HQ 0112786 - Vessel repair; Modification; 19 U.S.C. 1466; SEA-LAND ENTERPRISE; Entry No. 110-0104410-3 - United States International Trade Commision Rulings

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HQ 112786

September 27, 1993

VES-13-18 CO:R:IT:C 112786 GOB

CATEGORY: CARRIER

Deputy Regional Director
Commercial Operations
Pacific Region
One World Trade Center
Long Beach, California 90831

RE: Vessel repair; Modification; 19 U.S.C. 1466; SEA-LAND ENTERPRISE; Entry No. 110-0104410-3

Dear Sir:

This is in response to your memorandum dated June 15, 1993, which forwarded for our review the application for relief filed in connection with the above-referenced vessel repair entry.

FACTS:

The record reflects that the subject vessel, the SEA-LAND ENTERPRISE ("vessel"), arrived at the port of Tacoma, Washington on January 22, 1993. Vessel Repair Entry No. 110-0104410-3 was filed on January 27, 1993. The entry indicates that the vessel underwent foreign shipyard work while in Kaohsiung, Republic of China. Sea-Land Service, Inc. ("applicant") seeks relief for certain invoice costs that it claims are not subject to duty because those costs are for modifications. The applicant also seeks relief for certain other items which it contends are not dutiable.

ISSUES:

(1) Whether certain work performed to the vessel resulted in modifications to the vessel and is therefore not subject to duty under 19 U.S.C. 1466.

(2) Whether certain other costs which were incident to required inspections are subject to duty under 19 U.S.C. 1466.

(3) Whether certain administrative costs are subject to duty under 19 U.S.C. 1466.

(4) Whether certain cleaning is subject to duty under 19 U.S.C. 1466.

LAW AND ANALYSIS:

19 U.S.C. 1466 provides in pertinent part for the payment of duty at a rate of fifty percent ad valorem on the cost of foreign repairs to vessels documented under the laws of the United States to engage in foreign or coastwise trade, or vessels intended to be employed in such trade.

Issue (1)

In a non-binding, advisory letter to the applicant dated April 8, 1993, we stated as follows:

We are writing in response to your letters of October 23 and November 10, 1992, in which you relate plans on the part of Sea-Land Service, Inc., to have certain foreign shipyard operations conducted on four company vessels. ...
We understand that it is proposed to take the Sea-Land vessels TRADER, NAVIGATOR, ENTERPRISE, and PACIFIC to foreign shipyards in order that their configurations may be changed so that they can be made to accomodate the carriage of greater numbers of cargo containers above decks. This result will be achieved by raising the navigation bridge some fourteen (14) feet, and by modifying some of the hatches between numbers seven (7) and eleven (11) in order that they might accomodate containers of forty-five (45) feet.
...
In its application of the vessel repair statute, the Customs Service has held that modifications, alterations, or additions to the hull and fittings of a vessel are not subject to vessel repair duties. The identification of work constituting modifications vis-a-vis work constituting repairs has evolved from judicial and administrative precedent. In considering whether an operation has resulted in a nondutiable modification, the following factors have been considered:

1. Whether there is a permanent incorporation into the hull or superstructure of a vessel (See United States v. Admiral Oriental Line, 18 C.C.P.A. 137 (1930)), either in a structural sense or as demonstrated by means of attachment so as to be indicative of the intent to be permanently incorporated.

2. Whether in all likelihood an item under consideration would remain aboard a vessel during an extended lay-up.

3. Whether, if not a first time installation, an item under consideration constitutes a new design feature and does not merely replace a part, fitting, or structure that is performing a similar function.

4. Whether an item under consideration provides an improvement or enhancement in operation or efficiency of the vessel.

With specific reference to the items presently under consideration, there would appear to be every likelihood that an examination of the invoices detailing the work outlined above would result in a finding that the vessels had undergone non-dutiable modifications in a foreign shipyard. The operations anticipated to be completed abroad are of the type which we have previously found to be modifications rather than repairs.

The applicant has broken certain of the work performed into six modifications which it has numbered M1 through M6. You have asked us to review the following items on the applicant's worksheet: M1 - 1, 255, 275, 281, 282, 283; M2 - 2; M3 - 3, 284; M4 - 145, 146, 147; M5 - 190, 191, 192; and M6 - 204, 205, 206.

