HQ 226968 - 19 U.S.C. 1466; MAHIMAHI, V-127; Vessel Repair Entry No. C27-0147635-3; - United States International Trade Commision Rulings

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HQ 226968

May 31, 1996

VES-13-18-RR:IT:EC 226968 GOB

CATEGORY: CARRIER

Port Director of Customs
Attn.: Vessel Repair Liquidation Unit, Room 416 P.O. Box 2450
San Francisco, CA 94126

RE: 19 U.S.C. 1466; MAHIMAHI, V-127; Vessel Repair Entry No. C27-0147635-3;
Hatch cover modifications; Change of name markings

Dear Sir:

This ruling is in response to your memorandum dated May 9, 1996, which forwarded the application for relief submitted by American President Lines, Inc. ("applicant") with respect to the above-referenced vessel repair entry. The subject vessel, MAHIMAHI, was previously known as the PRESIDENT WASHINGTON.

FACTS:

You have requested our determination with respect to the following two items: hatchcover modifications and change of name markings.

The application states in part:

As part of this sale agreement it was necessary to make certain improvements to the vessels to increase their efficiency and to make the vessels suitable for this new deployment. These improvements are described in Enclosure A and were required to allow for the stowage of the Matson 24 foot type containers at six rows on deck. ...
Item No. 2 of this entry covers the costs only of changing the vessel's name, hailing port, slack insignia, and stack coating and the addition of the "Matson" insignia. As such, these changes resulting from a change of ownership of this vessel constitutes [sic] a duty free modification.

ISSUE:

Whether the subject items 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.

Hatchcover Work

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 a permanent incorporation. See United States v. Admiral Oriental Line, 18 C.C.P.A. 137 (1930). However, we note that a permanent incorporation or attachment does not necessarily involve a modification; it may involve a dutiable repair.

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.

In its application dated April 24, 1996, the applicant states:

Matson and APL announced their intent to operate a joint service that would benefit both carriers by producing significant cost savings. To accomplish these efficiencies and cost savings, APL sold the above subject vessels to Matson...

As part of this sale agreement it was necessary to make certain improvements to the vessels to increase their efficiency and to make the vessels suitable for this new deployment. These improvements...were required to allow for the stowage of the Matson 24 foot type containers at six rows on deck.

The applicant has submitted an "AGREEMENT FOR MODIFICATIONS AND IMPROVEMENTS TO VESSELS" and "SPECIFICATION FOR C9 CLASS VESSELS 24ft CONTAINER STOWAGE MODIFICATIONS." The latter document states, in part:

3. SCOPE OF WORK

3.1 Overview

This specification describes the conversion of deck stowage to carry six rows of 24ft containers in combination with the existing 40ft container stowage. This work involves the construction and installation of eight new 40ft hatch covers per ship, contract plan 1), and modification on hatch covers and pedestals for 24ft container stowage, contract plan 2), and modifications to the hatch coamings, contract plan 3). ...
Pres. Washington: Eight newly constructed hatch covers shall be installed at rows 4 and 5, 14 and 16. The existing port cover at row 5 shall be relocated without modification to the port side location at row 9, and the existing port cover at row 4 shall be relocated without modification to the starboard side location at row 9. The row 4 and 5 row starboard covers, row 9 P/S covers and rows 14 and 16 shall be removed and scrapped.

After a consideration of the record, we find that this item is a nondutiable modification. The work described supra, the conversion of stowage to carry six rows of 24ft containers in combination with the existing 40ft container stowage, is the type of work which is a nondutiable modification, as opposed to a repair dutiable under 19 U.S.C. 1466. This item appears to fall squarely within the description of a nondutiable modification, supra. There is no indication of any repairs.

Change of Name and Related Markings

In Ruling 112513 dated March 30, 1993, we stated with respect to the painting of the ship's name (item 16 in that ruling):

Pursuant to C.D. 1430 (41 CCPA 57, C.A.D. 529), painting that is strictly ornamental and in no sense performed for the preservation of the vessel, cannot be considered "maintenance painting." With respect to the above items, as the painting performed pursuant to item 16 was ornamental in nature, it is entitled to remission.

In H.C. Gibbs v. United States, 28 Cust. Ct. 318, C.D. 1430 (1952), aff'd 41 C.C.P.A. 57, C.A.D. 529 (1953), the court stated:

Relative to painting the hull of the vessel black between the decks and repainting the ship's name thereon, as well as the expenses of cartage of materials and labor, this court is of the opinion that the cost thereof is properly dutiable under the provisions of section 466 as "repairs." Although it is contended that the painting in question is strictly ornamental and in no sense performed for the preservation of the vessel and, therefore, cannot be considered "maintenance painting," it remains a fact that, irrespective of the intention behind the act, the painting of the ship black in order to present a better appearance to the public had the effect of restoring the old and rusted surfaces, and since the repainting of the hull covered the ship's name, it became necessary thereafter to paint the name Gretna Victory over the new black paint.

The painting of the words "Christmas Ship Pacific Northwest U.S.A." does not appear to be in the nature of a restoration of the vessel or a necessary act after the performance of painting, such as the repainting of the name of the ship. The words were painted upon the sides of the ship purely for advertisement purposes to show the nature of the voyage. The words were neither applied to the sides of the vessel as an ornamentation, as a preservation of the vessel, nor as a restoration...we do not believe that the cost of lettering the words "Christmas Ship Pacific Northwest U.S.A." on the port and starboard sides of the hull in 4-foot white letters, is a dutiable item...or is included within the provisions of section 466, supra, as the expenses of repairs made in a foreign country.

Pursuant to H.C. Gibbs and Ruling 112513, we determine that the change of name and related markings is not dutiable pursuant to 19 U.S.C. 1466. The work here is similar to the painting of the words "Christmas Ship Pacific Northwest U.S.A." in H.C. Gibbs in that there is no indication that such work was in the nature of a restoration of the vessel or a necessary act after painting of the vessel. The painting of the name of the vessel, Gretna Victory, described supra in the first excerpted paragraph of H.C. Gibbs, is distinguishable from the work here in that the work here was not accomplished incident to maintenance or restorative painting. Accordingly, as stated supra, this item is not dutiable.

HOLDING:

The subject items are not dutiable pursuant to 19 U.S.C. 1466.

Sincerely,

William G. Rosoff
Chief,

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