HQ 0112972 - Vessel Repair Application; 19 U.S.C. 1466; ARCO SPIRIT; Repairs; Modifications; Entry No. C31-0005030-2 - United States International Trade Commision Rulings

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HQ 112972

January 4, 1994

VES-13-18-CO:R:IT:C 112972 GOB

CATEGORY: CARRIER

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

RE: Vessel Repair Application; 19 U.S.C. 1466; ARCO SPIRIT; Repairs; Modifications; Entry No. C31-0005030-2

Dear Sir:

This is in response to your memorandum dated December 17, 1993, which forwarded the application for relief submitted by ARCO Marine, Inc. ("applicant") with respect to the above-referenced vessel repair entry.

FACTS:

The S.S. ARCO SPIRIT ("vessel") is a U.S.-flag vessel owned by the applicant. Certain foreign shipyard work was performed on the vessel in Ulsan, Korea between August 9, 1993 and September 13, 1993. The vessel arrived in Valdez, Alaska on September 26, 1993 and filed a vessel repair entry on the same date.

You ask us to consider the following items which are described in the application:

Item No. Description

336 Floor Tube Stowage
431 IGS Modification
432, 432-A IGS Inerting System
436 Work Bench
442 Handrail
445 #1 Fire Main
510 Pump Room Strobe Light
513 Forward Mast Lights
703 Oil Containment Plating
704 Rain Water Collector
812 Pipe Removal
816 Starboard Cargo Manifold
818, 818-1 Cargo Manifold Drain System

904 Pump Room Detecting System
906 Gyro Compass
910 Fuel Oil Discharge Strainer
911, 911-B Tank Gauging
912 Deck Tray
913 Engine Room Separator
914 Clean Water System

You also ask us to consider the following items which are listed on the worksheet:

Item No. Description

103 Inspection Prep. - Sea Chests
104 Inspection Prep. - Sea Valves
106 Testing of Bleeder Plugs
109 Inspection Prep. - Tailshaft
201 Boiler Firesides - Clean for Insp.
208 Inspection Prep. - Pressure Vessel
701 Tank Fractures - Clean for Insp.
801 Insp. Prep. & Test - Cargo Sys. Test
901 Env. Controls - Ballast Tanks Coating 902 Env. Controls - Center Cargo Tank Coating 911-A Tank Gauging - Additional Cables
BC Taechang Inv. Dockyard Mark-up

ISSUE:

Whether the above-stated costs are dutiable pursuant to 19 U.S.C. 1466.

LAW AND ANALYSIS:

19 U.S.C. 1466 provides for the payment of duty at a rate 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 be employed 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. The identification of work constituting modifications vis- a-vis work constituting repairs has evolved from judicial and administrative precedent. In considering whether an operation has resulted in a nondutiable modification, the following factors have been considered:

1. Whether there is a permanent incorporation into the hull or superstructure of a vessel, either in a structural sense or as demonstrated by means of attachment so as to be indicative of the intent to be permanently incorporated. See United States v.

Admiral Oriental Line, 18 C.C.P.A. 137 (1930). 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 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 would remain aboard a vessel during an extended lay-up.

3. Whether an item 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 provides an improvement or enhancement in operation or efficiency of the vessel.

After a consideration of the record, we make the following findings.

The following items are not dutiable:

(a) 336, 431, 432, 432-A, 436, 442, 445, 510, 513, 703, 704, 812, 816, 818, 818-1, 904, 906, 910, 911, 911-A, 911-B, 912, 913, and 914. The record reflects that these items are modifications.

(b) 103, 104, 106, 109, 201, 208, and 801. The record reflects that these items are inspection or inspection-related items which are resultant from a periodic and required inspection or survey by a governmental entity or classification society.

The following items are dutiable repairs: cleaning for inspection related to tank fractures - item 701; environmental controls - items 901 and 902; and dockyard mark-up, as listed on the BC Taechang Industrial Corp. invoice dated September 10, 1993.

The items for environmental controls and cleaning for inspection related to tank fractures are dutiable because they directly relate to or are incident to dutiable repairs.

The dockyard mark-up is dutiable in the same manner that "overhead" is dutiable. Such an item is dutiable unless it is included as a cost or expense of a nondutiable item or clearly reflected as related to a nondutiable item on the pertinent invoices.

HOLDING:

As detailed supra, the application for relief is granted in part and denied in part.

Sincerely,

Arthur P. Schifflin
Chief

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