HQ 0110731 - Protest No. 27049 003562; Vessel Repair Entry No. C27- 0032442-2; Date of Arrival: February 9, 1988; Port of Arrival: Long Beach, California; Vessel: SEA-LAND PACIFIC, Voyage No. 3 - United States International Trade Commision Rulings

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HQ 110731

March 29, 1990

VES 13-18 CO:R:P:C 110731 BEW

CATEGORY: CARRIER

Chief, Technical Branch
Pacific Region
One World Trade Center
Long Beach, California 90831

RE: Protest No. 27049 003562; Vessel Repair Entry No. C27- 0032442-2; Date of Arrival: February 9, 1988; Port of Arrival: Long Beach, California; Vessel: SEA-LAND PACIFIC, Voyage No. 3

Dear Sir:

Reference is made to your memorandum of December 27, 1989, which forwarded the above-captioned protest from the assessment of vessel repair duties for our determination.

FACTS:

Between January 10 and 28, 1988, while in Kaohsiung, R.O.C. Taiwan, the vessel SEA-LAND PACIFIC underwent various shipyard operations. The dutiability of these operations has previously been considered by your office. The protestant elected not to file an Application for Relief. The entry was liquidated on August 18, 1989. The protest was timely filed on November 13, 1989. Included in your considerations was the matter of whether the cost associated with the installation of a Item Nos. 7/87-2 - Stern Tube Lube Oil Piping Modification and 7/87-4 - Sea Chest Strainer Modification; and Item 7/87-3 - Center Box Girder Inspection is dutiable under the statute. These are the only items which are presently being protested.

ISSUE:

Whether the installation of the Item Nos. 7/87-2 - Stern Tube Lube Oil Piping Modification and 7/87-4 - Sea Chest Strainer Modification is considered a modification or permanent addition to the hull and fittings of the vessel so as to render the cost nondutiable.

Whether the inspection of the Center Box Girder where no repairs are made is considered non-dutiable.

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 Item Nos. 7/87-2 - Stern Tube Lube Oil Piping Modification and 7/87-4 - Sea Chest Strainer Modification 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 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. Accordingly, we find that the cost associated with Item Nos. 7/87-2 and 7/87-4 is non-dutiable.

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). Our review of the invoice relating to Item No. 7/87-3 - Center Box Girder Inspection and American Bureau of Shipping Reports SF31741 and KS5535 reveals that the Center Box Girder was inspected and found in satisfactory condition. Accordingly, the cost associated with this item is non-dutiable.

HOLDING:

In light of our present findings based upon the evidence and as stated in the law and analysis section of this ruling, we find that the installation of the Item Nos. 7/87-2 - Stern Tube Lube Oil Piping Modification and 7/87-4 - Sea Chest Strainer Modification was in the nature of a non-dutiable permanent modification to the hull and fittings of the vessel; and that the worked performed on item No. 7/87-3 - Center Box Girder was an inspection. Accordingly, the protest is allowed and reliquidation is directed.

Sincerely,

Stuart P. Seidel
Director

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