Vessel repair; Application for Relief; Repair; Segregation; Painting; Vessel SEALAND ATLANTIC, V-35; Vessel repair entry number 16, 0008523-2; Port of arrival Charleston, South Carolina

HQ 112024 February 3, 1992 VES-13-18-CO:R:IT:C 112024 LLB CATEGORY: Carriers Deputy Assistant Regional Commissioner Commercial Operations Division 423 Canal Street New Orleans, Louisiana 70130-2341 RE: Vessel repair; Application for Relief; Repair; Segregation; Painting; Vessel SEALAND ATLANTIC, V-35; Vessel repair entry number 16, 0008523-2; Port of arrival Charleston, South Carolina Dear Sir: Reference is made to your memorandum of December 4, 1991, which forwards for our review and consideration the Application for Relief from the assessment of vessel repair duties submitted by Sea-Land Service, Inc., in regard to the above-captioned vessel repair entry. FACTS: The vessel arrived in the United States after having undergone various operations in three European shipyards. A timely vessel repair entry and Application for Relief were filed and have been reviewed by the Vessel Repair Liquidation Unit. We are asked to review the dutiability of three items. These are: 1. Item 028, Sea-chest inspection operations which may involve some repair elements. 2. Item 033, Coating applied to the fathometer well. 3. Item 189, The segregated cost of venting operations. ISSUE: Whether sufficient evidence is submitted to permit a finding that relief from the assessment of vessel repair duties should be granted in regard to the items under review. 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. Certain vessel inspection operations are generally considered non-dutiable. However, pursuant to published Customs Service rulings (C.I.E. 1325/58 and C.I.E. 565/55), duties may not be remitted in circumstances in which invoices fail to segregate dutiable from non-dutiable expenditures. Such is the case in regard to invoice item 028 which involves opening sea- chests for cleaning and inspection by the Coast Guard. Included in the item is the unsegregated cost of renewing missing or defective fasteners, a repair expense. The presence of this unsegregated expense renders the entire item subject to duty as a repair expense. "Expenses of repairs" is sufficiently comprehensive to include money paid to the foreign contractor for labor performed in painting the ship. E.E. Kelly & Co. v. United States, T.D. 43322 (1929). Customs has held that painting performed on existing portions of a vessel is in the nature of a dutiable maintenance operation (C.I.E. 1043/60, and Treasury Decisions 21670, 39507, and 43322). These precedents are relevant to the operation performed in invoice item 033 which details the scraping and coating of the fathometer well. The item must be considered dutiable. In the case of United States v. George Hall Coal Co., 134 F. 1003 (1905), it was held that any of various types of expenses associated with foreign shipyard operations are classifiably free from the assessment of duty, regardless of the character of the overall shipyard work (repair vs. modification). The case found that the expense of drydocking a vessel is not a repair cost. Drydocking is not an isolated expense, and is commonly associated with numerous others. These may include, but are not limited to, sea water supply (for firefighting capability), fresh water supply, hose hook-up and disconnection, fire watch services, shore power hook-up, etc. We would place the segregated cost of venting in this category and would thus allow as duty-free such an expense as it appears in invoice item 189. HOLDING: Following a thorough review of the evidence submitted as well as an analysis of the law and applicable precedents, we have determined to allow in part and deny in part, the Application for Relief under consideration. Our reasons for so finding are set forth in the Law and Analysis portion of this ruling. Sincerely, B. James Fritz Chief Carrier Rulings Branch