HQ 0112945 - Protest 0401-92-100616; Vessel Repair Entry No. 559-1237207- 9; NEDLLOYD HUDSON, voyage 029; Modification; Air Compressor; 19 U.S.C. 1466; - United States International Trade Commision Rulings

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HQ 112945

May 31, 1994

VES-13-18 CO:R:IT:C 112945 BEW

CATEGORY: CARRIER

Deputy Assistant Regional Commissioner
Classification and Value Division
ATTN: Regional Vessel Repair Liquidation Unit 6 World Trade Center
New York, New York 10048-002980

RE: Protest 0401-92-100616; Vessel Repair Entry No. 559-1237207- 9; NEDLLOYD HUDSON, voyage 029; Modification; Air Compressor; 19 U.S.C. 1466;

Dear Sir:

This letter is in response to your memorandum of October 26, 1993, which forwarded for our review the application for relief filed in conjunction with the above-referenced vessel repair entry.

FACTS:

The record reflects that the subject vessel, the NEDLLOYD HUDSON, arrived at the port of Boston, Massachusetts, on November 6, 1990. Vessel repair entry, number 559-1237207-9, was filed on the same day as arrival. The entry indicates that the vessel, among other items, had a complete compressed air system installed while the vessel was in Felixstowe, England. An application for relief was filed on January 23, 1991. This application was denied in part by your office, for no documentation was included with the application to establish the claim that the installation of the air compressor is not subject to duty as a modification.

A petition was filed on March 21, 1991. In support of its claim, the petitioner submitted an invoice from Hamworthy Marine that provided a cost for the installation of the air compression system. The invoice, however, did not describe the work performed. The petition did not provide an explanation or description of what work was done. The petitioner merely made reference to an advisory ruling in which this office stated thatgiven the information submitted, the prospective work would be considered a modification that is not subject to duty (HQ 110993 GEV, dated May 2, 1990).

By decision dated January 9, 1992, the petition was denied on the basis that:

Notwithstanding the advisory ruling stating that the installation of an air compression system would constitute a modification to the subject vessel, without further description of the actual installation process, we are unable to conclude that the installation of the air compressor constitutes a modification to the vessel.

The entry was liquidated on July 6, 1992. The protest was timely filed on October 2, 1992. The protestant claims that the installation of the air compressor is a modification to the vessel's hull and fittings. In addition to the previous invoices, the protestant has submitted technical drawings and data of the new compressor unit, a schedule and outline from Hamworthy of the work done during the installation of the new compressor and upgrading the existing compressor, a progress report, and revised costs covering the work done on the vessel. The file also contains reports from the Coast Guard and ABS approving the compressor units and technical sketches showing the proposed changes.

ISSUE:

Whether the evidence submitted as part of the protest is sufficient to establish that the installation of the air compressor is a modification/alteration/addition to the vessel's hull and fittings.

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 modification processes 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 because ships are subject to constant pitching and rolling. In addition, some items, the cost of which is clearly dutiable, operate with other vessel components, resulting in the need, possibly for that purposes alone, for a fixed and stable attachment to those vessel parts. It follows that a "permanent attachment" may take place that does not necessarily involve a modification to the hull and fittings.

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 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.

Very often when considering whether an addition to the hull and fittings took place for the purpose of 19 U.S.C. 1466, we have considered the question from the standpoint of whether the work involved the purchase of "equipment" for the vessel. It is not possible to compile a complete list of items that might be aboard a ship that constitute its "equipment". An unavoidable problem in that regard stems from the fact that vessels differ as to their services. What is required equipment on a large passenger vessel might not be required on a fish processing vessel or offshore rig.

"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. Admiral Oriental, supra., (quoting T.D. 34150, (1914))

By defining what articles are considered to be equipment, the Court attempted to formulate criteria to distinguish non- dutiable items which are part of the hull and fittings of a vessel from dutiable equipment, as defined above. These items might be considered to include:

...those appliances which are permanently attached to the vessel, and which would remain on board were the vessel to be laid up for a long period... Admiral Oriental, supra., (quoting 27 Op. Atty. Gen. 228).

A more contemporary working definition might be that which is used under certain circumstances by the Coast Guard; it includes a system, accessory, component or appurtenance of a vessel. This would include navigational, radio, safety and, ordinarily, propulsion machinery.

In Headquarters Ruling Letter 110993, this office held that, based on the work order description and accompanying drawing, the proposed installation of the air compressor would be a modification to the vessel that is not subject to duty. However, this advisory ruling stressed that any final determination would be contingent on review of the evidence submitted as part of the entry and procedure for review.

The evidence submitted as part of the protest substantiates that the installation of the air compressor constitutes a modification/alteration/addition to the vessel's hull and fittings. Accordingly, the protest is granted.

HOLDING:

The protest is granted.

In accordance with 3A(11)(b) of Customs Directive 099 3550- 065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any new billing (the equivalent of the reliquidation of an entry) in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Lexis, Freedom of Information Act and other public Access channels.

Sincerely,

Arthur P. Schifflin
Chief

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