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HQ 110802


September 21, 1990

VES-13-18 CO:R:P:C 110802 BEW

CATEGORY: CARRIER

Chief, Technical Assistant
Pacific Region
U. S. Customs Service
One World Trade Center
Long Beach, California 90831

RE: Protest No. 312689-000021; M/V EXXON HOUSTON, Voyage No. 09; Vessel Repairs; Modifications; Inspection and Cleaning

Dear Sir:

This is in reference to a memorandum from your office which transmitted protest No. 312689-000021, relating to vessel repair entry No. C320005005, concerning the M/V EXXON HOUSTON, Voyage Nos. 09, which arrived at the port of Valdez, Alaska, on July 4, 1988. The entry was filed on July 4, 1988.

FACTS:

In June 1988, while in Ulsan, Korea, the vessel EXXON HOUSTON underwent various shipyard operations. The dutiability of these operations has previously been considered by your office. The protestant file an Application for Relief which was denied on August 30, 1989, on the basis of procedural and substantive defect. The entry was liquidated on October 13, 1989. The protest was timely filed on October 25, 1989. Included in your considerations was the matter of whether the cost associated with the installation of the following items is dutiable under the statute:

Item 25 Aft Peak tank

Item 30 Lifeboats

Item 160 Wake Improvement

Item 192 Incinerator

Lips Invoice No. 100504 - Wake Improvement Duct

These are the only items which are presently being protested.

ISSUES:

Whether certain work performed in a foreign country constitutes modifications/alterations/additions to the hull and fittings rather than equipment purchases or repairs within the meaning of 19 U.S.C. 1466?

Whether certain other work performed in a foreign country constitutes inspections and cleaning rather than repairs within the meaning of 19 U.S.c. 1466?

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 the subject items 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.

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 certain items is non-dutiable. The following items are non-dutiable modifications to the vessel's hull and fittings:

Item 160 Wake Improvement

Item 192 Incinerator

Lips Invoice No. 100504 - Wake Improvement duct

In Headquarters ruling 106543 JM, we held that mere cleaning operations are not dutiable. However, cleaning operations which remove rust and deterioration or worn parts, and which are a necessary factor in the effective restoration of a vessel to its former state of preservation, constitute vessel repairs (See C.I.E. 429/61).

The Hyundai invoice reveals that the aft peak tank was inspected and cleaned. The tank was hosed down with high pressure water hose and then scaled of the badly rusted areas. There is no evidence of repairs. The cost for inspection and cleaning operations absent repairs is non-dutiable. Accordingly, the cost associated with Item 25 is non-dutiable. The protest is granted as to Item 25 - Aft Peak tank.

The Hyundai invoice reveals that the davits were removed from the lifeboats and the lifeboats were move to a safe stowage area in the shipyard. The davits were disassemble, blasted and coated with Exxon paint. All rollers and pulleys on the davits and all releasing gear in the boats were freed up and greased. The bearings and sheave pins were renewed where necessary. The life boats were restored in the davits. The invoice summary shows the costs for this item to be $800 for transportation, $2,633 for inspection and testing and $500 for repairs and coating. Since repairs were done to the davits, the costs associated with the inspection and cleaning and the repairs in item 30 are dutiable. The transportation cost associated with this item is non-dutiable. The protest is denied in part as to Item 30 Lifeboats (2) Davits.

The protest is granted in part and denied in part as set forth in the findings above.

HOLDINGS:

1. In light of our present findings based upon the evidence as stated in the law and analysis section of this ruling, we find that the installation of Items 160, 192, and the Wake improvement duct listed on Lips Invoice No. 100504 was in the nature of a non-dutiable permanent modification to the hull and fittings of the vessel. The said items constitute modifications/alterations/additions to the hull and fittings rather than repairs. As such, the cost of this work in not dutiable under 19 U.S.C. 1466. The protest is granted as to these items.

2. The cost associated with the inspection and cleaning of item 25 - Aft Peak Tank is not subject to duty under 19 U.S.C. 1466. The protest is granted as to Item 25.

3. Repairs were accomplished as a part of the installation of Item 30 - Life Boat (2) Davits. The cost associated with the repairs and the inspection and cleaning of this item is subject to duty under 19 U.S.C. 1466. The protest is denied as to Item 30, with the exception of the transportation cost.

Sincerely,

B. James Fritz

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