HQ 0112871 - Vessel Repair; Bayonne, New Jersey, Vessel Repair Entry No. 514-3004562-8; MAERSK CONSTELLATION; Petition for Relief; modifications; 19 U.S.C. 1466; 19 CFR 4.14 - United States International Trade Commision Rulings

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HQ 112871

December 9, 1993

VES-13-18-CO:R:IT:C 112871 BEW

CATEGORY: CARRIER

Chief, Residual Liquidation and Protest Branch U.S. Customs Service
New York Region
6 World Trade Center
New York, New York 10048

RE: Vessel Repair; Bayonne, New Jersey, Vessel Repair Entry No. 514-3004562-8; MAERSK CONSTELLATION; Petition for Relief; modifications; 19 U.S.C. 1466; 19 CFR 4.14

Dear Sir:

This is in response to your memorandum dated August 27, 1993, which forwards for our consideration a petition for relief filed in connection with the above-referenced vessel repair entry. Our findings are set forth below.

FACTS:

The MAERSK CONSTELLATION is owned by the Maersk Line, Limited. It is an American-flag container vessel. The vessel arrived at the port of Bayonne, New Jersey, on August 23, 1991. While abroad, the vessel underwent repairs in Dubai, United Arab Emirates during the period of May 8 through July 30, 1991. The operators of the vessel contend that various foreign shipyard operations were modifications or non-dutiable repairs.

An application for relief dated November 15, 1991, seeking relief from vessel repair duties assessed on the above-referenced foreign repairs was timely filed. By your decision dated June 25, 1993, you denied the application for relief in part. With respect to Dubai Drydocks invoice #2, you found that the documentation submitted with items 66 and 146 was insufficient to sustain nondutiable repairs. You also found that items 69, 70, 71, 72, 74, 116, 130, 142, & 164, which were alleged to be modifications, were not supported by drawings, specifications or other documentation to sustain a claim of nondutiable modifications. Lastly, you found that the repairs survey listed on ABS survey invoice #1560-1513398 was dutiable (item 117).

The petition is centered around the Dubai Drydock #2 invoice. The petitioner contends that the above stated invoices represent costs for modifications/alterations/additions to the vessel's hull and fittings.The petitioner does not request relief from items 66 and 146, but admits to their dutiability.

ISSUES:

(1) Whether certain work performed in a foreign country constitutes modifications/alterations/additions to the hull and fittings rather than equipment purchases or repairs within the meaning of 19 U.S.C. 1466?

(2) Whether the costs associated with an ABS drydocking survey constitute dutiable repair costs.

LAW AND ANALYSIS:

Title 19, United States Code, section 1466, provides in pertinent part for payment of duty in the amount 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 engage in such trade.

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. Over the course of years, the identification of work constituting modifications on the one hand and repairs on the other has evolved from judicial and administrative precedent. In considering whether an operation has resulted in a modification that 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, 18 C.C.P.A. 137 (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. This element should not be given undue weight in view of the fact that vessel components must often be welded or otherwise "permanently attached" to the ship which is subject to constant pitching and rolling.

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.

For purposes of section 1466, dutiable equipment has been defined to include:
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, 26 Treas. Dec. 183, 184 (1914)(quoted with approval in Admiral Oriental).

In the present case, the petitioner claims that the installation of the following:

Item No. 69, 70, 71, 72, and 74 - Installations of Cargo Hold Heat Detectors

Item No. 116 Suez Light Connection

Item No. 130. Ventilation Deck House C.

Item No. 142. Heeling System

Item No. 164. Crane Hook Cradle Moving.
is a design and operational improvement over the old one. It is claimed that these items were not found to be damaged at the time they were replaced and that the permanent installation of the subject items is to improve the efficiency of the vessel's operation and should be properly considered a non-dutiable modification.

Examination of the entire record, and the documentation submitted with the petition, including that portion of the invoice relating to the said items, reveals that these items were installed to enhance the operation of the vessel's efficiency and are permanent installations to the vessel's hull and fittings. Accordingly, items 69-72, 74, 116, 103, 142, and 164 are non- dutiable modifications/additions/alterations to the hull and fittings of the vessel remissible under the statute.

With regard to item 117 - ABS invoice No. 1560-1513393, drydocking survey, Customs has held that where periodic surveys are undertaken to meet the specific requirements of a classification society, insurance carrier, etc., the cost of the surveys is not dutiable even when dutiable repairs are effected as a result thereof; however, in the liquidation process Customs should go beyond the mere labels of "continuous" or "ongoing" before deciding whether the item is dutiable. If an inspection or survey is conducted as a part of an ongoing maintenance and repair program labelled "continuous" or "ongoing" the cost is dutiable. Also, if the survey is to ascertain the extent of damage sustained, or to ascertain if the work is adequately completed, the costs are dutiable as part of the repairs which are accomplished pursuant to holdings in C.I.E. 429/61, C.S.D. 79-2, and C.S.D. 79-277. Accordingly, the surveys listed on the ABS docking survey invoice are non-dutiable, with the exception of the hull repairs survey. The cost associated with the hull repairs survey is dutiable.

HOLDING:

1. The installation of items 69-72, 74, 116, 103, 142, and 164 constitutes modifications/alterations/additions to the hull and fittings of the vessel rather than repairs. As such, the cost of this work is not dutiable under 19 U.S.C. 1466.

2. The costs for the surveys listed on the ABS drydocking survey invoice are non-dutiable, with the exception of the hull repairs survey. The cost associated with the hull repairs survey is dutiable as a part of the hull repairs.

Sincerely,

Arthur P. Schifflin

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