Vessel Repair; Petition; Survey; Inspection; Modification; Dunnage;19 U.S.C. 1466; M/V STRONG TEXAN; Entry No. C15-0012674-8

HQ 112781 November 16, 1993 VES-13-18 CO:R:IT:C 112781 DEC CATEGORY: Carriers Deputy Assistant Regional Commissioner Commercial Operations 423 Canal Street New Orleans, Louisiana 70130-2341 RE: Vessel Repair; Petition; Survey; Inspection; Modification; Dunnage;19 U.S.C. 1466; M/V STRONG TEXAN; Entry No. C15-0012674-8 Dear Sir: This letter is in response to your memorandum dated June 22, 1993, which forwards the petition for review filed in conjunction with the above-referenced vessel repair entry for our review. FACTS: The M/V STRONG TEXAN arrived at the port of Wilmington, North Carolina, on March 4, 1992, and filed a timely vessel repair entry and application for relief. This timely-filed petition for review is in response to Headquarters Ruling 112398 (Mar. 30, 1993) and is challenging the dutiability of the following two items. Application Item Number Invoice/Description 17 Lloyd's Register Invoice #6059052 Required Inspections DH 9900 19 G&H Mortgage Invoice #05053503 Modification DH12000 ISSUE: Whether the cost of the foreign shipyard work completed aboard the M/V STRONG TEXAN is dutiable pursuant to 19 U.S.C. 1466. LAW AND ANALYSIS: Title 19, United States Code, section 1466(a) provides, in pertinent part, for payment of a fifty percent ad valorem duty on the cost of foreign repairs to a vessel documented under United States law to engage in the foreign or coastwise trade, or to a vessel intended to be employed in such trade. -2- INSPECTION COSTS This item represents charges for various surveys/inspections conducted by the vessel's insurer. In the ruling on the application for relief, Customs denied relief from the assessment of vessel repair duty because no documentation establishing that the surveys actually occurred was submitted. Since the vessel operator has submitted the survey reports with its petition, Customs is able to examine whether the assessment of vessel repair duty is appropriate. Customs has consistently held 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." C.S.D. 79-277. It is the cost of these types of surveys that are not dutiable. The repairs carried out that are associated with these surveys are dutiable repairs. Applying these principles to the submitted invoices, Customs finds that the expense of the surveys is not subject to duty. However, the "radiotele renewal" is subject to duty because it is a maintenance repair. MODIFICATION At the application stage, relief from vessel repair duty was denied with respect to the charges associated with the installation of the A-60 bulkhead insulation because it was the position of Customs that this installation did not represent a permanent incorporation into the vessel. The May 14, 1991, facsimile referencing Mr. David Bengtsson's March 6, 1991, letter stated that this item was originally intended to be a permanent installation, however, the purpose for the installation was to carry a limited number of cargoes. Since various parts would have to be removed to carry later cargoes, Mr. Bengtsson asked for approval to use speed clips and chicken-wire covering to install the bulkhead insulation. From this letter, it was deemed that a "permanent incorporation" into the vessel was not intended. Headquarters Decision 112398 (Mar. 30, 1993). In support of the petitioner's claim for relief, counsel cites Headquarters Decision 112211 (Jun. 30, 1992) in which Customs held that a removable grate installed to prevent people from walking on insulation was a non-dutiable modification. Counsel seeks to extend this holding to the temporary installation of the bulkhead insulation. We disagree. In Headquarters Decision 112211, Customs stated that although the metal grate at issue was removable to provide access, it was apparent that the grate was intended to be a permanent part of the vessel. This fact is in sharp contrast to the case at hand. At issue in this petition is the temporary installation of bulkhead -3- installation which is designed for specific and limited cargoes. The use of the speed clips and chicken-wire covering serve to buttress the initial conclusion of Customs that this item is part of the vessel's equipment that is readily removable from the vessel to accommodate the "Heavy-lift Cargoes" rather than a permanent incorporation into the vessel's superstructure. An argument not raised at the application or petition stage is that the bulkhead insulation is dunnage. Duty with respect to dunnage is to be remitted. Dunnage is defined as "loose wood or other material used in a ship's hold for the protection of cargo." R. de Kerchove, International Maritime Dictionary 250 (2ed. 1961); see also, Black's Law Dictionary 451 (5th ed. 1979); Headquarters Decision 103736 (Feb. 14, 1979). Applying this definition to the case at hand, the insulation used for the limited purpose of carrying the explosives for a limited number of voyages is properly classified as dunnage. Title 19, United States Code, section 1466(d)(3) permits remission for equipment, parts, materials, or labor used for the packing or shoring of cargo. The Customs Simplification Act of 1953 added 19 U.S.C. 1466(d)(3) (Section 3115(3), Revised Statutes). The legislative history discloses that the purpose of this provision was to permit installation abroad, without the payment of duty, of facilities on vessels for handling shipments of a type not usually carried and thus enable vessels to secure cargoes for their homeward voyage that they would not otherwise be equipped to handle. C.I.E. 1274/63 (Aug. 13, 1963) citing H. Rep. No. 2174, 82nd Cong., 2d Sess. (1953). Customs finds that the bulkhead insulation installed aboard the M/V STRONG TEXAN is dunnage. Accordingly, the duty assessed on this item is to be remitted. HOLDING: Following a thorough review of the facts in this case as well as an analysis of the law and applicable precedents which bear upon those facts, we have determined that the Petition for Review should be granted in full for the reasons set forth in the Law and Analysis section of this ruling. Sincerely, Arthur P. Schifflin Chief