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HQ 112004

March 27, 1992

VES-13-18-CO:R:IT:C 112004 BEW

CATEGORY: CARRIER

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

RE: Vessel repair; Repair; Vessel PRESIDENT JACKSON, V-31; entry number C27-0061025-9; Port of arrival Los Angeles, California; Modifications

Dear Sir:

Reference is made to your memorandum of November 26, 1991, which forwards for our review and recommendation the Application for Relief filed by American President Lines, Ltd., in regard to the above-captioned vessel repair entry.

FACTS:

The vessel PRESIDENT JACKSON arrived in the United States after having had foreign repair work performed on the ship while abroad. Customs and the vessel operator are in substantial agreement on the issue of dutiability, and only one item is offered for our review. The item listed below by shipyard invoice number is as follows:

Marine Service Machinery Co. Ltd. JAO30-128 - Strainer in piston cooling system.

ISSUE:

Whether foreign shipyard operations undergone by the subject vessel may be considered non-dutiable modifications under the vessel repair statute.

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 intended to be employed in such trade.

A question exists as to whether certain of the items under consideration might be considered non-dutiable modifications. In its application of the vessel repair statute, Customs has held that modifications/alterations/additions to the hull and fittings of a vessel are not subject to vessel repair duties. 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 lay up.

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)).

We have thoroughly reviewed the entry documentation submitted in this matter. It is our conclusion that the entered costs are clearly for a non-dutiable modification.

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 should be allowed as specified in the Law and Analysis portion of this ruling.

Sincerely,

B. James Fritz

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