Vessel Repair; Survey; Inspection; United States-Israel Free Trade Act; Presidential Proclamation 5924; 19 U.S.C. 1466; M/V FALCON PRINCESS, V-48; Entry No. VR-C20-0035773-4.

HQ 112446 March 18, 1993 VES-13-18 CO:R:IT:C 112446 JBW CATEGORY: Carriers Deputy Assistant Regional Commissioner Commercial Operations c/o Regional Commissioner New Orleans, LA 70130-2341 RE: Vessel Repair; Survey; Inspection; United States-Israel Free Trade Act; Presidential Proclamation 5924; 19 U.S.C. 1466; M/V FALCON PRINCESS, V-48; Entry No. VR-C20-0035773-4. Dear Sir: This letter is in response to your memorandum that forwards for our review the petition for relief filed in conjunction with the above-referenced vessel repair entry. FACTS: The record reflects that the subject vessel, the FALCON PRINCESS, arrived at the port of New Orleans, Louisiana, on July 26, 1991. A timely vessel repair entry, number VR-C20-0035773- 4, was filed that indicated that foreign shipyard work was performed. The vessel owner timely filed an application for relief pursuant to an authorized extension of time. The application was allowed in part and denied in part. Specifically denied were costs for certain surveys that the vessel operator contends are not subject to duty. ISSUE: Whether costs of inspections carried out by qualifying inspection entities are subject to duty under 19 U.S.C. 1466. 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. The petitioner, in its application for relief, claimed that certain repair surveys met the exemption requirements under the United States-Israel Free Trade Act, Presidential Proclamation 5924. (Exhibits B(19) and B(20)). Citing the failure of the applicant to submit evidence that demonstrates the citizenship of the inspectors, this office denied this claim. Headquarters Ruling Letter 112063, dated June 8, 1992. The petitioner has now submitted evidence establishing the Israeli citizenship of the surveyors. We therefore agree with your analysis that these costs are not subject to duty. The petitioner also seeks relief for the cost of a survey carried out by the American Bureau of Shipping (ABS) while the ship was en route to Egypt. (Exhibit A(4)). We agree that the petitioner has not provided additional evidence to qualify this survey for duty free treatment under the Presidential Proclamation. Alternatively, the petitioner argues that the survey was undertaken to meet the classification requirements of the ABS. The record shows that the survey was a required Special Periodical Survey Number 4 that was performed pursuant to ABS Rule 45.7.5. The cost of this survey is not subject to duty regardless of whether dutiable repairs were eventually carried out. For this reason, the cost of the ABS survey as appearing in Exhibit A(4) is not subject to duty under 19 U.S.C. 1466. HOLDING: The petitioner has submitted evidence establishing the Israeli citizenship of surveyors for inspections reflected in Exhibits B(19) and B(20); the costs of these surveys are not subject to duty. The survey appearing in Exhibit A(4) was a required Special Periodical Survey Number 4 that was performed pursuant to ABS Rule 45.7.5. The cost of this survey is not subject to duty under 19 U.S.C. 1466. Sincerely, Acting Chief