HQ 0111324 - Port Arthur Vessel Repair Entry No. VR-C21-0000091-1, dated May 17, 1990, GOLDEN ENDEAVOR, voyage 132. Application; casualty; modifications; surveys; leased equipment; CIE 289/49; 19 U.S.C. 1466; 19 CFR 4.14 - United States International Trade Commision Rulings

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HQ 111324

July 19, 1991

VES-13-18-CO:R:IT:C 111324 BEW

CATEGORY: CARRIER

Deputy Assistant Regional Commissioner
Commercial Operations Division
South Central Region
New Orleans, Louisiana 70130

RE: Port Arthur Vessel Repair Entry No. VR-C21-0000091-1, dated May 17, 1990, GOLDEN ENDEAVOR, voyage 132. Application; casualty; modifications; surveys; leased equipment; CIE 289/49; 19 U.S.C. 1466; 19 CFR 4.14

Dear Sir:

This is in reference to an application for relief from duties filed by the attorney for American Maritime Transport, Inc., in relation to the above referenced vessel repair entry. The vessel arrived at the port of Port Arthur, Texas, on May 16, 1990.

FACTS:

The GOLDEN ENDEAVOR is a U.S.-flag vessel owned by Bank of New York as Trustee, and operated by American Maritime Transport, Inc. The record shows that the shipyard work in question was performed on the subject vessel in St. Romauld, Quebec, Canada, during the period from November 7, 1989 through November 11, 1989, and January 24, 1990, and in and Glasgow, Scotland, during the period from March 21 through March 25, 1990. The subject vessel arrived in the United States at Port Arthur, Texas, on May 16, 1990.

The entire vessel repair entry involves a potential duty of $192,895.33.

The applicant claims that relief for the subject items should be granted because the items should be classified as items which are not dutiable under title 19, United States Code, section 1466 and section 4.14 of the Customs Regulations.

The applicant contends that the vessel sustained damage as a result of heavy weather damage during trans-atlantic crossings between Quebec, Canada, and Norway. The report shows that the vessel made approximately twelve (12) trans-atlantic crossings
between Quebec, Canada, and Norway or Scotland during the period from October 7, 1989 to May 16, 1990, before returning to her U.S. port in May 1990. The applicant claims that during several of these crossings the vessel sustained damage as a result of heavy weather and ice conditions. The crossings that are the subject of this entry are:

1. From Norway to Quebec, Canada, during the period from October 21 through November 2, 1989.

2. From Norway to Quebec, Canada, during the period from January 6 through January 21, 1990.

3. From Norway to Quebec, Canada during the period from February 9 through February 27, 1990.

You have requested our advice concerning repairs which relate to various casualties which occurred during the above stated crossings, and certain other repairs alleged to be modifications/alterations/additions.

ISSUES:

1. Whether sufficient evidence is presented to establish that the subject repairs were necessitated by a "casualty" which is remissible under the vessel repair statute (19 U.S.C. 1466).

2. 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?

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.

Paragraph (1), subsection (d) of section 1466 provides that duty may also be remitted if good and sufficient evidence is furnished establishing that the vessel was compelled by stress of weather or other casualty to put into a foreign port to make repairs to secure the safety and seaworthiness of the vessel to enable her to reach her port of destination. It is Customs position that "port of destination" means a port in the United States."

The statute thus sets a three-part test which must be met in order to qualify for remission under the subsection, these being:

1. The establishment of a casualty occurrence.

2. The establishment of unsafe and unseaworthy conditions.

3. The inability to reach the port of destination without obtaining foreign repairs.

The term "casualty" as it is used in the statute, has been interpreted as something which, like stress of weather, comes with unexpected force or violence, such as fire, or spontaneous explosion of such dimensions as to be immediately obvious to ship's personnel, or collision (Dollar Steamship Lines, Inc. v. United States, 5 Cust. Ct. 28-29, C.D. 362 (1940)). In this sense, a "casualty" arises from an identifiable event of some sort. In the absence of evidence of such a casualty event, we must consider the repair to have been necessitated by normal wear and tear (ruling letter 106159, September 8, 1983).

