HQ 227043 - 19 U.S.C. 1466; LIHUE, V-163; Vessel Repair Entry No. H24-0021756-6; Hatch cover alterations; Change of name markings - United States International Trade Commision Rulings

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HQ 227043

August 12, 1996

VES-13-18-RR:IT:EC 227043 GOB

CATEGORY: CARRIER

Port Director of Customs
Attn.: Vessel Repair Liquidation Unit, Room 416 P.O. Box 2450
San Francisco, CA 94126

RE: 19 U.S.C. 1466; LIHUE, V-163; Vessel Repair Entry No. H24-0021756-6; Hatch cover alterations; Change of name markings

Dear Sir:

This ruling is in response to your memorandum dated June 11, 1996, which forwarded the application for relief submitted by Matson Navigation Company ("applicant") with respect to the above-referenced vessel repair entry. The subject vessel, LIHUE ("vessel"), was previously known as the PRESIDENT HOOVER.

FACTS:

You have requested our determination with respect to item five on the CF 226, which states in pertinent part as follows:

5. Hyundai Mipo Dockyard Conversion work to cargo slots to permit loading of 24 ft. boxes. Paint two stacks with Matson colors, change name on the bows, stern, & both bridge wings to "Lihue." Alter hatch covers & hatch coamings on some holds...

In a letter dated May 23, 1996, the applicant states, in pertinent part;

SS LIHUE is one of six vessels Matson purchased from American President Lines, Ltd. ("APL"). Under our agreement APL contracted for and was responsible for the work performed on this vessel with respect to this entry and was responsible for submitting the appropriate documentation to Customs. The work was performed and this entry took place while the vessel was bareboat
chartered to APL. Matson adopts the enclosed APL letter dated May 15, 1996 as its application for remission of duty.

In its letter of May 15, 1996, APL states as follows, in pertinent part:

Matson and APL announced their intent to enter into a strategic alliance to share cargo carrying capacity on a route serving the U.S. Pacific Coast, Hawaii, Guam, Korea and Japan.

It was necessary to make certain improvements to the vessels to increase their efficiency and to make the vessels suitable for this new deployment. These improvements are described in Enclosure (A) and (B).

A careful review of enclosures A and B will show that "but for" the new deployment of these vessels in the intended service involving the ability to carry not only the traditional 20/40 foot containers but the necessity to accommodate the Matson standard 24 foot containers, these modifications and improvements would not have been undertaken.

Mr. Bud Stewart of American President Lines, Ltd. advised telephonically that Enclosure A consists of the drawings submitted and that Enclosure B consists of Invoice No. 960023-A dated March 6, 1996.

ISSUE:

Whether the work described supra (item five on the CF 226) is 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.

Hatchcover Work

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.

The pertinent invoice, which covers the hatch cover work and the change of name markings, is Invoice No. 960023-A dated March 6, 1996. It states, in pertinent part:

24" Container Stowage Modifications

Accomplish the hatch cover conversion/modifications to carry six rows of 24-foot containers in combination with the existing 40-foot container stowage to permit the vessels to meet the requirements of the new owners (Matson Navigation Company) and the new combined Matson/APL deployment.

After a consideration of the record, we find that this item is a nondutiable modification. The work described supra, the conversion of stowage to carry six rows of 24 foot containers in combination with the existing 40 foot container stowage, is the type of work which is a nondutiable modification, as opposed to a repair dutiable under 19 U.S.C. 1466. This item appears to fall squarely within the description of a nondutiable modification, supra. There is no indication of any repairs on the pertinent invoice.

Change of Name and Related Markings

In Ruling 112513 dated March 30, 1993, we stated with respect to the painting of the ship's name (item 16 in that ruling):

Pursuant to C.D. 1430 (41 CCPA 57, C.A.D. 529), painting that is strictly ornamental and in no sense performed for the preservation of the vessel, cannot be considered "maintenance painting." With respect to the above items, as the
painting performed pursuant to item 16 was ornamental in nature, it is entitled to remission.

In H.C. Gibbs v. United States, 28 Cust. Ct. 318, C.D. 1430 (1952), aff'd 41 C.C.P.A. 57, C.A.D. 529 (1953), the court stated:

Relative to painting the hull of the vessel black between the decks and repainting the ship's name thereon, as well as the expenses of cartage of materials and labor, this court is of the opinion that the cost thereof is properly dutiable under the provisions of section 466 as "repairs." Although it is contended that the painting in question is strictly ornamental and in no sense performed for the preservation of the vessel and, therefore, cannot be considered "maintenance painting," it remains a fact that, irrespective of the intention behind the act, the painting of the ship black in order to present a better appearance to the public had the effect of restoring the old and rusted surfaces, and since the repainting of the hull covered the ship's name, it became necessary thereafter to paint the name Gretna Victory over the new black paint.

The painting of the words "Christmas Ship Pacific Northwest U.S.A." does not appear to be in the nature of a restoration of the vessel or a necessary act after the performance of painting, such as the repainting of the name of the ship. The words were painted upon the sides of the ship purely for advertisement purposes to show the nature of the voyage. The words were neither applied to the sides of the vessel as an ornamentation, as a preservation of the vessel, nor as a restoration...we do not believe that the cost of lettering the words "Christmas Ship Pacific Northwest U.S.A." on the port and starboard sides of the hull in 4-foot white letters, is a dutiable item...or is included within the provisions of section 466, supra, as the expenses of repairs made in a foreign country.

Pursuant to H.C. Gibbs and Ruling 112513, we determine that the change of name and related markings are not dutiable pursuant to 19 U.S.C. 1466. The work here is similar to the painting of the words "Christmas Ship Pacific Northwest U.S.A." in H.C. Gibbs in that there is no indication that such work was in the nature of a restoration of the vessel or a necessary act after painting of the vessel. The painting of the name of the vessel, Gretna Victory, described supra in the first excerpted paragraph of H.C. Gibbs, is distinguishable from the work here in that the work here was not accomplished incident to maintenance or restorative painting. Accordingly, as stated supra, the costs for the change of name and related markings are not dutiable.

HOLDING:

The work described supra (item five on the CF 226) is not dutiable pursuant to 19 U.S.C. 1466.

Sincerely,

William G. Rosoff
Chief,

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