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HQ 113160

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February 20, 1997

VES-13-18-RR:IT:EC 113160 CC

CATEGORY: CARRIER

Vessel Repair Liquidation Unit
U.S. Customs Service
P.O. Box 2450
San Francisco, CA 94126

RE: Application for relief; Vessel repair entry no. 110-6461448-7; PRESIDENT HARRISON; 19 U.S.C. ? 1466

Dear Sir or Madam:

This is in response to a memorandum from the Deputy Regional Director, Commercial Operations, Pacific Region, dated July 6, 1994, forwarding for our review an application for relief from duties filed by American President Lines, Ltd., in conjunction with the above-referenced vessel repair entry. Our findings are set forth below.

FACTS:

The PRESIDENT HARRISON is a U.S.-flag vessel operated by American President Lines, Ltd. Subsequent to the completion of various foreign shipyard work, the vessel arrived at Seattle, Washington on January 3, 1994. A vessel repair entry was filed on January 10, 1994.

Pursuant to an authorized extension of time, an application for relief with supporting documentation was timely filed. You have asked for our determination with respect to the following items:

Item No. Description

001 secretarial and clerical services
003 accounting services
004 safety, first aid services, safety training
1.1-20 asbestos abatement
1.2-10 storekeeper to inventory spares
1.3-1 dockside trial
2.1-1 shipyard diver
2.1-2 strut bearing
2.1-3 tube shaft
2.1-4 rudder pintle
2.1-7 chain locker
2.1-8 sea valves
2.1-11 renewing cap pieces in keel blocks 2.1-17 cargo hold & e/r bilge
2.1-18 ultrasonic test
3.1-1 hull washing
3.1-7 main scoop-dye testing
3.3-1 removing catwalk gratings for access 3.3-5 container bins
3.3-30 cleaning & cropping 1 length of sounding pipe
3.3-40 no. 3 starboard f.o. tank
4.1-1,2,3 boiler inspections
4.1-7 D.C. heater
4.1-10 air test of ballast tanks
4.1-12 testing & reassembling turbo generator
4.1-12 turbine rotor
5.1-2 main condenser
5.1-7E condenser expansion joint
5.1-18 f.o. suction heaters

ISSUE:

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

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.

We note that the subject entry was prior to 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), and therefore that decision is inapplicable to the subject entry. See Headquarters memorandum 113350, dated March 3, 1995, and published in the Customs Bulletin on April 5, 1995.

The following items were related to or were done in conjunction with repairs and are therefore dutiable: item 2.1-11, renewing cap pieces in keel blocks; item 3.3.-1, removing catwalk gratings for access; 4.1-12, turbine rotor, which consisted of repairing and renewing one turbine rotor; item 5.1-7E, condenser expansion joint. Item 1.2-10, storekeeper to inventory spares, consisted of the cost of "[p]roviding storekeeper to inventory and control issue of C-8 class storestock spare for drydock use." This item is similar to item 1.2-10 of Headquarter Ruling Letter (HRL) 113108, dated May 25, 1994, which we found to be dutiable because it was a cost incident to or related to repairs. This item is therefore dutiable.

Item 3.3-30, cleaning and cropping 1 length of sounding pipe is dutiable since the applicant has not established the reason it was done and that it was not a repair.

Item 3.3-5, container bins, consisted of providing container bins onboard for collecting cargo hold rubbish and removing it ashore. This item relates to the removal of garbage and does not relate to a specific repair; therefore, this item is not dutiable.

Item 1.3-1, dockside trial, and item 2.1-1, shipyard diver, involve general drydocking and related inspections. The charges associated with these items are nondutiable, as established by precedent prior to the Texaco decision, which as stated above is not applicable here.

Several items relate to various services: item 001, secretarial and clerical services; item 003, accounting services; item 004, safety, first aid services, safety training. HRL 113108, contained similar items, and we found that such overhead charges are dutiable if they relate to dutiable repairs; if the overhead relates to nondutiable items they are nondutiable, provided that they are included in the cost or expense of the nondutiable items or are clearly reflected as related to such nondutiable items on the pertinent invoices. Thus, items 001, 003, and 004 should be similarly treated.

Several items related to the dutiability of survey costs. 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." We also held in C.S.D. 79-277 that where an inspection or survey is conducted merely to ascertain the extent of damages sustained or whether repairs are deemed necessary, the costs are dutiable as part of the repairs which are accomplished.

That decision exempts from duty only the cost of a required scheduled inspection by a qualifying entity (such as the U.S. Coast Guard or the ABS). We note, moreover, that C.S.D. 79-277 does not exempt from duty repair work done by a shipyard in preparation for a required survey. Nor does it exempt from duty the cost of any testing by the shipyard to check the effectiveness of repairs found to be necessary by reason of the required survey.

For the following items the inspections were done to ascertain the effectiveness of repairs and are therefore dutiable: item 2.1-2, strut bearing; item 2.1-3, tube shaft. Item 2.1-4, rudder pintle; the inspection was performed to determine whether repairs were deemed necessary, repairs resulted therefrom, and it is therefore dutiable. The following items are related to repairs and were done either to ascertain the effectiveness of repairs or to determine whether repairs were deemed necessary and are therefore dutiable: item 2.1-8, sea valves; item 4.1-1,2,3, boiler inspections; item 4.1-7, D.C. heater; item 4.1-10, air test of ballast tanks; item 4.1-12, testing and reassembling turbo generator. The following items are dutiable surveys, not a required scheduled inspection by a qualifying entity, conducted to determine whether repairs were necessary or proper: 1.1-20, asbestos abatement; 2.1-18, ultrasonic test; 3.1-7, main scoop-dye testing; 3.3-40, no. 3 starboard f.o. tank.

Several items relate to cleaning. In analyzing the dutiability of foreign vessel work, the Customs Service has consistently held that cleaning is not dutiable unless it is performed as part of, in preparation for, or in conjunction with dutiable repairs or is an integral part of the overall maintenance of the vessel. E.g., HRL 110841, dated May 29, 1990 (and cases cited therein). The Customs Service considers work performed to restore a part to good condition following deterioration or decay to be maintenance operations within the meaning of the term repair as used in the vessel repair statute. See generally, HRL 106543, dated February 27, 1984; C.I.E. 142/61, dated February 10, 1961. The following items consist of repair or maintenance work and are therefore dutiable: item 2.1-7, chain locker; item 5.1-2, main condenser.

Item 2.1-17, cargo hold and e/r bilge, relates to pumping out water from and cleaning the cargo hold bilge wells and engine room bilge wells. This item does not appear to have been done in conjunction with dutiable repairs, and it is therefore not dutiable.

Item 3.1-1, hull washing, constitutes a nondutiable inspection-related charge rather than a dutiable repair. This item is similar to item 3.1-1 of HRL 113470, dated July 5, 1995, which we found to be nondutiable. Consequently, this item is nondutiable.

The applicant asserts that item 5.1-18, f.o. suction heaters, is a removal cost which should be nondutiable in accordance with 107898, dated November 7, 1985. Instead, this item appears to be cleaning in preparation for repairs and is therefore dutiable.

HOLDING:

The subject items are dutiable in part and nondutiable in part as detailed in the Law and Analysis portion of this ruling.

Sincerely,

Acting Chief

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