HQ 113075 - Petition; Vessel Repair Entry No. 514-3004613-9; M/V RALEIGH BAY; V-040; Modification; Administrative Services and Expenses; 19 U.S.C. § 1466 - United States International Trade Commision Rulings

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HQ 113075

March 24, 1995

VES-13-18-CO:R:IT:C 113075 BEW

CATEGORY: CARRIER

Deputy Assistant Regional Commissioner
Commercial Operations
Regional Vessel Repair Liquidation Unit
New York, New York 10048-0945

RE: Petition; Vessel Repair Entry No. 514-3004613-9; M/V RALEIGH BAY; V-040; Modification; Administrative Services and Expenses; 19 U.S.C. § 1466

Dear Sir:

This letter is in response to your memorandum dated April 4, 1994, which forwards for our review a petition for relief filed in conjunction with our ruling No. 112936 GEV relating to the above-referenced vessel repair entry. Our review of this matter has been delayed pending the outcome of ongoing litigation which has now been resolved.

The petition centers around items 19A and 19B, expenses alleged to be charges for supervising the modification of hatch #8, and item 20 of Fincantieri invoice No. 15050589.

FACTS:

The M/V RALEIGH BAY is an U.S.-flag vessel owned and operated by Sea-Land Service, Inc. ("Sea-Land"). The subject vessel had foreign shipyard work performed during October 1991. Subsequent to the completion of the work the vessel arrived in the United States at Elizabeth, New Jersey on November 8, 1991. A vessel repair entry covering the work in question was made on November 12, 1991.

Pursuant to an authorized extension of time, an application for relief with supporting documentation was filed on February 6, 1992. Among the items for which the applicant sought relief was work alleged to be modifications to the vessel's container capacity, foremast, navigation lights, and various vessel parts alleged to be either manufactured in the United States or imported into the United States, duty paid. In addressing the dutiable character of numerous items, by ruling 112936 GEV, dated February 2, 1994, Customs allowed in part and denied in part the applicant's claims for relief.

ISSUE:

Whether certain foreign shipyard procedures and costs for which the petitioner seeks relief are dutiable pursuant to 19 U.S.C. section

LAW AND ANALYSIS:

Title 19, United States Code, section 1466(a), 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 be employed 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 constitutes 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.

Item 11 of the application references Fincantieri invoice no. 15050590 which states, "001) 20' Capacity increase modification works carried out as per your specification and drawings." Referenced in the application under this item was Attachments B (Specifications for Modifications) and E (a copy of a letter from Sea-Land requesting an advisory ruling prior to the actual work, Specifications for Modifications, and drawings of the work in question). Upon reviewing the record in its entirety with respect to Item 11, we found that the repair work in this constitutes a non-dutiable modification.

Items 19A and 19B of the application reference documentation from a Mr. Antonio Spicuzza purportedly covering his charges for supervising the modification of hatch #8 for 20 foot containers, and the modification of the navigation lights, respectively. The documentation does not, however, specify the service he performed (it merely
references his "attendance"), is not corroborated by the remaining documentation, and merely lists various costs for meals, lodging, travel, per diem, report preparation, photocopying, film development and mail. The evidence submitted with the petition sustains a finding that the expenses listed in the subject invoice constitute expenses relating to the modification work to the increase capacity for 20 foot containers. Accordingly, we find items 19A and 19B to be non-dutiable.

Item 20 references Fincantieri invoice no. 15050589 which states, "002) Shortening of foremast and modifications to navigation lights carried out as per your specification and drawings." Referenced in the application under this item is Attachment B (Specification for Shortening of Foremast and Modifications to Navigation Lights on the Atlantic Class Vessels).

In our decision of January 9, 1994, we stated:

We note that upon reviewing the aforementioned specifications as they pertain to the work covered in Item 20, Section II of the specifications contains, in addition to the modification work, numerous references to cleaning and refurbishing the navigation lights (see §§ 1.1.2, 1.3.1, and 2.3) which constitutes dutiable work. Accordingly, in view of the fact that Fincantieri invoice no. 15050589 contains no segregation between dutiable and non-dutiable costs, the entire cost of Item 20 is dutiable.

After a complete review of the petition, we affirm our finding in the application as to item No. 20. The subject invoice does not segregate the dutiable and the non-dutiable costs. The evidence submitted with the petition is insufficient to sustain a finding of non-dutiability.

Pursuant to the "but for" test enunciated by the U.S. Court of Appeals for the Federal Circuit in Texaco Marine Services, Inc. and Texaco Refining and Marketing, Inc. v. United States, Slip Op. 93-1354, decided December 29, 1994 (affirming the decision of the U.S. Court of International Trade at 815 F.Supp. 1484 (1993)), post-repair cleaning, removal of debris and protective coverings for repair work are dutiable under 19 U.S.C. § 1466. In view of the Texaco Case, the cost of removal of dirt and debris associated with dutiable repairs is dutiable.

HOLDING:

Following a thorough review of the evidence submitted as well as analysis of the applicable law and precedents, we have determined that the Petition for Review should be allowed in part and denied in part as set forth in the Law and Analysis portion of this ruling.

Sincerely,

Arthur P. Schifflin

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