HQ 0112696 - Vessel Repair; Protest No. 1803-92-100023 Vessel Repair Entry No. C18-0016852-3 - United States International Trade Commision Rulings

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HQ 112696

June 21, 1993

VES-13-18-CO:R:IT:C 112696 DEC

CATEGORY: CARRIER

Regional Director
Commercial Operations Division
423 Canal Street
New Orleans, Louisiana 70130-2341

RE: Vessel Repair; Protest No. 1803-92-100023 Vessel Repair Entry No. C18-0016852-3
Date of Arrival: August 21, 1991
Port of Arrival: Jacksonville, Florida
Vessel: S.S. GREEN ISLAND V-27/28

Dear Sir:

This ruling is in response to your memorandum dated April 19, 1993, which forwards a protest from the assessment of vessel repair duties which was filed in connection with the above-referenced vessel.

FACTS:

The protestant states that the S.S. GREEN ISLAND was scheduled for drydocking in October, 1991. In early 1989, the United States Coast Guard ("U.S.C.G.") inspected the subject vessel and found wastage of steel in her ballast tanks. In April, 1989, the GREEN ISLAND's operators contacted a naval architecture firm which indicated that the vessel could operate with a four percent reduction in the vessel's stress level. The U.S.C.G. concurred in this assessment and approved continued operation of the vessel until the expiration of its Military Sealift Command charter, her next cargo downloading, or scheduled drydocking, whichever occurred first.

In April, 1991, the American Bureau of Shipping ("ABS") placed restrictions on the GREEN ISLAND regulating the levels for the ballast tanks and bending moments when loading. ABS did allow the vessel to continue to operate until its next scheduled drydocking.

After the vessel's participation in the Military Sealift Command concluded, the GREEN ISLAND returned to the U.S. for cargo operations. At that time, the U.S.C.G. insisted that arrangements be made to have the wastage of steel in the ballast tanks corrected and only allowed the vessel to move towards that objective.

The vessel operator's claim that they were unsuccessful in locating a U.S. shipyard with sufficient and immediately available space to accommodate the GREEN ISLAND. The U.S.C.G. granted a single round trip voyage from the U.S. to the Persian Gulf so that the vessel operator could find a U.S. shipyard capable of performing the required work. Since an appropriate shipyard could not be found, the GREEN ISLAND stopped in Malta for the required work.

The application for relief from the assessment of vessel repair duties was filed late and, therefore, not considered. Accordingly, the entry was liquidated with only those items subject to duty in accordance with established precedents included in the duty calculation.

ISSUES:

1. Whether work that the United States Coast Guard requires to be completed is justification to remit vessel repair duties associated with compliance.

2. Whether the lack of an available American shipyard to timely perform the required operations is an exception justifying remission of vessel repair duties.

3. Whether the work performed was a modification to the vessel's hull making the assessment of vessel repair duties inappropriate.

LAW AND ANALYSIS:

Title 19, United States Code, section 1466(a) provides, in pertinent part, for payment of duty in the amount of fifty percent ad valorem on the cost of foreign repairs to a vessel documented under United States law to engage in the foreign or coastwise trade, or to a vessel intended to be employed in such trade.

The protestant's contention that the United States Coast Guard's requirement to have the vessel repaired is justification for remission is without merit. The Customs Service has ruled that Coast Guard regulations requiring surveys are not determinative of the dutiability of the repairs that are affected as a result thereof. C.S.D. 82-95 (1982). An examination of the shipyard invoice and other submitted evidence that depicts the work actually performed is the appropriate method to determine whether an item is subject to vessel repair duty.

The protestant's argument that vessel repair duty should be remitted because there was no U.S. shipyard available to timely perform the required operation is contrary to the vessel repair statute. There is no authority under Title 19, United States Code, section 1466, to remit duty assessed on the cost of repairs effected
in foreign ports because the work load at U.S. ports precluded performance of the necessary work within a specific time. Remission of duty on repairs obtained in a foreign shipyard for reasons of commercial expediency have been rejected. Headquarters Ruling 110828 (Mar. 28, 1990).

The protestant's final argument for remission of vessel repair duties is that the work performed on the GREEN ISLAND is a modification and, therefore, not subject to the vessel repair statute. 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).

To determine whether a particular operation is a modification as opposed to a repair, 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).

The evidence submitted clearly indicates that work performed on the GREEN ISLAND was to repair several of the badly wasted parts of the vessel. In a letter dated November 27, 1990, Captain James Mac Donald, U.S.C.G., Chief, Merchant Vessel Inspection and Documentation Division, stated that the "underdeck, sideshell, and bulkhead longitudinals in numbers 2,3, and 4 port and starboard water ballast tanks" were severely wasted. The protestant's argument that since an upgraded steel was used as a replacement of the original high tensile steel angle iron transforms this operation into a modification is without merit. It is clear that the operations carried out in Malta were performed upon items that were in need of repair. Consequently, these operations come within the purview of the vessel repair statute (19 U.S.C. 1466).

HOLDINGS:

1. Work that the United States Coast Guard requires to be completed is not, in and of itself, sufficient justification to remit vessel repair duties.

2. The lack of an available American shipyard to timely perform various operations is not an exception justifying remission of vessel repair duties.

3. An operation which encompasses the replacement of an item or structure in need of repair does not constitute a modification. Rather, such an operation is a repair and subject to duty in accordance with 19 U.S.C. 1466. The Customs Service finds that the operations performed in Malta on the GREEN ISLAND were repairs.

Accordingly, this protest is denied.

Sincerely,

Acting Chief

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