HQ 0111789 - Vessel repair; Repairs; Modifications; Cleaning; Inspections; United States parts; Transportation; Vessel CHABLIS, V-126; Vessel repair entry number C11-00270250; Port of arrival, Philadelphia, Pennsylvania - United States International Trade Commision Rulings

United States International Trade Commision Rulings And Harmonized Tariff Schedule

faqs.org Rulings By Number Rulings By Category Tariff Numbers

faqs.org > Rulings and Tariffs Home > Rulings By Number > 1992 HQ Rulings > HQ 0111694 - HQ 0111792 > HQ 0111789

HQ 111789

January 29, 1992

VES-13-18-CO:R:IT:C 111789 LLB

CATEGORY: CARRIER

Deputy Assistant Regional Commissioner
Classification and Value Division
ATTN: Regional Vessel Repair Liquidation Unit New York, New York 10048-0945

RE: Vessel repair; Repairs; Modifications; Cleaning; Inspections; United States parts; Transportation; Vessel CHABLIS, V-126; Vessel repair entry number C11-00270250; Port of arrival, Philadelphia, Pennsylvania

Dear Sir:

Reference is made to your memorandum of June 21, 1991, which forwards for our review and recommendation the Application for Relief from the assessment of vessel repair duties filed on behalf of Crest Tankers, Inc., in regard to the above-captioned vessel repair entry.

FACTS:

The vessel CHABLIS arrived in the United States after having had extensive work performed on the ship while abroad. Customs and the vessel operator are in substantial agreement on the issue of dutiability, and only fifteen items are offered for our review. These items, listed below by shipyard invoice item number, are as follows:

103 Opening, cleaning, and repair (in subsection (a)(2) of the invoice) relating sea suction and overboard valves.

110 Repairs to the vessel Doppler Speed Log, including transducer replacement.

202 Testing of boiler safety valves with no associated repairs.

203 Cleaning of boiler mounting valves with no repairs.

301 Segregated transportation costs for taking lube oil cooler housings from the vessel to the shop.

308 Opening and testing of machinery relief valves.

309 Renewal of rubber expansion joints with use of United States parts.

402 Modification of deck piping systems, with unsegregated repairs intermingled.

442 Modification of the forward ballast system with no associated repairs.

517 Replacement of watertight doors with United States parts, with no indication of the reason for the replacement.

530 Replacement of stay wires and turnbuckles with United States parts, with no indication of the reason for the replacement.

606 Cleaning of main and emergency switchboards with no associated repairs.

709 Stringer modifications and crack repairs, with segregation provided.

711 Structural modification of the transverse web with no related repairs.

714 Modification of the aft starboard fuel oil wing tank with no associated repairs.

715 Funnel repairs.

ISSUE:

Whether the evidence reveals that the operations specified in the Facts portion of this ruling are subject to vessel repair duty, or whether they might qualify for remission or refund under a statutory, judicial, or administrative exception.

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 vessels 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.

On August 20, 1990, the President signed into law the Customs and Trade Act of 1990 (Pub. L. 101-382), section 484E of which amends the vessel repair statute by adding a new subsection (h). Subsection (h) has two elements, which are as follows:

(h) The duty imposed by subsection (a) of this section shall not apply to--

(1) the cost of any equipment, or any part of equipment, purchased for, or the repair parts or materials to be used, or the expense of repairs made in a foreign country with respect to, LASH (Lighter Aboard Ship) barges documented under the laws of the United
States and utilized as cargo containers, or

(2) the cost of spare repair parts or materials (other than nets or nettings) which the owner or master of the vessel certifies are intended for use aboard a cargo vessel, documented under the laws of the United
States and engaged in the foreign or coasting trade, for installation or use on such vessel, as needed, in the United States, at sea, or in a foreign country, but only if duty is paid under appropriate commodity classifications of the Harmonized Tariff
Schedule of the United States upon first entry into the United States of each such spare part purchased in, or imported from, a foreign country.

The effective date of the amendment is stated as follows:

Effective Date.--The amendment made by this section shall apply to--

(1) any entry made before the date of enactment of this Act that is not liquidated on the date of enactment of this Act, and (2) any entry made--
(A) on or after the date of enactment of this Act, and
(B) on or before December 31, 1992.

Subsection (d)(2) of section 1466 provides that:

(d) If the owner or master of such vessel furnishes good and sufficient evidence that...

(2) such equipments or parts thereof or repair parts or materials, were manufactured or produced in the United States, and the labor necessary to install such equipments or to make such repairs was performed by residents of the United States, or by members of the regular crew of such vessel...
then the Secretary of the Treasury is authorized to remit or refund such duties...

Customs has in the past linked this duty remission provision to the duty assessment provision in subsection (a) of the statute. We have held that a two-part test must be met in order for remission of duty to be granted: first, that the article must be of U.S. manufacture; and, second, it must be installed by U.S.-resident or regular vessel crew labor. The reason for this position is that (d)(2) refers to "such equipments or parts...", etc., without any logical association for the word "such" occurring in that subsection. We inferred that "such" articles must refer to those installed under subsection (a), absent any other reasonable predication. The new amendment puts this issue to rest by making it clear that as concerns foreign-made parts imported for consumption and then installed on U.S. vessels abroad, the labor required for their installation is separately dutiable. A part may now be considered exempt from vessel repair duty albeit the foreign labor cost is dutiable.

In all cases which meet the conditions imposed by the statutory amendment, uniform treatment will be accorded to parts sent from the United States for use in vessel repairs abroad. This will be so regardless of whether they are proven to have been produced in the U.S., or to have been imported and entered for consumption with duty paid. In both cases, the cost of the materials is duty exempt and only the cost of foreign labor necessary to install them is subject to duty. Crew member or U.S.-resident labor continues to be free of duty when warranted, in cases which qualify under the new law.

In the case under consideration, we find that item 103, 110, 309, 517, and 530 involve the use of United States-origin parts which qualify under the newly amended subsection (h) of the vessel repair statute. The exemption from duty is applicable only to the cost of the materials used, however, since foreign labor was employed. Items 202, 203, 301, 308, and 606 are cleaning operations with no associated repair elements. Items 402, 442, 711, and 714 are modifications which are considered duty free. Of the remaining two items, number 715 is a repair operation and item 709 is split between repair and modification. The costs of this latter item is segregated with subelements a), b), and c) being repairs and d), e), and f), being modifications.

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 submitted in this case should be allowed in part and denied in part, as detailed in the Law and Analysis portion of this ruling.

Sincerely,

B. James Fritz

Previous Ruling Next Ruling