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HQ 111595

November 13, 1991

VES-13-18-CO:R:IT:C 111595 LLB

CATEGORY: CARRIER

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

RE: Vessel Repair Protest; Protest Number 5301-90-000537; Entry Number C53-0001999-5; Vessel PAUL BUCK

Dear Sir:

Reference is made to your memorandum of March 18, 1991, which forwarded for our consideration the protest from the assessment of vessel repair duties filed by counsel on behalf of Ocean Freedom Shipping, Inc., in regard to the above-captioned vessel repair entry.

FACTS:

Two invoice items are presented for determination as to dutiability. The first is identified as Falmouth Shiprepair Limited invoice number 536/313, reflects charges of 206,470 British pounds sterling for, without elaboration, the following:

Commenced 17/5/88
Docked 17/5/88
Undocked 28/5/88
Completed 28/5/88

The second item is identified as "Owners Item 3-5 Air Conditioning to Wheelhouse", and describes the installation of an air conditioning unit, including wiring and ducting modifications, as well as the installation of louvres, insulation, and welded seating for the compressor unit. The unit was fitted to the welded seating with nuts and bolts.

ISSUE:

Whether the invoices as described adequately demonstrate that the incurred costs at issue are the costs of duty-free modifications as opposed to dutiable vessel repairs.

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.

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. 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 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)).

Pursuant to published Customs Service rulings (C.I.E. 1325/58 and C.I.E. 565/55), duties may not be remitted in circumstances in which invoices fail to segregate dutiable from non-dutiable expenditures. In the present matter, while the attendant work is in the nature of a modification to the hull and fittings of the vessel, the actual air conditioner is merely bolted in place, as would be any other piece of equipment which must be secured from potential shifting and movement aboard a vessel. The only invoiced segregation of relevance regarding the item in question is for classifiably free expenses in the amount of 1,649 pounds sterling. The balance of the expense for the item must be considered dutiable as equipment/repair costs.

In regard to the Falmouth invoice, there is no information provided upon which a determination as to the character of the expenditures may be made. As such, the entire invoice amount is considered dutiable.

HOLDING:

Following a thorough review of the evidence submitted, as well as an analysis of the law and applicable judicial and administrative precedents, we have determined that there is no merit to the protest and that it should be denied, with the exception of the segregated amount of 1,649 pounds sterling appearing on invoice number 3-5 relating to the installation of the air conditioner.

Sincerely,

B. James Fritz

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