In addition, if the above requirements are satisfied by evidence, the remission is restricted to the cost of the minimal repairs necessary to enable the vessel to reach her port of destination. Repair costs beyond that minimal amount are not subject to remission.

Customs Regulations require that certain supporting evidence be submitted with an application for relief for damages resulting from stress of weather. This evidence includes photocopies of the relevant parts of the vessel's logs, certification of any claimed casualty by the master or other responsible vessel officer with personal knowledge of the facts, and a certification by the master that the repairs were necessary for the safety and seaworthiness of the vessel to enable her to reach her port of destination in the United States (19 C.F.R.

In a recent ruling, Customs noted that pursuant to 2.01-15, U.S. Coast Guard (USCG) Regulations (46 CFR 2.01-15) a vessel may not proceed from one port to another for repairs unless prior authorization is obtained from the USCG Officer in Charge, Marine Inspection (OCMI) either through the issuance of a USCG "Permit to Proceed to Another Port for Repairs" (CG-948) or a CG-835 which would specify the restrictions on, and duration of, any voyage undertaken prior to obtaining permanent repairs. In the absence of any determination of the USCG regarding a vessel's safety and seaworthiness, and absent evidence that would be adduced by the required USCG determination on the issue of seaworthiness, the petitioner failed to substantiate its claim for remission under 1466(d)(1) (see HQ 111477 GV). The circumstances surrounding the subject case differ from that ruling in that in this case the GOLDEN ENDEAVOR was not proceeding from one foreign port to another after it became clear that repairs were required. The damage occurred while the vessel was at sea and the repairs were made at the first port of arrival. The master's affidavit dated July 20, 1990, states that during the crossing of October 21 through November 2, 1989, the vessel encountered very heavy weather and very rough seas. During the period of October 21 through October 26, 1989, the winds reached force 11 many times. The affidavit reflects that the following items were damaged:

(a) Forecastle deck set in. Under deck girder buckled. (b) Forward mast - bent down 45o angle and navigation lights and horn washed overboard.
(c) Inert gas pipeline cracked and leaking. (d) 100 feet of safety railing broken or missing. (e) Electrical cable for steering system torn away. (f) Water-tight door to steering room bent. (g) Both forward and aft lifeboats and their stowage racks/breakwaters were torn away.

The master's affidavit dated July 18, 1990, states that during the crossing of January 6 through January 21, 1990, the vessel encountered almost continuous heavy seas and wind conditions (25' to 40' swells and force 8-10 winds). The affidavit reflects that the following items were damaged:

(a) Foremast and running lights.
(b) Safety railings on forecastle and main decks. (c) No. 1 lifeboat.
(d) Accommodation ladder (required to board pilots in the North Sea).
(e) Fire line and steam line to forecastle area. (f) Safety stanchions on the gangway.

In addition to the above stated affidavits, a third master's affidavit also dated July 18, 1990, states that the vessel was beset in ice on January 26, 1990, in the Gulf of St. Lawrence and freed after maneuvering approximately six hours later. The vessel made the voyage to Norway with some unusual noises coming from the propeller shafting. Upon their return trip to Quebec during the period of February 9 through 27, 1990, the vessel was again beset in heavy ice (February 25, 1990). Upon arrival in Quebec, all blades of the propeller were found to be damaged.

In Treasury Decision 78-180, we set out guidelines to be used when relief is requested on the basis that the vessel encountered high winds. (T.D. 78-180, 12 Cust. B. & Dec. 382 (1978)). We held that winds of force 9 on the Beaufort Scale, a numerical scale rating winds according to ascending velocity from zero (calm) to twelve (hurricane), accompanied by a reasonable description of the conditions and verified as required in the regulations, raise a presumption that damages caused were due to stress of weather. The damage reports filed by the ship's master indicate winds of force 8-12. Moreover, these reports describe "boarding seas" with heights of 25 to 40 feet swells in each of the subject crossings (See Rene de Kerchove, International Maritime Dictionary 52 (2nd Ed. 1961).

