HQ 0112366 - Vessel Repair; 19 U.S.C. 1466; Application for Relief; Vessel Repair Entry No. H24-0012499-4; F/V ALASKA RANGER - United States International Trade Commision Rulings

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HQ 112366

October 8, 1992

VES-13-18-CO:R:IT:C 112366 MLR

CATEGORY: CARRIER

Deputy Regional Director
Commercial Operations
Pacific Region
One World Trade Center
Long Beach, California 90831

RE: Vessel Repair; 19 U.S.C. 1466; Application for Relief; Vessel Repair Entry No. H24-0012499-4; F/V ALASKA RANGER

Dear Sir:

This letter is in response to your memorandum of June 25, 1992, which forwards for our consideration the above-referenced application for relief from the assessment of vessel repair duties submitted by Jeffrey L. Turner, of Patton, Boggs & Blow, on behalf of Fishing Company of Alaska, Inc.

FACTS:

The record reflects that the subject vessel, the F/V ALASKA RANGER, arrived at Dutch Harbor, Alaska, on January 7, 1992. Vessel repair entry number H24-0012490-4 was filed the same day, indicating work performed on the vessel in Tokyo, Japan. The application for relief was filed on March 9, 1992.

The applicant states that the vessel was converted from a tug offshore service boat into a fishing vessel in Seattle, Washington, in 1989, and modifications were made in 1990. The applicant now seeks relief for further modifications made at NKK Corporation Shimizu Works in 1991. The applicant alleges that the modifications to the hull and fittings should be considered non-dutiable since "such work provides the serviced portion of the vessel, or the vessel as a whole, with a new feature and does not merely replace or restore parts that perform a similar function", and improves or enhances the operation or efficiency of the vessel.

We are asked to review the dutiability of numerous items (numbers correlate to the worksheet).

ISSUE:

Whether the foreign work performed on the subject vessel for which the applicant seeks relief is dutiable 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 50 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.

NKK CORPORATION SHIMIZU WORKS

I. HULL PART
4-1. Bottom Keel Ballast
(material, labor, drawings, ABS survey)
4-2. Water Thermometer
(material, labor)
4-3. Related Work for Keel Ballast
(labor)
III. ELECTRIC PART
10. Wiring
(material, labor)

The applicant states that these items involve work done to meet loadline requirements (i.e., adding an exterior keel ballast), although a formal American Bureau of Shipping Survey evidently was not performed. Item 4-1 indicates that drawings were prepared, yet they are not submitted with the application for relief. Further, the materials used are not specified.

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 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.

We have held that the removal of an existing, operational system for the purpose of improving the efficient performance of the vessel is not dutiable provided that the work was not performed in conjunction with dutiable repairs. Customs Ruling 108871. The decision in each case as to whether an installation constitutes a non-dutiable 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.

It appears that the work done to increase the keel ballast may constitute a modification; however, item 4-1 also indicates that the keel ballast was "modified". It is not specified what this modification was. Item 4-3 also refers to the execution of restoration works, indicating possible repairs performed to the keel ballast. Since the installation of the water thermometer and the speed log sensor is related to the bottom keel ballast work (which in turn is related to the electric wiring work), we are unable to determine the nature of these installations. In the absence of evidence to the contrary, relief with respect to these items is denied.

I. HULL PART
5. Kolt Nozzle
(material, labor, staging)
6. Renewed Bilge Pipes
(material, labor)

The applicant states that these items represent preparatory work for the installation of new kolt nozzles and for the propeller. Item 5 partially indicates that the inside of the hull was reinforced, and that drawings were made which are not included. Absent these drawings, we are unable to determine if the reinforcement work is not a dutiable repair. Item 6 indicates restoration work, painting, and cleaning operations not in the nature of non-dutiable modifications.

I. HULL PART
7. Painting Hull Bottom
(material labor)

Customs has held that painting performed on existing portions of a vessel is in the nature of a dutiable maintenance operation. C.I.E. 1043/60, and Treasury Decisions 21670, 39507, and 43322. The process of chipping, scaling, cleaning, and wire brushing to remove rust and corrosion that results in the restoration of a deteriorated item in preparation for painting has also been held to be dutiable maintenance. States Steamship Co. v. United States, 60 Treas. Dec. 30, T.D. 45001 (Cust. Ct. 1931). This item is similar to the these precedents in that the outside bottom hull was washed, polished with a disc sander, and painted; it is therefore dutiable.

