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HQ 113023

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July 15, 1996

VES-13-18-RR:IT:EC 113023 BEW/CC

CATEGORY: CARRIER

Vessel Repair Liquidation Unit
U.S. Customs Service
300 S. Ferry St.
Terminal Island, CA 90731

RE: Petition for Review; Vessel Repair Entry No. H24-0014521-3; ALASKA VICTORY; 19 U.S.C. 1466; Modification

Dear Sir or Madam:

This is in response to a memorandum from the Deputy Regional Director, Commercial Operations, Pacific Region, dated February 4, 1994, forwarding for our review a petition for review filed in conjunction with HQ 112726, relating to the above-referenced vessel repair entry. Our findings are set forth below.

FACTS:

The ALASKA VICTORY ("vessel") is a U.S.-flag vessel owned and operated by the Fishing Company of Alaska, Inc. The vessel underwent foreign shipyard work in Miyagi, Japan at the Yamanishi Shipbuilding & Iron Works, Ltd. Shipyard, during December 1992. The vessel arrived at the port of Dutch Harbor, Alaska on January 7, 1993. A vessel repair entry was filed on the day of arrival.

An application for relief from vessel repair duties was timely filed. In HQ 112726, dated October 20, 1993, Customs allowed in part and denied in part the application for relief. Pursuant to an authorized extension of time under 19 CFR 4.14(d)(2)(ii), a petition for review was timely filed.

The following items are the subject of this petition:

Handrail (Item I, Number 1-6(4)(a))
Chutes (Item I, Number 1-6(4)(d))
Inside Plates (Item I, Number 1-6(4)(i))
Fish Hatch (Item I, Number 13)
Processing Lines (Item I, Number 26)
Tail Roller (Item IV, Number 1)
Conveyor Bottom Board (Item IV, Number 2) Conveyor Belt (Item IV, Number 4)
Trans Marine Propulsion Invoices 003980 (Nov. 30, 1992), and 004094 (Jan. 19, 1993) Elliott Bay Design Group (Apr. 6, 1993, facsimile)

In HQ 112726 we made the following determinations concerning the items the subject of this petition. For Item I, Number 6, subparts 4(a), 4(d), and 4(i), we found the above items to be dutiable absent evidence detailing the work associated with these claimed "modifications" were the result of a survey undertaken to meet the specific requirements of a governmental entity, classification society, insurance carrier, etc. For Item I, Numbers 13 and 16, and Item IV, Numbers 1, 2, and 4, we determined that there was insufficient evidence to support a finding that these items were modifications. The invoices for the items Trans Marine Propulsion and the invoice for Elliott Bay Design Group contained brief descriptions, showing that the work related to repair operations. In addition the Elliott Bay Design Group facsimile offered no explanation of the work performed.

In support of its claims, the petitioner has submitted an affidavit of Herb Roeser, President of Trans Marine Propulsion Systems, Inc., Seattle, Washington. In the affidavit, Mr. Roeser makes specific statements concerning the claimed modification work on the items discussed above. In addition, Mr. Roeser states:

2. I regularly provide advice to the Fishing Company of Alaska, Inc., about modifications that can be made to the company's vessels to improve their operating efficiency and to enhance their safety. I specifically provided advice to the company with respect to the modifications made to the ALASKA VICTORY in late 1992 at the Yamanishi shipyard.

3. I was not present at the shipyard when the modifications were made to the vessel. However, I have reviewed the invoice of the Yamanishi shipyard, dated March 19, 1993 and I am familiar with the type of activities undertaken generally by shipyards in making modifications to vessels of the type described below. (See above). Having been involved in the planning process before the vessel entered the shipyard, I also know what types of modifications were contemplated and when a first-time installation of equipment was envisioned. After the vessel returned to the United States, I confirmed that the modifications described below had in fact been made.

ISSUE:

Whether the subject items are dutiable pursuant to 19 U.S.C. 1466?

LAW AND ANALYSIS:

Title 19, United States Code, ? 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.

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. 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 that 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, 18 C.C.P.A. 137 (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 often be welded or otherwise "permanently attached" to the ship because ships are subject to constant pitching and rolling. In addition, some items, the cost of which is clearly dutiable, operate with other vessel components, resulting in the need, possibly for that purpose alone, for a fixed and stable attachment to those vessel parts. It follows that a "permanent attachment" may take 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.

The Customs Service has held that the decision in each case as to whether an installation constitutes a non-dutiable modification/alteration/addition to the hull and fittings of a vessel depends to a great extent on the detail and accuracy of the drawings and invoice descriptions of the actual work performed. Even if an article is considered to be part of the hull and fittings of a vessel, the repair of that article, or the replacement of a worn part of the hull and fittings, is subject to vessel repair duties.

