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HQ 227150

December 17, 1996

VES-13-18-RR:IT:EC 227150 GEV


Chief, Residual Liquidation and Protest Branch U.S. Customs Service
6 World Trade Center
New York, New York 10048-0945

RE: Vessel Repair Entry No. 514-3005404-2; EXPORT FREEDOM; V-205; Repairs;
Surveys; 19 U.S.C. ? 1466

Dear Sir:

This is in response to your memorandum dated August 1, 1996, forwarding an application for relief from duties assessed pursuant to 19 U.S.C. ? 1466 with supporting documentation. You request our review of the following items contained within the above-referenced vessel repair entry: Malta Drydocks invoice no. 005820 (Parts I, II, III and IV); and American Bureau of Shipping (ABS) invoice nos. 580202 and 580203. Our findings in this matter are set forth below.


The EXPORT FREEDOM is a U.S.-flag vessel owned and operated by Farrell Lines, Inc. of New York, N.Y. The vessel underwent foreign shipyard work during February of 1996. Subsequent to the completion of the work the vessel arrived in the United States at New York, N.Y., on February 23, 1996. A vessel repair entry and an application for relief with supporting documentation were timely filed.


Whether the foreign costs contained within the subject entry for which our review is sought are dutiable under 19 U.S.C. ? 1466.


Title 19, United States Code, ? 1466 (19 U.S.C. ? 1466), provides in pertinent part for the payment of an ad valorem duty of 50 percent of the cost of "...equipments, or any part thereof, including boats, purchased for, or the repair parts or materials to be used, or the expenses of repairs made in a foreign country upon a vessel documented under the laws of the United States..."

Part I of Malta Drydocks invoice no. 005820 covers drydocking and general expenses. In regard to these costs, since they are related to both dutiable and nondutiable work, it is our position that such costs should be prorated between the dutiable and non-dutiable costs contained within this entry. (See Headquarters ruling letter 226729, dated June 7, 1996, discussing Customs application of the decision of the U.S. Court of Appeals in Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc. v. United States, 44 F.3d 1539 (1994))

Part II of Malta Drydocks invoice no. 005820 covers shipyard costs associated with tests, inspections and surveys. In regard to the dutiability of inspection/survey costs, we note that C.S.D. 79-277 stated that, "[i]f the survey was undertaken to meet the specific requirements of a governmental entity, classification society, insurance carrier, etc., the cost is not dutiable even if dutiable repairs were effected as a result of the survey."

With increasing frequency, this ruling has been utilized by vessel owners seeking relief not only from charges appearing on an American Bureau of Shipping (ABS) or U.S. Coast Guard invoice (the actual cost of the inspection) but also as a rationale for granting nondutiability to a host of inspection-related charges appearing on a shipyard invoice. In light of this continuing trend, we offer the following clarification.

C.S.D. 79-277 discussed the dutiability of certain charges incurred while the vessel underwent biennial U.S. Coast Guard and ABS surveys. That case involved the following charges:

(a) Crane open for inspection
(b) Crane removed and taken to shop. Crane hob and hydraulic unit dismantled and cleaned
(c) Hydraulic unit checked for defects, OK. Sundry jointings of a vessel's spare renewed. (d) Parts for job repaired or renewed.
(e) Parts reassembled, taken back aboard ship and installed and tested.

In conjunction with the items listed above, we held that a survey undertaken to meet the specific requirements of a governmental entity, classification society, or insurance carrier is not dutiable even when dutiable repairs are effected as a result of a survey. We also held that where an inspection or survey is conducted merely to ascertain the extent of damages sustained or whether repairs are deemed necessary, the costs are dutiable as part of the repairs which are accomplished (emphasis added).

It is important to note that only the cost of opening the crane was exempted from duty by reason of the specific requirements of the U.S. Coast Guard and the ABS. The dismantling and cleaning of the crane hob and hydraulic unit was held dutiable as a necessary prelude to repairs. Moreover, the testing of the hydraulic unit for defects was also found dutiable as a survey conducted to ascertain whether repairs were necessary. Although the invoice indicated that the hydraulic unit was "OK," certain related parts and jointings were either repaired or renewed. Therefore, the cost of the testing was dutiable.

We emphasize that the holding exempts from duty only the cost of a required scheduled inspection by a qualifying entity (such as the U.S. Coast Guard or the ABS). In the liquidation process, Customs should go beyond the mere labels of "continuous" or "ongoing" before deciding whether a part of an ongoing maintenance and repair program labeled "continuous" or "ongoing" is dutiable.

Moreover, we note that C.S.D. 79-277 does not exempt repair work done by a shipyard in preparation of a required survey from duty. Nor does it exempt from duty the cost of any testing by the shipyard to check the effectiveness of repairs found to be necessary by reason of the required survey.

With respect to Part II of Malta Drydocks invoice no. 005820, our review of the costs listed thereon indicates that they do not constitute dutiable repairs nor are they related to dutiable ABS survey charges. Accordingly, these costs are nondutiable.

Part III of Malta Drydocks invoice no. 005820 covers repair costs conceded by the applicant to be dutiable. However, the costs of staging and transportation also listed on the invoice for which the applicant seeks relief are dutiable as well pursuant to the decision of the court in Texaco, supra. Consequently, Part III of Malta Drydocks invoice no. 005820 is dutiable in its entirety.

Part IV of Malta Drydocks invoice no. 005820 covers costs incurred pursuant to ballasting operations and the receipt of fuel oil. Such costs are not dutiable under the vessel repair statute.

ABS invoice nos. 580202 and 580203 cover the costs of various surveys and related expenses (see the above discussion regarding the dutiability of inspection/survey costs). Our review of the record indicates that these costs are nondutiable with the exception of the following
costs listed on ABS invoice no. 580202: Completion of Intermediate Survey (UKœ 1,024.00); Time Outside Working Hours (UKœ 1,176.00); Repairs (UKœ 5,890.00); Expenses (UKœ 446.00). The evidence submitted with respect to these four costs is insufficient to warrant a finding of nondutiability under the vessel repair statute.


The foreign costs for which our review is sought are dutiable in part under 19 U.S.C. ruling.



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