I. HULL PART
15. Hawse Pipes
(material, labor)
Works for Washing Chain Pipes
(material, labor)
Materials
Labor

The applicant states that new hawse pipes were installed to accommodate a larger anchor. The invoice under item 15-1 indicates various operations were conducted to modify the hawse pipes, and item 15-3 (e) indicates the side anchors were refitted. We agree that item 15-1 constitutes a modification; however, we are unable to determine how items 15-2 and 15-3 relate to the hawse pipe modification. For example, item 15-3 indicates that insulation in the refrigerator was renewed and refitted. Further, item 15-3 (e) states that the "shank" and "palm" were reformed. Absent further details, items 15-2 and 15- 3 are dutiable.

I. HULL PART
11. Pan Racks
(material, labor)

This item indicates that pan racks at the forward end of the factory were installed. Items 11-a and 11-b appear to involve modification work; however, we are unsure how items 11-c and 11-d, pertaining to the modification of the fluish pump and the switchboard, relate to the pan rack work. Since items 11-b and 11-c are not segregated from the total amount, the entire item is dutiable.

II. MACHINERY PART
5. Propeller Blades
(material, labor)

The applicant seeks relief for this item because the new propellers which were supposed to improve fuel efficiency were unsuitable for the vessel; accordingly, the old propellers were reinstalled. By issuance of C.I.E. 1128/60 on August 5, 1960 {reissued as Treasury Decision 55193(24)}, it was established that ineffective repairs which prove to be of no value to vessels are not dutiable under the vessel repair statute. This is to be distinguished from repairs which are made as a temporary expedient, until permanent repairs can be obtained. The cases in which relief from duty has been granted due to ineffective repairs, relate to the repair of some defect. In this instance, the old propeller blades were not defective, and if the new propellers had been suitable, the applicant would have claimed this item as a modification since the vessel's fuel efficiency would have been improved. In any event, the invoice indicates that the blades were removed, polished, new O-rings were installed, and the oil was drained and renewed. This item therefore consisted of routine dutiable maintenance which benefitted the applicant. Accordingly, relief with respect to this item is denied.

II. MACHINERY PART
12. CPP Suction Unit
(material, labor)

The applicant states that new full-flow valves were installed for the CPP control pump, and that the use of the term "renew" in the invoice is inappropriate since the valves are new and more efficient than the old valves. The invoice indicates that four full-flow ball valves were installed on the CPP control pump and at the suction strainer outlet. The applicant fails to prove that this item constitutes a modification because ball valves were installed to the suction pipe of the CPP pump at Yamanishi Shipbuilding & Iron Works in 1990 (see invoice R-1171, dated October 30, 1990). No evidence is submitted to show that the ball valves replaced in 1991 are any different from the ones used in 1990. Accordingly, relief with respect to this item is denied.

III. ELECTRIC PART
6. Fluorescent Lights Installed
(material, labor)

The invoice indicates 8 "glove" lights were replaced with fluorescent lights. Further, the invoice shows that 50 white florescent lights and 20 glow lights were supplied. Light bulbs are considered dutiable equipment, consequently only the labor charge for extending the cables and mounting the lights in the amount of Y43,500 is non-dutiable.

IV. Belt Conveyor

The applicant states that the following items constitute modifications to the belt conveyors to improve their efficiency and as a result of moving them due to other modifications (i.e., installing a new roe extraction machine and moving sump pumps):

1. Adjustments to Conveyor

We deny relief as to this item since insufficient information is provided in that it only indicates that "operation adjustment works" were executed to the belt conveyor.

2. Adjustments to Belt Conveyor

This item is denied in that it does not entail any description of the modification work done to the four sets of belt conveyors.

3. Net Conveyor

Again, the invoice does not provide any details how the net conveyor in the fish washing machine was modified.

4. Adjustments for Side Conveyor

This item is denied in that it only states that operation adjustment works were executed to the side conveyor.

5. Materials

Since relief for items 1-4 directly above are denied, the materials used for these items must be denied as well.

V. REFRIGERATING PART
1-10. Refrigerating Coil

The applicant states that the refrigerating coil was modified in the provision store as a result of piping modifications made to vessel. The invoice does not provide any other details. Absent further information concerning which piping modifications required such work, we are unable to grant relief.

VI. NAVIGATION EQUIPMENT
2. Loran-C Receiver
(material, labor)
3. Paravane Receiver
(material, labor)

The applicant states that these articles were installed, and that in all likelihood they would be left on board the vessel during an extended layup. For purposes of section 1466, dutiable equipment has been defined as:

...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. United States v. Admiral Oriental Line et al., T.D. 44359 (1930) {quoting T.D. 34150, (1914)}.

