HQ 226993 - Vessel Repair Entry No. C31-0005025-2; 19 U.S.C. 1466; ARCO INDEPENDENCE, V-CF97; Petition; Modification; Casualty; T.D. 75-257 - United States International Trade Commision Rulings

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HQ 226993

June 10, 1996

VES-13-18-RR:IT:EC 226993 GOB

CATEGORY: CARRIER

Port Director of Customs
Attn.: Vessel Repair Liquidation Unit, Room 415 P.O. Box 2450
San Francisco, CA 94126

RE: Vessel Repair Entry No. C31-0005025-2; 19 U.S.C. 1466; ARCO INDEPENDENCE, V-CF97; Petition; Modification; Casualty; T.D. 75-257

Dear Sir:

This is in response to your memorandum dated May 17, 1993, which forwarded the petition submitted by ARCO Marine, Inc. (the "petitioner") with respect to the above-referenced vessel repair entry.

FACTS:

The S.S. ARCO INDEPENDENCE (the "vessel") is a U.S.-flag vessel owned and operated by the applicant. Certain foreign shipyard work was performed on the vessel in Korea in late 1992. The vessel arrived at the port of Valdez, Alaska on November 14, 1992. The subject entry was timely filed on November 15, 1992.

By Ruling 112641 dated March 21, 1996, the application for relief with respect to the subject entry was granted in part and denied in part.

The petition pertains to the following items:

Item No. Description

322 air heater valves
323 F.O. filter
326 oily water separator
419 I.G.S. storage rack
420 fairleads
439 I.G.S. piping for cooler

819 C.O.W. machine
820 ballast test line
832 cargo pumps
904 pump room
905 gyro compass
906 metritape tank gauging
906-1 metritape tank gauging
906-2 metritape tank gauging
910 fuel oil emulsification
913 engine room bilge separator
915 refund for cables

ISSUE:

Whether the costs at issue 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.

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.

Our analysis in this matter is based primarily on the pertinent invoices. The assertions of the application are not considered to be documentary evidence. In this regard, we note the statement of the court in Bar Bea Truck Leasing Co., Inc. v. United States, 5 CIT 124, 126 (1983):

Again, plaintiff has presented no affidavit or other evidence in support of its counsel's bald assertion...

There is no evidence submitted to establish that the individual submitting the application has specific knowledge with respect to the work performed such that the statements of the application would constitute acceptable documentary evidence.

If we are unable to determine the precise nature of certain work because of the lack of clear and probative documentary evidence, and are thus unable to determine that it is nondutiable, such work will be found dutiable. In this regard, we note the statement of the Customs Court in Admiral Oriental Line v. United States, T.D. 43585 (1929):

The evidence is conflicting upon that point, and the plaintiff has not proved the collector's classification to be wrong. The burden is upon the plaintiff to show not only that the collector was wrong in his classification but that the plaintiff was right.

In A Manual of Customs Law by Ruth F. Sturm, 1974 edition, p. 173-174, the author states, in pertinent part:

Where Congress has carved out special privileges or exemptions from the general provisions levying duties upon imported articles, the courts have strictly construed such exceptions and have resolved any doubt in favor of the government. Swan & Finch Company v. United States, 190 U.S. 143, 23 SCR 702, 47 L. Ed. 984 (1903); Pelz-Greenstein Co. v. United States, 17 CCPA 305, T.D. 43718 (1929)... ...
An exception which carves out something which would otherwise be included must be strictly construed. Goat & Sheepskin Import Co., et al. v. United States, 5 Ct. Cust. Appls. 178, T.D. 34254 (1914); [et al.]

After a consideration of the documentation of record we make the following determinations.

Item 322. The invoice reflects the installation of "isolation valves to the steam supply and return on each boiler air heaters [sic]. Total of 6 air heater elements." The petitioner states:

The existing valve was/is operable, not removed, and did not require repair. There are three separate air heater elements...Should one element develop a leak...all three were required to be secured in the common header, until the leak could be repaired. With the isolation valves in place, only the faulty element needs to be secured while repairs are made.

The petitioner has submitted a diagram of the isolation valves and boilers.

