HQ 0111340 - Vessel repair; Petition for review; Modifications; Cleaning; Drydocking; Valdez Vessel Repair Entry No. C31-0005013-8, MOBIL MERIDIAN V-360 - United States International Trade Commision Rulings

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HQ 111340

May 30, 1991

VES-13-18-CO:R:P:C 111340 LLB

CATEGORY: CARRIER

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

RE: Vessel repair; Petition for review; Modifications; Cleaning; Drydocking; Valdez Vessel Repair Entry No. C31-0005013-8, MOBIL MERIDIAN V-360

Dear Sir:

This is in reference to your memorandum dated September 26, 1990, transmitting a Petition for Review of an earlier decision regarding the assessment of duties pursuant to 19 U.S.C. 1466 (Ruling Letter 110769). It is requested that we review seven items covered by the above entry. Our findings are set forth below.

FACTS:

The MOBIL MERIDIAN is a U.S.-flag vessel, owned by Mobil Oil Corporation of New York, N.Y. The vessel had foreign shipyard work performed on her by Keppel Shipyard, Ltd. in Singapore during the period of June 28, 1989 through July 26, 1989. Subsequent to the completion of this work the vessel arrived in the United States at Valdez, Alaska, on August 13, 1989. A vessel repair entry (not marked as complete or incomplete) covering the work in question was filed on the date of arrival.

Customs reviewed an Application for Relief filed to cover the entry and held seven items to be subject to duty which are the subject of the current appeal. The items and the reasons for holding them to be dutiable are as follows:

Item 110, radar system installation. Necessary specifications missing.

Item 111, satellite communication system installation. Necessary specifications missing.

Item 112, fathometer system installation. Necessary specifications missing.

Item 113, single sideband antenna mount installation for relocation of antenna. Invoice contained other segregated miscellaneous radar expenses.

Item 63, cargo vent system operations. Cleaning and repair operations, segregated by cost, were presented on the same invoice.

Item 204, drydocking survey. The evidence indicated that the survey, with which repairs were associated, was part of an on- going maintenance program and not merely a required periodic survey.

Item 208, tank cleaning for hot work. Evidence pointed to association of the invoiced cleaning operations to dutiable repairs.

ISSUE:

Whether the evidence presented on appeal cures the deficiencies noted in the record regarding the Application for Relief, to include necessary specifications, sufficient cost segregation, and character of surveys performed.

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.

A question exists as to whether certain of the above- mentioned 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 layup.

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 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)).

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 mere labels such as "continuous" or "ongoing" before deciding whether an item is dutiable. If an inspection or survey is conducted as a part of an ongoing maintenance and repair program, regardless of how it is labelled, the cost thereof is dutiable. Also, 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 the 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.

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.

By defining what articles are considered to be equipment, the Court in Admiral Oriental, supra., formulated criteria which distinguish those items deemed to be non-dutiable modifications under section 1466 from equipment which is dutiable under the statute. 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).

In regard to the cost of installing the radar system, the satellite communications system, and the fathometer (including a digital depth indicator), we believe that the named articles are considered vessel equipment. This being the case, their cost is considered dutiable under section 1466(a). (Customs Ruling 107819).

Concerning the relocation of the 35 foot single sideband antenna, while it is true that various repair operations were recorded on the same invoice, it is also the case that the operation in question is properly segregated from other invoiced expenses. Since the antenna relocation is in the nature of a modification rather than a repair, we find this item to be duty- free.

The cargo vent system invoice details a matter which includes both cleaning and repair components. Even though these elements are segregated as to cost, it is the Customs position that regardless of whether cleaning is performed before, during or after a dutiable repair operation it is dutiable as a part of that operation. The cleaning costs associated with the item under consideration are therefore dutiable.

In regard to the drydocking survey costs, we find in the case file a copy of a United States Coast Guard Certificate of Inspection. This document lists the date of the last-occurring required periodic drydock inspection as July 25, 1989, which is concurrent with the date of the inspection under consideration. In light of this fact, we find that this cost is not associated with any company-ordered maintenance and repair program, but is instead a required survey which should be considered duty-free.

The last item under consideration is the cost of tank cleaning in preparation for "hot work". As previously mentioned, costs associated with making the vessel gas free are to be apportioned. The problems in the present matter, however, are two-fold. Firstly, gas freeing the vessel is never mentioned in the invoice submissions. Secondly, the item relating to the cleaning for hot work is only one among numerous unsegregated costs on the same invoice. Even if it were possible to denominate the entry as related to gas free charges, there is no separate cost for the item upon which to base an apportionment of duties. Accordingly, this item must be considered subject to duty.

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 Petition for Review, as specified in the law and analysis portion of this decision.

Sincerely,

Stuart P. Seidel

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