HQ 0111936 - Vessel repair; Repairs; Modifications; Vessel ARCO TEXAS; Vessel repair entry number C31-005019-5; Port of arrival Valdez, Alaska - 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 0111884 - HQ 0112008 > HQ 0111936

HQ 111936

February 5, 1992

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

CATEGORY: CARRIER

Chief, Technical Branch
Commercial Operations
Pacific Region
One World Trade Center
Long Beach, California 90731

RE: Vessel repair; Repairs; Modifications; Vessel ARCO TEXAS; Vessel repair entry number C31-005019-5; Port of arrival Valdez, Alaska

Dear Sir:

Reference is made to your memorandum of October 2, 1991, which forwards for our consideration and recommendation the Application for Relief from the assessment of vessel repair duties filed on behalf of Arco Marine, Inc., in regard to the above-captioned vessel repair entry.

FACTS:

The vessel ARCO TEXAS 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 seventeen (17) items are offered for our review. These items, listed below by shipyard invoice item number, are as follows:

324 Work on the fire line cargo pumps.

409 Work on the cargo manifold gallows.

414 Work on the main deck rope scuttle.

419 Work on the IGS center tank piping system.

420 Work on the IGS center tank (No. 5) piping system.

431 Work on piping on the scrubber tower line.

433 Installation of container sockets on deck.

434 Installation of a vertical ladder to top of pump room.

508 Preparation for future installation of pump bearing monitor.

509 Testing main and emergency switch board breakers.

511 Staging for conduit pipe installation.

708 Installation of Butterworth holes on main deck.

901 Installation of auxilliary lube oil pump.

906 Cabling for installation of satellite communication system.

907 Cabling and installation costs for 3 cm and 10 cm radars.

910 Installation of an emergency towing system.

911 Installation of cargo heating coils.

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.

In the case under consideration, we find that all costs have been adequately segregated. Further, we find that, with the exception of items 509 and 511, all listed costs were for non- dutiable modifications to the hull and fittings of the vessel. Item 509 details testing performed on the main and emergency switchboards during which no repairs performed. This item is considered duty-free. Item 511 lists staging costs for pipe installation which are considered free under authority of the court decision in George Hall Coal Co., supra.

HOLDING:

Following a thorough review of the evidence as well as analysis of the applicable law and precedents, we have determined that the items under review are considered duty-free for the reasons set forth in the Law and Analysis portion of this ruling.

Sincerely,

B. James Fritz

Previous Ruling Next Ruling