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HQ 112442

August 19, 1993

VES-13-18 CO:R:IT:C 112442 JBW


Deputy Regional Director
Commercial Operations
Pacific Region
1 World Trade Center
Long Beach, CA 90831

RE: Vessel Repair; Anchor Chain; Casualty; Volcanic Ash; Fire Damage; Overhead; 19 U.S.C. 1466; PRESIDENT MADISON; Entry No. 110-0104113-3.

Dear Sir:

This letter is in response to your memorandum that forwards for our review and ruling the petition for review filed in conjunction with the above-referenced vessel repair entry.


The record reflects that the subject vessel, the PRESIDENT MADISON, arrived at the port of Seattle, Washington, on August 23, 1991. A timely vessel repair entry, number 110-0104113-3, was filed on August 30, 1991. The entry indicates that the vessel underwent foreign shipyard work while in Hong Kong. An application for relief was filed in which the vessel operator sought relief for repairs to damage caused by volcanic ash from the Mount Pinatubo eruption. This claim for relief was denied, for the entry was filed for repairs made during a voyage subsequent to the voyage during which the vessel experienced the casualty. Further, relief was denied for repairs made to the main switch board, which caught fire while the vessel was in dry dock. At the time of the application, the cause of the fire was not established; the petitioner has now supplied an explanation for the cause of the fire. Finally, the petitioner seeks relief for the inspection of anchor chains and for overhead costs.


(1) Whether cleaning and inspecting the anchor chains are dutiable operations.

(2) Whether damages to the vessel resulting from the volcanic ash and the switchboard fire are remissible casualties.

(3) Whether certain foreign shipyard costs, including clerical or other overhead charges, are subject to duty.


Title 19, United States Code, section 1466, provides in pertinent part for payment of an ad valorem duty of fifty percent of the cost of foreign repairs to or equipment purchased for a vessel documented under the laws of the United States to engage in the foreign or coastwise trade.

I. Cleaning and Inspection of Anchor Chains.

Hongkong United Drydock invoice item number 2.1-5 provides as follows:

Anchor Chains - ABS/USCG Inspection

Ranging out anchor & cables, hosing clean by high pressure salt water, reversing & calibrating cables, hammer testing all links marking cable shackles with paint and seizing wire, restowing wire to chain locker.

Labour: 160 hrs
Material: $800 13,600.00

In the application, we determined that the cost of painting marks on the anchor chains is a repair that is subject to duty and that the entire invoice cost is subject to duty.

The petitioner has now segregated this invoice by distinguishing between the costs for ranging/inspecting and marking/seizing. The petitioner did not attribute the cleaning costs, and we assume that the costs for the cleaning described in the invoice are contained in the ranging/inspecting category. The Customs Service has consistently held that cleaning is not dutiable unless it is performed as part of, in preparation for, or in conjunction with dutiable repairs or is an integral part of the overall maintenance of the vessel. E.g., Headquarters Ruling Letter 110841, dated May 29, 1990 (and cases cited therein). The cleaning performed was in part for the marking/seizing of the anchor chains, which is a dutiable repair. The cost for ranging and inspecting the anchor chains is therefore subject to duty.

II. Remission of Duties for Repairs to Correct Damages Resulting from Volcanic Ash and Fire.

The vessel repair statute provides for the remission of the duties in those instances where good and sufficient evidence is furnished to show that foreign repairs were compelled by "stress of weather or other casualty" and were necessary to secure the safety and seaworthiness of the vessel to enable her to reach her port of destination. 19 U.S.C. 1466(d)(1). The Customs Service has interpreted the term casualty, as it is used in the vessel repair statute, to denote an occurrence that, like stress of weather, comes with unexpected force or violence, such as fire, explosion, or collision. See Dollar Steamship Lines, Inc. v. United States, 5 Cust. Ct. 23, 29, C.D. 362 (1940). An explosion, however, does not result in an automatic determination of casualty. The Customs Service assumes that such an occurrence is a casualty unless the cause of the occurrence is attributable to normal wear and tear or to improper maintenance. C.S.D. 79-283, 13 Cust. B. & Dec. 44, 45 (1979); T.D. 55670(2), 97 Treas. Dec. 524 (1962).

This office has previously held that foreign repairs to this vessel resulting from the Mount Pinatubo volcano were compelled by casualty. Headquarters Ruling Letter 111879, dated January 24, 1992. We denied the application because the entry under consideration was filed for repairs made during a voyage subsequent to the voyage during which the vessel experienced the casualty.

