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HQ 113699

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October 29, 1996

VES-13-18-RR:IT:EC 113699 GEV

CATEGORY: CARRIER

Chief, Liquidation Branch
U.S. Customs Service
Post Office Box 2450
San Francisco, California 94126

RE: Vessel Repair Entry No. C27-0147628-8; SEA-LAND INDEPENDENCE; V-191; Modification; General/Port
Services; Proration; 19 U.S.C. ? 1466

Dear Sir:

This is in response to your memorandum dated May 23, 1996, forwarding an application for relief from duties assessed pursuant to 19 U.S.C. ? 1466 with supporting documentation. You request our review of the alleged modifications listed under ? 7 of the spread sheets and the proration of general services contained within the above-referenced vessel repair entry. Our findings on this matter are set forth below.

FACTS:

The SEA-LAND INDEPENDENCE is a U.S.-flag vessel operated by Sea-Land Service, Inc. ("Sea-Land"). Subsequent to the completion of foreign shipyard work, the vessel arrived in the United States at Los Angeles, California, on January 8, 1996. A vessel repair entry was timely filed. Pursuant to an authorized extension of time, an application for relief with supporting documentation was also timely filed. Included in the work covered by the aforementioned entry are the following items for which our review is sought: Items 7-1, 7-2, 7-3 and 7-4 on Hyundai Mipo Dockyard Co., Ltd. ("Hyundai") invoice no. 953961-G (all of which are alleged to be non-dutiable modifications); and general/port services for which you inquire as to their proration.

In regard to the above costs under consideration, the applicant has submitted the following: shipyard invoices; specifications; procedures; a letter dated March 16, 1993, from Sea-Land to ABS Americas; a memorandum dated March 16, 1993, from Mitsubishi Heavy Industries, Ltd. (MHI), to Sea-Land; drawings; photographs; and status sheets.

ISSUES:

1. Whether evidence is presented sufficient to prove that the work covered by Items 7-1, 7-2, 7-3 and 7-4 on Hyundai invoice no. 953961-G constitutes modifications to the hull and fittings of the vessel so as to render the work nondutiable under 19 U.S.C. ? 1466.

2. Whether the costs of general/port services are subject to proration between dutiable and nondutiable costs.

LAW AND ANALYSIS:

Title 19, United States Code, ? 1466, provides in part for payment of an ad valorem duty of 50 percent of the foreign cost of equipments, or any part thereof, including boats, purchased for, or the repair parts or materials to be used, or the expenses of repairs made in a foreign country to vessels documented under the laws of the United States to engage in the foreign or coastwise trade, or vessels intended to engage in such trade.

In its application of the vessel repair statute, Customs has held that modifications 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 which 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 et al., T.D. 44359 (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 be welded or otherwise "permanently attached" to the ship as a result of constant pitching and rolling. In addition, some items, the cost of which is clearly dutiable, interact with other vessel components resulting in the need, possibly for that purpose alone, for a fixed and stable juxtaposition of vessel parts. It follows that a "permanent attachment" takes 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.

Upon reviewing the items claimed to be modifications, we note the following.

Item 7-1 is entitled "ECONOMIZER ACCESS DOORS". The invoice description merely provides as follows:

Provided labor and material to install 6 each inspection doors on forward end of economizer casing.
Removed and replaced all interferences as necessary to accomplish the work.
Provided and erected staging and scaffolds.

This description, without more, is insufficient for us to evaluate whether the work accomplished under this item satisfies the criteria for a modification as discussed above. Furthermore, we note the existence of dutiable repairs performed on the same area of the vessel which appear to be related to the work listed under this item (see Item M-3 entitled "ECONOMIZER ACCESS DOORS AND CASING LEAKS" on p. 25 of Hyundai invoice no. 953961-F). Accordingly, in the absence of evidence to the contrary, Item 7-1 is dutiable.

Item 7-2 is entitled "HATCH CORNER FACEPLATE MODIFICATION". Section a. under this item provides, in part, "Work carried out as per specifications..." Upon reviewing the aforementioned specifications, specifically the attachments to the March 16, 1993, memorandum from MHI to Sea-Land, we note the following statement: "INTENT: To remove face plates that have been identified as fractured." (Emphasis added) Consequently, it is readily apparent that the third criterion for a modification discussed above has not been met. Item 7-2 is therefore dutiable.

Item 7-3 is entitled "HIGH CUBE MODIFICATION #4 HATCH". The invoice description provides as follows:

Erected staging, fabricated and installed socket fitting as depicted on the MHI Dwg No. 87-56957 to modify the existing buttress towers to facilitate the loading of high cube containers. (Emphasis added)

Notwithstanding the above-referenced drawing, upon reviewing Hyundai invoice no. 953961-F, we note that Item H-4 on p. 39 is entitled "BUTTRESS TOWER REPAIR" and covers extensive dutiable repairs to numerous buttress towers which appear to be associated with the work covered by Item 7-3. Accordingly, Item 7-3 is dutiable.

Item 7-4 is entitled "BALLAST TANK BRACKET MODIFICATION" and provides, in pertinent part, as follows:

Provide labor and material to modify selected brackets as per ABS drawing to reduce localized stress.

1. Cropped out intercostal [sic] brackets in #3 D.B. Tanks.

Again, our review of the record in its entirety reveals dutiable repairs done to the same area of the vessel (see Item 5.1-9 entitled "BALLAST TANK REPAIRS" on p. 18 of Hyundai invoice no. 953961-F). Accordingly, in the absence of evidence to the contrary, Item 5.1-9 is dutiable.

With respect to the general/port services contained within the subject entry, Customs has held that such costs should be prorated between dutiable and non-dutiable costs (See Headquarters Ruling 226729, dated June 7, 1996). Accordingly, the subject costs should receive the same treatment.

HOLDINGS:

1. Evidence is not presented sufficient to prove that the work covered by Items 7-1, 7-2, 7-3 and 7-4 on Hyundai invoice no. 953961-G constitutes modifications to the hull and fittings of the vessel so as to render the work nondutiable under 19 U.S.C. ? 1466. Accordingly, each of these items is dutiable.

2. The costs of general/port services are subject to proration between dutiable and nondutiable costs.

Sincerely,

Chief

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