HQ 0111320 - Vessel Repair; Modification; Cleaning; Petition for Review; Entry Nos. C27-0075267-1 and C27-0075290-3; JOVALAN; 19 U.S.C. 1466. - United States International Trade Commision Rulings

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HQ 111320

February 19, 1991

VES-13-18 CO:R:IT:C 111320 JBW

CATEGORY: CARRIER

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

RE: Vessel Repair; Modification; Cleaning; Petition for Review; Entry Nos. C27-0075267-1 and C27-0075290-3; JOVALAN; 19 U.S.C. 1466.

Dear Sir:

This letter is in response to your memoranda of September 28, 1990, which forward for our review and ruling the above- referenced petition for review of the assessment of vessel repair duties.

FACTS:

The record reflects that the subject unmanned barge, the JOVALAN, arrived at the port of Long Beach, California, on August 10, 1989, and September 17, 1989. Vessel repair entries C27- 0075267-1 and C27-0075290-3 were filed on August 10, 1989, and September 22, 1989, respectively. The vessel repair entries show that the vessel called at Ensenada, Mexico, for repairs at Astilleros Unidos de Ensenada, S.A. (Astilleros Unidos).

The petitioner submits evidence--in the form of vessel logs, letters from the towing company that towed the barge, and relevant invoices--to demonstrate that the JOVALAN made two calls for repairs at Astilleros Unidos. The first call was between July 23, 1989, and August 9, 1989. During this call, the invoices show operations to remove oily water and to clean the cargo tanks of the barge. The petitioner states that the purpose of this cleaning was to enable the American Bureau of Shipping (ABS) to undertake an annual survey of the hull, an annual load line inspection, and the completion of a special periodical survey of hull number 2. Although the ABS report states that these surveys began on June 23, 1989, the vessel log submitted demonstrates that the vessel was in San Francisco at that time. The log indicates, and the petitioner maintains, that these surveys in fact began on July 23, 1989.

During the course of the ABS inspection, interior damage to the number 1 port side cargo tank was discovered. The president of the company that owns the vessel, by letter, affirms that his company had no knowledge of this damage before its discovery during the course of the routine survey. The president further affirms the cleaning of the vessel would have been performed regardless of the damage. This damage was subject to an ABS conducted damage survey that began on July 27, 1989.

The petitioner also submits evidence to show that the Astilleros Unidos performed conversion operations to the vessel. The purpose of the conversion was to permit the vessel to withstand heavy weather experienced in the northern Pacific area, thus increasing the range of the vessel.

The vessel called again at Astilleros Unidos for further inspection and conversion work on August 28, 1989. During this time, the vessel was again cleaned.

Two applications for relief were filed. Both applications addressed the question of whether tank cleaning in preparation for a routine survey by the ABS that revealed the need for repairs is dutiable. Because repairs were made to the number 1 port side cargo tank, we held that the cleaning costs were dutiable, for they were in preparation for repairs. Headquarters Ruling Letter 110895, dated July 25, 1990, and Headquarters Ruling Letter 111806, dated May 24, 1990. The petitioner, arguing that the damage was only discovered during the routine inspection for which the cleaning was performed, disputes this holding. The petitioner also seeks relief for the conversion work, which was not raised in the application and was not addressed in the rulings on the application.

ISSUES:

(1) Whether the cost of cleaning in preparation for an inspection are dutiable if that inspection reveals the need for dutiable repairs.

(2) Whether conversion operations performed on the vessel constitute non-dutiable modifications.

LAW AND ANALYSIS:

I. Cleaning Costs in Preparation for Routine Inspection that Reveals Need for Dutiable Repairs

Title 19, United States Code, section 1466, provides in pertinent part for payment of duty in the amount of fifty 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 has consistently held that cleaning is not dutiable unless it is performed as part of, in preparation for, or in conjunction with dutiable repairs or is an integral part of the overall maintenance of the vessel. E.g., Headquarters Ruling Letter 110841, dated May 29, 1990 (and cases cited therein). Stated differently, this rule provides that if some demonstrable link exists between the cleaning and the repair, then the cleaning is itself dutiable.

The evidence submitted demonstrates that the need for repairs was discovered during the routine inspection and that the cleaning was required to carry out the inspection. Thus, some link between the cleaning and the repairs exists. We therefore conclude that the cleaning costs are dutiable. We note, however, that only those cleaning costs related to the number 1 port cargo tank are dutiable.

II. Alterations and Modifications to the Vessel

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. We have also held that 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 the present case, we find that the plans, statements from the naval architects, and invoice descriptions of the work performed to the hull of the vessel in conjunction with the claims in the petition provide sufficient proof that no repairs were made to the items claimed as modifications. The cost for this work is therefore not dutiable. Moreover, item 6 on both Astilleos Unidos invoices (numbers 6862 and 6842) relating to tank cleaning for "hot work" is related to this modification and is not dutiable.

HOLDINGS:

(1) Cleaning performed as part of, in preparation for, or in conjunction with dutiable repairs is dutiable. From the invoices submitted, only those costs relating to the cleaning of the number 1 port cargo tank are dutiable.

(2) The petitioner has submitted sufficient evidence that the work performed to permit the vessel to withstand heavy weather experienced in the northern Pacific is not dutiable.

Sincerely,

B. James Fritz
Chief

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