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HQ 110564


June 1, 1990

VES-13-18-CO:R:P:C 110564 BEW

CATEGORY: CARRIER

Deputy Assistant Regional Commissioner
Commercial Operations Division
ATTN: Regional Vessel Repair Liquidation Unit New Orleans, Louisiana 70130

RE: Norfolk, Virginia, Vessel Repair Entry No. C14-0015731-4 dated June 19, 1989, M/V GUS W. DARNELL, Voyage 49

Dear Sir:

This is in reference to an application for relief from duties filed by Ocean Ships, Inc., in relation to the above referenced vessel repair entry dated June 19, 1989. The vessel arrived at the port of Norfolk, Virginia, on June 17, 1989.

FACTS:

The applicant's attorney claims that relief for the subject items should be granted because the vessel departed the United States at Charleston, South Carolina on October 30, 1985; that the vessel was outside the United States for more than two years, therefore, pursuant to Section 4.14(a)(2)(iii)(A) of the Customs Regulations, only the purchases and repairs made during the first six months after the vessel departure are subject to duty. She further claims that the subject items are modifications, cleaning operations and inspections which are not dutiable.

The vessel's log shows that at 1:00 a.m. on October 25, 1985, the vessel was at sea enroute to the Virgin Islands. A review of the CF 226 and other documents reveals that in a very short time thereafter, repairs began on the vessel and continued in a steady manner throughout May 1986. This raises a question as to whether the vessel left the United States with the sole intent of being repaired foreign. Before making your final decision on the application, please have the Liquidation Unit obtain evidence concerning the specific use of the vessel while she was foreign, as well as the dates of service. Section 4.14(a)(2)(iii)(B) of the Customs Regulations states that the provisions of section 4.14(a)(2)(iii)(A) do not apply to a vessel designed and used primarily for transporting passengers or property if such vessel departed the U.S. for the sole purpose of obtaining equipment, parts, materials, or repairs (see 19 U.S.C. 1466(e)(1) and 1466(e)(2)).

The entire vessel repair entry involves a potential duty of $82,058.55.

You have referred a total of 4 items to us for our review and comments. The record shows that the shipyard work in question was performed on the subject vessel at the Malta Drydocks, shipyard in Valletta, Malta, during the period December 18 through December 23, 1985. We will refer to the work using the item numbers and invoice descriptions shown on the invoices submitted with your memorandum.

ISSUE:

Whether the evidence as presented is sufficient to show that the items claimed are duty-free under the terms of the statute.

LAW AND ANALYSIS:

Title 19, United States Code, Section 1466, provides, in pertinent part, for payment of duty in the amount of 50 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.

A leading case in the interpretation and application of section 1466 is United States v. Admiral Oriental Line et al., 18 C.C.P.A. 137 (T.D. 44359 (1930)). That case distinguished between equipment and repairs on one hand and permanent additions to the hull and fittings on the other, the former being subject to duty under section 1466.

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. To be found non-dutiable as a modification/alterations/additions, 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. After reviewing the record, we consider the work done under the following item to be in the nature of non-dutiable modifications/alterations/additions to the hull and fittings rather than dutiable repairs to the vessel due to damage or deterioration:

Item 102 - 3. Diesel oil service and storage tanks.

Item No. 501 - 6. SULZER main engine - 5 RTA 76, and

Our review of the invoice and the ABS report reveals that there was a fracture in the fuel oil service tank, and that there was a crack in the fourth bottom tank tube of the gas economizer. Because the cost of the work relating to the non-dutiable modifications is not segregated from the repairs, the following items are dutiable repairs, except for the cost of staging:

Item 101 - 2. Fuel oil service tanks, and

Item 500 - 5. Exhaust gas economizer.

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 holdings in C.I.E. 429/61, C.S.D. 79-2, and C.S.D. 79-277.

With regard to the surveys listed on ABS invoice Nos. 800581, we find them to be nondutiable with the exception of the following:

Repairs & Modifications
Repairs on Emergency Fire Pump Motor
Repairs & Additional Stiffening to Exhaust Gas Economizer.

HOLDING:

The foreign repair work for which the applicant seeks relief is dutiable under 19 U.S.C. 1466 with the exception of those items noted above.

Sincerely,

B. James Fritz

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