We find that this item is nondutiable. The petitioner has provided a more complete explanation of this item, and that explanation appears to be consistent with the invoice, which does not reflect a repair.

Item 323. The petitioner describes this item as "Cuno autoclean F.O. filter." It states:

This modification consists of addition with the original and operational duplex strainer, which was not removed...The duplex strainer is still in use, and is used while the auto-klean strainer is out of service.

The petitioner has submitted a copy of a product brochure for this item. The invoice is consistent with the explanation of the petitioner in that the invoice appears to indicate that the existing filter remains in use.

We find that this item is nondutiable. The petitioner has provided a more complete explanation of this item, and that explanation appears to be consistent with the invoice, which does not reflect a repair.

Item 326. The petitioner states:

Attached as Exhibit C please find copy of "Equipment History Report" covering this item. Note that the entry of 08/06/92, two months prior to the replacement, the unit was rebuilt and operationally tested, and found in satisfactory condition. The installation of the new sigma oily water separator represents a system upgrade. This is in keeping with the continued upgrade by more stringent requirements of the regulatory bodies for such pollution control.

Exhibit C does reflect that on August 6, 1992, approximately three months before the subject work, unscheduled maintenance was performed on the oil/water separator.
The invoice reflects the cropping out and disposal of original E.R. oily water separator and the installation of a new separator.

There is insufficient evidence to support the petitioner's claim that this work is not a dutiable repair. The petitioner has not provided evidence to establish that the previous item did not need replacement. The fact that maintenance was performed on the prior item approximately three months prior to the subject work does not establish that the subject work is not a dutiable repair. Accordingly, we are unable to conclude that this item is a nondutiable. Therefore, we find that it is dutiable. See the excerpt supra from the Customs Court decision in Admiral Oriental Line.

Item 419. The petitioner describes the IGS modification in two parts - purge pipe and IGS mast riser. It states:

As an operational safety enhancement, the pipes were lowered, and the ladders replaced with a single step allowing access to open and close the purge pipe cover...The previously retrofitted venting mast riser was replaced with a larger modified design riser which was relocated more forward than the previous location...The new mast riser is a modified design...

The invoice reflects the modification of the IGS, including the purging of pipe, the shortening of pipes, and the modifying of IGS pipe.

We find that this item is nondutiable. The petitioner has provided a more complete explanation of this item, and that explanation appears to be consistent with the invoice, which does not reflect a repair.

Item 420. The petitioner states:

In the original mooring arrangement, it was difficult to lead the wire from the off-shore mooring winch to the dock...With the addition of two new roller fairleads on the focsle deck, the time consumed has been lessened, and the ease, and safety of the operation has been significantly increased...Please refer to Exhibits E (before) & F (after) attached.

The invoice reflects "FAIRLEADS INSTALLATION (2)...install by welding Owner's furnished two (2) 18" diameter fairlead on forecastle deck..."

We find that this item is nondutiable. The petitioner has provided a more complete explanation of this item and that explanation appears to be consistent with the invoice, which does not reflect a repair. The diagrams provided support the petitioner's claim.

Item 439. The petitioner states:

This work was accomplished in anticipation of the installation of a new cooler (heat exchanger)...However, the operational effectiveness was less than anticipated, and the project has now been cancelled.

The fact that the project may have been cancelled does not mean that the item is nondutiable. The invoices reflect the installation of piping and valves for a new cooler. There is insufficient evidence to support the allegation that this work is not a dutiable repair. Even if the project was cancelled, if this work was performed in furtherance of a project which would have been a dutiable repair, the item is dutiable. The petitioner has not established that this item was not performed in furtherance of a project that would have been a dutiable repair. Accordingly, this item is dutiable. See the excerpt supra from the Customs Court decision in Admiral Oriental Line.

Item 819. The petitioner states:

ARCO Marine was able to salvage 34 gunclean machines from the ARCO Sag River. These were the type which were driven by an internal turbine powered by the flow of crude oil through the machine. Their operation was much less labor intensive since there were no portable heads to handle. In this item, the salvaged machines driving heads were adapted to the ship's machines.

