
Whether certain owner-supplied paints and thinners, as well
as foreign shipyard overhead charges are subject to duty under
the vessel repair statute.
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.
On August 20, 1990, the President signed into law the
Customs and Trade Act of 1990 (Pub. L. 101-382), section 484E of
which amends the vessel repair statute by adding a new subsection
(h). Subsection (h) has two elements, which are as follows:
(h) The duty imposed by subsection (a) of this section shall
not apply to--
(1) the cost of any equipment, or any part of
equipment, purchased for, or the repair parts
or materials to be used, or the expense of
repairs made in a foreign country with
respect to, LASH (Lighter Aboard Ship) barges
documented under the laws of the United
States and utilized as cargo containers, or
(2) the cost of spare repair 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
Schedule of the United States upon first
entry into the United States of each such
spare part purchased in, or imported from, a
foreign country.
The effective date of the amendment is stated as follows:
Effective Date.--The amendment made by this
section shall apply to--
(1) any entry made before the date of
enactment of this Act that is not liquidated
on the date of enactment of this Act, and
(2) any entry made--
(A) on or after the date of enactment of this
Act, and
(B) on or before December 31, 1992.
Subsection (d)(2) of section 1466 provides that:
(d) If the owner or master of such vessel
furnishes good and sufficient evidence
that...
(2) such equipments or parts thereof or
repair parts or materials, were manufactured
or produced in the United States, and the
labor necessary to install such equipments or
to make such repairs was performed by
residents of the United States, or by members
of the regular crew of such vessel...
then the Secretary of the Treasury is authorized to
remit or refund such duties...
Customs has in the past linked this duty remission
provision to the duty assessment provision in subsection (a) of
the statute. We have held that a two-part test must be met in
order for remission of duty to be granted: first, that the
article must be of U.S. manufacture; and, second, it must be
installed by U.S.-resident or regular vessel crew labor. The
reason for this position is that (d)(2) refers to "such
equipments or parts...", etc., without any logical association
for the word "such" occurring in that subsection. We inferred
that "such" articles must refer to those installed under
subsection (a), absent any other reasonable predication. The new
amendment puts this issue to rest by making it clear that as
concerns foreign-made parts imported for consumption and then
installed on U.S. vessels abroad, the labor required for their
installation is separately dutiable. A part may now be
considered exempt from vessel repair duty albeit the foreign
labor cost is dutiable.
In all cases which meet the conditions imposed by the
statutory amendment, uniform treatment will be accorded to parts
sent from the United States for use in vessel repairs abroad.
This will be so regardless of whether they are proven to have
been produced in the U.S., or to have been imported and entered
for consumption with duty paid. In both cases, the cost of the
materials is duty exempt and only the cost of foreign labor
necessary to install them is subject to duty. Crew member or
U.S.-resident labor continues to be free of duty when warranted,
in cases which qualify under the new law.
Customs has had occasion to consider the dutiability of so-
called "overhead" charges (see Customs Ruling 111170, February
21, 1991). In that ruling, we cited a published Treasury
Decision of long standing (T.D. 55005(3), December 21, 1959),
wherein it was determined that:
Taxes paid on emoluments received by third parties
for services rendered...and premiums paid on workmen's
compensation insurance, are not charges or fees within
the contemplation of the decision of the Customs Court,
International Navigation Company v. United States, 38
USCR 5, CD 1836, and are therefore subject to duty as
components of the cost of repairs under [section 1466].
"Emoluments" as used in the cited decision would include
all wages, taxes, accounting fees, office space charges,
inventory or mark-up costs, purchasing costs, management fees,
and coverall charges paid as part of the contract for foreign
shipyard services. The term would not include any separate taxi
and limo services.
As concerns the paint and thinners in question, there can be
no dispute that they are of United States manufacture and were
shipped from this country for use abroad. Evidence in the file
includes certificates of origin, shipper's export declarations,
bills of lading, and manufacturer's statements. This being the
case, the cost of the materials is not subject to duty by virtue
of section 1466(h), although the labor portion remains dutiable.
HOLDING:
Following a thorough review of the evidence and analysis of
the law and applicable precedents, we have determined that the
Application for Relief should be allowed in part and denied in
part, as specified in the Law and Analysis portion of the ruling.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch