HQ 0112946 - Vessel Repair Entry No. 110-0104416-0; Modification; Guarantee; SEA-LAND TRADER; V-58; 19 U.S.C. 1466 - United States International Trade Commision Rulings

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HQ 112946

February 2, 1994

VES-13-18-CO:R:IT:C 112946 GEV

CATEGORY: CARRIER

Deputy Regional Director
Commercial Operations
Pacific Region
1 World Trade Center
Long Beach, California 98031

RE: Vessel Repair Entry No. 110-0104416-0; Modification; Guarantee; SEA-LAND TRADER; V-58; 19 U.S.C. 1466

Dear Sir:

This is in response to your memorandum dated October 25, 1993, forwarding a petition for review of Headquarters Ruling 112808. Our ruling on this petition is set forth below.

FACTS:

The SEA-LAND TRADER is a U.S.-flag vessel owned by Connecticut National Bank and operated by Sea-Land Service, Inc. ("Sea-Land"). The vessel underwent foreign shipyard work at Kaohsiung, Taiwan in February of 1993. Subsequent to the completion of this work the vessel arrived in the United States at Tacoma, Washington on February 19, 1993. A vessel repair entry was timely filed.

An application for relief from vessel repair duties was timely filed. By Headquarters letter 112808, dated August 16, 1993, the aforementioned application was granted in part and denied in part. Sea-Land subsequently filed a petition for review regarding work alleged to be modifications to the wheelhouse and several hatches. Specifically, the height of the wheelhouse was to be increased so as to be in compliance with regulatory visibility requirements while allowing the vessel to carry additional cargo, and hatches 7, 9 and 11 were modified to allow the carrying of 45 foot containers. In support of these claims, the petitioner submitted the following documentation: (1) Exhibit A-1 Specifications for Modifications to Sea-Land Class C Vessels; (2) Exhibit A-2 China Shipbuilding invoice no. IK-81-053; (3) Exhibit B-1 Contract for Modification of the SEA-LAND TRADER; (4) Exhibit B-2 China Shipbuilding invoice IK-81-052; (5) Exhibit B-3 China Shipbuilding Guarantee Work; (6)

Exhibit B-4 Letter from John Keenan to U.S. Customs dated June 25, 1993 for clarification of the work in question; (6) Exhibit B- 5 Letter from John Keenan to U.S. Customs pertaining to work performed on another Sea-Land vessel.

ISSUE:

Whether the foreign shipyard work in question for which the petitioner seeks relief is dutiable under 19 U.S.C. 1466.

LAW AND ANALYSIS:

Title 19, United States Code, 1466, provides in pertinent part for payment of duty in the amount of 50 percent ad valorem on the cost of foreign repairs to vessels documented under the laws of the United States to engage in the foreign or coastwise trade, or vessels intended to engage in such trade.

In its application of the vessel repair statute, Customs has held that modifications 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 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. This element should not be given undue weight in view of the fact that vessel components must be welded or otherwise "permanently attached" to the ship as a result of constant pitching and rolling. In addition, some items, the cost of which is clearly dutiable, interact with other vessel components resulting in the need, possibly for that purpose alone, for a fixed and stable juxtaposition of vessel parts. It follows that a "permanent attachment" takes 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 regard to the work in question, we stated in Ruling 112808 that the claim for duty-free treatment for work performed under a warranty for an alleged modification and not a warranty relating to the original construction of the vessel was inapposite. Consequently the application was denied. Upon further review of the record, we remain of the opinion that relief should not be granted pursuant to a warranty claim as discussed in Sea-Land Service, Inc. v. United States, 683 F.Supp. 1404 (1988) inasmuch the work in question was not performed within one year of the completion of the vessel's original construction. However, we note that although the work listed in Exhibit B-3 is stated to be "GUARANTEE WORK", the shipyard has noted that it was performed pursuant to "NO CHARGE".

Furthermore, the remainder of the documentation submitted by the petitioner indicates that the work in question meets the requisite criteria for a modification as discussed above and therefore should be accorded duty-free treatment.

HOLDING:

The foreign shipyard work for which the petitioner seeks relief is non-dutiable under 19 U.S.C. 1466 as discussed in the Law and Analysis section of this ruling.

Accordingly, the petition is granted.

Sincerely,

Arthur P. Schifflin

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