The invoice reflects work relating to the C.O.W. machines. The invoice does not reflect why this work was performed. The petitioner has not established that this item is not a dutiable repair. Therefore, we find that it is dutiable. See the excerpt supra from the Customs Court decision in Admiral Oriental Line.

Item 820. The petitioner states:

Thus, the permanent modification of the test line, to tanks 5C and 7C, enhances the vessel operation by avoiding the contamination of tank 6S.

The invoice reflects the installation of a ballast pollution monitor test line. We find that this item is nondutiable. The petitioner has provided a more complete explanation of this item and that explanation appears to be consistent with the invoice, which does not reflect a repair. It appears that this item is the mere installation of a ballast pollution monitor test line.

Item 832. The petitioner states:

Prior to this permanently installed modification, there was no provision to allow this oil to be drained or otherwise removed from the line...A valved by-pass line was designed to efficiently permit the control of the drained fluid. Please see Exhibit G [a diagram].

The invoice reflects the installation of a pipe line to the cargo pump strainers. We find that this item is nondutiable. The petitioner has provided a more complete explanation of this item and that explanation appears to be consistent with the invoice, which does not reflect a repair. The diagram provided supports the petitioner's claim.

Item 904. The petitioner states as follows with respect to the pump room atmospheric monitor:

The application of full time atmospheric monitoring of spaces on tankers is fairly new...Prior to this system's installation, the atmosphere was not normally monitored...Full time electronic monitoring of this normally unmanned space for low levels of hydrocarbons and small decreases in normal oxygen levels provides the early warning of an abnormal situation.

The invoice reflects the installation of a pump room atmospheric monitor. We find that this item is nondutiable. The petitioner has provided a more complete explanation of this item and that explanation appears to be consistent with the invoice, which does not reflect a repair.

Item 905. The petitioner states:

All of the ARCO ships were originally equipped with a single gyrocompass...It has become more common in new ship construction to equip vessels with dual gyro's. This is not a removal or replacement...

The invoice reflects the installation of two gyro compasses. We find that this item is nondutiable. The petitioner has provided a more complete explanation of this item and that explanation appears to be consistent with the invoice, which does not reflect a repair.

Items 906, 906-1, and 906-2 involve the installation of a metritape tank system.
The petitioner states:

The original...gauging system was a mechanical float type tank level measuring system. Although it was working and in good order at the time it was removed, it had always been a maintenance-intensive system. The advanced technology available in the installed metritape system, which is fully electronic, avoids much of the previously required maintenance, as well as consistently giving more accurate readings...Item 906-1 covers the installation of a wash-down fitting...This is a standard fitting for metritape installations. Item 906-2 covers the installation of the electrical conduit required to protect the new signal cable.

The invoice for item 906 does not state why this new system was necessary, nor does it reflect that the former system "was working and in good order at the time it was removed," as stated in the petition. The invoice reflects that certain of the work in item 906 was performed "in conjunction with item 505" ("deck electrical cable raceway"), which includes dutiable repairs. Accordingly, we are unable to conclude that this item is a nondutiable. Therefore, we find that it is dutiable. See the excerpt supra from the Customs Court decision in Admiral Oriental Line. Items 906-1 and 906-2 are dutiable as incident to dutiable item 906.

Item 910. The petitioner states:

This permanently installed modification consists of the components necessary to complete the fuel oil emulsification system now available and added to the boiler fuel supply system. Attached as Exhibit H, please refer to extract from manual prepared by Seaworthy Systems, Inc., Centerbrook, CT 06409, which gives more detailed explanation, and notes cost efficiencies brought about by this installation...

The invoice reflects the installation of a fuel oil emulsification system. In its previous submission, its application for relief, the petitioner stated that "[t]his is a new system and does not replace any equipment. The system adds to the efficient operation of the vessel."

We find that this item is nondutiable. The petitioner has provided a more complete explanation of this item and that explanation appears to be consistent with the invoice, which does not reflect a repair.

Item 913. The petitioner states:

Please refer to item 326. The shipyard, for its accounting purposes, split this total item into two parts. Item 326 covers the removal costs of the original oily water separator. Item 913 covers the installation of the up-grade.

