Protest No. 2704-99-100582; Vessel Repair Entry No. C27-0170013-3; PRESIDENT JACKSON; V-102E; 19 U.S.C. § 1466

HQ 114660 April 28, 1999 VES-13-18-RR:IT:EC 114660 GEV CATEGORY: Carriers Chief, Liquidation Unit U.S. Customs Service Post Office Box 2450 San Francisco, California 94126 RE: Protest No. 2704-99-100582; Vessel Repair Entry No. C27-0170013-3; PRESIDENT JACKSON; V-102E; 19 U.S.C. § 1466 Dear Sir: This is in response to your memorandum dated March 25, 1999, forwarding the above-referenced protest with supporting documentation for our review. Our ruling is set forth below. FACTS: The PRESIDENT JACKSON is a U.S.-flag vessel which incurred costs for foreign work performed during July of 1998. Subsequent to the completion of the work, the vessel arrived in the United States at San Pedro, California, on August 8, 1998. A vessel repair entry was timely filed on August 10, 1998. An application for relief from duties assessed pursuant to 19 U.S.C. § 1466 was not filed. Consequently, the subject entry was forwarded for liquidation which occurred on December 18, 1998. The protest includes Enclosures “A” (American Bureau of Shipping (ABS) Survey Report Nos. YO28742 and YO28743) and “B” (ABS Invoice No. 6000982981) in support of the protestant’s claim that the survey cost covered by Item No. 2 of the vessel repair entry is not dutiable. ISSUE: Whether the survey cost for which relief is sought is dutiable under 19 U.S.C. § 1466. - 2 - LAW AND ANALYSIS: Title 19, United States Code, § 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..." (emphasis added) We note that the protest was timely filed under the statutory and regulatory provisions for protests, 19 U.S.C. § 1514(c)(3)(A) and 19 CFR § 174.12(e)(1). In regard to the dutiability of inspection/survey costs, we note that C.S.D. 79-277 provides 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." Our position with respect to this ruling has been as follows. 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: ITEM 29 (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. 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 - 3 - 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 the ABS survey cost under consideration (Item No. 2), we note that ABS Survey Report No. YO28742 lists the following: (1) an “underwater in lieu of drydock” (UWILD) survey; and (2) a damage/repair survey report. While the former appears on ABS invoice no. 6000982981, the latter does not. The second and third pages of ABS Survey Report No. YO28742 contain the “Outstanding Recommendations Conditions of Class” and provides that, “[i]n order to credit drydocking survey by UWILD, re-examination of previous damage/repair were carried out and found following.” This re-examination yielded no defects in the aforementioned repairs, which were temporary, although permanent repairs were recommended at the next scheduled out-of-water drydocking period by April 28, 2001. Additional fractures were found in the engine room as well as the main deck plating, however, it was recommended that such fractures be further examined and dealt with to the satisfaction of the attending surveyor at the vessel’s next annual hull survey period. Accordingly, we conclude that the damage/repair survey in question was a prerequisite for satisfying the mandatory ABS drydocking survey by UWILD in order for the subject vessel to be retained as classed by the ABS. We further note that no dutiable repair costs were incurred as a result of this damage/repair survey. The record therefore supports the protestant’s claim that the entire cost of Item No. 2 is non-dutiable. HOLDING: As discussed in the Law and Analysis portion of this ruling, the protest is granted. In accordance with § 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will make the - 4 - decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.ustreas.gov, by means of the Freedom of Information Act, and other methods of public distribution. Sincerely, Jerry Laderberg Chief Entry Procedures and Carriers Branch