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HQ 110742
July 9, 1990

VES-13-18-CO:R:P:C: 110742 LLB

CATEGORY: CARRIER

Deputy Assistant Regional Commissioner
Classification and Value Division
ATTN: Regional Vessel Repair Liquidation Unit New York, New York 10048-0945

RE: Application for relief from vessel repair duties filed on entry number 514-3003448-1, New York, New York, concerning the vessel OMI WABASH, V-435

Dear Sir:

Reference is made to your memorandum of December 18, 1989, which forwards for our consideration the application for relief from the assessment of vessel repair duties filed by the OMI Corporation.

FACTS:

The vessel underwent extensive drydocking and repair operations while in Falmouth, England, and first entered the United States at the port of New York on August 20, 1988. Entry was made on August 22, 1988. The company has applied for relief on 149 of the 282 invoiced items. The major work categories include drydocking and related necessary services (incorporating 54 of the invoiced items); machinery cleaning, testing, gauging, inspecting, and repair (incorporating 62 of the invoiced items); electrical component testing, cleaning, and maintenance (incorporating 5 of the invoiced items); pump room component inspection, cleaning, modification, and repair (incorporating 25 of the invoiced items); safety equipment inspection, testing, and repair (incorporating 8 of the invoiced items); new installa- tions/modifications (incorporating 3 of the invoiced items); accommodation spaces cleaning, testing, and repairs (incorporating 44 of the invoiced items).

ISSUE:

Whether the items under consideration are subject to duty under subsection (a) of the vessel repair statute 19 U.S.C. 1466(a).
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 fittings 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 for 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 the foreign shipyard operations to be classifiably free from the assessment of vessel repair duties.

We have reviewed the evidence regarding the items for which relief is sought and find that the claims are meritorious, with the following exceptions.

1. Item A14 - Gas free certification. This should be apportioned between dutiable and non-dutiable costs.

2. Item D19 - Cargo tank valve. The evidence shows that the valves were coated while apart, a dutiable maintenance procedure.

3. Item D39 - Manifold mixmaster valve. The evidence shows replacement of four 12-inch flanges and piping but does not specify the reason. A repair must be presumed.

4. Item E5 - Pumproom exhaust fan. The evidence shows renewal and painting, which are dutiable procedures.

5. Item F10 - Deck seal reach rod. The evidence shows that the reach rod was overhauled, a dutiable repair operation.

The remainder of the items for which relief is sought are non-dutiable operations on the strength of the previously cited case precedents.

HOLDING:

In light of the foregoing facts and analysis of the law, we are of the opinion that the items for which relief is sought, with exception of the above-enumerated items, are not subject to duty under section 1466(a).

Sincerely,

B. James Fritz

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