HQ 0112263 - Vessel Repair; Modification; 19 U.S.C. 1466; NOSAC RANGER, v-61; Entry No. C46-0013785-4. - United States International Trade Commision Rulings

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HQ 112263

February 4, 1993

VES-13-18 CO:R:IT:C 112263 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; Modification; 19 U.S.C. 1466; NOSAC RANGER, v-61; Entry No. C46-0013785-4.

Dear Sir:

This letter is in response to your memorandum that 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 NOSAC RANGER, arrived at the port of New York on December 20, 1991. Vessel repair entry, number C46-0013785-4, was filed on the same day as arrival and indicates that stern and side ramp motors were installed on the vessel while in foreign shipyards.

ISSUE:

Whether the installation of limit valves on hydraulic motors is a modification to the vessel, the cost of which would not be 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 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

Very often when considering whether an addition to the hull and fittings took place for the purpose of 19 U.S.C. 1466, we have considered the question from the standpoint of whether the work involved the purchase of "equipment" for the vessel. It is not possible to compile a complete list of items that might be aboard a ship that constitute its "equipment". An unavoidable problem in that regard stems from the fact that vessels differ as to their services. What is required equipment on a large passenger vessel might not be required on a fish processing vessel or offshore rig.

"Dutiable equipment" has been defined to include:

...portable articles necessary or appropriate for the navigation, operation, or maintenance of a vessel, by 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))

By defining what articles are considered to be equipment, the Court attempted to formulate criteria to distinguish non- dutiable items which are part of the hull and fittings of a vessel from dutiable equipment, as defined above. These items might be considered to include:

...those appliances which are permanently attached to the vessel, and which would remain on board were the vessel to be laid up for a long period... Admiral Oriental, supra., (quoting 27 Op. Atty. Gen. 228).

A more contemporary working definition might be that which is used under certain circumstances by the Coast Guard; it includes a system, accessory, component or appurtenance of a vessel. This would include navigational, radio, safety and, ordinarily, propulsion machinery.

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.

Kvaerner Invoice Number 90697 indicates the cost for the replacement of hydraulic motors that raise and lower the stern and side ramps. The applicant acknowledges that the replacement of these motors was due to wear. The cost of the motors is therefore subject to duty.

The applicant seeks relief for the installation of limit valves and housing on each motor. The applicant has included a general description and drawing of the work performed. The costs of the materials used in this procedure are listed in Kvaerner Invoice Number 90698. The costs for the labor used to install both the motors and the limit valves and housing are listed in Kvaerner Invoice Number 90794; the invoice indicates that the cost for installation of the limit valves is 33,700 SEK. We find that the installation of the limit valves and the housings represent new design features. The costs of the materials used are therefore not subject to duty. The labor costs contained in Invoice Number 90794 would be subject to duty, with the exception of the 33,700 SEK that is attributable to the non-dutiable modification.

HOLDING:

The installation of the limit valves and the housing represents new design features. The costs of the materials contained in Invoice Number 90698 are therefore not subject to duty. The labor costs contained in Invoice Number 90794 would be subject to duty, with the exception of the 33,700 SEK that is attributable to the non-dutiable modifications.

Sincerely,

Acting Chief

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