HQ 0111185 - Vessel repair; Modification; Container carriage modification; Repair; Compact seal; Vessel Repair Entry No. 110- 0103984-8, Vessel SEALAND INDEPENDENCE, V-124 - United States International Trade Commision Rulings

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HQ 111185

February 21, 1991

VES-13-18-CO:R:IT:C 111185 LLB

CATEGORY: CARRIER

Chief, Technical Branch
Commercial Operations
Pacific Region
One World Trade Center
Long Beach, California 90731

RE: Vessel repair; Modification; Container carriage modification; Repair; Compact seal; Vessel Repair Entry No. 110- 0103984-8, Vessel SEALAND INDEPENDENCE, V-124

Dear Sir:

Reference is made to your memorandum of July 13, 1990, which forwards the Application for Relief filed by Sea-Land Service, Inc., in regard to the above-captioned vessel repair entry.

FACTS:

On February 18, 1990, timely entry was made concerning various shipyard operations performed on the SEALAND INDEPENDENCE in Asian repair facilities. Determinations regarding dutiability have been made for all items represented in the entry and supporting documentation with the exception of the purchase of a seal used in connection with work on the stern tube seal, and a change in the vessel configuration to allow for the carriage of 40-foot containers instead of 35-foot containers.

ISSUE:

Whether the purchase of a seal for use in stern tube seal work may be considered the purchase of a consumable, and a conversion of the vessel to allow for the carriage of cargo containers of a larger size are considered dutiable repair items under the vessel repair statute, or may be considered to be duty-free operations under the statute.

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 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).

It must be noted that even though an operation might under normal circumstances be considered a permanent duty-free modification, the benefit of such a finding is not extended to operations which encompass the replacement of existing structures which are in need of repair or replacement at that time. If a permanent addition is a first-time installation, or if it replaces an existing structure which is in good working order at the time of its replacement and an enhancement in operating efficiency is provided, the operation may be considered a bona fide duty-free modification.

The courts and Customs have held (See American Viking Corp. v. United States, C.D. 1830 (1956), and Customs Ruling Letter 104952, December 17, 1980), that the replacement of parts or materials which are necessarily destroyed during the course of an inspection where no repairs resulted, may be replaced without duty consequence under section 1466. In the present matter it is noted from the ample invoices which are supplied that the seal which was used and which is at issue, was so used in connection with a duty-free inspection of the stern tube seal ring (no repairs resulted).

In the present matter, we have determined that the modification of the cargo carrying capacity of the vessel to accommodate 40-foot rather than 35-foot containers is a permanent addition which does not replace existing wasted structures. As such, the operation is a duty-free modification.

In regard to the matter of the replacement seal, there is evidence that it was used in replacing a seal which was necessarily destroyed in gaining access to the stern tube area. As such, it should be considered duty-free under the previously cited authorities.

HOLDING:

Following a full review of the facts presented in this case, as well as an analysis of the law and applicable precedents, we recommend that the Application for Relief presented in this matter be granted for the reasons set forth in this document.

Sincerely,

B. James Fritz

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