The petitioner contends that the damage caused by the volcanic ash occurred after the vessel had called in the United States and commenced the subject voyage. The petitioner claims that the vessel did not bypass United States shipyards and that the vessel was in a seaworthy condition when it left the United States. Finally, the petitioner cites rulings in which the Customs Service remitted duties for repairs that were deferred to subsequent voyages where the delays were adequately explained. C.I.E. 538/62, dated May 22, 1962.

We agree with the petitioner that the Customs Service, under certain circumstances, will permit casualty repairs to be made on subsequent voyages if the delay is adequately explained. Id. In the case cited by the petitioner, the vessel sustained damage to its propeller and rudder; repairs were made during a subsequent voyage. The Customs Service denied the vessel operator's claim for relief and stated: "[W]e have never allowed relief merely on the grounds that the damage or severity of the damage, said to have been sustained in one voyage, was not discovered before the voyage terminated." Id.

The petitioner contends that the damage that was repaired only developed after the vessel left the United States en route to its scheduled drydocking in Hong Kong. The petitioner, however, fails to cite any specific problems that developed during the course of the subject voyage. Rather, the work to correct the volcanic ash damage appears to be general in nature. Moreover, statements made by the petitioner in the application for relief filed for this entry indicate that the work to repair the volcanic ash damage was deferred, thus suggesting that the repairs could have been performed in the United States. The vessel operator chose for commercial reasons to have the vessel repaired in a foreign shipyard:

Without resorting to the unprecident [sic] event of taking the vessel out of service for an extended period of time, the repairs were deferred to the pending drydock availability .... To do otherwise would have been detrimental to the entire commercial operation of the vessel and would have resulted in unacceptable loss of revenue.

This explanation is insufficient to justify the remission of duties.

While in dry dock, a fire started in the group control panel "B" of the main engine room; at the time the application for relief was filed, the cause of the fire was still under investigation. As described, the fire affected twelve motor controllers for vital equipment including the fuel oil service pump, the main air compressor, the control air compressor, the vacuum pump, the air conditioning compressor, and the domestic reefer compressor. The Customs Service has held that a fire that starts as a result of a short circuit in an electric motor because of lack of proper maintenance or wear and tear does not constitute a casualty. C.I.E. 777/62, dated August 1, 1962. However, unless it is established by the evidence that a fire was caused by the poor condition of the vessel, it should be assumed that the fire is the result of a casualty. ORR Ruling 511-70, dated March 6, 1970.

In the application for relief, we concluded that based on the evidence before us, we could not determine whether the fire was caused by improper maintenance. The investigation into the cause of the fire, which was incomplete at the time the application was filed, indicates the fire likely resulted from the ignition of flammable solvents that were used to clean the switchboard. This evidence establishes that the fire was not caused by the poor condition of the vessel. Duties for the repair of the fire damage may therefore be remitted.
III.Overhead Charges.

The petitioner has submitted a cost breakdown for general services performed at the shipyard that are said to represent non- productive overhead charges. These charges include, inter alia, clerical services, electronic data processing, accounting, etc. Such charges have been found to be dutiable pursuant to 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].

Customs has held the term "emoluments" as used in the cited decision to include all wages, taxes, accounting fees, office space charges, inventory or mark-up costs, purchasing costs, and management fees. Consequently, general and unspecified "overhead" and/or "administrative" charges, or charges including those listed above, are considered dutiable.

It has been brought to our attention that Customs has previously held charges for clerical services, electronic data processing, accounting, insurance, general administration, education and corporate expense to be analogous to the costs of dry-docking and general services (which are non-dutiable pursuant to C.I.E. 1188/60) and therefore non-dutiable (see rulings 108953 and 109308).

Upon further review of this matter, we are of the opinion that our interpretation of T.D. 55005(3) as discussed above is correct. Accordingly, we hold that the costs of "overhead" and/or "administrative" charges are dutiable in their entirety when such charges are associated with dutiable work or when such charges are not apportioned between dutiable and non-dutiable work. Certain clerical charges for which the petitioner seeks relief are associated with dutiable work. Those overhead charges that are related to dutiable repair operations are subject to duty under 19 U.S.C. 1466.


Following a thorough review of the facts in this case as well as an analysis of the law and applicable precedents that bear upon those facts, we have determined that the Petition for Review should be granted in part and denied in part for the reasons set forth in the Law and Analysis section of this ruling. The petitioner should be informed of the right to file a Protest following liquidation of this entry, as evidenced by the posting of the bulletin notice of liquidation.


Stuart P. Seidel

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