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HQ 110461


June 14, 1990

VES-13-18 CO:R:P:C 110461 BEW

CATEGORY: CARRIER

Chief, Technical Assistant
Pacific Region
Commercial Operations
One World Trade Center
Long Beach, California 90853

RE: Petition for Review on Valdez Vessel Repair Entry No. C31- 0005003-9 dated 5/31/88, SS ARCO CALIFORNIA V-CF-157

Dear Sir:

This is in reference to a transmittal from your office which forwards a petition for relief filed by ARCO Marine Inc., on a partial denial of an application for relief for duties assessed on repairs made to the SS ARCO CALIFORNIA V-CF-157.

FACTS:

The petitioner's request for review centers primarily on the cost for repairs on Sasebo Heavy Industries Co., Ltd., invoice number 3S-0369, item No. 102 - Hull Treatment and Painting; item No. 008 - Inspection and Repair Record; and the American Bureau of Shipping invoice No. 70933 - Drydock Survey made to the subject vessel at the Sasebo Heavy Industries Co., LTD., shipyard in Nagasaki-Ken, Japan, during the period of May 3 through May 20, 1988, alleged to be inspections and cleaning and modifications/alterations/additions to the hull and fittings, and items which are non-dutiable under the provisions of 19 U.S.C. 1466.

The original ruling held that the repairs performed in Item 102 constitutes cleaning in preparation of painting, and as such the cost of this work is dutiable.

In addition, the ruling held that the work performed in certain items was for the purpose of improving the operation of the vessel, and that some of the work is permanent modifications to the hull and fittings. However, in each instance, certain repairs had to be made prior to the installation of the modifications/alterations/additions. These repairs were made due to damage and deterioration of the vessel. The invoice segregated the repair cost from the modification cost. Accordingly, the cost of the repairs was held to be dutiable and the cost of the modifications was held to be non-dutiable.

The petitioner makes the following allegations:

1. That the cost of anti-fouling coating does not include or require hull cleaning as it is applied over a fresh coat of anti-corrosive. The anti-fouling coating does not have any substance of a protective or preservative quality in respect to the steel hull of the vessel. It claims that the purpose of the anti-fouling is to act against animal and plant fouling of the bottom thus assisting with speed of the vessel as well as with fuel savings.

2. That the inspection cost and repair cost were separated on the invoice, and that under the provisions of C.S.D. 79-277 a survey undertaken to meet specific requirements of a government entity, classification society, insurance carrier, etc., is not dutiable even when dutiable repairs are effected as a result thereof. It claims that the inspection records were a part of the ABS AND USGS surveys and inspections.

3. That the drydocking survey is in the nature of a periodic survey therefore its cost should be considered non-dutiable.

ISSUE:

Whether sufficient evidence is presented to establish that the subject repairs are modifications, inspections and or surveys which are remissible under the vessel repair statute (19 U.S.C. 1466).

LAW AND ANALYSIS:

Title 19, United States Code, section 1466, provides in part for payment of an ad valorem duty of 50 percent of the cost of foreign repairs to vessels documented under the laws of the United States to engage in the foreign or coastwise trade. Section 1466 (d)(1) provides that the Secretary of the Treasury is authorized to remit or refund such duties if the owner or master of the vessel was compelled by stress of weather or other casualty to put into such foreign port to make repairs to secure the safety and seaworthiness of the vessel to enable her to reach her port of destination.

In its application of the vessel repair statute (19 U.S.C. 1466), Customs has consistently held that modifications/altera- tions/additions to the hull and fittings of a vessel which allow the vessel to operate more efficiently are not subject to vessel repair duties. Alterations to the hull and fittings of vessels are not within the purview of section 1466, and the cost of the work is not subject to duty. An article must be permanently attached to the vessel and it most be essential to the successful operation of the vessel (see Otte v. United States, 7 C.C.P.A. 166 (1916), and United States v. Richard & Co., 8 Ct. Cust. App. 231, T. D. 37496 (1917). To be found non-dutiable as a modification/alteration/addition, the work must involve no element of repair due to damages, deterioration or wear and tear. If those are present, the work will be considered a repair and dutiable.

A review of item 102 - Hull Treatment and Painting reveals that the hull was cleaned in preparation for painting. Petitioner alleges that the cleaning was done in preparation for the anti-corrosive painting, and not for the anti-fouling paint. It claims that the anti-fouling paint is not a preservative coating, but is applied over the anti-corrosive coating as a protective coating to protect the vessel's hull from animal and plant growth. Pursuant to C.I.E. 125/48, cleaning in preparation for painting is dutiable. In addition, C.I.E 518/63 held that in applying a protective and preservative coating to a vessel's tanks, the charges for labor for erection and use of equipment, the cleaning incidental thereto, and materials used, all in connection with such repairs are dutiable as repairs. Pursuant to C.D. 1430 (41 CCPA 57, C.A.D. 529), painting that is strictly ornamental and in no sense performed for the preservation of the vessel, cannot be considered "maintenance painting". Since the anti- fouling painting is not strictly ornamental, we conclude that the anti-fouling coating is "maintenance painting", and as such is dutiable. Accordingly, the petition is denied as to item 102.

A review of the invoice reveals that item 008 - inspection and repair record contains a breakdown of the inspection cost and the repair cost.

Customs has held that where periodic surveys are undertaken to meet the specific requirements of a classification society, insurance carrier, etc., the cost of the surveys is not dutiable even when dutiable repairs are effected as a result thereof; however, in the liquidation process Customs should go beyond the mere labels of "continuous" or "ongoing" before deciding whether the item is dutiable. If an inspection or survey is conducted as a part of an ongoing maintenance and repair program labelled "continuous" or "ongoing" the cost is dutiable. Also, if the survey is to ascertain the extent of damage sustained, or to ascertain if the work is adequately completed, the costs are dutiable as part of the repairs which are accomplished pursuant to the holdings in C.I.E. 429/61, C.S.D. 79-2, and C.S.D. 79- 277.

Where a survey is undertaken to meet the specific requirements of a governmental entity, classification society, insurance carrier, etc., the cost is not dutiable (see CSD 79- 277). However, C.I.E. 429/61 held among other things, that when inspections in the nature of surveys disclose items which result in the repairs, the charges therefor are dutiable as a part of the costs of repairs.

A review of the subject invoice reveals that the inspection cost and the repair cost is separated. However, the inspection cost for those items which were repaired is not separated from those items where only inspections were made. Customs has consistently held that where the charges for dutiable and no-dutiable items are not segregated within an invoice, all of the charges in that invoice must be deemed dutiable. Pursuant to C.I.E. 1325/58 and C.I.E. 565/55, duties may not be remitted where the invoice does not segregated the dutiable costs from the non-dutiable costs. Accordingly, item 008 is dutiable. The petition is denied as to item 008.

A review of the ABS drydocking survey reveals that during the course of the drydocking operation, the vessel's five (5) blade nickel aluminum bronze propeller was examined and found in satisfactory condition upon completion of repairs to blades by straightening bent edges and welding up eroded surface of the blades. Accordingly, the drydocking survey is dutiable. The petition is denied as to this survey.

HOLDING:

Based on the foregoing, the petition is denied as set forth above.

Sincerely,

Stuart P. Seidel

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