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HQ 111159
February 19, 1991

VES-13-18-CO:R:IT:C 111159 LLB

CATEGORY: CARRIER

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

RE: Vessel repair; Application for relief; Modifications; Surveys; Entry No. 110-0103987-1; SEALAND VOYAGER, V-145-147

Dear Sir:

Reference is made to your memorandum of July 2, 1990, which forwards for our consideration the Application for Relief filed by Sea-Land, Inc., concerning the above-captioned vessel repair entry. The vessel SEALAND VOYAGER arrived in the port of Tacoma, Washington, on March 13, 1990. It is noted that the Vessel Repair Entry lists three voyages, numbers 145, 146, and 147. We understand, however, that this does not reflect three arrivals in the United States. We understand that 145 is the outbound voyage, 146 is meant to cover the drydock period, and 147 is the return voyage to the United States.

FACTS:

In March of 1990, the vessel SEALAND VOYAGER was taken abroad for the purpose of having performed upon it numerous shipyard operations. When the vessel first arrived in the United States following the foreign operations, a vessel repair entry was filed in a timely fashion. Further, within the time allotted pursuant to an extension of time to file supporting documentation, all necessary invoices were filed with Customs.

ISSUE:

Whether certain foreign shipyard operations which are the subject of this present request for Headquarters advice are duty- free modifications and operations in support thereof, rather than repairs which might be dutiable under the vessel repair statute.

LAW AND ANALYSIS:

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

Customs has held that where periodic surveys are undertaken to meet the specific requirements of a classification society, insurance carrier, etc., the cost of the surveys is not dutiable even when dutiable repairs are effected as a result thereof; however, in the liquidation process Customs should go beyond the mere labels of "continuous" or "ongoing" before deciding whether a part of an ongoing maintenance and repair program labelled "continuous" or "ongoing" is dutiable. Although, if the survey is to ascertain the extent of damage sustained, or to ascertain if the work is adequately completed, the costs are dutiable as part of any dutiable repairs which are accomplished pursuant to the holdings in C.I.E. 429/61, C.S.D. 79-2, and C.S.D. 79-277.

In the matter presently under consideration, our opinion is sought on the following:

1. ABS deck modification survey.
2. Video survey of the hull.
3. Deck scupper modification.
4. Pintle inspection cover modification.
5. Cargo gear box modification.
6. Cargo system modification (35 to 40 ft. container mod.).

A thorough review of all relevant invoices reveals that the operations under consideration are bona fide modifications, or operations in support of modifications which are properly considered to be duty-free under the vessel repair statute as judicially interpreted.

HOLDING:

After full review of all evidence submitted, considered in light of the law and all applicable precedents, we have determined that the operations accomplished abroad in the present matter are properly considered duty-free modifications.

Sincerely,

B. James Fritz

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