HQ 0110987 - Vessel repair; modification; removal of new pipe for galvanization; replacement of disturbed painting Vessel: RICHARD G. MATTHIESEN V-46 - United States International Trade Commision Rulings

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HQ 110987

August 7, 1990

VES-13-18-CO:R:P:C 110987 KVS

CATEGORY: CARRIER

Deputy Assistant Regional Commissioner
Commercial Operations Division
423 Canal Street
New Orleans, LA 90130-2341

RE: Vessel repair; modification; removal of new pipe for galvanization; replacement of disturbed painting Vessel: RICHARD G. MATTHIESEN V-46
Vessel Repair Entry No. C53-0012014-0

Dear Sir:

This is in response to your memorandum of April 12, 1990, which forwards for our consideration a petition for review filed in connection with the RICHARD G. MATTHIESEN V-46, vessel repair enty no. C53-0012014-0. Our findings are set forth below.

FACTS:

The RICHARD G. MATTHIESEN, an American-flag vessel, underwent foreign shipyard operations at Malta, in February and March, 1989. The vessel arrived in the United States on April 11, 1989, at Houston, Texas, and made entry on April 17, 1989.

An application for relief was filed on on June 9, 1989. On January 18, 1990, we issued a decision on the application, granting relief in part and denying relief in part. The petitioner was notified of our decision on the application in a letter from the Vessel Repair Liquidation Unit, New Orleans, dated February 1, 1990.

The petition for review currently under consideration was stamped as received on March 5, 1990. We are informed by the Vessel Repair Liquidation Unit that the Federal Express Air Bill reads March 1, 1990, and that due to the presence of new personnel, it is likely that the petition arrived on Friday, March 2, 1990, but remained unstamped until Monday, March 5, 1990. In order to avoid undue prejudice to the petitioner, we will consider the petition timely filed as of March 2, 1990.

ISSUE:

Whether the foreign shipyard operations carried out upon the subject vessel are dutiable pursuant to 19 U.S.C. 1466.

LAW AND ANALYSIS:

Title 19, United States Code, section 1466(a) provides, in pertinent part, for payment of duty in the amount of 50 percent ad valorem on the cost of foreign repairs to vessels engaged, intended to engage, or documented under the laws of the United States to engage in the foreign or coastwise trade.

In its application of the vessel repair statute (19 U.S.C. 1466), Customs has held that modifications/alterations/additions to the hull and fittings of a vessel are not subject to vessel repair duties. A leading case in the interpretation and application of section 1466 is United States v. Admiral Oriental Line et al., T.D. 44359 (1930) where the Court considered the issue of whether steel swimming tanks installed on a U.S.-flag vessel in a foreign port constituted equipment or repairs within the meaning of section 1466. In holding that the installation of these tanks did not constitute either equipment or repairs and therefore was not dutiable, the Court in Admiral Oriental cited earlier court decisions which define equipment, promulgations by the Board of Naval Construction, and regulations of the Treasury Department, as well as opinions of the Attorney General.

Accordingly, for purposes of section 1466, dutiable equipment has been defined as:

...portable articles necessary or appropriate for the navigation, operation, or maintenance of a vessel, but not permanently incorporated in or permanently attached to its hull or propelling machinery, and not constituting consumable supplies. Admiral Oriental, supra., (quoting T.D. 34150, (1914)).

By defining what articles are considered to be equipment, the authority cited above formulated criteria which distinguish those items deemed to be modifications/alterations/additions to the hull and fittings and therefore not dutiable under section 1466. These items include:

...those applications which are permanently attached to the vessel, and which would remain on board were the vessel to be laid up for a long period... Admiral Oriental, supra., (quoting 27 Op. Atty. Gen. 228).

Furthermore, the Court in Otte v. United States, T.D. 36489 (1916) stated that before an item can be regarded as part of a vessel, it must be "essential to the successful operation" of the vessel.

In our decision on the application for relief, we held that Item 3.1 (Overboard Line for Inert Gas Deck Seal) was not such a non-dutiable modification. The shipyard invoice description in conjunction with this item, states "all pipes were removed, hot dipped galvanised and replaced", thus generating the conclusion that a dutiable repair had been performed.

Thorough review of the evidence submitted, however, reveals that this description refers to work undertaken on the newly installed pipeline. The piping was put into place to allow inspection of position and then removed for galvanization before replacement for final installation. As such, we find the work constitutes a modification. Accordingly, the costs for labor ($5,725.00), material ($1,011.00) and cleaning ($535.00) in connection with this item are non-dutiable.

The petitioner also asserts that Item 3.3 (Mooring Equipment) was also a modificaiton. Our decision on the application denied relief for this item on the basis that the painting costs listed on the invoice were not related to the modification performed to the main deck.

Thorough examination of the evidence submitted, however, reveals that the painting of the port and starboard wing ballast tank was undertaken to replace the painting burned off by the welding of the two 16" double bitts and the two closed chocks on the main deck. Therefore, we find that the painting was related to the modification undertaken aboard the subject vessel. Consequently, we find the costs for labor ($3,421.00), material ($486.00) and cleaning ($303.00) in connection with this item are non-dutiable.

HOLDING:

Upon thorough examination of the evidence submitted, and as detailed in the Law and Analysis section of this ruling, we find that each of the contested items constitutes a non-dutiable modification. Accordingly, the petition for review is granted in full.

Sincerely,

B. James Fritz

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