HQ 0111698 - Vessel repair; Modification; Fish processor; Vessel ALASKA Voyager; Entry No. H24-0010190-1, Port of arrival Dutch Harbor Alaska - United States International Trade Commision Rulings

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HQ 111698

January 22, 1992

VES-13-18-CO:R:IT:C 111698 LLB

CATEGORY: CARRIER

Chief, Technical Branch
Commercial Operations Division
Pacific Region
One World Trade Center
Long Beach, California 90831

RE: Vessel repair; Modification; Fish processor; Vessel ALASKA Voyager; Entry No. H24-0010190-1, Port of arrival Dutch Harbor Alaska

Dear Sir:

Reference is made to your memorandum of May 14, 1991, which forwards for our consideration the Application for Relief from the assessment of vessel repair duties associated with the above-captioned vessel repair entry.

FACTS:

The vessel ALASKA VOYAGER underwent repairs and modifications in a foreign shipyard. The repairs were related to a grounding incident remote in time from the shipyard operations in question. Relief is not sought in regard to the repair expenses. The vessel also underwent extensive modification work which resulted in its being a trawler/processor vessel more suitable for use in Alaskan fisheries operations. The vessel was attended to in a shipyard in Japan.

ISSUE:

Whether foreign shipyard operations undergone by the vessel ALASKA VOYAGER may be considered non-dutiable modifications under the vessel repair statute.

LAW AND ANALYSIS:

Title 19, United States Code, section 1466(a), 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 the foreign or coastwise trade, or intended to be employed in such trade.

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 layup.

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, 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)).

Pursuant to published Customs Service rulings (C.I.E. 1325/58 and C.I.E. 565/55), duties may not be remitted in circumstances in which invoices fail to segregate dutiable from non-dutiable expenditures.

In the case of United States v. George Hall Coal Co., 134 F. 1003 (1905), it was held that any of various types of expenses associated with foreign shipyard operations are classifiably free from the assessment of duty, regardless of the character of the overall shipyard work (repair vs. modification). The case found that the expense of drydocking a vessel is not a repair cost. Drydocking is not an isolated expense, and is commonly associated with numerous others. These may include, but are not limited to, sea water supply (for firefighting capability), fresh water supply, hose hook-up and disconnection, fire watch services, shore power hook-up, etc.

We have thoroughly reviewed the entry documentation submitted in this matter. It is our conclusion that the entered costs are clearly for non-dutiable modifications or classifiably free items, with two exceptions, as noted from the foreign shipyard invoice documents. The noted exceptions are:

1. Item 21, page 7; Crew Cabin Installation. The invoice details the removal of corroded flooring materials and provides no segregation of this portion from the remainder of the operation. As such, the entire item is considered a dutiable repair under authority of C.I.E. 1325/58 and C.I.E. 565/55.

2. Subitem 1, page 23; Installation of Monitoring Camera. The invoice details the installation of cameras, monitors, lenses, and remote control capability. These delicate instruments are considered equipment under authority of the decision of the court in Admiral Oriental, supra., and are thus found to be dutiable.

HOLDING:

Following a thorough review of the evidence as well as an analysis of the law and applicable precedents, we have determined that the Application for Relief should be allowed in part and denied in part, as specified in the Law and Analysis portion of this ruling.

Sincerely,

B. James Fritz

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