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HQ 110833
July 22, 1990

VES-13-18-CO:R:P:C 110833 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 SYOSSET, V-184; Entry Number C27-0034962-7

Dear Sir:

Reference is made to your memorandum of January 30, 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 SYOSSET in the port of Los Angeles, California.

FACTS:

The vessel, upon arrival, filed a declaration and entry of vessel repairs as required under section 4.14, Customs Regulations (19 CFR 4.14), reporting work which had been performed in a foreign shipyard. The application for relief from duties 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 twenty-two such items. These items are:

Invoice item no. Description

1). 601 Hi level alarm
2). 602 Vapour recovery
3). 603 Mooring arrangement
4). 605 Panama chock
5). 606 Heating coils
6). 607 Cargo manifold
7). 608 Stack sampling ports
8). 609 Cargo piping pump suction
9). 610 Main feed pump suction
10). 611 Fuel oil deep tank
11). 612 Sitor system
12). 613A Satellite communication system
13). 613B Reserve communication system
14). 614 Cargo tank bulkhead
15). 615 Radar system
16). 616 Cargo tank expansion
17). 617 Anodes
18). 618 Longitudinal and connection
19). 619 Inert gas line
20). 620 IGS sliding blank
21). 1103 Pintle pin
22). 4404 Exhaust dump noise dampening

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 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 operations constitute permanent duty-free modifications to the hull and fittings of the vessel, with the following exceptions:

Items 12 (613A) and 15 (615) detail the installation of a new satellite communication system and radar system, respectively. Normally, some of the items installed (wiring, for instance) would be considered permanent modifications and the cost of that portion would be duty-free. In this case, however, there is no segregation within the items. Since portions of the items concern the installation of sensitive electronic equipment which would in all likelihood be removed from the vessel during extended lay-up, the entire cost of both items should be considered subject to duty.

Item 21 (1103) concerns the fabrication and installation of a new pintle pin nut and sleeve for the missing upper pintle. This is a clear repair process which should be considered subject to duty.

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) only to the extent specified above.

Sincerely,

B. James Fritz

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