HQ 0111685 - Vessel Repair; Modification; Fish Processor; United States Parts; 19 U.S.C. 1466; 19 C.F.R. 4.14; M/V ARCTIC TRAWLER; Entry No. C31-0007663-8. - United States International Trade Commision Rulings

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 0111685

HQ 111685

January 6, 1992

VES-13-18 CO:R:IT:C 111685 JBW

CATEGORY: CARRIER

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

RE: Vessel Repair; Modification; Fish Processor; United States Parts; 19 U.S.C. 1466; 19 C.F.R. 4.14; M/V ARCTIC TRAWLER; Entry No. C31-0007663-8.

Dear Sir:

This letter is in response to your memorandum dated May 2, 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 M/V ARCTIC TRAWLER, arrived at the port of Anchorage, Alaska, on December 20, 1990. Vessel repair entry, number C31-0007663-8, was filed on December 26, 1990.

In 1987, the vessel underwent shipyard work in Japan to convert the vessel from a catcher/processor fishing vessel to a surimi factory trawler. The vessel operated in the Bering Sea from late-1987 until mid-1990 as a surimi factory trawler. During this time, the vessel returned twice to Japan for further modifications or repairs. In October, 1990, the vessel again sailed for Japan for the purpose of installing integrated roe removal machinery in the vessel. This work was performed between November and December 1990. The applicant, stating the work constituted a modification to the vessel, seeks relief from vessel repair duty on the cost of such work. The applicant also seeks relief for certain parts used in the foreign shipyard work.

ISSUES:

(1) Whether work performed in a foreign shipyard to install an integrated roe removal system results in a modification to the vessel that is not subject to duty under 19 U.S.C. 1466.

(2) Whether parts used in the repair of the vessel are dutiable, if such parts are documented to be of United States origin or to have been imported into the United States, duty- paid.

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.

The applicant claims that certain work performed is not subject to duty, for the work constitutes modifications to the vessel. 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 work performed to install integrated roe removal machinery in the vessel at the Shin Hayashikane Co. We have examined the eight-seven items contained in the Shin Hayashikane invoice that were referred to this office for review. We find that the work described in eighty-five of those items, coupled with the drawings submitted, support the applicant's claim that such work constitutes a modification to the vessel. In item 21A, work was performed to the boiler that the applicant acknowledges was dutiable as a repair; however, the applicant claims that items 21B and 21C, which involve accessing the boiler, are not dutiable. We have held that where accessing work is integral to dutiable repairs, then the accessing work is itself dutiable. Headquarters Ruling Letter 108366, dated March 4, 1987. These charges appear to be integral to the boiler repairs performed in item 21A, and we find the costs appearing under items 21B and 21C to be subject to duty.

You have requested review of Takuma Hanyo Kikai invoice which relates to the repair of a heating coil. The applicant acknowledges that the entire invoice is subject to duty except items 10 (transportation expenses), 11 (stay expenses), and 12 (general expenses relating to communications and freight charges). It is well settled law that items relating to transportation, lodging, and communications are items or services that have been recognized as free of duty. Items 10, 11, and 12 of the Takuma Hanyo Kikai invoice are not subject to duty.

The Mayekawa Marine Plant Co., Ltd., invoice, items one through 8, represents work performed to increase the freezer plates and to enlarge the refrigeration capacity. The Mikasa Trading Company invoice represents in part items required to operate the roe removal machinery. The work or the equipment contained in these invoices are related to the installation of the roe removal machinery. These costs are not subject to duty. However, the costs appearing under items 9 through 21 of the Mayekawa Marine Plant invoice and the costs for parts identified as "spare parts" or "additional supplies" appearing in the Mikasa Trading Company invoice are subject to duty.

Two Toyo Suisan Kikai Co., Ltd., invoices are submitted for review. The first invoice, which is not numbered, reflects costs for machinery used in the installation of the roe removal machinery. These costs are related to the modification and are not subject to duty. The second invoice, number 90-1552-1, represents costs for spare parts purchased for the newly installed machinery. The applicant acknowledges that these items are subject to duty.

The applicant seeks relief for parts it claims are of United States origin or have been imported into the United States, duty- paid. The vessel repair statute exempts from duty spare repair parts or materials that have been manufactured in the United States or entered the United States duty-paid and are used aboard a cargo vessel engaged in foreign or coasting trade. 19 U.S.C. 1466(h). The Customs Service interprets the use of the term cargo to limit the exception contained in the amendment to vessels whose sole service is the transportation of cargo and which are actually engaged in that service while documented for the foreign or coasting trade. Headquarters Ruling Letter 110953, dated September 19, 1990. This interpretation excludes vessels such as factory processors that process, store, and transport as cargo marine products, but does not exclude those bona fide cargo vessels that may incidentally carry that number of passengers allowed under Coast Guard guidelines. The ARCTIC TRAWLER is a surimi factory trawler and consequently does not qualify for the exceptions contained in 19 U.S.C. 1466(h).

Failing qualification for the exceptions accorded to cargo vessels, we must evaluate the petitioner's claims regarding duty treatment of parts under the previously established statutory rules. Customs administration of duty assessment issues under section 1466 regarding United States manufactured materials purchased in the United States has been guided by the terms of Treasury Decision 75-257. T.D. 75-257, 9 Cust. B. & Dec. 576 (1975). That decision provides that when materials of United States manufacture are purchased by the vessel owner in the United States for installation abroad by foreign labor, the labor cost alone is subject to duty under 19 U.S.C. 1466. Id.; Headquarters Ruling Letter 111065, dated February 4, 1991. The owner or master must submit written documentation or other physical evidence, such as an affidavit by the equipment manufacturer, that the equipment was manufactured in the United States. See Headquarters Ruling Letter 110953, dated September 19, 1990. Absent such documentation, the material is deemed foreign and consequently is dutiable.

We have reviewed the invoices and determine that the evidence in the West Marine Sales Company and Bearing Incorporated invoices is insufficient to establish United States manufacture. The Pacific Fisherman, Inc., letter attests that the net reel pedestal was manufactured in the United States, but that the hydraulic valve was manufactured in Italy. The invoice does not segregate these costs, and the entire invoice is subject to duty. Likewise, of the parts supplied by Kaman Industrial Technologies Corporation, only parts listed under invoice B237829 (A39 Belt), invoice B237512, and invoice B237512 are of United States origin. These parts are not subject to duty, but all other parts listed in the Kaman invoices are subject to duty.

HOLDINGS:

We find that the installation of integrated roe removal machinery constitutes a modification to the vessel, the cost of which is not subject to duty. Evaluation of specific invoices is contained in the body of this ruling.

The vessel is a surimi factory trawler and consequently does not qualify for the exceptions accorded to cargo vessels contained in 19 U.S.C. 1466(h). Pursuant to T.D. 75-257, when materials of United States manufacture are purchased by the vessel owner in the United States for installation abroad by foreign labor, the labor cost alone is subject to duty under 19 U.S.C. 1466. Evaluation of whether specific invoices meet the evidentiary requirements is contained in the body of this ruling.

Sincerely,

B. James Fritz
Chief

Previous Ruling Next Ruling