Our analysis in this matter is based on the pertinent invoices and other documentary evidence. The assertions contained in the petition are not considered to be documentary evidence. As stated by the Court of International Trade in Bar Bea Truck Leasing Co., Inc. v. United States, 5 CIT 124, 126 (1983), assertions of counsel are not evidence.

With respect to Item I, Numbers 13 and 26, and Item IV, Numbers 1, 2, and 4, counsel, in the letter of January 13, 1994, repeated the statements of Mr. Roeser in his affidavit of January 17, 1994:

[Item 1, Number 13-Fish Hatch]
To operate the vessel efficiently as a processor, the [company] lowered the opening of the fish hatch by modifying the frame and installed a roller on the trawl deck. By doing so, the crew could more efficiently move a catch from the trawl deck into the factory for processing. The purpose of the work was not to effectuate a repair, but rather to improve efficiency....

[Item 1, Number 26-Processing Lines]
This work involved modifying the belt conveyors in the factory area to improve efficiency. Similar work was done on the SPIRIT and the JURIS, in each instance to make the factory area operate more efficiently.

[Item IV-Belt Conveyors; Number 1-Tail roller, Number 2-Conveyor bottom board, Number 4-Conveyor Belt] When the VICTORY operated as a head and guts vessel, the belt conveyor tail roller had been a fixed one. With the modifications necessary in the factory area to permit the vessel to operate as a processor, the [company] converted the tail roller into a removable one. Although removable, the tail roller when in operation is bolted to the vessel floor. The conveyor board bottom was modified to increase the stability of the conveyor belt. Minor adjustments also were made to the belts to operate more efficiently. The purpose of the work was not to effectuate a repair, but rather to modify the conveyor belts to operate more efficiently in the factory area.

In HQ 112726 we found the following:

[I]t is Customs position that the applicant has not provided sufficient evidence supporting a finding that these items [including Item I, Numbers 13 and 26, and Item IV, Numbers 1, 2, and 4] are modifications. The Customs Service has held that the decision in each case as to whether an installation constitutes a non-dutiable addition to the hull and fittings of the vessel depends to a great extent on the detail and accuracy of the drawings and invoice descriptions of the actual work performed. No drawings were submitted and the invoice descriptions provided an insufficient amount of detail precluding the Customs Service to make a decision. Accordingly, these items shall remain dutiable unless and until evidence detailing the work performed is provided and found to be a bona fide modification.

The invoices on the work done on most of these items describe the work as "modification." The description of Item 1, Number 26 is "remove and install processing lines," and the description of Item IV, Number 2 is "execute permanent doubling and reinforcement for conveyor bottom board in front of freezing room."

The affidavit states that the purpose of the work was not to effectuate repairs, but to improve efficiency. The statement that the work was not repairs is more of a conclusion on the legal issue in controversy rather than a statement of fact. The affidavit does not explain how the work listed on the invoices constituted modifications rather than repairs. The affiant simply concludes that the work is not a repair. In view of the lack of linkage between the invoice descriptions and the affidavit, we find that the petitioner has not met its burden to show entitlement to the duty exemption. See Admiral Oriental Line v. U.S., T.D. 43585 (Cust. Ct. 1929).

In order to show that work is a modification and exempt from duty, the claimant must show that not only that the vessel was modified, but that the work was not connected to work to cure decay, wear, use or a physical defect. Admiral Oriental Line v. U.S., T.D. 45453 (Cust. Ct. 1932). In that case, the plaintiff met its burden by the testimony of its superintendent in court on the point in dispute. With respect to the weight given an affidavit, the case of Andy Mohan Inc. v. U.S., 74 Cust. Ct. 105, C.D. 4593, 396 F.Supp. 1280 (1975), aff'd. 63 C.C.P.A. 104, C.A.D. 1173, 537 F.2d 516 (1976) provides guidance. The court there discounted an affidavit as persuasive where it found that it consisted of statements based on conclusions which are totally unsupported by evidentiary facts. In order to be exempt from duty, the petitioner must satisfactorily rebut or otherwise explain why the work listed as modifications was work that did not cure decay, wear, use or a physical defect, particularly since the affidavit was based solely on the affiant's review of the invoice in issue.

With respect to all the subparts of Item I, Number 6, counsel, in the letter of January 13, 1994, repeated the statements of Mr. Roeser in his affidavit of January 17, 1994:

[Subpart 4(a)-Handrail]
To meet the [classification society] requirements under the new load line, the outside handrail on all the decks and gantries was raised approximately 6 inches and spacer bars were installed for the first time to reduce the risk of men being swept overboard. The handrail was not broken.... The spacer bars were added as a first-time installation.

[Subpart 4(d)-Chutes]
Under the new load line, the company was required to make a first-time installation of watertight doors for the chutes on both the port and starboard sides of the vessel that could be operated both from within the factory area and from the upper deck. The modifications made to the doors necessitated modifications to the chutes themselves, including raising them. In addition, the conveyor belts that transport the waste to the chutes [had to be] modified.

