HQ 0111268 - Vessel Repair; Modification; Improvement; ARCO PRUDHOE BAY; Petition for Review; Vessel Repair Entry No. C31-0005014-6; 19 U.S.C. 1466; 19 C.F.R. 4.14. - United States International Trade Commision Rulings

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HQ 111268

November 20, 1990

VES-13-18 CO:R:P:C 111268 JBW

CATEGORY: CARRIER

Chief, Technical Branch
Commercial Operations
Pacific Region
1 World Trade Center
Long Beach, CA 90831

RE: Vessel Repair; Modification; Improvement; ARCO PRUDHOE BAY; Petition for Review; Vessel Repair Entry No. C31-0005014-6; 19 U.S.C. 1466; 19 C.F.R. 4.14.

Dear Sir:

This letter is in response to your memorandum of August 13, 1990, which forwards for our review and ruling the above referenced petition for review from the assessment of vessel repair duties.

FACTS:

The record reflects that the subject vessel, the ARCO PRUDHOE BAY, arrived in the port of Valdez, Alaska, on August 19, 1989. Vessel repair entry, number C31-0005014-6, was filed on the same day as arrival and indicated foreign shipyard work performed on the vessel while in Korea and Singapore.

The Customs Service first addressed the dutiablity of the work in Headquarters Ruling Letter 110862, dated May 14, 1990. In that ruling, we held to be dutiable the cost of the work performed to install container sockets, invoice 8430, to remove the eductor discharge pipe, invoice 8813, and to remove and replace the inert gas system mast riser, invoice 8902. The vessel owner, by its agent, filed its petition for review on July 21, 1990. The vessel owner, in its petition, objects to the assessment of duty against the cost of this work.

ISSUE:

Whether the work performed in a foreign country on the subject vessel is dutiable under 19 U.S.C. 1466 (1988).

LAW AND ANALYSIS:

Title 19, United States Code, section 1466, provides 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.

The Customs Service, in its interpretation of 19 U.S.C. 1466 and in accord with the logic established in United States v. Admiral Oriental Line, 18 C.C.P.A. 137 (1930), distinguishes between equipment and repairs on the one hand and permanent additions to the hull and fittings on the other. The court in Admiral Oriental cited with approval an opinion of the Attorney General (27 Op. Atty. Gen. 288) that defined the scope of the term equipment in examining a statute that permitted drawback on vessels built in the United States for foreign account, wholly or in part of duty-paid materials. The Attorney General found that items that 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....

Admiral Oriental, 18 C.C.P.A. at 140 (quoting the opinion of the Attorney General).

For purposes of section 1466, dutiable equipment has been defined as:
portable articles necessary or appropriate for the navigation, operation, or maintenance of a vessel, but not permanently incorporated in or permanently attached to its hull or propelling machinery, and not constituting consumable supplies.

T.D. 34150, 26 Treas. Dec. 183, 184 (1914)(quoted with approval in Admiral Oriental).

Customs has held that for an item to be characterized as a nondutiable modification, it must encompass the installation of an item as a new design feature, not as a replacement for, or restoration of, parts now performing a similar function. Further, we have held that the removal of an existing, operational system for the purpose of improving the efficient performance of the vessel is not dutiable provided that the work was not performed in conjunction with dutiable repairs. Headquarters Ruling Letter 109971, dated June 12, 1989. The decision in each case as to whether an installation constitutes a nondutiable addition to the hull and fittings of the vessel depends to a great extent on the detail and accuracy of the drawings and invoice descriptions of the actual work performed. Even if an article is considered to be part of the hull and fittings of a vessel, the repair of that article, or the replacement of a worn part of the hull and fittings, is subject to vessel repair duties.

In ruling on the application for relief, we determined that the installation of the container sockets was made as a repair to these items. Our reason for reaching this conclusion was a statement in the invoice: "upon completion of repair all damaged coating per Item #007." The underlined word of suggested that the installation was made as part of a repair. In its petition, the vessel owner submits its work order in which it demonstrates that the word of should not have been included in the invoice. In other words, the work invoice called for the installation of new container sockets, and the areas damaged as part of this alteration were to be coated or painted. We have held that painting new sections and other additions of the vessel is an integral part of the cost of the alterations and is not subject to the duty imposed by the vessel repair statute. See C.I.E. 1043/60. The installation of the container sockets is in the nature of an addition of a new design feature and is consequently a nondutiable alteration. The painting of areas damaged as part of the alteration are also not dutiable.

The petitioner likewise claims that the removal of the existing inert gas system mast riser to install an improved mast riser is nondutiable as a modification. In ruling on the application, we stated that the invoice did not demonstrate that the mast riser was a new design feature or improvement. As part of the petition, the vessel owner submits a letter from a naval architect who explains that the purpose of the replacement was to install a mist eliminator as a safety improvement. Extensive drawings are submitted to demonstrate the extent of the alteration. Upon examination of the new evidence submitted, we conclude that the installation of the inert gas system mast riser is a nondutiable modification.

Finally, the petitioner challenges the assessment of duty against the cost of removing and capping the eductor discharge pipe. We ruled that the cost of removing the pipe was dutiable, for this operation was related to dutiable repairs performed in the pump room (invoice 8808). The petitioner counters by stating that the removal of the eductor discharge pipe was simply the removal of an obsolete item that is unrelated to the repairs in the pump room. While we acknowledge that the removal of the eductor discharge pipe may be unrelated to the repairs in the pump room, the petitioner fails to describe the reason for the removal of the pipe. That the eductor discharge pipe became obsolete suggests that another item has assumed its function or that a related item was changed to render its use obsolete. Without further explanation, we cannot determine whether the removal of the eductor discharge pipe was repair related. We conclude, therefore, that the cost of removing and capping the eductor discharge pipe is dutiable.

HOLDING:

The cost of installing the container sockets and removing and installing an improved inert gas system mast riser is not dutiable, for these operations are in the nature of a modification or alteration to the hull or fittings of the ship. However, the cost of removing the eductor discharge pipe is dutiable, for the petitioner has not adequately explained the reason for the operation.

Sincerely,

B. James Fritz
Chief

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