HQ 0111455 - Vessel repair; modification; steel plate installation Vessel: GREEN BAY V-25 - United States International Trade Commision Rulings

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HQ 111455

July 1, 1991

VES-13-18-CO:R:P:C 111455 KVS

CATEGORY: CARRIER

Chief, Technical Branch
Commercial Operations Division
1 World Trade Center
Long Beach, CA 90831

RE: Vessel repair; modification; steel plate installation Vessel: GREEN BAY V-25
Vessel Repair Entry No. 718-0000408-8
Date of Arrival: September 6, 1990
Port of Arrival: Portland, Oregon

Dear Sir:

This is in response to your memorandum dated December 19, 1990, which forwards for our consideration an application for relief filed in connection with the GREEN BAY V-25, vessel repair entry no. 718-0000408-8. Our findings are set forth below.

FACTS:

The GREEN BAY V-25, an American-flag vessel, underwent certain foreign shipyard operations in the Japan between August 22-24, 1990. Shortly thereafter, the vessel arrived in the United States at Portland, Oregon, on September 6, 1990, and made formal entry.

In a letter dated November 2, 1990, the vessel agent requested a 30-day extension which was granted by the appropriate vessel repair liquidation unit. Subsequently, an application for relief from vessel repair duties was timely filed on December 5, 1990.

ISSUE:

Whether certain foreign shipyard work performed on the subject vessel involving the installation of a new steel plates is dutiable under 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.

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, 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.

The Customs Service has held that for an item to be characterized as a nondutiable modification, it must encompass the installation of an item as a new design feature, not as a replacement for, or restoration of, parts now performing a similar function (Customs Memorandum 108871 (dated April 16, 1987)). Customs has also held that the decision in each case as to whether an installation constitutes a nondutiable addition to the hull and fittings of the vessel depends to a great extent on the detail and accuracy of the drawings and invoice descriptions of the actual work performed (Customs Memorandum 108871 (dated April 16, 1987), citing C.S.D. 83-35). Even if an article is considered to be part of the hull and fittings of a vessel, the repair of that article, or the replacement of a worn part of the hull and fittings, is subject to vessel repair duties (see, C.I.E. 233/60.

The installation of new steel plates and brackets has previously been considered by the Customs Service. Headquarters Rulings 111042 (dated October 11, 1990) and 110897 (dated June 5, 1991) determined that similar reinforcements completed by means of the installation of steel plates and brackets were undertaken
to correct the stress problems created by the defective nature of the current structure, as evidenced by the existence of cracks in the hull.

Examination of the supporting documentation indicates that the subject vessel was experiencing similar problems. Maritime Engineering invoice IB-1526, submitted in support of the application, describes the work undertaken as "reinforcement works in hull cracks."

The applicant has submitted no other documentation (i.e. drawings, blue prints, A.B.S. report, etc.) which would disprove our conclusion that the installation was a replacement for, or restoration of parts currently performing a similar function, albeit improperly. Therefore, we find the costs incurred in the installation of the steel plates to be dutiable. Accordingly, the application for relief is denied in full.

HOLDING:

Where installations are made to a vessel for the purpose of replacing malfunctioning parts currently performing the same or similar function, the costs incurred in the installation cannot be characterized as a non-dutiable modification and are held to be dutiable.

Sincerely,

B. James Fritz

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