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HQ 111782


October 30, 1991

VES-13-18 CO:R:IT:C 111782 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; United States Parts; Modification; M/V AMERICAN EAGLE, Voyage 132; Protest No. 1001-90-006967.

Dear Sir:

This letter is in response to your memorandum of June 27, 1991, which forwards for our review and ruling the above- referenced protest against the assessment of vessel repair duties.

FACTS:

The record reflects that the subject vessel, the M/V AMERICAN EAGLE, arrived at the port of Bayonne, New Jersey, on August 27, 1989. Vessel repair entry, number C10-4907884-8, was filed on November 3, 1989 and indicates that shipyard work was performed in Goteborg, Sweden. By letter dated October 24, 1989, the vessel operator requested an extension to file its application and supporting documentation. The vessel operator submitted by letter dated December 13, 1989, copies of invoices relating to the shipyard work performed in Sweden. Responding to a letter dated December 28, 1989, the vessel operator submitted further cost evidence on January 23, 1990.

This office denied the request for relief in Headquarters Ruling Letter 110895, dated June 1, 1990. We ruled that the entry was untimely filed and recommended that the entry be referred for penalty action. Further, we determined that the request for relief met neither the sufficiency criteria for an application for relief nor the time requirements for the filing of an application and supporting documentation. We therefore directed that the entry be liquidated in accordance with the instructions contained in the ruling. The record shows that the entry was liquidated on July 13, 1990. A protest was filed on August 16, 1990, and the protestant filed further arguments on February 5, 1991.

ISSUES:

(1) Whether parts or materials used in repairs to the vessel are dutiable if such parts are documented to be of United States origin or to have been imported into the United States, duty-paid.

(2) Whether work performed to install a deflector plate to the chain locker and to install a stern tube head tank constitutes a modification to vessel that is not 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.

The protestant seeks relief for the cost of paint used in repairs to the vessel. The vessel repair statute exempts from duty spare repair parts or materials that have been manufactured in the United States or entered the United States duty-paid and are used aboard a cargo vessel engaged in foreign or coasting trade. See 19 U.S.C. 1466(h). For purposes of this section, where a part is purchased from a party unrelated to the vessel owner, a United States bill of sale constitutes sufficient evidence to demonstrate that the part was either manufactured in the United States or entered in the United States, duty-paid. In cases in which the vessel operator or a related party has acted as the importer of foreign materials, or where materials were imported at the request of the vessel operator for later use by the operator, the vessel repair entry will identify the port of entry and the consumption entry number for each part installed on the ship which has not previously been entered on a Customs Form 226.
We have reviewed the Hempel invoices. These invoices indicate that paint was shipped from points in the United States to the vessel at various United States ports between December, 1988, and April, 1989. The paint was used in the foreign shipyard during August, 1989. This evidence is sufficient to demonstrate that the paint was either manufactured in the United States or imported into the United States, duty-paid. The cost of the paint is not subject to duty pursuant to 19 U.S.C. 1466(h).

The protestant also claims that certain work performed at the Cityvaret Shipyard is not subject to duty, for the work constitutes modifications to the vessel. 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.

The protestant seeks relief from duty for the installation of a deflector plate to the chain locker. (Cityvaret Shipyard Invoice No. 206). The repair requisition indicates that the work was performed to permit the proper stowage of the chain without having a man in attendance, which may present a danger. The work involved installing a plate to deflect the chain to one side of the locker. From this description and from the plans submitted, we conclude that the work resulted in a new design feature that is not repair related. The costs appearing under this invoice item are not dutiable.

The protestant also seeks relief from duty for the installation of a stern tube head tank. (Cityvaret Shipyard Invoice No. 903). The work was required to address a problem resulting from the original design of the stern tube head tank. This work resulted in an improvement to the vessel that is not repair related; the costs appearing under this invoice item are therefore not dutiable.

HOLDINGS:

(1) The paint used in the foreign shipyard operations are documented to be of United States manufacture or to have been imported into the United States, duty-paid. The cost of the paint is therefore not subject to duty pursuant to 19 U.S.C. 1466(h).

(2) The installation of a deflector plate in the chain locker and the installation of the stern tube head tank are modifications that are not subject to duty under 19 U.S.C. 1466.

Sincerely,

B. James Fritz
Chief

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