Vessel Repair Entry No. C53-0035005-1; FAIRBANKS; V-1B; Protest No. 5301-07-100457

HQ H022826 July 2, 2008 VES-13-18:RR:BSTC:CCI H022826 CK CATEGORY: Carriers Supervisory Import Specialist Vessel Repair Unit U.S. Customs and Border Protection 1515 Poydras Street, Suite 1700 New Orleans, Louisiana 70112 RE: Vessel Repair Entry No. C53-0035005-1; FAIRBANKS; V-1B; Protest No. 5301-07-100457 Dear Sir: This is in response to your memorandum of January 25, 2008. The memorandum forwards an application for further review of a protest filed by Fairbanks Trading, Inc. seeking relief for duties assessed pursuant to 19 U.S.C. § 1466. You have asked us to review numerous items listed in your memorandum. Our ruling follows. FACTS: The FAIRBANKS (the “vessel”), a U.S.-flag vessel owned by the protestant, incurred foreign shipyard costs. The vessel arrived in the port of Galveston, TX on August 5, 1999. A vessel repair entry and application for relief were timely filed, however, the petition for review was denied as it was untimely filed. The entry was liquidated on May 18, 2007, and the subject protest was timely filed on August 16, 2007. ISSUE: Whether the costs for which the protestant seeks relief are dutiable under 19 U.S.C. § 1466. LAW AND ANALYSIS: Title 19, United States Code, section 1466(a) provides in pertinent part for the payment of an ad valorem duty of 50 percent of the cost of “. . . equipments, or any part thereof, including boats, purchased for, or the repair parts or materials to be used, or the expenses of repairs made in a foreign country upon a vessel documented under the laws of the United States . . . “ 19 U.S.C. 1466(h)(3) provides: The duty imposed by section (a) of this section shall not apply to - ... (3) the cost of spare parts necessarily installed before the first entry into the United states, but only if duty is paid under appropriate commodity classifications of the Harmonized Tariff Schedules of the United States upon first entry into the United States of each such spare part purchased in, or imported from, a foreign country. For the purpose of 19 U.S.C. 1466(h), we have defined a “part” as follows: A part is determined to be something which does not lose its essential character or its identity as a distinct entity but which, like materials, is incorporated into a larger whole. It would be possible to disassemble an apparatus and still be able to identify a part. The term part does not mean part of a vessel, which practically speaking would encompass all elements necessary for a vessel to operate in its designed trade. Examples of parts as defined are seen in such items as piston rings and pre-formed gaskets, as opposed to gaskets which are cut at the work site from gasket material. For purposes of title 19 U.S.C. §1466, the term materials is determined to mean something which is consumed in the course of its use, and or loses its identity as a distinct entity when incorporated into the larger whole. Some examples of materials as defined are seen in such items as a container of paint which is applied to vessel surfaces, and sheets of steel which are incorporated into the hull and superstructure of a vessel. For purposes of title 19 U.S.C. §1466, the term equipment is defined as something that constitutes an operating entity unto itself. Equipment retains at least the potential for portability. Equipment may be affixed to a vessel in a non-permanent fashion, such as by means of bolts or other temporary methods, which is a feature distinguishing it from being considered an integrated portion of the hull and superstructure of a vessel. Examples of equipment as defined are seen in such items as winches and generators. Exhibit 1, Line item 5: This exhibit consists of an invoice from Sea-Land Automation PTE LTD. of Singapore, dated June 28, 1999. Line item 5 states “To supply and install 3 units flow control valve.” We find that the valves are parts because they are not separate operating entities, instead they are parts of the larger hydraulic system. These parts were entered on a Customs and Border Protection Form (“CBPF” 7501) and they are entitled to relief from the duties under 19 U.S.C. §1466. Exhibit 1, Line items 6.4-6.6: These line items are conceded dutiable parts. The rate of duty to be assessed on these parts is the rate in effect at the time of the vessel’s arrival in the United States, which in this case is August 5, 1999. Exhibit 1, Line item 6.7: This line item is for 2 packages of sealing compounds. This item is a material as defined above. Relief under 1466(h)(3) cannot be given for material so relief must be denied. Exhibit 2, Line items 6.4-6.8: This exhibit consists of an invoice from Sea-Land Automation PTE. LTD. of Singapore, dated June 19, 1999. Five items are in dispute, and include: pilot check ball and spring c/w push rod; cable glands; pilot check valve lock nut to machine new.; and ¼” NC x 3” length cap screw/spring washer. We agree with the VRU and protestant that these items are parts. The issue for this exhibit is the classification of the parts and the corresponding duty rate. The VRU classified each part and supplied the corresponding duty rate. Protestant argues that all parts are dutiable at 1.6% but does not classify each part in the Harmonized Tariff Schedule of the United States (HTSUS). As protestant has not supplied alternate classifications, but instead argues duty rate for the parts at issue, the VRU’s classification will stand and protestant’s claim is denied. Exhibit 2, Line item 6.10: This line item is for one roll of 1.5 mm paper gasket. We agree with the VRU that the roll of paper gasket is a material and thus no relief under section 1466(h)(3) can be granted. Exhibit 6, Line item 4: This exhibit consists of an invoice from Electrocatalytic(s) PTE LTD. of Singapore, dated June 24, 1999. The line item consists of 54 pieces of “O” rings. These items are parts. The VRU classified the parts and protestant simply argues the parts are dutiable at 1.6% rather than stating its alternate classification. The parts remain classified according to the VRU and are dutiable at the rate in effect when the vessel arrived on August 5, 1999. Exhibit 17, Line items 1 and 2: This exhibit consists of an invoice from Anchor Marine Supplies PTE LTD., dated June 17, 1999. The two parts are described as one upper block model 6091 and a lower block model 6081-H. The items were determined to be equipment. However, protestant claims the items are the blocks with shackles and bushings rather than a complete engine unit. Based on the descriptions on the invoice we agree that the items at issue are parts of the larger crane, and were installed before the first arrival in the United States. The parts have been classified on a CBPF 7501, thus relief can be granted under 1466(h)(3) and duty assessed at the proper duty rate in effect at the time of arrival of the vessel for that item. Exhibit 55, (1a)-(1b): This exhibit consists of an invoice from Synthesis PTE, LTD. of Singapore, dated June 30, 1999. The two line items are for gaskets. There is no dispute that the gaskets are parts, but protestant has argued that the rate of duty applied is wrong, rather than the classification. However, as no alternative classification is offered, the VRU’s classification and the corresponding duty rate in effect at the time of the vessel’s arrival is the appropriate classification and duty rate and protestant’s claim is denied. Exhibit 55, (1c)-(1h): These line items are for blank plates of steel for use in fabricating pipe. We agree with the VRU that these sheets of steel are materials and are not entitled to relief as parts under 1466(h)(3). Exhibit 55, (2a)-(2d): These line items are for fabricated cylinder racks for oxygen and acetylene. After each rack is a list of all the parts and materials used in assembling the two sets of the racks. There is no cost breakdown for each item used in assembling the racks. Instead the final cost for each fabricated rack is supplied. As such, we agree with the VRU that the racks are equipment and not parts entitled to relief under 1466(h)(3). HOLDING: Accordingly, the costs for which the protestant seeks relief are dutiable or non-dutiable under 19 U.S.C. § 1466 consistent with the analysis above. The protest should be GRANTED-IN-PART and DENIED-IN-PART. In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2002, pp. 18 and 21), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution. Sincerely, Glen E. Vereb Chief Cargo Security, Carriers and Immigration Branch