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HQ 113024





July 15, 1996

VES-13-18-RR:IT:EC 113024 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. H24-0014520-5; ALASKA JURIS; 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 112725, relating to the above-referenced vessel repair entry. Our findings are set forth below.

FACTS:

The ALASKA JURIS ("vessel") is a U.S.-flag vessel owned and operated by the Fishing Company of Alaska, Inc. The vessel underwent foreign shipyard work in Ishinomaki City, Japan, 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 112725, 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:

Holding Tank (Item I, Number 21)
Head Cutter (Item III, Number 6)
Tail Roller (Item IV, Number 1)
Trans Marine Propulsion Invoices 003977 (Nov. 30, 1992), and 004089 (Jan. 19, 1993) Elliott Bay Design Group (Apr. 6, 1993, facsimile) Det Norske Veritas invoice

In HQ 112725 we made the following determinations concerning the items the subject of this petition. For the holding tank (Item I, Number 21) we stated that the invoice indicated that it was under strain which necessitated its renewal and reinforcement. We determined, therefore, that the work performed on the holding tank was indicative of a restoration operation, making it dutiable. For the head cutter (Item III, Number 6) and tail roller (Item IV, Number 1), the details and information contained in the invoices were inadequate to conclude that these items were modified. 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 JURIS in late 1992 at the Tohoku Dock Tekko 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 Tohoku Dock Tekko 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. 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 the holding tank, counsel, in the letter of January 13, 1994, repeated the statement of Mr. Roeser in his affidavit of January 17, 1994:

The shipyard boxed off piping running through the holding tank with steel bulkheads to avoid the risk of contamination of the lube oil in the lower tank and the fuel oil in other tanks if a pipe were to burst. This presented a first-time installation of these bulkheads to ensure that pipe ruptures or leaks would be contained. As a result of adding the steel bulkheads, some of the pipes had to be replaced, insulation had to be removed, and related efforts were undertaken, as further described in the invoice. The purpose of the work was not to effectuate repairs, but to avoid problems in the future by creating the containment areas.

In HQ 112725 we found:

The invoice that describes the work performed on the holding tank (Item I, Number 21) is indicative of a restoration operation. Customs has consistently determined that work performed to restore deteriorating items are repairs. It appears that the holding tank, in its pre-operative condition was under strain which necessitated its renewal and reinforcement.

The invoice on the work done describes the work as a "modification and reinforcement." That invoice lists among the tasks the following items:
renewed center side with manhole permanently renewed permanent current plate renewed suction pipe renewed insulation washed and cleaned inside the tank and painted tar-epoxy paint.

The affidavit states that the purpose of the work was not to effectuate repairs, but to avoid problems in the future by creating containment areas. The statement that the work was not a repair 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 described on the invoice as renewals of various items is new work. 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 described as renewals 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.

Concerning the head cutter and tail roller, counsel, in the letter of January 13, 1994, repeated the statements of Mr. Roeser in his affidavit of January 17, 1994:

[Head Cutter] When the company acquired the vessel initially, the head cutter operated manually. Its continued operation manually was considered a safety risk to the crew. The company therefore decided to convert it to being a fully automated head cutter that would operate without the crew putting their limbs at risk in operating it. In addition, the shipyard added guards to further reduce the risk of injury to crew members.

[Tail Roller] The shipyard adjusted the conveyor belts to improve their operating efficiency.

In HQ 112725 we found the following concerning these items:

The invoice description of the work performed with respect to the head cutter (Item III, Number 6) and the tail roller (Item IV, Number 1) are inadequate. They simply state that the head cutter and the tail roller, respectively, were modified. This claim is a legal conclusion and should be left to the Customs Service to determine. The applicant is instructed to provide details of the operations. No such details of the operation were provided.

As with the above item, no additional invoices or documentary evidence, such as drawings, was submitted for the head cutter (Item III, Number 6) and tail roller (Item IV, Number 1). Again, all that was submitted were additional arguments in the petition and the affidavit. As discussed above, assertions by counsel contained in the petition are not evidence. In addition, the affidavit consists more of legal conclusions rather than statements of fact, and does not show that the work done on the above items were modifications rather than repairs. We have reviewed our findings in HQ 112725 that the information contained was inadequate to conclude that these items were modified and agree with those determinations. Consequently, we affirm our findings in HQ 112725 that the head cutter (Item III, Number 6) and tail roller (Item IV, Number 1) 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 112725 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 $9,123.08 of two Trans Marine Propulsion employees is not dutiable. The subject invoices list costs of $2,843.75 (invoice 003977) and 12,008.75 (invoice 004089); therefore, we are unsure what costs the petitioner believes are not dutiable. Until the petitioner clarifies what costs are claimed to be non-dutiable, we are unable to approve any claim for non-dutiable treatment.

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 cites 11117 [sic] (presumably HQ 111117) and Texaco Marine Services, Inc. v. United States in support of this claim.

In HQ 112725 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. But the petitioner has failed to submit any additional documentary evidence in support of these claims, and, in fact, the evidence submitted with the application consisted only of a facsimile; no invoice, bill, etc., was submitted. Consequently, we affirm HQ 112725 that these expenses are dutiable.

The Det Norske Veritas work consisted of an inclining experiment and lightship survey. The petitioner states "[i]n ruling on our initial submission, Headquarters apparently overlooked this item and consequently did not determine its dutiability." In addition, the petitioner claims that in ruling on the VICTORY, Headquarters found that the Det Norske Veritas survey certification work was free of duty.

The invoice in that case, presumably HQ 112726, related to load line certification and survey. The invoice before us lists "witnessing of inclining experiment and lightship survey," and the petitioner has failed to provide any supporting evidence that these surveys are similar. In addition, 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. The petitioner has submitted no documentary evidence to show that the survey was done pursuant to a required scheduled inspection by a qualifying entity, such as the U.S. Coast Guard or the American Bureau of Shipping (ABS). Consequently, we find this item to be dutiable.

HOLDING:

The evidence presented is insufficient to show that the foreign shipyard costs for which the petitioner seeks relief are non-dutiable. Accordingly, the petition is denied.

Sincerely,

William G. Rosoff

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