United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 2005 HQ Rulings > HQ 116219 - HQ 116491 > HQ 116431

Previous Ruling Next Ruling
HQ 116431

July 7, 2005

VES-13-18-RR:IT:EC 116431 IDL


Chief, Vessel Repair Unit (VRU)
U.S. Customs and Border Protection
423 Canal Street
New Orleans, LA 70130

RE: Petition for Review; Vessel Repair Entry No. C15-0020489-1; S/S OSPREY; 19 U.S.C. § 1466

Dear Sir:

This is in response to your memorandum, dated March 10, 2005, forwarding for our review the above-referenced petition for review of vessel repair duties assessed pursuant to 19 U.S.C. § 1466. Our ruling on this matter is set forth below.


The S/S OSPREY is a U.S.-flagged vessel operated by Osprey Shipholding Corp., LLC (“Osprey”). In a petition dated January 4, 2002, Osprey states that the vessel underwent extensive repair in Tampa, Florida, and that the U.S. Coast Guard (USCG) and American Bureau of Shipping (ABS) allowed the vessel, for commercial expediency, to sail overseas despite not having all required repairs completed.

Subsequently, the vessel completed two round-trip voyages to Piraeus, Greece. During the vessel’s third voyage to Piraeus, the vessel incurred foreign shipyard costs. On December 21, 1997, subsequent to the completion of the work in question, the vessel arrived at Wilmington, North Carolina. A vessel repair entry was timely filed.


Whether the vessel repair costs for which our review is sought are dutiable under 19 U.S.C. § 1466?


Title 19, United States Code, section 1466(a) (19 U.S.C. § 1466(a)), 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.”

In SL Service, Inc. v. United States, 357 F.3d 1358, 1362, 1363 (Fed. Cir. 2004), rev’g 244 F. Supp. 2d 1359 (Ct. Int’l Trade 2002), cert. denied December 13, 2004, the Court of Appeals for the Federal Circuit upheld the proration of certain expenses by U.S. Customs and Border Protection (CBP). The court stated in pertinent part as follows:
apportionment is consistent with section 1466(a) and the “but for” test. In the context of dual-purpose expenses, it is rational to impose the duty on only that portion of the expense that is fairly attributable to the dutiable repairs. Indeed, to impose the 50% ad valorem duty on the entire costs of dry-docking in this case would exceed the mandate of the statute. The logical appeal of apportionment has been recognized in other areas of the law.

[The] long-standing practice of apportioning the cost of various expenses between dutiable repairs and non-dutiable inspections and modifications comports with both the statute and common sense.

This petition for review contains various arguments that certain vessel repair costs should be non-dutiable. Specifically, the Hellenic Shipyard invoice 122-A (items 1, 3-7, 9-19) relates to the proration of various charges that CBP refers to as “general services.” These items are to be prorated between dutiable and non-dutiable costs. See SL Service.

The Hellenic Shipyard invoice 122-A (items 56, 59 and 77) involves cleaning and boiler-related work. The record (specifically, the shipyard invoice and ABS report no. PR39682) provides evidence that these items relate to repairs, and not a periodic classification inspection. As such, these items are dutiable.

The petitioner claims that the Hellenic Shipyard invoice 122 contains discounts on repair expenses that were not credited by the VRU in its duty calculation on the application. CBP agrees. These discounts will be considered in calculating the amount of duties payable.

The Hellenic Shipyard invoice 122-B (items 32, 54, 55, 83, 109, 134, 136 & 167) involves various miscellaneous items. Petitioner seeks relief on item 32 as an ABS inspection of the tailshaft in Greece. However, since there is no evidence that a tailshaft inspection was performed in Greece, this item is dutiable. Petitioner claims that the expenses in items 54 (cleaning activity) and 55 (gritblasting and repainting the overhead) were “required to prepare the vessel for future cargo.” Item 54 should be duty-free. However, it appears that item 55 is related to repairs, and therefore, is dutiable. Petitioner claims item 83 (elevator drainage) amounts to a modification. However, since petitioner has failed to furnish acceptable evidence in support of such claim, item 83 is dutiable. Item 109 (descaling) relates directly to an ABS inspection, and should be duty-free. Petitioner claims item 134 (ship’s assistance) involves preparation for an ABS inspection. However, ABS report no. PR39682 demonstrates that item 134 involves a repair inspection, rather than a periodic classification inspection. As such, item 134 is dutiable. Item 136 involves painting of a company logo on the vessel, and is duty-free. (Ruling Letter 112489, dated March 30, 1993). Item 167 (clean up of oil spill in engine room), with no known repairs relating to this item is duty-free.

The Hellenic Shipyard invoice 122-B (items 84, 95, 114, 132, 140 & 149) involves a claim for modification to the vessel’s ramp. In its application of the vessel repair statute, CBP has held that modifications, alterations, or additions to the hull and fittings of a vessel are not subject to vessel repair duties. The identification of work constituting modifications vis-à-vis work constituting repairs has evolved from judicial and administrative precedent. (See Otte v. United States, 7 Ct. Cust. Appls. 166, T.D. 36489 (1916); United States v. Admiral Oriental Line et al., 18 C.C.P.A. 137, T.D. 44359 (1930); and Customs Bulletin and Decisions, Vol. 31, Number 40, published October 1, 1997.) The factors discussed within the aforementioned authority are not by themselves necessarily determinative, nor are they the only factors that may be relevant in a given case. However, in a given case, these factors may be illustrative, illuminating, or relevant with respect to the issue of whether certain work may be a modification of a vessel that is non-dutiable under 19 U.S.C. § 1466. Although Osprey provided evidence of extensive changes to the ramp, the petition contains an ABS report (no. PR39682) narrative that indicates that the work in question involved extensive steel repair to the ramp. As such, these items are dutiable.

