HQ 0112863 - Vessel Repair; Petition for Review; Modification; Documentation; Evidence; 19 U.S.C. 1466; ALASKA I; Vessel Repair Entry No. H24-0013047-0. - United States International Trade Commision Rulings

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HQ 112863

November 16, 1993

VES-13-18-CO:R:IT:C 112863

CATEGORY: CARRIER

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

RE: Vessel Repair; Petition for Review; Modification; Documentation; Evidence; 19 U.S.C. 1466; ALASKA I; Vessel Repair Entry No. H24-0013047-0.

Dear Sir:

This letter is in response to your memorandum dated August 12, 1993, which forwards for our consideration a petition for review filed in connection with the above-referenced vessel.

FACTS:

The ALASKA I arrived at the port of Anchorage, Alaska on April 9, 1992, and filed a timely vessel repair entry. The entry indicates that the vessel underwent foreign shipyard work in Tokyo, Japan. This timely-filed petition for review is in response to Headquarters Ruling 112513 (Mar. 30, 1993) and is challenging the dutiability of the following items.

Application
Item Number Invoice/Description

Machinery Part 1 propeller
3 reduction gear
Hull Part 10 hull piping works
Electric Part 5 general alarm
Belt Conveyor 1-5 conveyor works
Refrigeration Part 2 contact freezers
3 baiting store cooling coil

ISSUE:

Whether the cost of the foreign shipyard work completed aboard the ALASKA I is dutiable pursuant to 19 U.S.C. 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.

Machinery Part

1. Propeller (?2,970,000)

This invoice is associated with the conversion of the propulsion system from a fixed-pitch to a variable-pitch propeller system. In addressing the dutiability of this invoice at the application stage, Customs held this invoice dutiable based on precedent holding that work performed to restore a part to good condition following deterioration or decay to be a maintenance operation within the meaning of the term repair as used in the vessel repair statute. While a substantial amount of work may have been necessary to alter the propulsion system, the fact remains that the invoice submitted contains some dutiable cleaning operations as well as some replacement operations which, in the absence of evidence to the contrary, constitute dutiable repairs. Customs has held that where an invoice contains dutiable and non-dutiable items the entire invoice is dutiable in the absence of a more specific apportionment. Headquarters Decision 108567 (Sept. 10, 1986).

3. Reduction Gear (?2,420,000)

The petitioner claims that to install the variable-pitch propeller system, the shipyard was required to modify the vessel's reduction gear. As was stated previously, the fact that substantial work was needed to outfit the vessel with its new propulsion system does not translate the entire operation into a duty-free modification. As above, the fact remains that the invoice submitted contains some dutiable cleaning operations as well as some replacement and overhauling operations which, in the absence of evidence to the contrary, constitute dutiable repairs. The entire invoice remains dutiable until the petitioner can document the segregated non-dutiable costs. Headquarters Decision 108567 (Sept. 10, 1986).

Hull Part

10. Hull Piping Works (?11,450,000)

This invoice was initially deemed dutiable because the information provided at the application stage did not provide a sufficient description of the operation which precluded Customs from
making a determination of dutiability. The invoice lists the replacement pipe used as part of the conversion of the vessel from a trawler into a long-liner, but does not present any information regarding the pipes that were replaced.

Customs has long held that for an item to be characterized as a non-dutiable modification, it must encompass the installation of an item as a new design feature, not as a replacement for, or restoration of, parts now performing a similar function. Headquarters Decision 108871. Even though an operation might under normal circumstances be considered to be a permanent, duty-free modification, the benefit of such a finding is not extended to operations which encompass the replacement of existing structures in need of repair at that time. Absent more detailed evidence explaining why the various piping was replaced, this item shall remain dutiable.

Electric Part

5. General Alarm (?1,500,000)

At the application stage, relief from the assessment of vessel repair duty was denied because the applicant failed to provide a sufficient description of the work performed with respect to the general alarm. Customs is satisfied that the general alarm system is permanently incorporated into the vessel's superstructure and that it would remain aboard the vessel during an extended layup. Furthermore, Customs finds that this operation is not a repair of existing items aboard the vessel. Upon reconsideration of the evidence submitted, Customs finds the installation of the new general alarm system to be a non-dutiable modification.

Belt Conveyor

1-5. Conveyor Works (?3,580,000)

Relief from duty was initially denied because Customs was not provided with sufficient information regarding 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.

Refrigeration Part

2. Contact Freezers (?2,685,000)
3. Baiting Store Cooling Coil (?1,533,000)

These items were initially deemed dutiable because the information provided at the application stage did not provide sufficient descriptions of the operations which precluded Customs from making a determination of dutiability. Upon reconsideration of the evidence previously submitted together with the petitioner's statement that these invoices represent first-time installations, Customs finds that these items are non-dutiable modifications which are a part of the vessel's conversion from a stern trawler into a long-liner.

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,

Arthur P. Schifflin

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