HQ 0111693 - Vessel Repair; Entry No. C18-0013084-6; SS VALLEY FORGE V-555; Modification; Oily Water Ballast Monitor - United States International Trade Commision Rulings

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HQ 111693

December 24, 1991

VES-13-18-CO:R:IT:C 111693 GEV

CATEGORY: CARRIER

Deputy Assistant Regional Commissioner
Commercial Operations Division
423 Canal Street
New Orleans, Louisiana 70130-2341

RE: Vessel Repair; Entry No. C18-0013084-6; SS VALLEY FORGE V-555; Modification; Oily Water Ballast Monitor

Dear Sir:

This is in response to your memorandum dated May 8, 1991, transmitting an application for relief from duties assessed pursuant to 19 U.S.C. 1466. Our findings are set forth below.

FACTS:

The SS VALLEY FORGE is a U.S.-flag vessel owned by Keystone Shipping Co., of Philadelphia, Pennsylvania. The subject vessel underwent the installation of an oily water ballast monitor while in Adabiya, Egypt, on November 9, 1990. Subsequent to the completion of the work, the vessel arrived in the United States at Jacksonville, Florida, on December 21, 1990. Formal entry was timely filed on December 28, 1990. An application for relief was timely filed on February 11, 1991.

The applicant states that the installation referenced above was a requirement of the U.S. Coast Guard (USCG) for all tank vessels carrying oil cargoes, unless an exemption is granted by the USCG (see sections 157.12 and 157.306, USCG Regulations (33 CFR 157.12, 157.306)). It is stated that the subject vessel was operating under such an exemption which was subsequently revoked thereby necessitating the installation in question. The applicant contends that this work constituted a nondutiable modification. In support of this position, the applicant has submitted documentation from Mackay Communications and GMG Systems, Inc., a U.S. Coast Guard Certificate of Inspection, and two of its own internal memoranda.

ISSUE:

Whether evidence is presented sufficient to prove that the foreign work performed on the subject vessel for which the applicant seeks relief constitutes a modification 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 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. 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 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

Very often when considering whether an addition to the hull and fittings took place for the purpose of 19 U.S.C. 1466, we have considered the question from the standpoint of whether the work involved the purchase of "equipment" for the vessel. It is
not possible to compile a complete list of items that might be aboard a ship that constitute its "equipment". An unavoidable problem in that regard stems from the fact that vessels differ as to their services. What is required equipment on a large passenger vessel might not be required on a fish processing vessel or offshore rig.

"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))

By defining what articles are considered to be equipment, the Court attempted to formulate criteria to distinguish non- dutiable items which are part of the hull and fittings of a vessel from dutiable equipment, as defined above. These items might be considered to include:

...those appliances which are permanently attached to the vessel, and which would remain on board were the vessel to be laid up for a long period... Admiral Oriental, supra., (quoting 27 Op. Atty. Gen. 228).

A more contemporary working definition might be that which is used under certain circumstances by the Coast Guard; it includes a system, accessory, component or appurtenance of a vessel. This would include navigational, radio, safety and, ordinarily, propulsion machinery.

Upon reviewing the record with regard to this particular work it is apparent that the installation of the oily water ballast monitor constitutes a nondutiable modification. In regard to the supporting documentation, however, we note that the only description contained on the photocopy of the Mackay Communications invoice no. 26502375 submitted reads, "SMR TERIAL LLEY FORGE 5234 [sic]." Although this would appear to indicate that some type of material was purchased for the VALLEY FORGE, there is not a sufficient nexus between the invoice and the installation under consideration to support a finding that it was included as part of this modification. The charges on this invoice are therefore dutiable with the exception of the freight charges listed thereon.

HOLDING:

With the exception of the Mackay Communications invoice no. 26502375, evidence is presented sufficient to prove that the foreign work performed on the subject vessel for which the applicant seeks relief constitutes a modification so as to render the work nondutiable under 19 U.S.C. 1466.

Sincerely,

B. James Fritz

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