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HQ 113883

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April 1, 1997

VES-13-18-RR:IT:EC 113883 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. C27-0158612-8; 19 U.S.C. 1466; MOKIHANA, V-8B; Application

Dear Madam:

This is in response to your memorandum dated March 10, 1997, which forwarded the application submitted by Matson Navigation Co., Inc. (the "applicant") with respect to the above-referenced vessel repair entry.

FACTS:

The MOKIHANA (the "vessel") is a U.S.-flag vessel owned and operated by the applicant. Certain foreign shipyard work was performed on the vessel in late 1993. The vessel arrived at the port of Los Angeles, California on October 28, 1996. The subject entry was filed on November 5, 1996.

ISSUE:

Whether the subject items 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.

Post-Texaco Entry

The subject entry is a "post-Texaco" entry, i.e., an entry filed after the appellate decision in Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc. v. United States, 44 F.3d 1539 (CAFC 1994), aff'g 815 F.Supp. 1484 (CIT 1993). Accordingly, the Texaco decision applies to this entry.

The applicant claims that Texaco should not be applicable, citing 19 U.S.C. 1625(c) and 19 CFR 177.10. As we have stated on numerous occasions previously, this claim is without merit.

In Ruling 226873 dated October 29, 1996, we stated:

The subject vessel repair entry was filed after the CAFC decision in Texaco. In Memorandum 113350 dated March 3, 1995, published in the Customs Bulletin and Decisions on April 5, 1995 (Vol. 29, No. 14, p. 24), we stated in pertinent part:

All vessel repair entries filed with Customs on or after the date of that decision [the CAFC decision in Texaco, December 29, 1994] are to be liquidated in accordance with the full weight and effect of the decision (i.e., costs of post-repair cleaning and protective coverings incurred pursuant to dutiable repairs are dutiable and all other foreign expenses contained within such entries are subject to the "but for" test).

Memorandum 113350 was preceded by Memorandum 113308 dated January 18, 1995. Memoranda 113350 and 113308 were both published in the Customs Bulletin.

In Ruling 113474 dated October 24, 1995, we stated:

... the applicant contends that the CAFC decision in Texaco, supra, should not be applicable to the subject vessel repair entry and by doing so Customs has violated 19 U.S.C. ? 1315(d). Title 19, United States Code, ? 1315(d) provides, in pertinent part, as follows:

No administrative ruling resulting in the imposition of a higher rate of duty or charge than the Secretary of the Treasury shall find to have been applicable to imported merchandise under an established and uniform practice shall be effective with respect to articles entered for consumption or withdrawn from warehouse for consumption prior to the expiration of thirty days after the date of publication in the Federal Register of notice of such ruling... (emphasis added)

The applicable Customs Regulations governing this matter are found at 19 CFR Part 177 (entitled "Administrative Rulings"). With respect to the applicability of 19 CFR Part 177, we note that neither of the two Headquarters memoranda published in the Customs Bulletin are "rulings" within the meaning of that part. Pursuant to ? 177.1(d)(1), Customs Regulations, a "ruling" is defined as a "...written statement issued by the Headquarters Office or the appropriate office of Customs as provided in this part that interprets and applies the provisions of the Customs and related laws to a specific set of facts." (Emphasis added) Neither memorandum applied 19 U.S.C. ? 1466 or 19 CFR ? 4.14 (the applicable Customs regulations promulgated pursuant to ? 1466) to a specific set of facts (i.e., no single vessel repair entry containing foreign expenses was discussed). Rather, they provided notice to the public that Customs will administer 19 U.S.C. ? 1466 in accordance with the explicit guidelines set by the CAFC in interpreting the term "expenses of repairs" within the meaning of the statute as determined by the "but for" test. Such guidelines, prior to the date of that decision, were non-existent. Accordingly, 19 U.S.C. ? 1315(d) is inapplicable in these circumstances.