The applicant states the following:

M1. These items relate to a structural modification of the vessel which increased the height of the wheelhouse to allow the vessel to carry more cargo while it still complied with visibility requirements. Additional structural changes were made as a result of the bridge raising. The foremast was modified to meet visibility requirements. The mounting of the navigation lights was modified to conform with U.S. Coast Guard requirements. The diesel generator exhaust stack was raised to prevent exhaust gases from being pulled into the wheelhouse.

M2. This item relates to the modification of hatch numbers seven, nine, and 11 to carry 45 foot containers, which the vessel has the capacity to carry as a result of the modification.

M3. These items relate to the modification of the cover to hatch number one to permit the double-lashing of containers.

M4. These items relate to the modification of cell guide gathers, which provide entry targets for the crane operator when containers are stowed below deck. A new structural fitting was installed between the cell guide gather and the hatch coaming to prevent future damage.

M5. These items relate to the modification of hatch cover liners for hatch numbers four and 11. The previous liners were composed of mild steel and were subject to frequent damage due to corrosion and wear. The new liners are stainless steel.

M6. These items relate to the modification of hatch covers at hatch numbers 13 and 4S. The hatch covers were fitted with deck sockets which provide a tie point for a container locking device. Prior to this modification, attempts to use these sockets occasionally resulted in damage to the cover as it deflected excessively if the locking device missed the socket.

Based on the evidence of record in the case file, we find that all of the above items are nondutiable modifications with the exception of the following items: 145, 146, 147, and 283.

We find that items 145, 146, and 147 are dutiable repairs based on the invoice for items 143-147 which indicates that the work is both a modification and a repair. That invoice describes the modification, but also states "Labor - repair cell guides" with respect to item 146. Based on the apparent contradiction on the face of the invoice, we are unable to conclude that items 145, 146, and 147 are for work which constitutes nondutiable modification. We conclude that these three items are for work which constitutes dutiable repairs.

With respect to item 283, which is within the M1 group, we find that the invoice does not reflect a sufficient nexus with the M1 modification work. The invoice states in part: "furnish junction boxes...furnish 60' transducer cables...furnish MCFQ- 2518A-50 meter sat-com cables." The invoice does not establish that these expenses are related to a nondutiable modification. Accordingly, we find that this item is a dutiable repair.

Issue (2)

You have asked us to review the following items which the applicant has termed on its worksheet "Intrinsic part of an inspection required by USCG and ABS": 34, 36, 47, 48, 53, 54, 56, 61, 64, 67, 73, 79, 131, and 229.

The evidence of record indicates that the the work performed with respect to these items was pursuant to inspections required by the U.S. Coast Guard and ABS. We have consistently held that a survey undertaken to meet the requirements of a governmental entity, classification society, or insurance carrier is not dutiable. Accordingly, all of these items are not dutiable.

Issue (3)

You have asked us to review the following items which the applicant has termed on its worksheet "Clerical and administrative
costs, non-productive work, non-dutiable": 76, 85, 89, 95, 101, 105, 111, 116, 122, 126, 137, 152, 156, 160, 163, 171, 175, 179, 183, 186, 196, 199, 202, 208, 212, 216, 219, 222, 226, 232, 236, 240, 244, 248, and 253.

The invoices reflect that these items constituted administrative costs, administrative charges, or administrative overhead. We find that all of these items are dutiable because the record indicates that these administrative costs were related to dutiable repairs.

Issue (4)

You have asked us to review item 258, which the applicant has termed on its worksheet: "Cleaning, no repairs or painting, non- dutiable."

The invoice for this item indicates that the cleaning was not related to a repair. Accordingly, we find that this item is nondutiable.

HOLDING:

The application for relief is allowed in part and denied in part. The items within Issue (1) are nondutiable with the exception of items 145, 146, 147, and 283. The items within Issue (2) are nondutiable. The items within Issue (3) are dutiable. The item within Issue (4) is nondutiable.

Sincerely,

Arthur P. Schifflin
Chief

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