[Subpart 4(i)- Inside plates]
To establish the new load line, the inside plates at the forepeak bulkhead (the "collision" bulkhead) had to be strengthened with the permanent affixing of additional steel. Had the company not been establishing the new load line, this work would not have been required. Routine repair work in this area would have been deferred.

For all the subparts of Item I, Number 6, the petitioner claims that they were installed under the requirements of a load line survey. Regarding the dutiability of survey costs, C.S.D. 79-277 states, "[i]f the survey was undertaken to meet the specific requirements of a governmental entity, classification society, insurance carrier, etc., the cost is not dutiable even if dutiable repairs were effected as a result of the survey." In HQ 112726 we found the above items to be dutiable absent evidence detailing the work associated with these claimed "modifications" were the result of a survey. For subpart 4(a), there has been no new documentary evidence submitted that shows the work was done as the result of a required survey. In addition, the affidavit discusses the survey more in terms of conclusive statements rather than statements of fact; thus, as discussed above, the affidavit is insufficient to show entitlement to the duty exemption.

Concerning subparts 4(d) and 4(i), the petitioner has submitted drawings in support of its claim. These drawings, by themselves, do not show how these items relate to the survey or that they were modifications, nor has any other documentary evidence been provided to show this. The affidavit submitted does not include any statements about these drawings, and the affiant states that he was not present at the shipyard when the work was done and his knowledge related to the "type of activities undertaken generally" to the shipyard work. As discussed above, the affidavit is insufficient to show entitlement to the duty exemption, and, consequently, we affirm HQ 112726 that these items are dutiable.

The petitioner contends that the cost attributable to two employees of Trans Marine Propulsion is not dutiable since the expenses relate to United States resident employees acting in a consulting capacity and whose cost was paid by a United States Company. The petitioner cites HQ 112907 of November 12, 1993 in support of its claim.

In HQ 112726 we found those costs dutiable "because the applicant has not demonstrated that the work invoiced is non-dutiable. Based on the brief descriptions contained in the invoices, it is apparent that the work performed relates to repair operations."

Specifically, the petitioner claims that the cost of $35,225.00 (the sum listed on two invoices, 003980 and 004094) for two Trans Marine Propulsion employees is not dutiable. In Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc. v. United States, 815 F.Supp. 1484 (CIT 1993), aff'd. 44 F.3d 1539 (Fed. Cir. 1994) for determining what constitutes "expenses of repairs" pursuant to 19 U.S.C. 1466, the court adopted the "but for" test. Essentially this test is that expenses of repairs covers costs that are an integral part of the dutiable repair process and would not have been necessary but for the dutiable repairs. In Headquarters memorandum 113350, dated March 3, 1995, and published in the Customs Bulletin on April 5, 1995, we determined that the court's decision in Texaco would only be applicable to entries made after the date of that decision, December 29, 1994. Since the subject entry was prior to that date, the Texaco decision is not applicable. Consequently, although the ruling cited by the petitioner, HQ 112907, may no longer be valid for entries subject to the "but for" test of Texaco, that ruling is applicable to the subject entry. Thus, based on HQ 112907, we find the costs listed for the Trans Marine Propulsion employees to be non-dutiable.

Concerning the expenses for the Elliot Bay Design Group employees, the petitioner claims they were incurred for the performance of inclining experiments and vessel surveys in order to prepare stability calculations for each vessel. These employees also provided assistance to the Det Norske Veritas surveyor for the load line assignment for the ALASKA VICTORY and the ALASKA SPIRIT. The claim again is that the employees were United States residents. The petitioner has submitted a letter from the Elliot Bay Design Group, dated December 6, 1993, attesting to the above claims. In addition, the petitioner cites 11117 [sic] (presumably HQ 111117) and Texaco Marine Services, Inc. v. United States in support of this claim.

In HQ 112726 we found those costs dutiable "because the applicant has not demonstrated that the work invoiced is non-dutiable. Based on the brief descriptions contained in the invoices, it is apparent that the work performed relates to repair operations. The Elliott Bay Design Group facsimile offers no explanation of the work performed. Customs cannot grant relief absent a description of the work performed."

For the expenses for the Elliot Bay Design Group employees, the petitioner has claimed what this work entailed and submitted a letter from the Elliott Bay Design Group explaining the work. But the evidence submitted with the application consisted only of a facsimile; no invoice, bill, etc., detailing what the expenses were for the specific work performed was submitted, and no such documentary evidence has been submitted with this petition. Absent such evidence that could support the claims made in the letter from the Elliot Bay Design Group, the finding of HQ 112725 that these expenses are dutiable is affirmed.

HOLDING:

For the Trans Marine Propulsion invoices the petition is granted. For all over items the petition is denied, since the evidence presented is insufficient to show that the foreign shipyard costs for which the petitioner seeks relief are non-dutiable.

Sincerely,

William G. Rosoff Chief

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