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HQ 110698


April 12, 1990

VES-13-18-CO:R:P:C 110698 LLB

CATEGORY: CARRIER

Deputy Assistant Regional Commissioner
Commercial Operations Division
ATTN: Regional Vessel Repair Liquidation Unit New Orleans, Louisiana 70130

RE: Application for relief from vessel repair duties filed on entry number C20-0022248-2, New Orleans, Louisiana, concerning the vessel ACADIA FOREST (Voyage 69)

Dear Madam:

Reference is made to your memorandum of December 12, 1989, which forwards for our consideration the application for relief from the assessment of vessel repair duties filed by Forest Lines, Inc.

FACTS:

The vessel, a Lighter Aboard Ship (LASH) vessel, arrived with a complement of LASH barges which had undergone various operations while abroad. The application seeks specific relief from the assessment of duties on this entry, as well as agreement from Customs that certain types of charges, to be specified below, are not dutiable, are recurring, and need not be declared or entered on future arrivals.

ISSUE:

Whether the items to be considered in this ruling constitute duty-free modifications and inspections rather than dutiable repair costs. Further, whether, such recurring items need be entered on future vessel repair entries.

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 section 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 fitting on the other, the former being subject to duty under section 1466.

The Court in Admiral Oriental, supra., cited with approval an opinion of the Attorney General (27 Op. Atty. Gen. 288). That opinion interpreted section 17 of the Act of June 26, 1884, (23 Stat. 57), which allowed drawback on vessels built in the U.S. 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 that section 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.

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.

Customs also holds that the costs of certain surveys and inspections are not dutiable, even though dutiable repair may be performed in connection with their execution. Such operations are generally limited to surveys required to keep a vessel in class. Other surveys or inspections, such as those performed to ascertain whether repairs are either necessary or adequately accomplished, are dutiable.

One early case (United States v. George Hall Coal Co., 134 F. 1003 (1905)), was the first to find any of various types of expenses associated with foreign shipyard operations to be classifiably free from the assessment of vessel repair duties. Certain administrative costs assessed abroad may be included in the definition of classifiably free items, but these generally fall into the category of clerical expenses.

In this particular case we are asked to rule upon the following categories of charges:

1. Vents (The inspection of LASH barge vents which must be taped closed to prevent sea spray and splash from entering. The inspection was made to ascertain whether re-taping was needed).

2. Sounding Plugs (as with the vents, the inspection was made to ascertain whether re-taping of sounding plugs was needed).

3. Technical Services (The salary paid a particular individual in the foreign repair port, whose job it is to inspect completed repairs to ensure that they meet company standards).

The inspection-related elements under consideration (vents, sounding plugs, and technical services), are all of the type performed in order to either ascertain whether maintenance type work is necessary (taping of vents or sounding plugs), or whether actual repairs performed were adequately done (technical services). These are all clearly dutiable expenses under the statute.

In regard to the question about the need to inform Customs concerning these recurring charges in the future, the Customs Regulations provide, at section 4.14(b)(1) (19 CFR 4.14(b)(1), that such is required:

... regardless of the dutiable status of such items or expenses.

There should, therefore, be no question as to the obligation to report those expenses, especially so in light of the fact that they are, for the most part, considered dutiable.

HOLDING:

After a thorough review of the evidence and analysis of the facts and applicable law, we recommend that the application for relief be denied, as specified in the Law and Analysis section of this ruling.

Sincerely,

B. James Fritz

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