HQ 0111527 - Vessel Repair; Modification; M/V KATHLEEN PEARCY; 19 U.S.C. 1466; Entry No. C32-0006758-6. - United States International Trade Commision Rulings

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HQ 111527

July 23, 1991

VES-13-18 CO:R:IT:C 111527 JBW

CATEGORY: CARRIER

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

RE: Vessel Repair; Modification; M/V KATHLEEN PEARCY; 19 U.S.C. 1466; Entry No. C32-0006758-6.

Dear Sir:

This letter is response to your memorandum of February 14, 1991, which forwards for our review the application for relief filed on the above-referenced vessel repair entry.

FACTS:

The record reflects that the subject vessel, the M/V KATHLEEN PEARCY, arrived at the port of Honolulu, Hawaii, on December 26, 1990. Vessel repair entry, number C-0006758-6, was filed on January 2, 1991, and indicated that work was performed on the vessel in Bangkok, Thailand. The description of the work, the drawings, and the invoice show that a segregated fuel ballast system was installed on the vessel. This installation was performed to maintain the ship's Certificate of Inspection pursuant to a requirement by the United States Coast Guard.

ISSUE:

Whether the work performed in a foreign shipyard is a modification and 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.

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.

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 that 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.

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

In the present case, we find that the drawings and Manop Engineering Limited Partnership invoice descriptions of the work performed to install the segregated fuel ballast system demonstrate that the work was performed to improve the operation of the vessel. The costs associated with this work is consequently not dutiable. However, item 11 of the Manop Engineering Limited Partnership invoice reads: "Blank deep tank leaking heating coil in hold No.1, leaking pipe in deep tank, hold No.2 port, and patch up leaking pipe." This item indicates that repairs were performed, and the cost thereof is subject to duty.

HOLDING:

The work performed to install the segregated fuel ballast system is a modification and is not subject to duty. Item 11 of the Manop Engineering Limited Partnership invoice indicates that repairs were made. The cost of this item is dutiable.

Sincerely,

B. James Fritz
Chief

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