In addition to the master's affidavits, the file contains copies of the American Bureau of Shipping (ABS) reports concerning the damage, and copies of relevant pages from the ship's log and official log establishing that the vessel suffered damage during each of the above stated crossings. In addition, the file contains the vessel's schedule of arrivals and departures for the period from October 1989 to May 1990. There is no record of the vessel arriving or departing from a U.S. port during this period of time.

It is clear from the evidence that the vessel suffered damage due to severe weather conditions, and that the vessel was in need of repairs to secure her safety and seaworthiness.

Our findings as to the entry are set for below:

With respect to Mil Davie Inc, invoice No. 8911-60, the following items are nondutiable due to the casualty suffered during the period of October 21 through November 2, 1989:

1.0 Forecastle Deck steel work
2.0 Forward Navigation Mast
2.1 Additional work
4.0 Inert Gas System
5.0 140 Liner feet of Triple Handrail
6.0 Liferaft support
7.0 Poopdeck
8.0 New brackets related drydocking services.

With the exception of the installation and adjustment of new door hinges on the steering gear access watertight door, the costs for the other additional work and services are dutiable.

With respect to Mil Davie Inc. invoice No. R-2336/02, page 1, all costs relating to the propeller damage caused by heavy ice are nondutiable.

With respect to Mil Davie Inc. invoice No. 9008-22, all costs relating to the repair of the accommodation ladder (item Nos. 1.1 to 1.6) are nondutiable. The costs associated with the Fan repairs (item No. 2.0) are dutiable.

In C.I.E. 429/61 we noted that:

... expenses which are incurred in conducting inspections made subsequent to the repairs, so as to ascertain whether the work had been properly performed, are dutiable as integral parts of the expenses of repairs although separatly [sic] itemized. Moreover, testing which is effected for the purpose of ascertaining whether repairs to certain machinery or parts of the vessel are required, or are performed in order to ascertain if the work is adequately completed, are also integral parts of the repairs and are accordingly dutiable.

Pursuant to the holdings in C.I.E. 429/61, and extending the concept to surveys as well as inspections, if a survey is conducted to ascertain the extent of damage sustained, or to ascertain if the work is adequately completed, the costs are dutiable as part of the repairs which are accomplished. In the subject case, the surveys were conducted as a part of the repairs relating to the casualty. With respect to the American Bureau of Shipping (ABS) Surveys, we find as follows:

ABS Invoice Nos. 543888 and 543905 relating to the damage listed in ABS Report Nos. MO5938 and MO5970 which occurred during October 21 through November 2, 1989, and February 7 through 27, 1990, all costs are remissible.

ABS Invoice Nos. GL12573 - This invoice is for the cost associated with ABS report GL980 which was performed March 27, 1990 to determined damaged alleged to have occurred during the trans-atlantic crossing of January 6 through January 21, 1990. Subsequent to January 21, 1990, the vessel traversed the Atlantic at least three times before it arrived in Scotland on March 21, 1990, where the subject survey took place. We note that an ABS survey, Report No. MO5970 was made immediately following the casualty that occurred during January 6 through January 21, 1990, and there is no mention at that time of any damage to the cargo tanks as a result of the heavy weather damage. Vessels cannot be said to be compelled for the safety and seaworthiness of the vessel to obtain repairs after making several trans-atlantic voyages subsequent to the "casualty." Accordingly, for the foregoing and other reasons, the duty on the cost associated with the damage survey relating to cargo tanks is not subject to remission.
Harris Pye Marine invoice No. MI3494 relates to the repairs made to the cargo tanks. This invoice is for repair work performed in conjunction with the ABS Survey report GL980 stated above. Accordingly, no remission lies.

ABS Invoice No. 543953 relates to ABS Report MO5990 - The documents submitted with the entry show that the lifeboat was damaged during the casualty which occurred during January 6 through January 21, 1990. This invoice also relates to ABS report 5989 which is dated March 8, 1990. This survey was not to determine damage which had occurred as a result of the heavy weather casualty, but was for the purpose of reporting on the "conversion of fuel for operating the IGS System and change out of starboard lifeboat". Accordingly, the costs associated with the modification of the inert gas system survey is nondutiable as a part of the modification. The costs associated with the replacement lifeboat survey is nondutiable as a part of the rental agreement for a lifeboat which is being used until permanent lifeboats, which are being built, can be delivered in October 1990 (see explanation of dutiability under CIE 289/49 stated below).

