VES-13-18-CO:R:IT:C 112008 LLB
Deputy Assistant Regional Commissioner
Commercial Operations
ATTN: Regional Vessel Repair Liquidation Unit
New York, New York 10048-0945
RE: Vessel repair; Protest; Surety protest; Warranty; Spare
parts; Liquidation null and void by operation of law; Vessel
GREEN LAKE, V-9; Entry number C13-0009037-5; Protest numbers
1303-90-000376 and 1303-90-000472
Dear Sir:
Reference is made to your memorandum of November 25, 1991,
which forwards for our consideration and determination, two
protests on the same matter. One protest was filed on behalf of
the vessel operator and the second on behalf of the surety.
FACTS:
Customs Headquarters issued an initial decision in regard to
this entry on May 7, 1990. The entry was liquidated by Customs
on June 22, 1990, after the time for filing a pre-liquidation
appeal had expired. The earlier of the protests under
consideration (1303-90-000376, filed by the vessel operator), was
filed 89 days after liquidation. The protest filed by the surety
was filed more than six months after the date of liquidation.
The matters being protested by both parties involve claims of
shipyard warranty repairs, and claims of duty-free treatment of
spare parts under the most recent amendment to the vessel repair
statute. Additionally, the surety claims that the vessel repair
entry liquidation was null and void because it did not occur
within one year.
ISSUE:
Whether the protests submitted in this matter are reviewable
and, further, if reviewable whether sufficient evidence is
presented to permit reliquidation of the vessel repair entry in
question.
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.
Time limits exist for the submission of a protest and are
established under the specific authority of the protest statute
itself (19 U.S.C. 1514). As most recently established in the
matter of Penrod Drilling Co. v. United States, 727 F. Supp.
1463, (C.I.T. 1989), the merits of a particular case will not be
considered unless the 90-day statutory filing deadline is met.
In this case, the Protest by the surety (1303-90-000472) was
filed with Customs more than six months after liquidation of the
entry, but within the 90-day period from the date of mailing of
the formal demand on a surety as provided in subsection (c)(2) of
the protest statute. Having met the filing deadline in
1514(c)(2), the surety's protest may be considered on its merits.
There was only one point of diversion between the two
protests, that being the claim of null and void liquidation which
was made by the surety. On that point we will offer some
clarification, that being that section 159.11(b), Customs
Regulations (19 CFR 159.11(b)), specifically exempts vessel
repair entries from the statutory liquidation by operation of law
provision relied upon by the surety. Accordingly, the
liquidation is not null and void by operation of law.
In our previous consideration of this entry we denied the
claim of warranty repairs on the ground that there was no
evidence then before us to indicate that the builder acknowledged
that the repairs obtained were covered by the warranty clause of
the new vessel construction contract. We now note the presence
of an acknowledgement from the builder that the repairs were
indeed covered by the warranty. In light of this new evidence,
we have determined that the claim regarding warranty repairs is
meritorious and that duty relating to that portion of the entry
should be remitted.
Lastly, we consider the issue of spare parts which are
claimed to be duty-free by virtue of subsection (h) of the vessel
repair statute (19 U.S.C. 1466(h)). In this case the parts in
question were never entered for consumption and only arrived in
the United States for the first time aboard the vessel. The
parts were not unladen in the United States. There can be no
doubt that the language of section 1466(h) which requires duty
payment on spare parts under the Harmonized Tariff Schedule of
the United States upon first entry, is directed to the entry of
the spare parts, not the entry of a United States-flag vessel.
In fact the legislative history (Sen. Rept. 101-252, pp. 37-38),
in referring to what is now section 1466(h)(2) provides that
"[t]his section is intended to ensure that vessel owners will pay
duty on such parts and materials only once, at the time of their
first entry into the United States." (emphasis supplied).
Further, Senator Breaux, author of the legislation, has indicated
his concern that the Customs administration of the vessel repair
statute prior to the new legislation limited the ability of
vessel operators to reduce costs "...by ordering foreign spare
parts for delivery in the United States."
It is the apparent position of the vessel operator that the
first entry requirement is satisfied at the time that a vessel
with installed spare parts or materials which are not duty-paid,
executes a vessel repair entry upon its first arrival in this
country after such installation. It is essential that it be
understood that the purpose of section 1466(h)(2) is not to
assure the lowest rate of duty possible but rather to ensure that
duty will be paid under the Tariff Act of 1930, as amended, only
once. It is also critical to appreciate the distinction between
the entry of merchandise and the entry of vessel repairs.
The need for the payment of duty under "...appropriate
commodity classifications of the Harmonized Tariff Schedule...",
as required by the statute, is initiated at the time a vessel
arrives with the limits of a port in the United States with the
intent then and there to unlade merchandise. (See section
101.1(h), Customs Regulations (19 CFR 101.1(h)). The special
status accorded vessels, their tackle, apparel, equipment, and
appurtenances has long been recognized, with vessels being
considered sui generis and totally distinct from merchandise.
(See The Conqueror, 166 U.S. 110, 17 S. Ct. 510, 41 L. Ed. 937
(1896); United States v. William Herman Wepner, 32 CCPA 30,
C.A.D. 282 (1944)). The requirements for the entry of
merchandise are provided in section 1484 of title 19, United
States Code, wherein exceptions to those requirements are also
provided. Among the cited exceptions are those circumstances
provided under 19 U.S.C. 1498, subsection (10) of which provides
for entries relating to the vessel repair statute.
The result of all of the foregoing is that spare parts and
materials of foreign origin were not meant to benefit from nor
will they be permitted to benefit from the duty exemption under
section 1466(h)(2) unless they are regularly entered as
merchandise at the Harmonized Tariff Schedule rates of duty
prior to their foreign installation. To hold otherwise would be
contrary to the intent of the legislation, and would render
meaningless the statutory requirement that a vessel owner or
master certify that such imported spare parts and materials are
intended for use aboard a qualifying vessel. In addition, such
an interpretation would render 1466(a) meaningless with regard to
"the repair parts" provision. The rules of statutory
construction discourage such a result.
HOLDING:
Following a thorough review of the evidence submitted as
well as an analysis of the applicable law and precedents, we have
determined that the protests filed by the surety and by the
vessel operator should be allowed in part and denied in part, as
specified in the Law and Analysis portion of this ruling. The
liquidation of the entry under consideration is not null and void
as claimed by the surety and should be reliquidated in accord
with the findings set forth above.
Sincerely,
Stuart P. Seidel
Director, International Trade
Compliance Division