Vessel Repair; Spare Parts; Rehabilitated Parts; Consumption Entry; 19 U.S.C. 1466(h).

HQ 112466 March 3, 1993 VES-13-18 CO:R:IT:C 112466 JBW CATEGORY: Carriers Mr. Stephen F. Schmidt Senior Vice President Marine Operations/Engineering American President Lines, Ltd. 1111 Broadway Oakland, CA 94607 RE: Vessel Repair; Spare Parts; Rehabilitated Parts; Consumption Entry; 19 U.S.C. 1466(h). Dear Sir: This letter is in response to your request for a ruling on the appropriate customs duty treatment of vessel parts of foreign manufacture that are repaired in foreign countries. FACTS: In your letter, you state that on occasion your operations require the repair or rehabilitation of foreign built equipment or parts on American President Lines ships. In such cases, the equipment or parts are returned to the foreign manufacturer or to foreign repair facilities to accomplish the repairs. The equipment or parts are then returned to the United States where a consumption entry is made and duty is paid under the Harmonized Tariff Schedule of the United States (HTSUS). The equipment or parts are then warehoused for distribution to ships around the world as needed. ISSUE: Whether vessel equipment or parts that are repaired or rehabilitated outside of the United States are subject to duty under 19 U.S.C. 1466 if the equipment or parts had been imported duty-paid into the United States following such repair prior to their foreign reinstallation. 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 vessel repair statute exempts from duty spare repair parts or materials that have entered the United States duty-paid and are used aboard a cargo vessel engaged in foreign or coasting trade. 19 U.S.C. 1466(h)(2). However, this latter provision applies only to entries made on or after August 20, 1990, and before December 31, 1992. Customs and Trade Act of 1990, 484E(b), Pub. L. No. 101-382, 104 Stat. 709-10 (1990). The Customs Service has held that spare parts purchased for a United States-flag cargo vessel during a foreign voyage are exempt from vessel repair duty under 19 U.S.C. 1466(h)(2) if duty is paid on those parts under the appropriate HTSUS commodity classification "at the time of their first entry into the United States" on board that vessel, provided that the parts are not installed on that vessel. Headquarters Ruling Letter 111474, dated March 6, 1991. This office has stressed that spare parts and materials of foreign origin were not meant to benefit from nor will they be permitted to benefit from the duty exemption under section 1466(h)(2) unless they are landed and regularly entered as merchandise at the HTSUS rates of duty prior to their foreign installation. See Headquarters Letter 111665, dated May 2, 1991. The statute does not distinguish between new or used parts. See 19 U.S.C. 1466(h)(2). From this discussion, we conclude that equipment or parts that are repaired or rehabilitated outside of the United States are not subject to duty under 19 U.S.C. 1466 upon installation if the equipment or parts had previously been imported duty-paid into the United States. To be eligible for this treatment, the equipment or parts that are imported under the HTSUS must be transported on a vessel other than one owned or operated by American President Lines, for carriage by a company-owned vessel would be construed to be the purchase or repair of a vessel spare. The purchase or repair of ship's spares, other than the ship's original complement of spares as established by contract or by warranty, is subject to duty under 19 U.S.C. 1466. See Sea-Land Service Inc. v. U.S., 683 F. Supp. 1404, 1409 (CIT 1988). HOLDING: Equipment or parts that are repaired or rehabilitated outside of the United States are not subject to duty under 19 U.S.C. 1466 upon installation if the equipment or parts had been entered as merchandise following such repair at the HTSUS rates of duty prior to their foreign reinstallation. This holding applies only to such equipment or parts entered between August 20, 1990, and December 31, 1992. Sincerely, Acting Chief