HQ 0111506 - Vessel Repairs; Modification; Military Sealift Command; AUSTRAL RAINBOW; Entry No. C27-189032-2. - United States International Trade Commision Rulings

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HQ 111506

August 9, 1991

VES-13-18 CO:R:IT:C 111506 JBW

CATEGORY: CARRIER

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

RE: Vessel Repairs; Modification; Military Sealift Command; AUSTRAL RAINBOW; Entry No. C27-189032-2.

Dear Sir:

This letter is in response to your memorandum of January 22, 1991, which forwards for our review the application for relief filed in conjunction with the above-referenced vessel repair entry.

FACTS:

The record reflects that the subject vessel, the AUSTRAL RAINBOW, arrived at the port of Los Angeles, California, on October 6, 1990. Vessel repair entry, number C27-189032-2, was filed on October 10, 1990.

The AUSTRAL RAINBOW had been operating outside of the United States since April 6, 1987, when it departed from Charleston, South Carolina. The vessel has been under charter to the Military Sealift Command since May 20, 1987. The vessel repair entry indicates that the vessel underwent foreign work in the following shipyards during the following periods of time:

Sembawang Shipyard Singapore May 3-17, 1987 I.H.I. Shipyard Yokohama March 23-April 9, 1988 I.H.I. Shipyard Yokohama February 13-22, 1989 I.H.I. Shipyard Yokohama May 10-21, 1990

ISSUE:

Whether the work performed in the Sembawang Shipyard results in modifications to the vessel and is therefore not subject to duty under 19 U.S.C. 1466.

LAW AND ANALYSIS:

Title 19, United States Code, section 1466, provides in pertinent part for payment of duty in the amount of fifty percent ad valorem on the cost of foreign repairs to vessels documented under the laws of the United States to engage in foreign or coastwise trade, or vessels intended to engage in such trade. If a vessel has operated in international or foreign waters two years or more after its last departure from the United States, then generally only repairs made during the first six months following the last departure of the vessel or purchases of fish nets and netting for the vessel are dutiable. 19 C.F.R. 4.14(a)(2)(iii)(A) (1990). The subject vessel was operated in international or foreign waters for a period of three years and six months, and the only foreign shipyard work performed during the first six months since the departure of the vessel from Charleston was at the Sembawang Shipyard in Singapore. All other work is not subject to duty.

The applicant claims that certain work performed at the Sembawang Shipyard is not subject to duty, for the work constitutes modifications to the vessel required by the Military Sealift Command. In its application of the vessel repair statute, the Customs Service has held that modifications, alterations, or additions to the hull and fittings of a vessel are not subject to vessel repair duties. Over the course of years, the identification of work constituting modifications on the one hand and repairs on the other has evolved from judicial and administrative precedent. In considering whether an operation has resulted in a modification that 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, 18 C.C.P.A. 137 (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. This element should not be given undue weight in view of the fact that vessel components must be welded or otherwise "permanently attached" to the ship as a result of constant pitching and rolling. In addition, some items, the cost of which is clearly dutiable, interact with other vessel components resulting in the need, possibly for that purpose alone, for a fixed and stable juxtaposition of vessel parts. It follows that a "permanent attachment" takes place that does not necessarily involve a modification to the hull and fittings.

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 constitutes a new design feature and does not merely replace a part, fitting, or structure that is performing a similar function.

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.

T.D. 34150, 26 Treas. Dec. 183, 184 (1914)(quoted with approval in Admiral Oriental).

The Customs Service has 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. 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.

The applicant seeks relief from duty for claimed modifications to install port and starboard gangway platforms (Sembawang Shipyard Item 1841). The invoice distinguishes between repairs (p. 16) and modifications (p. 21). From the invoice description, the latter work represents the installation of new platforms placed shipside in the area of the number 5 port and starboard fuel oil tanks. These platforms do not replace parts of the vessel serving similar purposes in terms of location and use. We find that this work is a modification, and the cost of the work is not subject to duty.

Likewise, the applicant seeks relief for the installation of deck dehumidification piping and ductwork (Sembawang Invoice Item 1610) and for the conversion of a rest room into a decontamination chamber (Sembawang Invoice Item 1620). Each of these items represents a new design feature constituting an enhancement to the vessel to improve its military capabilities. The cost of these items is therefore not subject to duty.

Finally, the applicant claims that work performed to the sea chests (Sembawang Invoice Item 1481) are also not dutiable as modifications. From the invoice description, we cannot determine whether the work resulted in a new design feature or in the replacement parts performing similar functions. Absent further details on the nature and purpose of the work, we find the costs contained in Sembawang Invoice Item 1481 to be dutiable.

HOLDINGS:

We find the fabrication and installation of new gangway platforms (Sembawang Invoice Item 1841), the installation of deck dehumidification piping and ductwork (Sembawang Invoice Item 1610), and the conversion of a rest room into a decontamination chamber (Sembawang Invoice Item 1620) to be modifications, and the costs of such modifications are not subject to vessel repair duties. From Sembawang Invoice Item 1481, we cannot determine whether the work resulted in a new design feature or in the replacement of parts performing similar functions; we therefore find this item to be dutiable.

Sincerely,

B. James Fritz
Chief

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