HQ 0110803 - Protest No. 312689-000020; ARCO SAG RIVER, Voyage No. CF- 377; Vessel Repairs; Modifications; Administrative and Clerical Services; Inspection Records; Inspection and Cleaning - United States International Trade Commision Rulings

United States International Trade Commision Rulings And Harmonized Tariff Schedule

faqs.org Rulings By Number Rulings By Category Tariff Numbers

faqs.org > Rulings and Tariffs Home > Rulings By Number > 1991 HQ Rulings > HQ 0110362 - HQ 0110803 > HQ 0110803

HQ 110803

October 9, 1990

VES-13-18 CO:R:P:C 110803 BEW

CATEGORY: CARRIER

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

RE: Protest No. 312689-000020; ARCO SAG RIVER, Voyage No. CF- 377; Vessel Repairs; Modifications; Administrative and Clerical Services; Inspection Records; Inspection and Cleaning

Dear Sir:

This is in reference to a memorandum from your office which transmitted protest No. 312689-000020, relating to vessel repair entry No. C31-0005006-2, concerning the ARCO SAG RIVER, Voyage No. CF-377, which arrived at the port of Valdez, Alaska, on July 8, 1988. The entry was filed on July 8, 1988.

FACTS:

In June 1988, while in Ulsan, Korea, the vessel ARCO SAG RIVER 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 6, 1989. The protest was timely filed on October 26, 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 008 Inspection records
Item 108 Rudder Stock
Item 201 P/S boilers
Item 406 Electrical locker
Item 408 Pump room
Item 414 Trolley beam
Item 416 Salt water supply
Item 811 Cargo pipe systems
Item 901 Steam winches
Item 904 I.G.S.
ABS Survey Invoice No. 612234 - modifications

These are the only items which are presently being protested.

ISSUE:

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?

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 several of 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.

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). We note that cleaning and inspections were performed on several of the subject items. Some of these operations were done in conjunction with the installation of the subject modifications.

Accordingly, we find that the following items are non- dutiable modifications to the vessel's hull and fittings:

Item 406 Electrical locker
Item 408 Pump room
Item 414 Trolley beam
Item 416 Salt water supply
Item 811 Cargo pipe systems
Item 901 Steam winches
Item 904 I.G.S.

The protest is granted as to the above cited items.

With regard to Item 108 Rudder Stock and Pintle the Hyundai invoice reveals that in addition to the fairwater and rudder modifications, cleaning and inspections were done for the purpose of applying coating. The cost for cleaning, inspection and coating associated with the modifications are not segregated from the costs for cleaning, inspection and coating relating to the repairs made to the rudder. Pursuant to C.I.E. 1325/58 and C.I.E. 565/55, duties may not be remitted where the invoice does not segregate the dutiable costs from the non-dutiable costs. Accordingly, the cost of the modification associated with Item 108 is non-dutiable. Inasmuch as the costs for cleaning, testing and coating associated with this item is not segregated, these items of cost are dutiable. The protest is granted in part and denied in part as to Item 108.

The Hyundai invoice reveals that refractory repairs and miscellaneous repairs were performed in item 201 Port and Starboard Boilers' Fire Sides Cleaning and Refractory. Since repairs were done, the costs associated with this item are dutiable, with the exception of staging, lighting and transportation. The protest is granted in part and denied in part as to Item 201.

With regard to Item 008 Inspection Records. Inasmuch as the dutiable status of expenses such as these has never been determined by either the courts or Customs, we find them to be analogous to the costs of drydocking and general services (which are non-dutiable pursuant to C.I.E. 1188/60) in that they are not part of the actual repair work done. Accordingly, the cost associated with Item 008 Inspection records is non-dutiable. The protest is granted as to this item.

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. Accordingly, the cost of the ABS survey for modifications is a non-dutiable expense. The protest is granted as to this item.

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 Item 406 Electrical locker, Item 408 Pump room, Item 414 Trolley beam, Item 416 Salt water supply, Item 811 Cargo pipe systems, Item 901 Steam winches, and Item 904 I.G.S. 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 installation cost associated with the modification performed in Item 108 Rudder Stock is non-dutiable. Since the petitioner has not submitted sufficient evidence to sustain a finding of non-dutiabilty based on segregation of the dutiable from the non-dutiable costs, the costs for cleaning, testing and coating for this item are dutiable. The protest is granted in part and denied in part.

2. Repairs were accomplished as a part of the installation of Item 102. The cost associated with the repairs with the exception of staging, lighting and transportation performed in this item is subject to duty under 19 U.S.C. 1466. The protest is denied in part and granted in part.

3. The cost associated with Item 008 Inspection Records is not subject to duty under 19 U.S.C. 1466. The protest is granted as to Item 008.

4. The cost associated with the ABS Invoice No. 612234 - Survey for modifications is non-dutiable. The protest is granted as to cost for modifications listed on this invoice.

Sincerely,

Stuart P. Seidel

Previous Ruling Next Ruling