HQ 0112834 - Vessel Repair; Application for Relief; Modification; Survey; Overhead; Cleaning - United States International Trade Commision Rulings

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HQ 112834

November 12, 1993

VES-13-18-CO:R:IT:C 112834 DEC

CATEGORY: CARRIER

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

RE: Vessel Repair; Application for Relief; Modification; Survey; Overhead; Cleaning
Vessel Repair Entry No.: C27-0082382-9
Date of Arrival: April 5, 1993
Date of Entry: April 6, 1993
Port of Arrival: Long Beach, California
Vessel: SEA-LAND EXPRESS V-189

Dear Sir:

This is in response to your memorandum dated July 23, 1993, which forwards the application for relief from vessel repair duties filed in connection with the above-referenced vessel for our review.

FACTS:

The SEA-LAND EXPRESS is operated by Sea-Land Service, Incorporated. It is an American-flag vessel. While abroad, the SEA-LAND EXPRESS stopped in Kobe, Hong Kong, and Kaohsiung where it underwent various operations. Subsequently, the vessel arrived in the United States at Long Beach, California on April 5, 1993. A vessel repair entry was filed on April 6, 1993.

An application for relief from the assessment of vessel repair duties was timely filed pursuant to an extension of time to file the required documentation. Headquarters Decision 112780 (July 1, 1993). The following items have been submitted for our review.

Item Description

4 dowels on hatch
11 drydocking charge on ABS invoice
12 automation survey on ABS invoice
2-1-4 administrative charge (apportioned) 4-1-1 deflection readings
H-6 foremast
H-8 faceplate
H-16 rudder

M-6 crosshead bearings
M-10 main bearing
M-14 sea valve and overboard valve
M-18 soil clapper valve
M-22 flushing of oil passage
22 hinged frame
32 paint primer

ISSUE:

Whether the cost of foreign shipyard work completed aboard the subject vessel is dutiable pursuant to Title 19, United States Code, section 1466.

LAW AND ANALYSIS:

Title 19, United States Code, section 1466(a) provides, in pertinent part, for payment of a fifty percent ad valorem duty 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.

Dowels on Hatch (Item 4)

The cost associated with the removal of the dowels on the hatch covers is not subject to the assessment of vessel repair duties because it is a duty-free modification.

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 finds that the removal of the dowels from the hatches constitutes a non-dutiable modification. Accordingly, no duty is assessed with respect to these operations.

Drydocking Charge on ABS Invoice (Item 11) Automation Survey on ABS Invoice (Item 12)

The invoices at issue involve the cost associated with various American Bureau of Shipping surveys. Specifically, the applicant contends that the drydocking survey (Item 11) and the annual survey of automation (Item 12) should not be subject to duty because the surveys did not involve any repairs.

In C.S.D. 79-277, the Customs Service addressed the dutiability of surveys/inspections stating that "[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." Only the cost of a required scheduled survey by a qualifying entity (such as the United States Coast Guard or the American Bureau of Shipping) has been held to be exempt from duty. Conversely, Customs has held that if an inspection or survey is conducted merely to ascertain the extent of damages sustained or whether repairs are necessary, the costs are dutiable as part of the repairs which are accomplished.

The cost of the surveys at issue meet the above-described conditions and are, accordingly, not subject to duty.

Administrative Charge (apportioned) (Item 2-1-4)

It is Customs position that overhead relating to repair work is dutiable as part of the cost of repair. Overhead is part of the shipyard's cost of doing business and is a component of the "expenses of repairs made in a foreign country. . .." 19 U.S.C. 1466(a)(1993). The total cost of each repair item is dutiable; that total cost includes overhead (administrative charges).

Customs does not wish to see overhead broken-out or segregated as a separate item. Customs believes that overhead should be included within the cost of the work performed, whether that work be a dutiable repair or a nondutiable modification. Headquarters Decision 112861 (Oct. 19, 1993).