A more contemporary working definition of equipment 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.

In Customs Ruling 109936, we determined that a satellite communications system was a non-dutiable permanent addition to the fittings of the vessel. However, in that case, three letters from three different enterprises were presented to show that not only was the system designed for permanent installation and was left on board during layup, but specific examples of other vessels were cited to show that the system did, in fact, remain on board when they were in layup for an extended period of time. In light of the fact that we have consistently held that such delicate electronic equipment is dutiable, the evidence submitted is insufficient for us to grant relief.

III. ELECTRICAL PART
5. Pollack-roe-Machine
(material, labor)
Above Pollack-Roe Machine
(material, labor)
Push Bottom Switch
(material, labor)
Cables Installed
(material, labor)
Testing Circuits
(labor)

The applicant states that these items were performed as a part of the installation of the new roe extraction machine which in turn is related to the belt conveyor work. Since the description for the belt conveyor work, discussed above in item 1-4, BELT CONVEYOR PART, was not detailed enough, we are unable to determine the nature of these items. Accordingly, they are dutiable.

VI. NAVIGATION EQUIPMENT
4. Misc Expenses

The invoice indicates this item represents costs incurred for transportation, "expenditures spent during the work at side", and for entering and utilizing the dockyard. Since it is not indicated what the "expenditures" were for, and how much of the total item cost was for such expenditures, the entire amount is dutiable.

We agree with the applicant that the following items are non-dutiable modifications:

I. HULL PART
9. Boat Davit
(material, labor)
10. Winch Units
(material, labor)
12. Wooden Box
12. Factory Trash chutes
(material, labor)
14. Factory Sumps
(material, labor)
Reinstalled Machines
(material, labor)
16. Water Pump
17. Permanent Deck Store
(material, labor)
19. Changing Mates Room
(material)
20. Escape Hatch
(material, labor)
23. Works for Permanent Galley
(material, labor)

II. MACHINERY PART
7. Overboard Discharge Pipe
(material, labor)
18. Suction Pipe Changed
(material, labor)

III. ELECTRICAL PART
2. Rack Above Oil Tank
(material, labor)
3. Boat Davits - Electrical Wire
(material, labor)
7. 2 Emergency Lights
9. Tested Cable Circuit
(material, labor)

VII. MISCELLANEOUS INVOICES

A. Fessler Equip
B. Bird Johnson
C. Devoe Coatings
D. Dynamic *
E. Puget Sound Pipe Supply
F. Puget Sound Pipe Supply
G. Waukesha Bearings

The record indicates that many of the materials used were shipped from the United States. The invoices show most of the items were purchased in the United States.

Title 19, United States Code, section 1466(h) 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. As discussed in Customs Ruling 111464, the Customs Service interprets the use of the term cargo to limit the exception contained in the statute to vessels whose sole service is the transportation of cargo and which are actually engaged in that service while documented for the foreign or coasting trade. The ALASKA RANGER, at the time of arrival, was a fishing vessel and consequently does not qualify for the exceptions contained in 19 U.S.C. 1466(h).

Failing qualification for the exceptions accorded to cargo vessels, we must evaluate duty treatment of parts under the previously established statutory rules. Customs administration of duty assessment issues under section 1466 regarding United States manufactured materials purchased in the United States has been guided by the terms of Treasury Decision 75-257, 9 Cust. B. & Dec. 576 (1975). That decision provides that when materials of United States manufacture are purchased by the vessel owner in the United States for installation abroad by foreign labor, the labor cost alone is subject to duty under 19 U.S.C. 1466. The owner or master must submit written documentation or other physical evidence, such as an affidavit by the equipment manufacturer, that the equipment was manufactured and purchased in the United States. Customs Ruling 110953. Absent such documentation, the material is deemed foreign and consequently is dutiable.

With the exception of Dynamic invoice #D3051 (worksheet item "D") the applicant has satisfied the second element; however, the first element (i.e., that the items were manufactured in the United States) has not been satisfied. Accordingly, miscellaneous invoices A-C, and E-G are dutiable.

HOLDING:

The application for relief is denied and granted in part as detailed in the Law and Analysis portion of this ruling.

All other items, not specifically discussed in this letter, were reviewed and we agree with the determinations of duty made by the San Francisco Vessel Repair Liquidation Unit.

Sincerely,

B. James Fritz

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