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HQ 110899

December 5, 1990

VES-13-18 CO:R:P:C 110899 BEW

CATEGORY: CARRIER

Chief, Technical Assistant
Pacific Region
Commercial Operations
One World Trade Center
Long Beach, California 90853

RE: Petition for Review on Valdez Vessel Repair Entry No. C31- 0005010-4 dated November 11, 1988, vessel TT BROOKLYN. Modifications; owner-supplied spare parts

Dear Sir:

This is in reference to a memorandum from your office which forwards a petition for relief filed by Texaco Marine Services, Inc., on a partial denial of an application for relief for duties assessed on repairs made to the vessel TT BROOKLYN.

FACTS:

The petitioner's request for review centers on the cost for repairs on L.F. Gaubert Invoice Nos. 77019, 77689, 77723 and 77724 - owner-supplied spare parts, and Panalpina Air freight, Inc. Invoice Nos. 154-600675 and 154-600690 - air freight and packing material, alleged to be repairs associated with the installation of modifications/alterations/additions to the hull and fittings, and items which are non-dutiable under the provisions of 19 U.S.C. 1466.

In a decision dated November 30, 1989 (HQ 110434 LLB) we ruled that:

Of the forty-four items which we have reviewed, we find that they consist entirely of duty-free modifications and/or classifiably free items, with the following exceptions:

... 4. Items III (2), (3), (5), (11a), (11b), (12a), (12b), (12c), (17), (18a), (18b), and (24), are all claimed as U.S.-made and purchased parts. This, by itself, is not sufficient to satisfy subsection (d)(2) of section 1466 (19 U.S.C. 1466 (d)(2)). In order [to]
qualify for remission, it would be necessary to show that the qualifying materials were installed with the use of crew or U.S. resident labor. In the alternative, if the materials were shown to be those used in a modification rather than a repair, duty assessed on their cost would be refundable. Failing further evidence, the approximate $286,000 cost is found to be dutiable.

ISSUE:

Whether sufficient evidence is presented to establish that the subject repairs were used in a modification which is remissible under the vessel repair statute (19 U.S.C. 1466).

LAW AND ANALYSIS:

Title 19, United States Code, section 1466, provides in part for payment of an ad valorem duty of 50 percent of the cost of foreign repairs to vessels documented under the laws of the United States to engage in the foreign or coastwise trade. Section 1466 (d)(1) provides that the Secretary of the Treasury is authorized to remit or refund such duties if the owner or master of the vessel was compelled by stress of weather or other casualty to put into such foreign port to make repairs to secure the safety and seaworthiness of the vessel to enable her to reach her port of destination.

In its application of the vessel repair statute (19 U.S.C. 1466), Customs has consistently held that modifications/altera- tions/additions to the hull and fittings of a vessel which allow the vessel to operate more efficiently are not subject to vessel repair duties. Alterations to the hull and fittings of vessels are not within the purview of section 1466, and the cost of the work is not subject to duty. In order to be considered a modification an article must be permanently attached to the vessel and it must be essential to the successful operation of the vessel (see Otte v. United States, 7 C.C.P.A. 166 (1916), and United States v. Richard & Co., 8 Ct. Cust. App. 231, T. D. 37496 (1917). To be found non-dutiable as a modification/alteration/addition, the work must involve no element of repair due to damages, deterioration or wear and tear. If those are present, the work will be considered a repair and dutiable.

A review of L.F. Guabert invoice Nos. 77019, 77689, 77723 and 77724 and the documentation submitted with the petition reveals that items are U.S. owner supplied parts which were used
in a modification/addition/alteration to the hull and fittimgs of the vessel. Accordingly, the petition is granted as to these invoices.

A review of Panalpina Airfreight Invoice Nos. 154-600675 and 154-600690, reveals that the costs associated with these invoices are costs for air freight and packing.

Pursuant to C.D. 1830, expenses incurred for shipping, crating and packing are not expenses of repair, and as such are not subject to duty under section 1466. Accordingly, all items of costs for freight, courier, packing and customs clearance are nondutiable. The petition is granted as to all items of cost listed on the Panalpina Airfreight Invoices for freight, courier, packing and customs clearance.

HOLDING:

Based on the foregoing, the petition is granted as set forth above.

Sincerely,

B. James Fritz

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