In this invoice the applicant's claim for relief is granted with respect to any overhead charges which are associated with nondutiable charges and which are clearly reflected as such on the pertinent invoices (chain inspection, rigging, and cleaning of chain locker). Duty on the administrative charge is to be assessed with respect to the chain marking operation. C.I.E. 233/60 and Headquarter Decision 112691 (Oct. 19, 1993).

Deflection Reading (Item 4-1-1)

This invoice represents the costs incurred for the taking of the main engine deflection readings upon the vessel's arrival into the shipyard and just prior to its departure. No repairs were performed. Accordingly, no duty is assessed on this invoice.

Foremast (Item H-6)

The invoice for the raising of the vessel's forward mast platform represents an operation that enhances the safe operation of the vessel and it is a permanent incorporation into the vessel. Customs is satisfied that this operation is a duty-free modification. Accordingly, no duty is assessed on the cost of the operation and the related administrative charges. Headquarters Decision 112681 (Oct. 19, 1993).

Faceplate (Item H-8)

The expenses associated with the removal of the faceplates are not subject to duty because their removal does not constitute a repair under 19 U.S.C. 1466. See Headquarters Rulings 110743 and 109908. Accordingly, no duty is assessed on the cost of the operation and the related administrative charges. Headquarters Decision 112681 (Oct. 19, 1993).

Rudder (Item H-16)

The operation on the rudder inspection hole was performed to facilitate access for periodic inspections which will decrease the time that the vessel will be required to be in dry-dock. No repair operation was undertaken in relation to this item. Accordingly, no duty is assessed on this item or its related administrative charges. Headquarters Decision 112681 (Oct. 19, 1993).

Crosshead Bearings (Item M-6)

The labor element of this invoice is subject to the assessment of vessel repair duty because it is a cleaning operation which
removes rust and/or deterioration which is necessary to effectively maintain the vessel. C.I.E. 429/61. Absent evidence to the contrary, this item is considered to be an integral aspect of the overall maintenance of the vessel and is, therefore, dutiable.

Main Bearing (Item M-10)

Absent evidence to the contrary, the main engine bearings were replaced due to anticipated deterioration. Cleaning performed in conjunction with dutiable repairs would be dutiable. Consequently, the cleaning cost itemized on the invoice is subject to duty.

Sea Valve and Overboard Valve (Item M-14)

This invoice details the expense associated with the opening of these valves for the United States Coast Guard and the American Bureau of Shipping for inspection. Since no identifiable repair work was performed, the cost of this operation is not subject to duty.

Soil Clapper Valve (Item M-18)

The cleaning of the soil clapper valve and lever is a maintenance operation. As such, it is a dutiable repair and subject to the assessment of vessel repair duty. The expense of a shipyard- conducted inspection which relates to a dutiable repair is dutiable. In addition, the related administrative charges are subject to duty as outlined in Headquarters Ruling 112681 (Oct. 19, 1993).

Flushing of Oil Passage (Item M-22)

This invoice describes the flushing of the oil passage with compressed air. This described operation is analogous to a cleaning operation designed to improve the efficiency of the vessel through the proper maintenance of the oil passage. Customs has consistently held maintenance items dutiable. Accordingly, this item together with applicable administrative costs is subject to duty. The itemized staging costs are not subject to duty.

Hinged Frame (Item 22)

The installation of the hinged frame twistlocks which upgrade the vessel's current twistlocks breaking strength does not involve a repair operation. Rather, the installation is a permanent incorporation into the vessel's superstructure which would remain aboard the vessel during an extended layup and it improves the operational efficiency of the vessel. Accordingly, no vessel repair duty is owed with respect to this invoice.

Paint Primer (Item 32)

The applicant admits to the dutiability of this invoice and requests that the unused product which was returned to the vendor for a credit not be assessed vessel repair duty. Duty should be assessed on the invoice with exception to the unused product returned for credit.

HOLDING:

After a thorough review of the submitted evidence, this application for relief is granted in part and denied in part for the reasons detailed in the Law and Analysis section of this ruling.

Sincerely,

Arthur P. Schifflin

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