HQ 0112381 - Vessel Repair; Modifications; U.S. Parts; U.S. Manufacture; 19 U.S.C. 1466(h)(2) - United States International Trade Commision Rulings

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HQ 112381

October 23, 1992

VES-13-18-CO:R:IT:C 112381 GFM

CATEGORY: CARRIER

Deputy Assistant Regional Commissioner
Commercial Operations Division
423 Canal Street
New Orleans LA 70130-2341

RE: Vessel Repair; Modifications; U.S. Parts; U.S. Manufacture; 19 U.S.C. 1466(h)(2)

Vessel: M/V CAPS EXPRESS V-2
Vessel Repair Entry No. C20-0029781-5
Date of Arrival: December 25, 1991
Port of Arrival: New Orleans LA

Dear Sir:

This is in response to your memorandum of July 17, 1992, which forwards for our review an application for relief filed in connection with the above-captioned vessel repair entry. Our findings are set forth below.

FACTS:

The record reflects that the above-captioned vessel, the M/V CAPS EXPRESS, underwent foreign shipyard operations at Southhampton, England, from January 15, 1990, to August 19, 1990, which were designed to transform the vessel from a semi- submersible barge to a salt water conversion/purification vessel. Vessel operator, pursuant to a timely application for relief filed on February 13, 1992, seeks relief from duty for the shipyard operations discussed hereunder.

ISSUE:

Whether the cost of foreign shipyard work completed aboard the subject vessel is dutiable pursuant to 19 U.S.C. 1466.

LAW AND ANALYSIS:

Title 19, United States Code, section 1466(a) provides, in pertinent part, for payment of duty in the amount of 50 per cent ad valorem on the cost of foreign repairs to vessels engaged, intended to engage, or documented under the laws of the United States to engage in the foreign or coastwise trade.

ITEM 10 PORT SERVICES
Invoice 15465....................................? 4,036.88

ITEM 14 COLT ENGINEERING SERVICES
Invoice M8485C...................................? 2,855.50 Invoice M8496....................................? 1,150.00 Invoice M8485A...................................? 845.00 Invoice M8488....................................? 596.75 Invoice M8485B...................................? 4,235.84

ITEM 15 ATLANTIC REFRIGERATION LTD.
Invoice 002405...................................? 2,080.89

These items represent charges for labor and materials used in the conversion and reconfiguring of ducting, electrical, and refrigeration units which applicant contends should be classified as non-dutiable modifications. Over the years, the definition of what constitutes a modification has evolved from judicial and administrative precedents. In considering whether an operation is a modification 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 Unites 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. 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. Moreover, Customs has held that for an item to be characterized as a nondutiable modification, it must encompass the installation of an item as a new design feature, not as a replacement for, or restoration of, parts now performing a similar function. (Customs Memorandum 108871).

With regard to the present items, we are satisfied that they constitute valid modification operations. The reconfiguration and conversion of the electrical and refrigeration units and the existing ductwork effected pursuant to the vessel's conversion from a semi-submersible barge to a salt-water purification vessel may properly be considered valid modifications in this case. As a result, the combined cost of these items (? 15,250.86) is non- dutiable.

ITEM 18 COLT ENGINEERING SERVICES
Invoice E8787....................................? 522.75

This item involves charges for labor and materials used to "complete projects as per work list" which include "remov(ing) alternator for repair," "replacing of batteries in emergency light," and "refurbishment of charging alternator." Contrary to applicant's contention that these charges also involve non- dutiable modifications, it is quite clear that they are instead operations designed to restore or make over existing structures which have become imperfect by reason of the action of the elements or otherwise. Such operations have long been considered dutiable. (See, Admiral Oriental Line v. United States, T.D. 44886). Accordingly, the cost of this item (? 522.75) is dutiable.

ITEM 1 HOSE SPECIALTY & SUPPLY........................$ 672.07 ITEM 2 LEE ENGINEERING................................$ 8,436.06 ITEM 3 CENTRAL GULF...................................$ 4,045.18 ITEM 4 MERLIN GERIN...................................$ 316.75 ITEM 5 WESCO..........................................$ 1,261.00 ITEM 6 NU LIGHT WHOLESALERS...........................$ 437.72 ITEM 7 MERLIN GERIN/BRITISH AIRWAYS...................$ 60.00 ITEM 17 BRANTFORD INTERNATIONAL........................$ 6,589.31

Applicant contends that the above items should be considered parts entitled to remission under the provisions of 19 C.F.R. 4.14(c)(3)(ii). That section provides for relief in cases where the repair parts, or materials used on the vessel were "manufactured or produced in the United States" and the labor necessary to make such repairs was "performed by residents of the United States or by members of the regular crew of the vessel." With the exception of item 2, no evidence is presented to show that the above items were so manufactured or produced. Thus, Section 4.14(c)(3)(ii) cannot be relied upon to provide relief for those remaining items.
We additionally note that the provisions of 19 U.S.C. 1466(h)(2), which relate to the cost of spare parts in foreign vessel repairs, are similarly inapplicable in that subsection (h)(2) applies only to cargo vessels. The vessel under consideration, a salt-water conversion/purification plant, does not qualify as a cargo vessel. As a result, with the exception of Item 2, the combined cost of items 1,3,4,5,6,7, and 17 ($ 13,382.03) is dutiable.

HOLDING:

After thorough review of the evidence presented, and as detailed in the Law and Analysis portion of this ruling, the application for relief is granted in part and denied in part.

Sincerely,

Acting Chief

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