HQ 0112927 - Vessel Repair; Petition for Review; Modification; Vessel Repair Entry: 559-1237243-4 - United States International Trade Commision Rulings

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HQ 112927

November 30, 1993

VES-13-18-CO:R:IT:C 112927 DEC

CATEGORY: CARRIER

Deputy Assistant Regional Commissioner
Classification and Value Division
Attention: Residual Liquidation and Protest Branch New York, New York 10048-0945

RE: Vessel Repair; Petition for Review; Modification; Vessel Repair Entry: 559-1237243-4
Date of Arrival: September 4, 1991
Port of Arrival: Boston, Massachusetts
Vessel: ILE DE FRANCE V-39

Dear Sir:

This is in response to your memorandum dated October 8, 1993, which forwards the petition for review of the assessment of vessel repair duties filed in connection with the above-referenced vessel.

FACTS:

The ILE DE FRANCE is owned by the Connecticut National Bank and operated by Sea-Land Service, Inc. It is an American-flag vessel. While abroad, the ILE DE FRANCE stopped in Rotterdam where it underwent various operations. In Headquarters Ruling 112732 (Jul. 8, 1993), Customs denied, in part, relief from the assessment of vessel repair duties. The following items have been submitted for review in the vessel operator's petition.

Wilton Fijenoord Invoice W.B. Arnold Co., Inc. (Invoice No. 6955/10925 (8/30/91) Invoice No. Item No.
114 21157 (10/25/91)
121

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.

Wilton Fijenoord Invoice No. 6955/10925 - Item 114

The petitioner contends that the cost of this operation is not subject to duty because it is a permanent incorporation into the vessel. The vessel operator received an advisory ruling from Customs holding that the upgrade of the existing seven Bar service compressor to a thirty Bar topping-up air compressor would constitute a modification. In its advisory ruling letter, Customs did stress that "any final ruling on this matter is contingent on Custom's review of the evidence submitted pursuant to section 4.14(d)(1), Customs Regulations (19 CFR 4.14(d)(1)." Headquarters Ruling 110993 (May 2, 1990).

Item 114 details operations performed upon the vessel's air compressor. The petitioner maintains that this item represents a modification. Notwithstanding the petitioner's submission of a revised shipyard invoice, the Customs Service continues to find that this item contains dutiable repair operations. Customs has held that the removal of an existing operational system to improve the efficient performance of the vessel is not dutiable if the work was not performed in conjunction with dutiable repairs. Headquarters Ruling 109971 (Jun. 12, 1989). However, the newly-submitted invoice indicates that various items underwent renewal operations. These operations are repairs and are subject to the assessment of vessel repair duties pursuant to 19 U.S.C. 1466.

The petitioner argues that this item should not be subject to duty because Customs did not assess duty on an allegedly similar operation from a previous entry. The petitioner cited the SEA-LAND ATLANTIC and enclosed Headquarters Ruling 112024 (Feb. 3, 1993). An examination of this entry revealed that while an allegedly similar operation did escape the assessment of vessel repair duty, it was not reviewed in the Headquarters Ruling. Headquarters is not bound by a determination of dutiability made in the field. On the other hand, Customs is aware of Headquarters Ruling 112025 (Feb. 20, 1993) that held a similar operation performed on the air compressor system dutiable.

In addition, Customs has consistently held that where the charges for dutiable and non-dutiable items are not segregated within an invoice item, all of the charges contained in that invoice item must be deemed dutiable. Customs Memorandum 108567 (Sept. 10, 1986). Consequently, the revised invoice of section 4.2053 is dutiable.

Wilton Fijenoord Invoice No. 6955/10925 - Item 121

Item 121 describes the expense associated with the removal of electric cables and the installation of new cables. To determine whether a particular replacement operation is a modification as opposed to a repair, the appropriate inquiry is to analyze the condition of the structure(s) 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 structure(s) that are in need of repair at that time. If a permanent addition is a first-time installation, or if it replaces an existing structure that 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 duty-free modification. Headquarters Ruling 111224 (Feb. 19, 1991).

Based on a further review of the submitted evidence, the Customs Service is satisfied that the replacement of these electric cables is a modification. The purpose of the installation of the new cables is to enable the vessel to comply with United States Coast Guard electrical-cable requirements and not to repair the vessel's existing cable.

W.B. Arnold Co., Inc., Invoice No. 21157

This invoice is for work performed on the vessel's air compressors. While the general concept of upgrading the air compressor would be considered a modification, as indicated to the applicant in Headquarters Ruling 110993 (May 2, 1990), the actual description of the work associated with this concept included repair work to various items as described in item 114. Since invoice 21157 is for work performed on the vessel's air compressor, which has been ruled dutiable (see item 114 above), the labor charge included in this invoice is fully dutiable absent evidence segregating the labor cost associated with item 121 which was deemed non-dutiable.

HOLDING:

After a thorough review of the submitted evidence, this petition for review is granted in part and denied in part for the reasons detailed in the Law and Analysis section 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
Chief

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