HQ 0112398 - Vessel Repair; Application; Consumables; Freight Charges; Survey; Transportation; Modification; Parts; Inspections; 19 U.S.C. 1466; M/V STRONG TEXAN; Entry #: C15-0012674-8. - United States International Trade Commision Rulings

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HQ 112398

March 30, 1993

VES-13-18 CO:R:IT:C 112398 GFM

CATEGORY: CARRIER

Deputy Assistant Regional Commissioner
Commercial Operations
423 Canal Street
New Orleans, Louisiana 70130-2341

RE: Vessel Repair; Application; Consumables; Freight Charges; Survey; Transportation; Modification; Parts; Inspections; 19 U.S.C. 1466; M/V STRONG TEXAN; Entry #: C15-0012674-8.

Dear Sir:

This letter is in response to your memorandum dated July 6, 1992, which forwards for our review the application for relief filed in conjunction with the above-referenced vessel repair entry.

FACTS:

The vessel STRONG TEXAN arrived at the port of Wilmington, North Carolina, on March 4, 1992, and filed a timely vessel repair entry. The entry indicates that the vessel underwent foreign shipyard work at various foreign facilities in Italy, Germany, Israel, the United Kingdom, and the United Arab Emirates from November, 1990 to January, 1992. This application seeks relief from duty for various charges incurred during the vessel's dockage at said foreign ports.

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 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.

ITEM 4 INHAM REFRIGERATION..........................$ 1,035.20

Applicant has submitted an invoice for repair parts purchased foreign. Included in this invoice is a freight charge for said items. In accordance with well-established precedent, the foreign-purchased parts are dutiable; freight charges, however, have traditionally been held non-dutiable. Accordingly, the cost attributable to non-freight charges for this item ($ 815.20) is dutiable.

ITEM 17 INSPECTIONS.................................$ 2,712.40

This item represents charges for various surveys conducted by the ship's insurer. Customs Service Decision 79-277 stated, "[i]f the survey was undertaken to meet the specific requirements of a governmental entity, classification society, insurance carrier, etc., the cost is not dutiable even if dutiable repairs were effected as a result of the survey."

In order to obtain relief, an applicant must submit documentation evidencing that surveys did in fact occur. Typically, copies of the inspection reports will satisfy this requirement. With regard to the item at hand, no such documentation was provided. Accordingly, unless and until such evidence is submitted, the cost of this item ($ 2,712.40) is dutiable.

ITEM 19 BULKHEAD INSULATION.........................$ 3,287.67

This item involves charges for providing A-60 Bulkhead Insulation which applicant claims constitutes a non-dutiable modification. According to a letter dated March 6, 1991, signed by Mr. David Bengtsson, this item was "originally intended to [be] a permanent installation, * * * [but] [b]ecause we are installing this insulation to carry a limited number of cargoes of containerized explosives and because we will probably have to remove parts * * * [w]e now would like to install the insulation using speed clips * * * and chicken wire covering."

It is the position of the Customs Service that neither modifications, alterations, or additions to the hull and fittings of a vessel are 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.

With respect to the item at hand, it is clear from the aforementioned letter that a "permanent incorporation" was not intended. Accordingly, the cost of the item ($ 3,287.67) is dutiable.

ITEM 25 CONSUMABLES.................................$ 2,423.89

This item represents charges for filters which applicant claims should be classified as non-dutiable consumables.

"Consumable Supplies" are generally defined as supplies for the consumption, sustenance, and medical needs of the crew and passengers during the voyage. H.E. Warner, Trustee v. United States, 28 CCPA 143, and Customs Memorandum 107323 of May 21, 1985. Consumable supplies generally are not subject to vessel repair duty, unless used in effecting dutiable repairs (C.I.E. 196/60). Likewise, the expense of transporting materials and parts (freight charges) to foreign repair sites has long been held to be non-dutiable, regardless of whether the operation accomplished with the use of the transported articles is dutiable.

With regard to this item, however, no documentation has been submitted to prove that the filters in question were fully consumed during the voyage in question. In fact, owing greatly the nature of the articles, there is a strong presumption that they were not entirely consumed during the voyage in question. Accordingly, in absence of evidence to the contrary, the cost of this item ($ 2,423.90) is dutiable.

ITEM 43(a) FREIGHT CHARGES..........................DFL 5,380.

Applicant has submitted an invoice which lists purchase costs and freight charges for an oil cooler. The invoice clearly shows that the price of the oil cooler was DFL 5,380. The accompanying freight charge was DFL 475. As stated previously, in accordance with well-established precedent, the foreign- purchased parts are dutiable; freight charges, however, have traditionally been held non-dutiable. Accordingly, the cost attributable to non-freight charges for this item (DFL 5,380.) 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 denied.

Sincerely,

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