HQ 0111774 - Vessel Repair; Modification; Survey; 19 U.S.C. 1466; SEA- LAND INNOVATOR; Entry No. C27-0189094-2. - United States International Trade Commision Rulings

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HQ 111774

January 9, 1992

VES-13-18 CO:R:IT:C 111774 JBW

CATEGORY: CARRIER

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

RE: Vessel Repair; Modification; Survey; 19 U.S.C. 1466; SEA- LAND INNOVATOR; Entry No. C27-0189094-2.

Dear Sir:

This letter is in response to your memorandum dated June 4, 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 INNOVATOR, arrived at the port of Los Angeles, California, on January 15, 1991. Vessel repair entry, number C27-0189094-2, was filed on the same day as arrival. The entry indicates that the vessel had shipyard work performed in Kobe, Japan, during December, 1990. The applicant seeks relief for invoice costs that it claims are not subject to duty as modifications or inspections.

ISSUES:

(1) Whether work performed on the vessel that is simply designated "modification" is subject to duty under 19 U.S.C 1466.

(2) Whether an inspection to ascertain whether dutiable repairs are being or have been carried out correctly is subject to duty 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.

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.

Work performed under Mitsubishi Heavy Industries, Ltd., work order no. 5723241-3 (IV-5125) is designated simply "Modification." No further description or plans are provided to enable this office to determine the nature or purpose of the work performed. Although the invoice provides that, among other things, solid doubler plates were "fabricated" and "installed," we find this description alone insufficient to determine whether the work was in the nature of a repair or a modification. The costs appearing in this invoice are therefore subject to duty.

Work performed under Mitsubishi Heavy Industries, Ltd., work order no. 5723241-3 (IV-5115) is designated as "guarantee work." The invoice description states "Deck doubler AFT./FORE. end, dye- check carried out." The invoice further provides that "[e]xisting paint removed by disc-sander, and after inspection paint coated with one coat of primer and one coat of finish red. Where disturbed for inspection."

The record reflects that dutiable repair work was performed on the deck doublers (see American Bureau of Shipping Report No. KO17779-G: Miscellaneous Repairs). 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). However, where an inspection is performed to ascertain whether repairs were properly performed, then those inspection costs are dutiable regardless of the nature of the inspection. C.I.E. 429/61; C.S.D. 79-2, 13 Cust. B. & Dec. 993 (1979). We find that inspections performed as part of the deck doubler repairs are subject to duty. The painting performed in conjunction with these inspections and repairs is likewise dutiable. T.D. 49532. Moreover, there is no evidence that the work should be non-dutiable as a guarantee item. Accordingly, the costs appearing on this invoice are subject to duty.

Finally, we find the fees portion of Posa Marine Services, Ltd., invoice no. PMS-90/135, to be dutiable. Attendance to the vessel to witness the bottom survey, U.T. inspection and rewelding are part of the dutiable repairs. Although travel expenses are not dutiable, in this case the travel expenses and the dutiable charges are grouped together. Customs has consistently held that where the charges for dutiable and non- dutiable items are not segregated within an invoice, all of the charges in that invoice must be deemed dutiable. Customs Memorandum 108567, dated September 10, 1986.

HOLDINGS:

(1) Work performed under Mitsubishi Heavy Industries, Ltd., work order no. 5723241-3 (IV-5125), which is designated simply "Modification," is subject to vessel repair duty in the absence of a more complete explanation of the work performed.

(2) Where an inspection is performed to ascertain whether repairs were properly performed, then those inspection costs are dutiable regardless of the nature of the inspection. Thus, we find the costs appearing under the following invoices to be dutiable: Mitsubishi Heavy Industries, Ltd., work order no. 5723241-3 (IV-5115) and Posa Marine Services, Ltd., invoice no. PMS-90/135.

Sincerely,

B. James Fritz
Chief

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