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HQ 112589


August 10, 1993

VES-13-18-CO:R:IT:C 112589 DEC

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; Petition for Review; Modification; Alteration;
Vessel Repair Entry No. H24-0012461-4
Date of Entry: December 30, 1991
Date of Arrival: December 30, 1991
Port of Arrival: Dutch Harbor, Alaska
Vessel: F/V ALASKA PIONEER

Dear Sir:

This letter is in response to your memorandum dated February 2, 1993, which forwards for our consideration a petition for review filed in connection with the assessment of vessel repair duties on the above-referenced vessel.

FACTS:

The F/V ALASKA PIONEER, an American-flag vessel, underwent various foreign shipyard operations while in Miyagi, Japan, at the Tohoku Dock Tekko K.K. shipyard. Subsequent to the completion of the work performed in Miyagi, the vessel arrived in the United States at Dutch Harbor, Alaska, on December 30, 1991. A vessel repair entry covering the work was filed on the day of arrival.

An application for relief from vessel repair duties was timely filed. Subsequently, a petition challenging certain determinations from the application was, also, timely filed. Initially, the petitioner did not submit any supplementary documentation with respect to the items at issue except for the petition letter itself. On April 14, 1993, representatives from the petitioner (Fishing Company of Alaska, Incorporated) met with Customs officials. At that meeting, the petitioner's representatives indicated that they would submit affidavits from individuals with actual knowledge of the operations performed upon the vessel together with other documentary evidence to supplement their petitions for review. The additional evidence consisted of one affidavit from Mr. Herb Roeser of Trans-Marine Propulsion Systems, Incorporated in which Mr.Roeser
stated that he did not see any of the operations performed nor was he certain of how his recommendations were implemented. The following items have been submitted to this office for review.

Item Sub-Item Worksheet Description

II 2 Page 2 FW pump
IV 1 Page 2 head cutter
IV 2 Page 2 belt conveyor
V 1-13 Page 3 ceiling coil
V 1-14 Page 3 valve
V 1-16 Page 3 water pipe
V 2-6 Page 3 cooling coil

Our ruling on the above-mentioned matters is set out below.

ISSUE:

Whether the above-referenced items constitute duty-free modifications/alterations to the hull and fittings rather than dutiable equipment and repairs.

LAW AND ANALYSIS:

Title 19, United States Code, section 1466, provides, in pertinent part, for payment of an ad valorem duty of 50 percent on the cost of foreign repairs to a vessel documented under the laws of the United States to engage in the foreign or coasting trade, or a vessel intended to be employed in such trade..

In United States v. Admiral Oriental Lines et al., 18 C.C.P.A. 137 (T.D. 44359 (1930)), the court distinguished equipment and repairs (dutiable) from permanent additions to the hull and fittings (non-dutiable). For purposes of section 1466, Customs has adopted the definition of dutiable equipment 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.

T.D. 34150 (1914).

For equipment to become part of the hull and fittings of a vessel, it must

. . .become a permanent part of the hull, the installation of which caused the superstructure of the vessel to be changed, or where there is proof that at the time the change was made it was the intention of the owners that such
alteration or addition become a permanent part of the vessel. In either case the permanency of such equipment should be, and in most cases is, evidenced by changes in conformity therewith in the official blue prints of the vessel.

T.D. 43585 (1929).

Over the course of years, the identification of modification processes has evolved from judicial and administrative precedents. 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.

(2) Whether the 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.

The appropriate inquiry is to analyze the condition of the structures prior to being replaced. Customs has determined that even though an operation might, under normal circumstances, be considered a permanent duty-free modification, the benefit of such a finding is not extended to operations which encompass the replacement of existing structures which are in need of repair at that time. If a permanent addition is a first-time installation, or if it replaces an existing structure which is in good working order at the time of its replacement and an enhancement in operating efficiency is provided, the operation may be considered a bona fide duty-free modification. Headquarters Ruling 111224 (Feb. 19, 1991).

II. MACHINERY PART - GENERAL WORKS

2. Main Engine FW Pump..............................?328,500

A critical inquiry in determining the dutiability of an item that replaces an existing part is establishing whether the item
being replaced is in good working order. Petitioner states that the vessel owner feared that if one of the existing pumps failed, the vessel would lack sufficient pumping capacity to keep water flowing through the system. This concern for failure raises the question of whether the changes were made to replace worn or irreparable parts. Nowhere in the submitted documentation is there authenticated evidence of the condition of the replaced pump. Absent such authenticated evidence, this item remains a dutiable repair.

IV. BELT CONVEYOR

1. Head Cutter......................................?312,500

Based on the lack of new evidence provided in the petition, the movement of the head cutter is still considered to be a dutiable repair. As stated in the application for relief, the decision 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. The invoice description provided is insufficient to determine how the head cutter was "modified." Consequently, this item shall remain dutiable.

IV. BELT CONVEYOR.........................................?937,500

2. Belt Conveyor

The petitioner states that the newly installed conveyors can be removed when the freezer doors are closed. While this newly configured conveyor system may improve efficiency, this new characteristic triggers dutiability. It is our position that the removable conveyors constitute dutiable vessel equipment because they lack the permanency requirement as discussed in United States v. Admiral Oriental Lines, T.D. 44359 (1930). Consequently, unless and until evidence is submitted to establish that the belt conveyors were modified and that they do not constitute dutiable equipment, this item remains dutiable.

V. REFRIGERATING PART

1-13. CEILING COIL....................................?100,000 1-14. SUCTION VALVE...................................?60,000 1-16. WATER PIPE......................................?95,000 2-6. COOLING COIL....................................?174,000

These items remain dutiable. The petitioner has failed to provide sufficient additional evidence with respect to the bait freezer installation. Unless and until sufficient evidence is submitted for examination, these items shall remain dutiable.

HOLDING:

After a thorough review of the record and the additional evidence presented, the petition for relief is denied in full as detailed in the Law and Analysis portion of this ruling. The petitioner should be informed of the right to file a protest following liquidation of this entry, as evidenced by the posting of the bulletin notice of liquidation.

Sincerely,

Stuart P. Seidel

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