In Ruling 113500 dated October 24, 1995, we stated:

Specifically, the applicant contends that the publication in the Customs Bulletin of memorandum 113308, subsequently clarified by memorandum 113350, without the solicitation of public comments, constitutes a violation of 19 U.S.C. ? 1625(c).
...
... the aforementioned memoranda did not modify or revoke any prior interpretive ruling or decision or have the effect of modifying the treatment Customs previously accorded certain foreign expenses under 19 U.S.C. ? 1466. Rather, the memoranda, in conjunction with the publication of the CAFC decision in the Customs Bulletin, merely provided notice to the public that the impetus behind any change in Customs interpretation of the term "expenses of repairs" within the meaning of the vessel repair statute is the CAFC itself, not Customs.
...
With respect to the applicability of 19 CFR Part 177, we note that neither of the two Headquarters memoranda published in the Customs Bulletin are "rulings" within the meaning of that part. Pursuant to ? 177.1(d)(1), Customs Regulations, a "ruling" is defined as a "...written statement issued by the Headquarters Office or the appropriate office of Customs as provided in this part that interprets and applies the provisions of the Customs and related laws to a specific set of facts." (Emphasis added) Neither memorandum applied 19 U.S.C. ? 1466 or 19 CFR ? 4.14 (the applicable Customs regulations promulgated pursuant to ? 1466) to a specific set of facts (i.e., no single vessel repair entry containing foreign expenses was discussed). Rather, they provided notice to the public that Customs will administer 19 U.S.C. ? 1466 in accordance with the explicit guidelines set by the CAFC in interpreting the term "expenses of repairs" within the meaning of the statute as determined by the "but for" test. Such guidelines, prior to the date of that decision, were non-existent.

Further in regard to the applicability of 19 CFR Part 177, it is noteworthy that since neither memorandum was a "ruling" as defined in 19 CFR ? 177.1(d), the mere fact that they were published in the Customs Bulletin does not, as the protestant suggests, render either a "published ruling" within the meaning of 19 CFR ? 177.1(d). Furthermore, in view of the fact that 19 CFR ? 177.1(d) also defines a "ruling letter" as "a ruling issued in response to a written request therefor and set forth in a letter addressed to the person making the request or his designee", neither memoranda, which were issued at the behest of the Assistant Commissioner, Office of
Regulations and Rulings to the Regional Director, Commercial Operations Division, New Orleans, constituted a "ruling letter" for purposes of 19 CFR Part 177. The delayed effective date provisions of 19 CFR ? 177.9(d)(3), applicable to a "ruling letter" are therefore of no consequence.

Accordingly, the provisions of 19 U.S.C. ? 1625 and 19 CFR Part 177 are inapplicable to the subject application.

Based on the above authorities, we find that the petitioner's claims with respect to 19 U.S.C. 1315(d) and 1625(c) are without merit.
[End of excerpt from Ruling 226873.]

Accordingly, as stated above, the applicant's claim is without merit.

Modifications

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.

Items Protested

After a consideration of the documentation of record we make the following determinations. For the most part, we have followed the numbering and grouping of items used in your forwarding memorandum.

Items 101-119. General Services. These items should be prorated as that concept was stated in Ruling 113474 and subsequent rulings.

Item 121. Sea Trial. This item is nondutiable as the invoice reflects that the sea trial was incident to the main engine and auxiliary support system inspections and modifications.

Item 501. Drydock of Vessel. This item should be prorated in the same manner as the general services items.

Items 502-513. These items are nondutiable as ABS/U.S. Coast Guard inspection or survey items except for the following. Item 504-1 is dutiable because it involves piping renewal. Items 506 and 510 involve the replacement of anodes which is dutiable. Item 507-1 is dutiable because it involves post-repair coating. Item 509-1 is dutiable because it involves the repair and maintenance of bow thruster blades.

Item 515. Tank Inspection and Survey. This item is nondutiable as an ABS/U.S. Coast Guard inspection and survey item.

Items 517, 519, 521, 523, and 523-1. No. 2 P/S Deep Upper FO Tank Modifications, No. 1 FO Wing Tank P/S Modifications, No. 2 FO Wing Tanks P/S Modifications, No, 3A, 3B, and 3C FO Wing Tanks P/S Modifications, and No. 3A, 3B and 3C P/S FO Tank Modifications at Additional Locations. These items are nondutiable modifications.

