Vessel Repair; Inspection; NEDLLOYD HOLLAND v-39; Petition for Review; Entry No. C16-0008522-4.

HQ 112240 February 4, 1993 VES-13-18 CO:R:IT:C 112240 JBW CATEGORY: Carriers Deputy Assistant Regional Commissioner Commercial Operations c/o Regional Commissioner New Orleans, LA 70130-2341 RE: Vessel Repair; Inspection; NEDLLOYD HOLLAND v-39; Petition for Review; Entry No. C16-0008522-4. Dear Sir: This letter is in response to your memorandum that forwards for our review and ruling the petition for review filed in conjunction with the above-referenced vessel repair entry. FACTS: The record reflects that the subject vessel, the NEDLLOYD HOLLAND, arrived at the port of Charleston, South Carolina, on July 18, 1991. Vessel repair entry, number C16-0008522-4, was filed on the same day as arrival and indicated work performed on the vessel in Bremerhaven, Germany. The vessel owner timely filed an application for relief in which it claimed that certain items were not subject to duty. This office allowed in part and denied in part the application. Headquarters Ruling Letter 112025, dated February 20, 1992. The vessel owner now seeks review for a number of inspections that were not addressed in the application for relief. ISSUE: Whether the shipyard costs associated with inspections carried out by qualifying inspection entities are subject to duty under 19 U.S.C. 1466 when the inspections do not result in repairs. LAW AND ANALYSIS: Title 19, United States Code, section 1466, provides in pertinent part for payment of duty in the amount of fifty percent ad valorem on the cost of foreign repairs to vessels documented under the laws of the United States to engage in foreign or coastwise trade, or vessels intended to engage in such trade. The Customs Service has held that where periodic surveys are undertaken to meet the specific requirements of a governmental entity, a classification society, or insurance carrier, the cost of the surveys is not dutiable even when dutiable repairs are effected as a result thereof. Headquarters Ruling Letter 110368, dated July 26, 1989. In a recent case, we emphasized that this interpretation exempts from duty only the cost of a required scheduled inspection by a qualifying entity. Headquarters Ruling Letter 111328, dated August 7, 1991. If, however, the survey is to ascertain the extent of damage sustained or whether repairs are deemed necessary, then the costs are dutiable as part of the repairs that are accomplished. C.I.E. 429/61; C.S.D. 79-2, 13 Cust. B. & Dec. 993 (1979); C.S.D. 79-277, 13 Cust. B. & Dec. 1395, 1396 (1979). In the liquidation process, Customs should look beyond the mere labels of "continuous" or "ongoing" before deciding whether the item is dutiable. If an inspection or a survey is conducted as a part of a maintenance and repair program labelled "continuous" or "ongoing," the cost of such survey is dutiable if it is in fact repair related. The Petitioner seeks relief for the cost of certain inspections where no repairs resulted from the inspections. In some instances, gaskets, seals, or other packing materials were destroyed when areas were opened for inspection. The Customs Service has held that inspections not resulting in repairs are not dutiable. Headquarters Ruling Letter 110395, dated September 7, 1989; see American Viking Corp. v. United States, 37 Cust. Ct. 237, 247, C.D. 1830 (1956). Further, the Customs Service has held that articles necessarily destroyed in the course of opening an area for inspection may be replaced without duty consequences. Headquarters Ruling Letter 109349, dated July 15, 1988; American Viking Corp., 37 Cust. Ct. at 247. We have reviewed the items for which the Petitioner seeks relief. We find no repairs related to the following operations and the costs of such operations are not subject to duty: Lloyd Werft Invoice 0-161, Item 22, Rudder Pintle Clearance. Lloyd Werft Invoice 0-161, Item 23, Rudder Stock/Pintle Nut Clearance. Lloyd Werft Invoice 0-161, Item 167, Main Engine Oil Mist Detector Inspection. The following items, however, are repair related. The shipyard costs associated with such inspection are subject to duty, but the costs of the ABS surveys are not subject to duty: Lloyd Werft Invoice 0-161, Item 25, Anchor Chain Inspection. Lloyd Werft Invoice 0-161, Item 26, Chain Locker Inspection. Lloyd Werft Invoice 0-161, Item 27, Sea Valve Inspection. Lloyd Werft Invoice 0-186, Item 39, Tailshaft Inspection. HOLDING: The shipyard costs associated with inspections carried out by qualifying inspection entities are not subject to duty under 19 U.S.C. 1466 when the inspections do not result in repairs. Further, the cost of replacing articles that were destroyed in the course of opening an area for inspection may be replaced without duty consequences. The petition for review is granted in part and denied in part. Sincerely, Acting Chief Carrier Rulings Branch