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HQ 113366

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March 13, 1995

VES-13-18-CO:R:IT:C 113366 GEV

CATEGORY: CARRIER

Sharon Steele Doyle, Esq.
Givens and Kelly
950 Echo Lane, Suite 360
Houston, Texas 77024-2788

RE: Proposed Vessel Conversion; 19 U.S.C. § 1466

Dear Ms. Doyle:

This is in response to your letter dated March 9, 1995, requesting, on behalf of your client, Coscol Marine Corp., a ruling as to whether certain proposed foreign work done to your client's vessel would be considered a non-dutiable modification under the vessel repair statute. Our ruling on this matter is set forth below.

FACTS:

The COASTAL CORPUS CHRISTI is a U.S.-flag vessel operated by Coscol Marine Corp. The vessel is currently in service as a "dirty products" carrier. The proposed work would convert the vessel into a "clean products" carrier.

The work in question would require the addition and the deletion of certain portions of the piping configurations in the vessel's cargo tanks. As a result, many new valves will have to be installed to the new piping configurations. A new additional cargo pump will also have to be installed requiring cutting a hole in the main deck of the vessel. Furthermore, as part of the changeover, so that the vessel can function as a "clean carrier," the vessel's tanks must be completely cleaned out and coated with a special epoxy coating material which is resistant to such "clean" products as MTEB, paraxylene, and toluene.

ISSUE:

Whether the proposed shipyard work would constitute a modification to the hull and fittings of the vessel 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 an ad valorem duty of 50 percent of the cost of foreign repairs to or equipment purchased for a vessel documented under the laws of the United States to engage in the foreign or coastwise trade, or a vessel 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.

Upon reviewing your letter of March 9, it appears that the work described therein would constitute a non-dutiable modification to the subject vessel rather than dutiable equipment or repairs.

HOLDING:

The proposed foreign shipyard work would constitute a modification to the hull and fittings of the vessel so as to render the work non-dutiable under 19 U.S.C. § 1466.

It is noted, however, that this ruling is merely advisory in nature and does not eliminate the requirement to declare work done abroad at the subject vessel's first United States port of arrival, nor does it eliminate the requirement of filing the entry showing this work (see

§§ 4.14(b)(1)(2), Customs Regulations (19 CFR §§ 4.14(b)(1)(2)). Furthermore, any final ruling on this matter is contingent on Customs review of the evidence submitted pursuant to § 4.14(d)(1), Customs Regulations (19 CFR § 4.14(d)(1)).

Sincerely,

Arthur P. Schifflin

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