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HQ 113393

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April 13, 1995

VES-13-18-R:IT:C 113393 GEV

CATEGORY: CARRIER

Deputy Regional Director
Commercial Operations
Pacific Region
One World Trade Center
Long Beach, California 90731

RE: Vessel Repair Entry No. DG6-0046267-6; AMERICAN KESTREL; V-12/94; Repairs; Casualty; Modification; 19 U.S.C. ? 1466

Dear Sir:

This is in response to your memorandum dated April 3, 1995, forwarding an application for relief on the above-referenced vessel repair entry. Our findings on this matter are set forth below.

FACTS:

The AMERICAN KESTREL is a U.S.-flag vessel operated by Osprey-Acomarit Ship Management, Inc. The vessel had repair work done in Thailand, Bahrain and Diego Garcia in July and August of 1992. The vessel arrived in the United States at San Francisco on December 15, 1994. A vessel repair entry was timely filed.

The applicant requests relief on a myriad of foreign costs reflected on the entry and has submitted various documentation, including invoices, in support of its claims.

ISSUE:

Whether the costs for which the applicant seeks relief are dutiable under 19 U.S.C. ? 1466.

LAW AND ANALYSIS:

Title 19, United States Code, ? 1466 (19 U.S.C. ? 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.

At the outset we note that the vessel has been outside the U.S. for more than two years. Consequently, only those foreign purchases and repairs the first six months after the vessel's last departure from the U.S. have been declared and entered in accordance with 19 U.S.C. ? 1466(e).

In regard to the first item for which the applicant seeks relief (sealing of hatches and barges and installing computer monitoring equipment), the applicant states that the work began in Concord, California and was completed at Vayama, Thailand. The applicant further states that a United States company (L & C Associates, Inc.) using U.S. citizens and U.S. equipment/materials completed the work. In support of this claim the applicant has submitted L & C Associates, Inc. invoice no. 79213 and a letter dated March 7, 1995, from the President of L & C Associates, Inc. stating that the company is in fact a U.S.-based company whose employees are U.S. citizens. In addition, it is further stated that the equipment/materials in question were loaded on the vessel in Concord, California.

Upon reviewing the evidence submitted with respect to the above expenditures, we have determined that they are not subject to duty under 19 U.S.C. ? 1466.

The second item submitted for our consideration concerns the installation of feeder cable to the vessel's air conditioning and dehumidification system. The replaced wiring was stated to have been of insufficient size to handle the load. The applicant claims that this work constitutes a non-dutiable modification to the existing system. In support of this claim the applicant has submitted Engineering & Marine Services (Pte) Ltd. invoice no. EMS/SI/0325/92.

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 reviewing the record, it is apparent that the installation of the feeder cable to the air conditioning and dehumidification system constitutes a modification. Accordingly, this work is non-dutiable.

The applicant claims remission of duties pursuant to ? 1466(d)(1) for the following two items: overhaul lifeboat accumulator (Bahrain Ship Repairing and Engineering Company Invoice no. 725/236646); and replacement ducting (Shin Tao Ho & Co. (Pte) Ltd. invoice no. 2458-786 IC). While no mention is made as to the nature of the casualty with respect to the former, as to the latter the applicant states that the original ducting was lost when the vessel encountered heavy weather while in transit from Singapore to Bahrain. In addition to the aforementioned invoices, the applicant has submitted a copy of a message dated August 1, 1992, sent from the ship noting the failure of the lifeboat accumulator and requesting repair arrangements, and a message dated August 26, 1992, sent from the ship, detailing the heavy weather conditions causing the loss of the ducting.

Section 1466(d)(1) provides that the Secretary of the Treasury is authorized to remit or refund such duties if the owner or master of the vessel was compelled by stress of weather or other casualty to put into such foreign port to make repairs to secure the safety and seaworthiness of the vessel to enable her to reach her port of destination.

The term "casualty", as it is used in the vessel repair statute (19 U.S.C. ? 1466) has been interpreted as something which, like stress of weather, comes with unexpected force or violence, such as fire, or spontaneous explosion of such dimensions as to be immediately obvious to ship's personnel, or collision (see Dollar Steamship Lines, Inc., v. United States, 5 Cust. Ct. 28-29, C.D. 362 (1940)). In the absence of evidence of such a casualty event, we must consider the repair to have been necessitated by normal wear and tear (ruling 106159, September 8, 1983).

It is noted that ? 4.14(c)(3)(i), Customs Regulations (19 CFR ? 4.14(c)(3)(i)), provides that "port of destination" means such port in the United States. This point is not in dispute, however, it is an embellishment upon ? 1466(d)(1) which, as stated above, sets forth the following three-part test which must be met in order to qualify for remission:

1. The establishment of a casualty occurrence.

2. The establishment of unsafe and unseaworthy conditions.

3. The inability to reach the port of destination without obtaining foreign repairs.

In addition, if the above requirements are satisfied by evidence, the remission is restricted to the cost of the minimal repairs necessary to enable the vessel to reach her port of destination. Repair costs beyond that minimal amount are not subject to remission.

Turning to the two items presented for our consideration, while the evidence presented is sufficient to establish the requisite criteria necessary to grant remission pursuant to 19 U.S.C. Accordingly, the applicant's claim is granted as to the former but denied as to the latter.

Repairs were also conducted on the cargo air conditioning unit (Bailey Refrigeration Co., Inc. invoice nos. 13889 and 13890) and the coffin feed pump (Lee Engineering Supply Company, Inc. invoice no. 44067). In requesting relief for the cost of these repairs, the applicant states that in both instances not only was a technician was flown from the U.S. to perform these repairs, but also that U.S.-manufactured parts were used. The documentation submitted substantiates these claims. Accordingly, the cost of these repairs is non-dutiable.

The following items for our consideration were work that was completed in Diego Garcia and contracted through the United States Navy: fabricate round ducts; repair three UHF radios; and rewind a 250 H.P. motor. The contractual documentation submitted establishes that this work is not dutiable under 19 U.S.C. ? 1466.

HOLDING:

The costs for which the applicant seeks relief are dutiable in part under 19 U.S.C. ? 1466 as discussed in the Law and Analysis portion of this ruling.

Sincerely,

Arthur P. Schifflin

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