United States International Trade Commision Rulings And Harmonized Tariff Schedule

faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers

faqs.org > Rulings and Tariffs Home > Rulings By Number > 1992 HQ Rulings > HQ 0111571 - HQ 0111693 > HQ 0111641

Previous Ruling Next Ruling

---

HQ 111641

August 5, 1991

VES-13-18-CO:R:IT:C 111641 GEV

CATEGORY: CARRIER

Chief, Technical Branch
Commercial Operations
Pacific Region
One World Trade Center
Long Beach, California 90731

RE: Vessel Repair; Entry No. C31-0008394-9; M/V ARCTIC HERO V-1; Conversion; Modification

Dear Sir:

This is in response to your memorandum dated April 9, 1991, forwarding an application for relief of duties assessed pursuant to 19 U.S.C. 1466. You request that we review twenty-four items. Our findings are set forth below.

FACTS:

The M/V ARCTIC HERO is a U.S.-flag vessel owned and operated by Palmco Pacific Corporation of Seattle, Washington. The applicant states that the subject vessel was converted from an oil rig supply vessel to a stern trawler head and gut fish factory processing vessel at the Murakami Shipyard in Ishinomaki, Japan, during the period of July 21, 1989 - July 9, 1990. Subsequent to the completion of this conversion work the vessel arrived in the United States at Dutch Harbor, Alaska, on September 22, 1990. A vessel repair entry was filed on September 28, 1990.

Pursuant to an authorized extension of time, an application for relief, dated December 18, 1990, was filed. The basis for the relief requested is that the conversion work in question constituted a nondutiable modification to the vessel. The conversion work purportedly entailed the following: (1) lengthening the vessel to create increased freezer storage space, a larger area for a processing deck and a longer net deck to repair and work the nets; (2) increasing the power, maneuverability and control standards of the propulsion system; (3) increasing the electrical and hydraulic power of the auxiliary engine systems to run processing, refrigeration and hydraulic machinery; (4) installation of a hydraulic system
including hydraulic pumps, motors, and winches to operate the trawl net and to unload cargo; (5) installation of a processing plant to produce a marketable product; (6) installation of a refrigeration plant to freeze and preserve fish; and (7) increasing the number and size of all accommodation areas to house a substantially larger crew, including processing crewmen. In support of its claim for relief the applicant has submitted various documentation including invoices, lease agreements, statements of corporate officers of Palmco Pacific Corporation, and prior Customs rulings.

ISSUE:

Whether evidence is presented sufficient to prove that the foreign work performed on the subject vessel for which the applicant seeks relief constitutes modifications/alterations/ additions so as to render the work nondutiable 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 50 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, 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 lay up.

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, by 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))

In the present case, the applicant claims that certain items contained in the Aizawa Shipping Company invoices, are nondutiable modifications. The record shows that the Aizawa Shipping Company managed the conversions, which actually took place at Murakami Shipyards, Ishinomaki, Japan. The Customs Service has held that the decision in each case as to whether on installation constitutes a nondutiable modification/alteration/ addition to the hull and fittings of a 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 hull and fittings of a vessel, the repair of that article, of the replacement of a worn part of the hull and fittings, is subject to vessel repair duties.

In the present case, we find the Aizawa invoice descriptions do not enable us to determine conclusively that the work performed to the vessel is not dutiable as a modification. The invoices contain only the most general summary of the work carried out by the shipyard. Without details provided by the architectural plans and shipyard invoice descriptions of the work performed, we can only speculate on the actual work carried out. In the absence of such information, we find the costs contained in the Aizawa invoices to be dutiable with the exception of the charges for dockage on p. 1 (see C.I.E. 429/61) and domestic packing and freight on p. 19-A (see C.D. 1830).

HOLDING:

The evidence presented is insufficient to prove that the foreign work performed on the subject vessel for which the applicant seeks relief constitutes modifications/alterations/ additions so as to render the work nondutiable under 19 U.S.C. 1466. Accordingly, the charges listed on the Aizawa Shipping

Co., Ltd. invoices under consideration are dutiable with the exception of those discussed above.

Sincerely,

B. James Fritz

Previous Ruling Next Ruling