HQ 0111366 - Vessel Repair; Modification; 19 U.S.C. 1466; MORMACSUN; Protest No. 0401-89-900382. - United States International Trade Commision Rulings

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HQ 111366

March 26, 1991

VES-13-18 CO:R:IT:C 111366 JBW

CATEGORY: CARRIER

Deputy Assistant Regional Commissioner
Classification and Value Division
ATTN: Regional Vessel Repair Liquidation Unit 6 World Trade Center
New York, New York 10048-002980

RE: Vessel Repair; Modification; 19 U.S.C. 1466; MORMACSUN; Protest No. 0401-89-900382.

Dear Sir:

This letter is in response to your memorandum of October 22, 1990, which forwards for our review and ruling the above- referenced protest from the assessment of vessel repair duties.

FACTS:

This protest arises from the assessment of duties on the cost of foreign repairs made to the MORMACSUN that were declared on two entries. The record reflects that the vessel made two arrivals at Bridgeport, Connecticut. The first, voyage 115A, was on August 18, 1983, and the second, voyage 115E, was on November 21, 1983. No entry numbers were assigned at the time of these arrivals. Vessel repair entry forms, Customs Form 226, were filed for voyage 115A on December 13, 1983, and for voyage 115E on December 16, 1983. Vessel repair entry numbers were assigned to the cases in June, 1985, and the entry documents for both voyages were forwarded to Headquarters with no application for relief on January 18, 1989.

This office determined that the vessel owner failed to file an application for relief and to meet the time schedule established in the regulations for filing an application for relief. Headquarters Ruling Letter 109997, dated March 29, 1989. We further determined that the entries were subject to immediate liquidation. Id. The entries were liquidated on May 25, 1989, and the vessel owner timely filed a protest on July 21, 1989. In its protest, the vessel owner claims that the foreign shipyard work declared on the vessel repair entries was in the nature of a modification to the vessel and is consequently not dutiable.

ISSUE:

Whether the alterations made to the vessel in a foreign shipyard are modifications and are not subject to duty 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.

The protestant claims that the installation of a new inert gas system is nondutiable as a modification. In support of its claim, the protestant submits extensive descriptions of the work performed supported by accompanying invoices. We determine that the installation of the inert gas system constitutes the installation of a new design feature; all costs related to this work are non-dutiable as a modification.

The protestant also claims that the purchase and installation of a satellite communications system is non-dutiable as a modification. Whereas Customs has usually held such installations to be equipment, we have recently held that the purchase and installation of a similar satellite communications system on a sister ship to the MORMACSTAR was non-dutiable. Headquarters Ruling 109936, dated April 28, 1989. This conclusion was based on extensive documentation submitted by the vessel owner to demonstrate that this system is not likely to be removed in the event of a prolonged lay-up of the vessel. Id. The vessel owner again submits similar documentation. We therefore conclude that the installation of the satellite communications system is non-dutiable as a modification.

The protestant finally claims that a number of other items from the B. V. Koninklijke Maatschappij "de Schelde" invoice, number 6/7118 B, are non-dutiable modifications. The invoice description of the work does not show that any of the claimed modifications resulted in the replacement or restoration of existing parts. Rather, the work performed appears to have been intended to improve the efficient operation of the vessel. The following costs from the B. V. Koninklijke invoice are not dutiable:

1) Aft Center Tank Suction Well
2) Fuel Oil Heater
3) Gear Case Dehydrator
4) Butterworth Suction Pump
5) Cargo Stripper System Strainer

HOLDING:

The above-described alterations made to the vessel in a foreign shipyard constitute modifications and are not subject to duty under 19 U.S.C. 1466. The protest is granted in full.

Sincerely,

B. James Fritz
Chief

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