HQ 0113128 - Vessel Repair Entry No. 410-0019946-7; Modification; SEA-LAND PRODUCER; V-247; 19 U.S.C. 1466 - United States International Trade Commision Rulings

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HQ 113128

June 20, 1994

VES-13-18-CO:R:IT:C 113128 GEV

CATEGORY: CARRIER

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

RE: Vessel Repair Entry No. 410-0019946-7; Modification; SEA-LAND PRODUCER; V-247; 19 U.S.C. 1466

Dear Sir:

This is in response to your memorandum dated May 27, 1994, forwarding an application for relief from duties assessed pursuant to 19 U.S.C. 1466. You request our review of four items contained within this entry. Our findings are set forth below.

FACTS:

The SEA-LAND PRODUCER is a U.S.-flag vessel owned and operated by Sea-Land Service, Inc. The subject vessel had work performed in Yokohama, Japan during January of 1994. Subsequent to the completion of this work the vessel arrived in the United States at Oakland, California on February 9, 1994. A vessel repair entry was filed on the date of arrival.

Pursuant to an authorized extension of time, an application for relief with supporting documentation was filed on May 10, 1994. Among the work for which the applicant seeks relief are Items 7.5 (Slop Tank Conversion) and 7.6 (Chloropac System Installation) which are claimed to be modifications. In support of these claims the applicant has submitted shipyard invoices and drawings from Mitsubishi Heavy Industries, Ltd.

ISSUE:

Whether evidence is presented sufficient to prove that the foreign work performed on the subject vessel as detailed in Items 7.5 and 7.6 constitute modifications so as to render the work non- 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 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 described in Items 7.5 and 7.6, upon reviewing the record in its entirety, we are of the opinion that both items meet the requisite criteria to be considered non- dutiable modifications.

Parenthetically, we note that we were also requested to review the following two items: Item 2.1-5 (Sea valves and overboard valves); and the American Bureau of Shipping (ABS) survey of certain work performed as part of Item 7.5, discussed above. In regard to the former, it is apparent that such charges were incurred pursuant to a non-dutiable USCG and ABS survey unrelated to any repairs. In regard to the latter, such costs were associated with the non-dutiable modification work detailed in Item 7.5. Accordingly, these costs are non-dutiable.

HOLDING:

Evidence is presented sufficient to prove that the foreign work performed on the subject vessel as described in Items 7.5 and 7.6 constitutes modifications so as to render the work non- dutiable under 19 U.S.C. 1466.

Sincerely,

Arthur P. Schifflin

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