The invoice reflects the installation of an engine room bilge water separator. The invoice does not indicate why a new system was necessary. We found item 326 to be dutiable because the petitioner has not provided evidence to establish that the previous item did not need replacement. We find this item to be dutiable for the same reason. See the excerpt supra from the Customs Court decision in Admiral Oriental Line.

Item 915. The petitioner addresses a number of issues within this item.

It requests remission based upon the occurrence of a casualty - a fire on the vessel during the shipyard work. It states that it is unable to provide documentary evidence of the casualty due to the fact that the casualty occurred four years ago and due to the time period during which the petition must be filed. It requests a waiver of the production of the required documentation.

19 U.S.C. 1466(d)(1) provides in part that the Secretary of the Treasury is authorized to remit or refund such duties if the owner or master of the vessel furnishes good and sufficient evidence that the vessel, while in the regular course of her voyage, was compelled by stress of weather or other casualty to put into a foreign port and make repairs to secure the safety and seaworthiness of the vessel to enable her to reach her port of destination. 19 CFR 4.14(c)(3)(i) provides that "port of destination" means such port in the United States and "...only the duty on the cost of the minimal repairs needed for the safety and seaworthiness of the vessel is subject to remission or refund."

19 U.S.C. 1466 and 19 CFR 4.14 essentially set forth a three-part test, each of the elements of which must be established by "good and sufficient" documentary evidence to qualify for remission:

1. a casualty occurrence;
2. an unsafe and unseaworthy condition;
3. the inability to reach the port of destination without foreign repairs.

The petitioner has not provided good and sufficient documentary evidence to establish the three requirements stated above. We are not able to waive the statutory requirement of good and sufficient documentary evidence.

Accordingly, the casualty claim is denied.

In Ruling 112641 dated March 21, 1996 with respect to the application in this case, we stated with respect to item 915:

Item 915 reflects a refund for the supply by the vessel owner of cable and splicing kits with respect to the renewal and repair of deck cables. This item is dutiable. Documentation has not been provided to establish that this cost is nondutiable. The applicant must identify, with clarity and specificity, any documentation which has been submitted which would establish that these materials are nondutiable.

The invoice reflects a refund of $86,493 to the petitioner for owner-supplied cables and splicing kits.

T.D. 75-257 states in part:

...the cost of materials of United States origin which are purchased by the vessel owner in the United States is not subject to duty under 19 U.S.C. 1466, when installed on the vessel in a foreign country.

In order to receive duty-free treatment pursuant to T.D. 75-257, U.S. origin must be established. To establish U.S. manufacture, production, or origin, a party must submit a statement from the vendor or manufacturer of the merchandise that such merchandise was manufactured or produced in the United States.

The petitioner has submitted such documentation in the form of the pertinent purchase invoice from the U.S. supplier to petitioner and a declaration from an official of the supplier that all of the parts listed on the invoice are of U.S. origin. Accordingly, we find that the cost of the owner-supplied cables and splicing kits is not dutiable.

The petitioner also states that it has now been advised that the labor costs with respect to this item (the renewal and repair of deck cables) should be declared. The shipyard records for 1992 with respect to the man hours involved have been destroyed. The hourly rate is available. However, the petitioner and the shipyard have estimated the man-hours, and the petitioner has increased this estimate by 20 percent in order to avoid an understatement. The total shipyard cost, as stated on page 12 of the petition, is $9,219 (gross labor cost of $8,304, plus shipyard material cost of $1,200, less three percent discount). Thus, it appears that the petitioner seeks to amend its vessel repair entry by adding this amount.

Based on the facts presented in the petition, it appears that the petitioner's actions at this time with respect to the shipyard cost are reasonable. In conjunction with your office, the petitioner should effect an amendment of the vessel repair entry to declare the shipyard cost of $9,219. This shipyard cost is dutiable because the casualty claim is denied and the shipyard cost, as itemized above, is not covered by T.D. 75-257.

HOLDING:

As detailed supra, the petition is granted in part and denied in part.

Sincerely,

Director,
International Trade Compliance
Division

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