HQ 0111728 - Vessel Repair; Modification; Air Compressor; Advisory Ruling; 19 U.S.C. 1466; NEDLLOYD HUDSON; Entry No. 559- 1237207-9. - United States International Trade Commision Rulings

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HQ 111728

January 9, 1992

VES-13-18 CO:R:IT:C 111728 JBW

CATEGORY: CARRIER

Deputy Assistant Regional Commissioner
Classification and Value Division
ATTN: Regional Vessel Repair Liquidation Unit 6 World Trade Center
New York, New York 10048-002980

RE: Vessel Repair; Modification; Air Compressor; Advisory Ruling; 19 U.S.C. 1466; NEDLLOYD HUDSON; Entry No. 559- 1237207-9.

Dear Sir:

This letter is in response to your memorandum of June 7, 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 NEDLLOYD HUDSON, arrived at the port of Boston, Massachusetts, on November 6, 1990. Vessel repair entry, number 559-1237207-9, was filed on the same day as arrival. The entry indicates that the vessel, among other items, had a complete compressed air system installed while the vessel was in Felixstowe, England. An application for relief was filed on January 23, 1991. This application was denied in part by your office, for no documentation was included with the application to establish the claim that the installation of the air compressor is not subject to duty as a modification.

A petition was filed on March 21, 1991. In support of its claim, the petitioner submits an invoice from Hamworthy Marine that provides a cost for the installation of the air compression system. The invoice, however, does not describe the work performed. The petition does not provide an explanation or description of what work was done. The petitioner merely makes reference to an advisory ruling in which this office stated that given the information submitted, the prospective work would be considered a modification that is not subject to duty. Headquarters Ruling Letter 110993, dated May 2, 1990.

ISSUE:

Whether the evidence submitted as part of the application for relief is sufficient to establish that the installation of the air compressor is modification to the vessel.

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.

In Headquarters Ruling Letter 110993, this office held that, based on the work order description and accompanying drawing, the proposed installation of the air compressor would be a modification to the vessel that is not subject to duty. However, this advisory ruling stressed that any final determination would be contingent on review of the evidence submitted as part of the entry and procedure for review. The only evidence submitted as part of the petition for relief is an invoice stating that the air compressor was installed. Given the frequency with which work orders are changed, we cannot assume that the work actually performed to install the air compression system was identical to the work proposed in the work order. Without further description of the actual installation process, we are unable to conclude that the installation of the air compressor constitutes a modification to the vessel. For this reason, the petition for review is denied.

HOLDING:

Notwithstanding the advisory ruling stating that the installation of an air compression system would constitute a modification to the subject vessel, without further description of the actual installation process, we are unable to conclude that the installation of the air compressor constitutes a modification to the vessel. For this reason, the petition for review is denied.

Sincerely,

B. James Fritz
Chief

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