Item 525. Hatch Cover Survey. This item is nondutiable as a ABS survey.

Item 527. Hatch Cover Load Pad Water Plate Modification. This item is a nondutiable modification.

Item 531. Modifications to Upper Longitudinal Hatch Coaming. The applicant states that this item: "...entails the permanent installation by welding of previously non-existing brackets to add strength to the longitudinal hatch coamings to eliminate the flexing of the hatch covers and fracturing of the container base sockets." We find that this item is dutiable because it involves an operation to cure the fracturing of certain articles. As such, it appears to be a repair and maintenance item.

Item 535. Modifications to Transverse Box Girder. The invoice reflects that this item was undertaken as a result of various fractures and cracks. Therefore, it is a dutiable repair.

Items 537 and 538. Engine Room Tanks Survey and "Air Ceivers." The invoices indicate that these items are ABS/U.S. Coast Guard survey and/or inspection items. Accordingly, they are nondutiable.

Items 539 and 541. Isolation Valves for HFO Purifiers Modification and Back Flush Connections Modification. These items are nondutiable modifications.

Items 542 and 547. Main Engine Vibration Dampener and Inspection of Bilge Wells. The invoices indicate that these items are ABS/U.S. Coast Guard survey and/or inspection items. Accordingly, they are nondutiable.

Item 549. Reefer Modifications. This item is a nondutiable modification.

Item 550. Main Electrical Switchboard. The invoice reflects that this item is an ABS inspection item. Therefore, it is nondutiable.

Items 553, 557, and 558. Stack Lighting Modification, Removal of Twist Box Modification, and Portlight Modifications. These items are nondutiable modifications.

Item 561. Hull wash for Inspection. This item is nondutiable as incident to an ABS/U.S. Coast Guard inspection.

Items 569, 570, 572, and 705. Safety Rail Extension Modification, Underdeck Pedestal Modifications, Stern Seal Modification, and No. 1 Deep "Swb" Tank Modifications. These items are nondutiable modifications.

Items 710, 719, 733-1, and 734. Cleaning of F.O. Service and Blended Oil Tank Vents, Cleaning of Crankcase Vent Plenum, Waste Heat Boiler Survey, and Auxiliary Boiler Survey. The invoices indicate that these items are ABS/U.S. Coast Guard survey and/or inspection items, or operations incident to such surveys or inspections. Accordingly, they are nondutiable.

The applicant claims that prefabricated steel which is referenced as being involved in 14 repair items is dutiable under 19 U.S.C. 1466(h)(3), which provides:

The duty imposed by section (a) of this section shall not apply to -
...
(3) the cost of spare parts necessarily installed before the first entry into the United states, but only if duty is paid under appropriate commodity classifications of the Harmonized Tariff Schedules of the United States upon first entry into the United States of each such spare part purchased in, or imported from, a foreign country.

For the purpose of 19 U.S.C. 1466(h), we have defined a "part" as follows:

A part is determined to be something which does not lose its essential character or its identity as a distinct entity but which, like materials, is incorporated into a larger whole. It would be possible to disassemble an apparatus and still be able to identify a part. The term part does not mean part of a vessel, which practically speaking would encompass all elements necessary for a vessel to operate in its designed trade. Examples of parts as defined are seen in such items as piston rings and pre-formed gaskets, as opposed to gaskets which are cut at the work site from gasket material.

The applicant has submitted an entry summary continuation sheet on which it lists the 14 items of steel. The steel was used on 14 invoice items. There is no indication or statement as to what "spare parts" the applicant seeks relief for pursuant to 19 U.S.C. 1466(h)(3). The applicant has not established that the prefabricated steel is a part under 19 U.S.C. 1466(h)(3). Therefore, the steel is dutiable under 19 U.S.C. 1466(a).

HOLDING:

As detailed above, the application is granted in part and denied in part.

Sincerely,

Jerry Laderberg
Acting Chief,

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