HQ 0110869 - Protest No. 312689-000026; CHEVRON WASHINGTON, Voyage No. 618; Vessel Repairs; Modifications; Inspection and Cleaning; Non-segregated cost - United States International Trade Commision Rulings

United States International Trade Commision Rulings And Harmonized Tariff Schedule

faqs.org Rulings By Number Rulings By Category Tariff Numbers

faqs.org > Rulings and Tariffs Home > Rulings By Number > 1992 HQ Rulings > HQ 0110731 - HQ 0110894 > HQ 0110869

HQ 110869

December 7, 1990

VES-13-18 CO:R:P:C 110869 BEW

CATEGORY: CARRIER

Chief, Technical Branch
Pacific Region
U. S. Customs Service
One World Trade Center
Long Beach, California 90831

RE: Protest No. 312689-000026; CHEVRON WASHINGTON, Voyage No. 618; Vessel Repairs; Modifications; Inspection and Cleaning; Non-segregated cost

Dear Sir:

This is in reference to a memorandum from your office which transmitted protest No. 312689-000026, relating to vessel repair entry No. C31-0001009-0, concerning the CHEVRON WASHINGTON, Voyage No. 618, which arrived at the port of Valdez, Alaska, on November 29, 1987. The entry was filed on November 29, 1987.

FACTS:

In October 1987, while in Singapore, the vessel CHEVRON WASHINGTON underwent various shipyard operations. The dutiability of these operations has previously been considered. The protestant filed an Application for Relief which was denied on July 25, 1988, on the basis of procedural and substantive defect. The protestant filed a corrected application. Customs issued a decision on May 15, 1989 (HQ 109736 BEW) in which we found the following as to the items which are the subject of this protest:

With regard to Item 23-9 - Auxiliary Gas Turbine Inspection, it appears that a portion of the repair work is a modification to the hull and fittings, and a portion of the repair work is dutiable repairs. The beam and trolley installation is a modification and addition to the hull and fittings. Although the "legs" of the crane travel back and forth over the hatches on the rails and thus are not permanently attached to the
hull in a literal sense, the rails are permanently attached to the vessel and they are integral components of the crane when viewed as whole (Headquarters memorandum 216.131, dated September 9, 1967). Accordingly, the beam and trolley installation is a modification to the hull and fittings and is not dutiable. On the other hand, the wooden deck bencher storage table is equipment and is dutiable.

In addition, a part of the inspection and service engineer's cost could be non-dutiable as a part of the cost of alterations or modifications to the hull and fittings of the vessel; also, a portion of the work on the subject item appears to be non-dutiable as relating to work other than repairs. We note that the invoice does not separate the non-dutiable costs from those costs that are dutiable. Pursuant to C.I.E. 1325/58 and C.I.E. 565/55, cost may not be remitted where the invoice does not segregate the dutiable cost from the non-dutiable cost. Accordingly, the entire cost in the inspection and service engineer's cost under Item 23-9 is dutiable....

The invoice indicates that repairs were made in Item 21-7 - Main Gas Turbine Major Inspection. The invoice does not separate the cost of the inspection for dutiable repairs from the non-dutiable repairs. Accordingly, pursuant to C.I.E. 1325/58 and C.I.E. 565/55 the entire cost of the repairs is dutiable.

It appears that Item 39-5 - Form line drains, could be free as alterations or modifications to the hull and fittings of the vessel, however, if an article is considered to be a 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 repairs duties (See C. I. E. 233/60). Accordingly, item 39-5 is dutiable.

The entry was liquidated on August 25, 1989. The protest was timely filed on November 20, 1989. These are the only items which are presently being protested.

ISSUES:

1. Whether certain work performed in a foreign country constitutes modifications/alterations/additions to the hull and fittings rather than equipment purchases or repairs within the meaning of 19 U.S.C. 1466?

2. Whether certain work preformed in a foreign country constitutes non-dutiable inspection cost.

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 installation of Item No. 39-5 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, and additional documentation submitted with the protest, including that portion of the invoice relating to the subject item, reveals that Item No. 39-5 - Form line drains, were installed to enhance the operation of the vessel's efficiency and are permanent installations to the vessel's hull and fittings. Accordingly, the protest is granted as to this item.

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). Customs has long held the cost of cleaning is not dutiable unless it is performed as part of, in preparation for, or in conjunction with dutiable repairs or is an integral part of the overall maintenance of the vessel; see C.I.E.'s 18/48, 125/48, 910/59, 820/60, 51/61, 429/61; 569/62, 698/62; C.D. 2514; T.D.'s 45001 and 49531.

With regard to items 21-7 - Main Gas Turbine Major Inspection and 23-9 - Auxiliary Gas Turbine Inspection, the invoice did not separate the cost of the inspection for dutiable repairs from the inspection cost for the non-dutiable repairs which were performed in both of these items. The inspection cost listed in item 21-7 is $275,500 and the inspection cost listed in item 23-9 is $59,030. We have again reviewed the invoice and the additional documentation submitted with the protest and we find that the inspection cost in both items is not segregated.

As stated in our previous ruling, cleaning and inspections were performed on several of the subject items. Some of these operations were done in conjunction with the installation of the subject modifications and would be duty free as a part of the modification. Pursuant to C.I.E. 1325/58 and C.I.E. 565/55, duties may not be remitted where the invoice does not segregate the dutiable costs from the non-dutiable costs. Inasmuch as the inspection cost for dutiable repairs associated with the subject items is not segregated, these items of cost are dutiable. The protest is denied as to Items 21-7 and 23-9.

The protest is granted in part and denied in part as set forth in the findings above.

HOLDINGS:

1. In light of our present findings based upon the evidence as stated in the law and analysis section of this ruling, we find that the installation of Item 39-5 - Form line drains, is in the nature of a non-dutiable permanent modification to the hull and fittings of the vessel. The said item constitutes modifications/ alterations/additions to the hull and fittings rather than repairs. As such, the cost of this work is not dutiable under 19 U.S.C. 1466.

2. Repairs were accomplished as a part of the installation of Items 21-7 and 23-9. Inasmuch as the inspection cost associated with the repairs is not segregated from the nondutiable inspection cost, the entire inspection costs in both items are subject to duty under 19 U.S.C. 1466. The protest is denied as to items 21-7 and 23-9.

Sincerely,

Stuart P. Seidel

Previous Ruling Next Ruling