Attached to the documents relating to ABS Invoice No. 543953 is a copy of a check for $39,950. The description block indicates that this amount of money was for the rental deposit for a 24' lifeboat. Pursuant to CIE 289/49, equipment leased in a foreign country for use on a vessel of the United States is not subject to the duty provisions of section 1466. Customs has ruled that equipment leased is not dutiable under section because section 1466 is expressed limited by its terms to equipment which is "purchased" during the foreign voyage. CIE 289/49 also held that the installation costs incurred in connection with the leasing of the aforementioned equipment are not dutiable, and that neither the equipment nor the cost of installation thereof need be reported or entered upon the vessel's return to the United States. Accordingly, all costs relating to the rental of the lifeboat is nondutiable.

ABS Invoice No. 543952 relating to the survey of the propeller damage caused by ice conditions, all costs are nondutiable.

A question exists as to whether certain items are subject to duty under section 1466 as equipment, or whether they might be considered non-dutiable modifications. In its application of the vessel repair statute, Customs has held that modifications/ alterations/additions to the hull and fittings of a vessel are not subject to vessel repair duties.

Over the course of years, the identification of modification processes has evolved from judicial and administrative precedent. In considering whether an operation has resulted in a modification which is not subject to duty, the following elements may be considered:

1. Whether there is a permanent incorporation into the hull or superstructure of a vessel (see United States v. Admiral Oriental Line et al., T.D. 44359 (1930), either in a structural sense or as demonstrated by the means of attachment so as to be indicative of the intent to be permanently incorporated.

2. Whether in all likelihood, an item under consideration would remain aboard a vessel during an extended lay up.

3. Whether, if not a first time installation, an item under consideration replaces a current part, fitting or structure which is not in good working order.

4. Whether an item under consideration provides an improvement or enhancement in the operation or efficiency of the vessel.

For purposes of section 1466, dutiable equipment has been defined to include:

...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)).

Under the rationale provided by a long-standing published ruling (C.I.E. 1188/60) the cost of obtaining a gas free certification, a necessary precursor to the initiation of any hot work (welding) which may be necessary, constitutes an ordinary dutiable expense which is associated with repair operations. In liquidating such an expense, however, its cost is apportioned between those items which are remissible and those which remain subject to duty.

With respect to the following invoices alleged to be modifications to the hull and fittings, we find as follows:

Protecno LTD., Invoice No. 086/90 - The costs associated with this invoice relate to the labor of a riding crew which modified the vessel's fuel system to allow the vessel to use diesel oil which provides an improvement or enhancement in operation or efficiency of the vessel. This repair is in the nature of a modification rather than a repair. We find these costs to be nondutiable.

Skarpenord International - Invoice Nos. 3610, 3578 and 3594 relate to the installation of a new gauging system into the vessels cargo tanks which allows the monitoring of the tank levels by computer. The documents submitted sustain that the gauging system is a permanent installation to the hull and fittings of the vessel's hull, however the Cargomaster computer system is considered vessel equipment. We find that the costs associated with Invoice Nos. 3610 and 3578 relating to the installation of the gauging system are nondutiable. The amount of $34,164.57 associated with Invoice No. 3594 relating to the Cargomaster computer system including the monitor and keyboard are dutiable.

With respect to the following invoices, we find as follows:

Adelard Laberge Ltd. - all costs are dutiable except transportation and crane services.

Roberge invoice Nos. 056109, 056332, and 056357, all costs are dutiable.

HOLDING:

Following a thorough review of the facts and evidence, and after an analysis of the law and applicable precedent decisions, we have determined to partially allow and partially deny the Application for Relief, as specified in the law and analysis portion of this decision.

Sincerely,

B. James Fritz

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