HQ 0112590 - Vessel Repair; 19 U.S.C. 1466; Petition for Review; Modification; Alteration; - United States International Trade Commision Rulings

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HQ 112590

August 10, 1993

VES-13-18-CO:R:IT:C 112590 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. H24-0012573-6
Date of Entry: January 23, 1992
Date of Arrival: January 23, 1992
Port of Arrival: Anchorage, Alaska
Vessel: F/V ALASKA VOYAGER

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 VOYAGER, an American-flag vessel, underwent various foreign shipyard operations while in Tokyo, Japan, at the NKK Corporation Shimizu Works. Subsequent to the completion of the work performed in Tokyo, the vessel arrived in the United States at Anchorage, Alaska, on January 23, 1992. 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

I 11 Page 1 launch system
I 13, 14 Page 1 chute
I 18 Page 1 packing table
I 21 Page 2 valve/packing table
I 20 Page 2 angle bar
II 6 Page 2 coupling
III 2 Page 3 alarm
III 3 Page 3 alarm
IV 1, 2 Page 3 belt conveyor

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.

Before an item is to be construed as a part of the vessel, it must be (1) a permanent attachment and (2) essential to the successful operation of the vessel. Otte v. United States, 7 C.C.P.A. 166, 169 (1916).

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).

I. HULL PART
11 Skiff Launch System........................? 345,000

The work performed on the skiff launch system was deemed dutiable because the evidence submitted with the application did not lead Customs to a decisive conclusion that this item constituted a modification to the vessel. Keeping in mind that the burden to establish that an operation is a modification rests with the vessel operator, this item was held dutiable. The supplementary explanation provided in the petition clarifies our understanding of the work performed as described in the invoice. Consequently, this item is deemed to be a modification of the vessel and, as such, it is duty-free. Accordingly, relief with respect to this duty-free modification is granted.

I. HULL PART
13 Factory Trash Chute........................? 200,000 14 Closure of Chute Opening...................? 180,000

Initially, these items were deemed dutiable because there was some concern that they represented restoration work to the trash chutes which appeared, to the best that Customs could determine, to be in need of repair. The petitioner states that the work performed on the trash chutes was performed to comply with various Coast Guard and classification society requirements.

Customs has held that the fact that a change or addition of equipment is made to conform with a new design scheme, or for the purpose of complying with the requirements of statute or code, is not a relevant consideration. Therefore, any change accomplished solely for these reasons, and which do not constitute a permanent addition to the hull and fittings of the vessel, would be dutiable under 19 U.S.C. 1466.

In our initial ruling on this item, Customs indicated an ambivalence in classifying this item as a modification because the submitted invoices referred to a renewal of parts that had deteriorated and to evidence involving the removal of cement which was deemed to be a cleaning operation. Absent additional documentary evidence that convinces Customs that these items are modifications rather than repairs to ensure the chutes are watertight, these items remain dutiable.

I. HULL PART
18 Packing Table...............................? 539,000 21 Establish Washing Pipe Valve................? 295,000

Our initial determination that these items were dutiable was based upon the concern that the vessel undertook a similar operation during the winter of 1990 and that a satisfactory explanation of how the items currently at issue differ from the previous operation was
lacking. The petition does address the competitive nature of the fisheries trade and the Alaskan regulatory motivation for performing these operations. However, it does not detail nor does it provide documentation distinguishing the items currently under consideration from the similar operations of 1990. Unless and until a more detailed description of this item distinguishing it from the earlier operations and an authenticated showing that the items on which the work was performed was not in need of repair is submitted, this item shall remain dutiable. Accordingly, relief with respect to this item is denied.

I. HULL PART
20 Angle Bar Installation.....................? 272,000

Upon reconsideration, Customs is satisfied that this item qualifies as a modification. It appears that the angle bar is a permanent addition to the superstructure of the vessel and is essential to the successful operation of the vessel. Otte v. United States, 7 C.C.P.A. 166, 169 (1916). Accordingly, this item is not subject to duty.

II. MACHINERY PART
6 Installation of Coupling...................? 205,000

This item represents a switch from one type of coupling used in conjunction with the main engine to a newer and more flexible coupling. While this item may represent a first-time installation of this type of coupling, the crucial evidence that should be offered, but was not, is the condition of the item being replaced. Customs has consistently held that the replacement of an item that is in need of repair is dutiable. Unless and until more detailed and authenticated evidence is submitted establishing the condition of the coupling that was replaced, this item shall remain dutiable. Accordingly, relief with respect to this item shall be denied.

III. ELECTRIC PART
2 General Alarm Modifications................? 379,000

Upon further review of this item and the related documents on file with Customs (Headquarters Ruling 110178 (Apr. 14, 1989)), this item remains dutiable. In light of the fact that similar work was performed on the vessel in 1989, it must be established that the recent work is not a repair operation related to this earlier entry before it may be given duty-free modification status. The petitioner claims that the work completed was to ensure that the crew could hear the alarm throughout the vessel. Our comparison of the invoice associated with the current item with the invoice from 1989 reveals that some of the alarm-related work was performed in the same location. Since the record is devoid of any evidence establishing whether these operations were repairs of existing
structures or bona fide modifications, the petitioner has failed to meet its burden of proof to establish that the item represents a repair. Thus, this item shall remain dutiable. Accordingly, relief with respect to this item is denied.

III. ELECTRIC PART
3 Switchboard Alarm Modifications............? 101,000

Our initial determination finding this item dutiable was based on the fact that the invoice lacked sufficient information upon which to make a determination of dutiability. The petition does not address this concern, but does indicate that the alarm was a first- time installation. This additional evidence serves to confuse the situation because the shipyard invoice refers to modifications to an existing alarm system and not to a first-time installation of a switchboard. Unless and until Customs receives authenticated supplementary evidence detailing the installation or, alternatively, the work performed on the alarm system, this item shall remain dutiable. Relief with respect to this item is denied.

IV. BELT CONVEYOR
1/2 Modification of Belt Conveyor..............? 480,000

Relief from duty was initially denied because Customs was not provided with sufficient information for the work performed in connection with the belt conveyors. The invoice provided for is vague and states only that the belt conveyor was modified. No details of the work performed are provided. While Customs appreciates the petitioner's narrative offering an elaboration of the work performed on the belt conveyors and the reasons for it, this information unaccompanied by additional authenticated evidence of a modification does not justify relief from duty. Unless and until Customs receives sufficient evidence that the work performed on the belt conveyors is a modification, this item remains dutiable.

HOLDING:

After a thorough review of the record and the additional evidence presented, the petition for relief is granted, in part, and denied, in part, 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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