Vessel repair; Application for relief; U.S.-purchased parts; Spare parts; 19 U.S.C. 1466; Vessel repair entry number C49- 0021733-1; Vessel M/V FRANCES HAMMER, V-8

HQ 111205 February 21, 1991 VES-13-18-CO:R:IT:C 111205 LLB CATEGORY: Carriers Deputy Assistant Regional Commissioner Commercial Operations Division ATTN: Regional Vessel Repair Liquidation Unit New Orleans, Louisiana 70130 RE: Vessel repair; Application for relief; U.S.-purchased parts; Spare parts; 19 U.S.C. 1466; Vessel repair entry number C49- 0021733-1; Vessel M/V FRANCES HAMMER, V-8 Dear Madam: Reference is made to your memorandum of July 25, 1990, which forwards the Application for Relief from vessel repair duties filed by counsel on behalf of Ocean Chemical Carriers, Inc., in regard to the above-captioned vessel repair entry. FACTS: On April 13, 1990, the M/V FRANCES HAMMER arrived at the United States port of Ponce, Puerto Rico. A vessel repair entry was filed as required by law to report foreign shipyard operations which had been performed on the vessel in Italy, Egypt, and Malta. Only one element of the entry remains at issue, that being the dutiability of a turbocharger rotor purchased as a spare and placed aboard the vessel while it was abroad. The rotor, which is of foreign manufacture, was purchased by the vessel operator from an unrelated company in the United States and shipped to Alexandria, Egypt, to be placed aboard the vessel during the course of its foreign voyage. At the time that the Application for Relief was submitted, the issue presented for resolution was whether the rotor was duty-free by virtue of the fact that it was purchased to be carried as a spare, rather than to be installed. ISSUE: Whether the purchase of imported vessel parts in the U.S. for use as spares is dutiable, or whether the dutiability of such a purchase might be affected by an August 20, 1990, amendment to the vessel repair statute. LAW AND ANALYSIS: Title 19, United States Code, section 1466, 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. Although not germane to the facts of this particular matter, it may be of future benefit to the applicant to understand the status of foreign-purchased (and until recently all) spare parts. It is a position of long-standing that the purchase of spare parts is a transaction which is subject to duty. In one ruling issued by Customs, it was stated that, "Clearly, the purchase of spare parts is dutiable and since spare parts are not deemed necessary to enable the vessel to reach its port of destination, there can be no remission of the duty on such purchases as a matter of routine." (Customs Ruling Letter 103364, August 14, 1978). The climate with regard to spare parts shipped abroad from the United States for foreign installation was transformed on August 20, 1990, when the President signed Public Law 101-382 which added a new subsection (h) to section 1466. This provision applies, by its terms, to foreign-made imported parts, and exempts such parts which are found to qualify from the imposition of vessel repair duties. If an article is claimed to have been previously entered for consumption, duty paid by the vessel owner, there must be proof of this fact in the form of a reference to the consumption entry number for that previous importation, as well as to the U.S. port of importation. If imported by other than the owner of the vessel and purchased from that party in the U.S., there must be presented a bill of sale executed in the United States. Further, with regard to imported articles, there must be presented a certification from the owner or master that the vessel at issue is a cargo vessel and that the imported articles were purchased for installation aboard the company's vessels. If the elements stated above are proven to the satisfaction of Customs, only the cost of foreign labor utilized for installation of previously imported articles will be subject to duty under section 1466 in matters concerning repairs. Modifications will of course continue to be treated as duty-free, both materials and labor. In the present matter, sufficient proof of the domestic purchase of previously imported spare parts has been presented. It remains necessary for the vessel operator to provide the certifications required under the statute as discussed above. HOLDING: After a thorough review of the evidence submitted, considered in light of all applicable law and precedent, we have determined that the Application for Relief should be granted, subject to the condition that required certifications be provided by the vessel operator. Sincerely, B. James Fritz Chief Carrier Rulings Branch