HQ 0111680 - Vessel Repair; Modification; Equipment; Cleaning; 19 U.S.C. 1466; S/S ADMIRALTY BAY; Entry No. C31-0005020-3. - United States International Trade Commision Rulings

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HQ 111680

November 19, 1991

VES-13-18 CO:R:IT:C 111680 JBW

CATEGORY: CARRIER

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

RE: Vessel Repair; Modification; Equipment; Cleaning; 19 U.S.C. 1466; S/S ADMIRALTY BAY; Entry No. C31-0005020-3.

Dear Sir:

This letter is in response to your memorandum dated April 24, 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 S/S ADMIRALTY BAY, arrived at the port of Valdez, Alaska, on December 4, 1990. Vessel repair entry, number C31-0005020-3, was filed on the same day as entry and was marked incomplete. A completed entry and an application for relief were filed on March 6, 1991, pursuant to an authorized extension of time. The entry indicates that repairs were made to the vessel in the Jurong Shipyard in Singapore. The applicant seeks relief for invoice costs that it claims are not subject to duty as modifications or cleaning.

ISSUES:

(1) Whether certain work performed in the Jurong Shipyard results in modifications to the vessel that is not subject to duty under 19 U.S.C. 1466.

(2) Whether cleaning operations performed in conjunction with claimed modifications to the vessel are subject to duty under 19 U.S.C. 1466.

(3) Whether the cost of purchasing and installing a copying machine and of purchasing walkie-talkies is 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. 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 for the following items. Our conclusions are as follows:

Jurong Item 213(c): Deck non-return and isolation valves:

The work performed under this item involved moving the non-return valve to increase the distance between the non-return valve and isolation valves. The reason for moving the valve was to correct the interference in the operation of the valves caused by the proximity of the valves. The work performed was required to address a problem resulting from the original design of the ship. This work resulted in an improvement to the vessel that was not repair related; the costs appearing under Jurong Item 213(c) are not dutiable.

Jurong Item 311: Stern Tube Oil Sump Tank:

The work involved lowering the sump tank to steering gear flat level to reduce the head pressure on seals. This work was required to address a problem resulting from the original design of the ship; this work resulted in an improvement to the ship that was not repair related. The costs appearing under this item are not subject to duty.

Jurong Item 407:

The work performed under this item involved the preparation of the ship for the later installation of a Grinnell valve. The application does not indicate the purpose for this installation. Absent such an explanation, we find the cost appearing under this item to be subject to duty.

Jurong Item 408:

The work performed under this item involved the reconfiguration of the existing steam piping alignment to relieve pressure on certain points of the piping. This pressure has resulted in pipe leaking, but the work description and the invoice do not indicate that the pipes were in disrepair at the time of the dry docking. We therefore determine that this work was required to address a problem resulting from the original design of the ship; this work resulted in an improvement to the ship that was not repair related. The costs appearing under this item are not subject to duty.

Jurong Item 502(c): Valve Hydraulic Control System: Hydraulic Deck Penetration:

As stated in the invoice, the problem that needed to be addressed under this item was that bronze tightening nuts would not last in the inert gas atmosphere. Further, the location of these nuts made access difficult. Items 502(c)(2) & (3) delineate the cost of installing permanent ladders and work platforms to permit access to these tightening bolts. This work involved the installation of a new design feature, and the cost of the work is not subject to duty.

Item 502(c)(4) involved the installation of stainless steel tightening nuts in the place of the bronze nuts. The replacement of these nuts does not result in a new design feature, but merely results in the replacement of parts performing an identical function. We therefore find the cost of installing the stainless steel tightening nuts to be subject to duty.

Jurong Item 805: Forward Upper Deck:

The work performed under this item included the repair of cracked tie brackets and deck areas. The work included the installation of additional brackets and rider plates, which the applicant claims is not subject to duty. However, because these costs are not segregated from the crack repairs, we find all the costs appearing under Jurong Item 805 to be subject to duty.

Jurong Items 806 to 812:

Under Jurong Items 806 to 812, work was performed to install additional supports to strengthen specified bulkheads (Items 806 and 807), bottom and side longitudinals (Items 808 and 809), longitudinal bulkheads (Item 810), Guillotine Valve Openings (Item 811), and Johnson Boiler Supports (Item 812). The invoice indicates that costs for crack repairs of these sections were included under invoice items 802, 803, and 211. The costs appearing under items 806 to 812 thus do not include repair costs.

The Customs Service has held that where the costs of welding cracks and of installing support brackets to address the structural cause of the cracks are segregated, the cost of the latter work is not subject to vessel repair duty. Headquarters Ruling Letter 106199, dated August 12, 1983. In the present case, the cost of the crack repairs appears under separate invoice item numbers. We find the installation of additional supports to the bulkheads, longitudinals, and other parts of the ship that appear under Jurong Invoice items 806 to 812 represents the installation of a new design feature; the costs appearing under these items are not subject to duty.

Under Jurong Invoice Item 808(c)(3) there appears a charge for cleaning performed to permit the structural modifications to the bottom longitudinals. The Customs Service has consistently held that cleaning is not dutiable unless it is performed as part of, in preparation for, or in conjunction with dutiable repairs or is an integral part of the overall maintenance of the vessel. E.g., Headquarters Ruling Letter 110841, dated May 29, 1990 (and cases cited therein). We have concluded that the structural operations made in item 808 are not dutiable as modifications. The cost of the cleaning associated with this operation is consequently not dutiable.

The applicant seeks relief for the purchase and installation of a copying machine and the purchase of wireless walkie-talkies. Jurong Invoice Item 320. The statute provides for the assessment of duty against the cost of equipment purchased for the vessel. 19 U.S.C. 1466. As explained above, certain equipment purchases may be free of duty if found to be modifications to the vessel. The first criterion set out required that the item be permanently incorporated to the vessel. We find no attachment here to suggest such permanent incorporation. Further, these items are not likely to remain aboard ship during an extensive lay-up. We therefore find the costs of purchasing and installing the copying machine and of the walkie-talkies are subject to duty.

HOLDINGS:

(1) We find that certain work, as detailed in our analysis above, constitutes modifications to the vessel and is not subject to duty under 19 U.S.C. 1466.

(2) The cost of cleaning performed in conjunction with non- dutiable modifications is not subject to duty.

(3) The costs of purchasing and installing the copying machine and of the walkie-talkies are subject to duty.

Sincerely,

B. James Fritz
Chief

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