HQ 0110814 - Vessel Repair; Cleaning; Survey; Modification; Repair; Vessel LIBERTY BELL, V-2; Entry Number C27-0012580-3 - United States International Trade Commision Rulings

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HQ 110814
July 24, 1990

VES-13-18-CO:R:P:C 110814 LLB

CATEGORY: CARRIER

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

RE: Vessel Repair; Cleaning; Survey; Modification; Repair; Vessel LIBERTY BELL, V-2; Entry Number C27-0012580-3

Dear Sir:

Reference is made to your memorandum of January 19, 1990, which forwards for our consideration the application for relief from vessel repair duties filed by Liberty Maritime Corporation, seeking relief from the assessment of vessel repair duties in connection with the March 14, 1989, arrival of the vessel LIBERTY BELL in the port of Long Beach, California.

FACTS:

The vessel, upon arrival, filed a timely declaration and entry of vessel repairs as required under section 4.14, Customs Regulations (19 CFR 4.14), reporting extensive work which had been performed in a foreign shipyard. The application for relief from duties, also timely filed, seeks relief on numerous items for the claimed reason that they involved non-repair-related expenses (modification, cleaning, survey, etc.). Customs Headquarters advice is sought on eleven such items. These items are:

Invoice item no. Description

1). 30 Work on the double bottom tanks
2). 33 Cargo pipeline repairs
3). 52 Port and starboard boiler survey
4). 57 Cargo gear survey
5). 62 Work on COW machines
6). 63 Change in stack insignia
7). 74 D.O. piping modification
8). 85 Work on deck machinery
9). 95 Cargo lighting modification
10). 101 Steering linkage modification
11). 108 Scupper modification

ISSUE:

Whether the items claimed as free and forwarded for review and advice are considered duty-free under either court or administrative interpretations of 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 than 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 as follows:

Item one (30) is, for the most part, a cleaning operation which is non-dutiable. The exceptions to this finding are the segregated charges for "specified" and "additional" work, and for access hole/access plate work totalling $4,497.

Item two (33) is dutiable with the exception of the segregated crane/rigging and transport charges.

Item three (52) details a boiler survey and repairs. Unlike some other of the survey elements, there is no indication that this was an annual survey for retention in class. As such, the survey and repair costs for this item are dutiable.

Item four (57) is an annual cargo gear survey for which a certificate is supplied. This cost, along with those for transportation, staging, and rigging, are free. The segregated repair cost for splicing replacement wires is, however, dutiable.

Item five (62) concerns work on the COW machines. Only the segregated rigging and transportation associated with this item are non-dutiable. The remainder of the costs are considered dutiable repairs.

Item six (63) concerns the stack insignia. If necessary to change the insignia from one to another, it is non-dutiable under authority of H.C. Gibbs v. United States, 28 Cust Ct. 318, C.D. 1430 (1952). The same case holds, however, that if it is merely a repainting of the same logo or insignia, it is a dutiable repair. We note that the operation also involves changing a bow insignia from an "S" to an "L" which is clearly non-dutiable. Since the cost of the bow operation is not segregated from the stack insignia, however, the entire cost is dutiable unless the stack portion is demonstrated to have involved a change and not merely a refurbishment.

Item seven (74) involves a change in piping to feed "vacuvators" on grain cargoes. There are segregated crane, rigging, and transport costs which are considered non-dutiable, but the reason for the new piping is not stated. We do not know whether existing piping was in a state of deterioration or disrepair at the time of replacement. If so, even a permanent replacement, such as is present in this case, would be considered a dutiable repair. Therefore, subject to the submission of further proof, the balance of this item is considered dutiable.

Item eight (85) involves work on deck machinery, the segregated winch coaming portion of which, along with transport and rigging charges, is non-dutiable since a permanent first time installation is involved. The remainder, however (fabrication of new hydraulic storage tanks and work on the hydraulic control valve), constitutes dutiable repairs.

Item nine (95) involves the installation of electrical cable and outlets where none had previously been installed. As such, the operation is a duty-free modification.

Item ten (101), work on the steering gear linkage, is claimed to be a modification. We note, however that the linkage had been sticking and since this problem was addressed in the course of modifying the linkage, the operation is a dutiable repair.

Item eleven (108) involves the cutting of new scuppers (deck drains) where none had previously existed. As a permanent first time installation, the item is a duty-free modification.

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 are subject to duty under section 1466(a) to the extent specified above.

Sincerely,

B. James Fritz

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