The Harris Pye invoice involves repairs to the boiler. The petitioner seeks relief for four line items on the first page of the invoice. ABS report no. PR39682 shows that the boiler activity is a repair, and not a periodic classification inspection. As such, the Harris Pye invoice remains dutiable in its entirety.

The petitioner claims that repairs to the anchor windlass and the automatic steering constituted “emergency repairs” that should be excluded from payment of duties under 19 U.S.C. § 1466(d)(1), because repair on such parts had already been undertaken in Tampa prior to sailing overseas.

Section 1466(d)(1) is administered under section 4.14(h) of the CBP regulations (Title 19, Code of Federal Regulations, section 4.14(h)). Section 4.14(h)(2)(i) states that relief from duty does not pertain to any “purchase or repair made necessary by ordinary wear and tear,” but does pertain to “failure of a part to function if it is proven that the specific part was repaired, serviced, or replaced in the United States immediately before the start of the voyage in question, and then failed within six months of that date.” [Emphasis added]. Treasury Decision (T.D.) 71-83(38) abstracted the “one-round-voyage” rule, as follows:

If satisfactory evidence is furnished clearly showing any part of a vessel to have been repaired and/or serviced just prior to the commencement of a voyage from a United States port, it is reasonable to assume that the part is seaworthy for a round voyage, foreign and return. Unless evidence indicates some other reason necessitated the repairs during the voyage, failure of that part to function within six months after the repair and/or servicing in the United States may be considered a casualty within the meaning of [19 U.S.C. 1466(d)]. However, remission of duty under that statute in the circumstances is limited to duty on the essential, minimum foreign repairs to the parts.

T.D. 71-83(38) has been interpreted to grant relief where part failure has occurred during the next voyage following repairs, repairs due to casualty excepted, provided that the need for such repairs occurs within six months of the original repairs. HQ 112118 (April 2, 1992). The OSPREY completed two voyages subsequent to the repair work in the United States. Therefore, the repairs to the vessel in the U.S. did not occur immediately prior to the start of the voyage in question. As such, it is our position that the repairs to the anchor windlass and the automatic steering were necessitated by ordinary “wear and tear,” and are dutiable.

Finally, the petitioner requests relief from duties under section 1466(d)(1) for repair to the vessel’s intermediate outer shaft (torque shaft), which broke away from the vessel in the Straits of Gibraltar, en route from Greece to the United States. The petitioner speculates that the torque shaft broke away as a “result of the bolts being improperly fitted after the tailshaft was replaced and the torque tube reinstalled.”

Section 1466(d)(1) provides that the Secretary of the Treasury is authorized to remit or refund such duties imposed under § 1466(a) if the owner or master of the vessel was compelled by stress of weather or other casualty to put into such 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 the position of CBP that “port of destination” means a port in the United States. (See 19 CFR § 4.14(h)(2)(i).

The statute sets forth the following tree-part test, which must be met in order to qualify for remission under the subsection:

The establishment of a casualty occurrence. The establishment of unsafe and unseaworthy conditions. 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, spontaneous explosion of such dimensions as to be immediately obvious to ship’ personnel, 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 casualty event, we must consider the repair to have been necessitated by normal wear and tear (Customs ruling letter 106159, dated September 8, 1983).

In support of its casualty claim, the petitioner included a “Report of Marine Accident Injury or Death” (USCG CG-2692), addressing a “casualty” incident on September 25, 1997. The “casualty elements” section on the report merely cites “machinery or equipment failure” as the casualty incident. The petitioner also included a transcript of a lawsuit brought by Osprey against its insurance company in a Norwegian court. The transcript demonstrates that experts brought to testify in the proceeding “fundamentally disagree in their assessments of the observations made on the ship after the breakdown,” and that it is “not possible to say that any one of the [assessments] is the most probable cause.”

CBP has ruled that "[e]xperience demonstrates damage to underwater parts of vessels, including propellers is usually not easily detectable or susceptible of definite proof respecting the date and place of occurrence. Therefore, relief under [section 1466] is granted in the absence of testimony showing that the vessel concerned was grounded, struck bottom, or her propeller contacted some floating object capable of causing damage, prior to the commencement of the voyage." C.I.E. 1202/59, dated August 13, 1959; Headquarters Ruling Memorandum 109473, dated June 27, 1988. However, in C.I.E. 1202/59 and in ruling 106240 JM (July 20, 1983), which applied C.I.E. 1202/59 in a case of underwater damage, there was some evidence, or at least an inference could reasonably be made based upon the damage which had occurred, that the damage resulted from striking an unknown underwater object rather than from normal wear and tear (see C.I.E. 1243/60, in which a leak in a vessel’s hull was held to be due to normal wear and tear and therefore remission of duty was denied). The lack of evidence, or at least an inference based on the damage sustained, was the very reason relief was denied in ruling 106369 PH, dated February 13, 1984, which applied C.I.E. 1202/59.

In the instant case, although the date and place of breakdown is apparent, it remains unclear what caused the breakdown, and when such causative incident occurred. Furthermore, the USCG document referenced above indicates “machinery or equipment failure” as the cause of the damage in question. As such, the petitioner has failed to submit conclusive evidence that the cause of the breakdown constitutes a “casualty” as defined in section 4.14(h)(2)(i), and the repair of the torque shaft is a dutiable expense.


Accordingly, the vessel repair costs for which our review is sought are dutiable or non-dutiable under 19 U.S.C. § 1466 consistent with the analysis above.


Glen E. Vereb

Previous Ruling Next Ruling