HQ 0110581 - Protest No. 30019-000985; Vessel Repair Entry No. 110- 0103683-6 dated June 13, 1988; Date of Arrival: June 13, 1988; Port of Arrival: Tacoma, Washington; Vessel: SEA- LAND VOYAGER, Voyage No. 129/130 - United States International Trade Commision Rulings

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HQ 110581

June 4, 1990

VES 13-18 CO:R:P:C 110581 BEW

CATEGORY: CARRIER

Chief, Technical Branch
Pacific Region
One World Trade Center
Long Beach, California 90831

RE: Protest No. 30019-000985; Vessel Repair Entry No. 110- 0103683-6 dated June 13, 1988; Date of Arrival: June 13, 1988; Port of Arrival: Tacoma, Washington; Vessel: SEA- LAND VOYAGER, Voyage No. 129/130

Dear Sir:

Reference is made to your memorandum of September 21, 1989, which forwarded the above-captioned protest from the assessment of vessel repair duties for our determination.

FACTS:

On May 23, 1988, while in Yokohama, Japan,, the vessel SEA- LAND VOYAGER underwent various shipyard operations. The dutiability of these operations has previously been considered by your office. The protestant elected not to file an Application for Relief. The entry was liquidated on June 9, 1989. The protest was timely filed on September 6, 1989. Included in your considerations was the matter of whether the cost associated with the installation of a Item Nos. 7/87-18 - Lube oil to seals, 7/88-21 - Hull frame markings, 7/88-27 - Experimental stack modifications, and 7/88-22 - Video recording, is dutiable under the statute. These are the only items which are presently being protested.

ISSUES:

Whether the installation of the Item Nos. 7/87-18 - Lube oil to seals, 7/88-21 - Hull frame markings, and 7/88-27 - Experimental stack is considered a modification or permanent addition to the hull and fittings of the vessel so as to render the cost nondutiable?

Whether a video recording of the vessel's hull which is used as a survey for a hull frame markings modification, is considered a survey under the provisions of C.S.D. 79-277 so as to render the cost nondutiable?

LAW AND ANALYSIS:

Section 466, Tariff Act of 1930, as amended (19 U.S.C. 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 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 1466.

The Court in Admiral Oriental, supra., cited with approval an opinion of the Attorney General (27 Op. Atty. Gen 228). That opinion interpreted 17 of the Act of June 26, 1884 (23 Stat. 57), which allowed drawback on vessels built in the United States for foreign account, wholly or in part of duty-paid materials. In defining equipment of a vessel, the Attorney General found that items which are not equipment are:
those appliances which are permanently attached to the vessel, and which would remain on board were the vessel to be laid up for a long period...[and] are material[s] used in the construction of the vessel...

While the opinion of the Attorney General interpreted a provision of law other than 1466 or a predecessor thereto, it is considered instructive and has long been cited in Customs Service rulings as defining permanent additions to the hull and fittings of a vessel.

Under long-standing and consistently applied administrative policy, an installation, even one of a permanent nature, is considered to be a dutiable repair rather than a modification if the installation addresses a repair need. Thus, if an area of a
vessel is enhanced by the replacement of one permanent installation with another, the operation is considered dutiable if evidence reveals that a defect or wastage was present in the former installation, which condition was cured by replacement.

In the present case, the protestant claims that the installation of Item Nos. 7/87-18 - Lube oil to seals, 7/88-21 - Hull frame markings, and 7/88-27 - Experimental stack is a design and operational improvement over the old one. It is claimed that these items were not found to be damaged at the time they were replaced, and that the permanent installation of the subject items is to improve the efficiency of the vessel's operation and should be properly considered a non-dutiable modification. In addition, the protestant claims that Item 7/8- 22 - Video recording is a recording of the hull's underwater condition, and is a part of the underwater hull marking modification.

Examination of the entire record, including that portion of the invoice relating to the subject items, reveals that the subject items were installed to enhance the operation of the vessel's efficiency and are permanent installations to the vessel's hull and fittings. Accordingly, we find that the cost associated with Item Nos. 7/87-18, 7/88-21 and 77/88-27 is non- dutiable modifications.

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. The record shows that the video recording was used as a survey for the hull frame markings modification and as such Item No. 7/88-22 - Video recording is a survey in the nature of a periodic survey. Under the circumstances, the cost of the video recording is not subject to duty under 19 U.S.C. 1466.

HOLDING:

In light of our present findings based upon the evidence and as stated in the law and analysis section of this ruling, we find that the installation of Item Nos. 7/87-18, 7/88-21 and 77/88-27 was in the nature of a non-dutiable permanent modification to the hull and fittings of the vessel, and that Item No. 7-88-22 is a survey in the nature of a periodic survey. Accordingly, the protest is allowed and reliquidation is directed.

Sincerely,

B. James Fritz

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