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HQ 111696


January 9, 1992

VES-13-18 CO:R:IT:C 111696 JBW

CATEGORY: CARRIER

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

RE: Vessel Repair; Modification; Conversion; Inspection; 19 U.S.C. 1466; SEA-LAND SPIRIT; Entry No. C27-189078-5.

Dear Sir:

This letter is in response to your memorandum of May 3, 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 SEA-LAND SPIRIT (ex BENJAMIN HARRISON), arrived at the port of Los Angeles, California, on December 17, 1990. Vessel repair entry, number C27-189078-5, was filed on the same day as arrival. The entry indicates that the vessel underwent foreign shipyard work while in Kobe, Japan. Specifically, the record shows that the vessel was converted from a combination barge and container carrier to a full container vessel. The vessel operator had previously sought a prospective ruling in which this office concluded that the described work would constitute a modification to the vessel. Headquarter Ruling Letter 111144, dated September 5, 1990. In addition, other work was performed on the vessel during the dry-docking.

ISSUES:

(1) Whether the submissions made in conjunction with this entry constitute an application for relief.

(2) Whether certain work performed on the vessel while in Kobe, Japan, results in modifications to the vessel, the cost of which is not subject to duty.

(3) Whether inspections of the anchor windlasses because of ongoing problems and the constant tension winches to ensure that they are operating properly are non-dutiable inspections 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.

The vessel operator has submitted a cover letter, invoices, sketches, and a work sheet identifying the items for which it is seeking relief. However, the reasons for which relief is being sought are not provided. The Customs Regulations state that an application for relief need not be in any particular form. 19 C.F.R. 4.14(d)(1)(i). However, the regulations state and this office has consistently held that an application must identify the items for which relief from payment of duty is sought as well as the legal bases for the Customs Service not to assess duty. Id.; Headquarters Ruling Letter 110107, dated August 30, 1989. With a deficiency, unless steps are taken to validate or complete the application within the requisite time frame (i.e., within sixty days from the date of first arrival or before the expiration of time granted), the entry is subject to immediate liquidation upon the expiration of the allotted time period. By failing to identify the legal grounds for relief, the submission in this case does not constitute an application for relief. Further, the time period during for filing an application has expired. The entry therefore is subject to immediate liquidation in accordance with the determinations made in this ruling.

You have requested that this office review the following items relating to the conversion of the vessel and other installation operations. 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.

Our conclusions on items specifically referred to this office are as follows:

Mitsubishi Heavy Industries Item 6.1-5: Sigma Oily Water Separator:

The vessel operator furnished an oily water separator to be installed in the engine room. The invoice indicates that this separator replaces an item performing a similar function. No evidence indicates that the new oily water separator constitutes a new design feature or an improvement. The cost of this item is subject to duty.

Mitsubishi Heavy Industries Item 6.1-7: Emergency Diesel Boundary:

Under this item, a boundary and self-closing door were installed to convert the emergency diesel platform to a sealed CO2 space. This operation resulted in a new design feature being added to the ship. The cost of the installation is not subject to duty.

Mitsubishi Heavy Industries Item 6.1-9: Chloropac System:

Under this item, a Chloropac system was installed. The purpose of this new installation was to protect the ship against marine growth. This system represents a new design feature, the cost of which is not subject to duty.

Mitsubishi Heavy Industries Item 6.1-13: Uptake Expansion Joint:

Four expansion joints in the uptakes for the port and starboard boilers were "renewed." The invoice description suggests that this operation merely replaced existing parts that were worn. Such operation is a repair and is subject to duty.

Mitsubishi Heavy Industries Item 6.1-46: Lube Oil Pumps:

This item involved work on the suction line of the lube oil pump and air vent line. The invoice includes the following descriptions: "Deck penetration pipe cropped out and new T piece welded with flange"; "Existing air vent line cropped out and new flexible pipe installed new packing"; and "Pump discharge line in way of head tank cropped out, new flanges welded and sight glass installed with new gasket." These description suggest that existing parts are being replaced with "new" parts. The cost appearing under this item is subject to duty.

Mitsubishi Heavy Industries: Final Price Agreement for Conversion of Vessel to Container Carrier

The vessel operator has submitted extensive documentation on the contract and price agreement for the conversion of the vessel from a combination barge and container carrier to a full container vessel. Extensive descriptions of the work were included, as well as specific drawings of the changes. The conversion included installation of or alterations to hatch covers, deck pedestals, refrigerated container outlets, and other items. Repairs made to specific parts of the hull are separately itemized. We find, therefore, that the cost of the conversion is not subject to duty. Likewise, the cost of the Hull Modification Survey (No KO17739) by the American Bureau of Shipping, which relates entirely to the modification, is not subject to duty.

The Mitsubishi Heavy Industries invoice indicates that tests were performed to the anchor windlasses and the constant tension winches. The Customs Service has held that where a test is performed to ascertain the extent of damage sustained or whether repairs are deemed necessary, then the costs are dutiable as part of the repairs that are accomplished. C.I.E. 429/61; C.S.D. 79- 2, 13 Cust. B. & Dec. 993 (1979); C.S.D. 79-277, 13 Cust. B. & Dec. 1395, 1396 (1979). However, Customs has held that inspections not resulting in repairs are not dutiable. Headquarters Ruling Letter 110395, dated September 7, 1989; see American Viking Corp. v. United States, 37 Cust. Ct. 237, 247, C.D. 1830 (1956). The invoice description relating to the anchor windlasses (item 6.1-1) indicates that the inspections were performed to evaluate ongoing problems with the windlasses; notations indicate that problems in the hydraulic and electrical system were checked and repaired. The costs appearing under this item are therefore subject to duty. The inspection of the constant tension winches (item 6.1-87) indicates that no repairs were made. The cost for this item is not subject to duty.

HOLDINGS:

(1) The submission of the vessel operator fails to meet the regulatory requirements for an application for relief. The time period during which the vessel operator could cure the defect has expired, and the entry is subject to immediate liquidation.

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

(3) The invoice description relating to the anchor windlasses (item 6.1-1) indicates that the inspections were performed to evaluate ongoing problems with the windlasses and that repairs were made. The cost of this item is subject to duty. The inspection of the constant tension winches (item 6.1- 87) indicates that no repairs were made. The cost for this item is not subject to duty.

Sincerely,

B. James Fritz
Chief

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