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HQ 113675

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May 13, 1998

VES-13-18-RR:IT:EC 113675 CC

CATEGORY: CARRIER

Chief, Liquidation Branch
U.S. Customs
P.O. Box 2450
San Francisco, CA 94126

RE: Vessel Repair Entry No. C31-0015284-3; S/S ARCO JUNEAU; Voyage CF491;
Petition for review; HQ 113585

Dear Sir:

This is in response to your memorandum of September 6, 1996, which forwards for our review the petition for review filed in conjunction with the above-referenced vessel repair entry.

FACTS:

The vessel ARCO JUNEAU, a U.S.-flag vessel owned by Metaric Corporation and operated by ARCO Marine, Inc., arrived at the port of Valdez, Alaska, on April 12, 1995. A vessel repair entry was timely filed. The vessel underwent certain work at the Hyundai Mipo Shipyard in Ulsan, Korea.

An application for relief was filed for relief from duty for certain items of the work done abroad. In Headquarters Ruling (HQ) 113585, dated June 6, 1996, we denied relief and granted relief for certain items.

A petition for review was timely filed, requesting that we reconsider the following:

I. Whether Customs has violated 19 U.S.C. section 1315(d), by instituting adverse to [the] importer [a] change of practice without prior publication in the Federal Register of notice thereof and requesting comments of interested parties.

II. Whether Customs has erred by applying the "orbiter dictum" of the Appeals Court Judge to the items of: costs of air, crane, drydocking charges, electricity, travel/transportation, launch use, lodging, security, and staging.

III. Whether costs of "sea trials", under similar conditions as costs of "gas free certification" should be pro-rated.

IV. Whether costs of items covered by 19 U.S.C. 1466 subsection (h)(3) should be included in the apportionment between costs which are to be remitted and those for which relief is not warranted.

V. Whether redesign of [the] rudder constitutes a modification.

VI. Whether the cost of "inspect and clean interior of the IGS main deck 20" line, 500 feet long" is a repair within the purview of 19 U.S.C. 1466.

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 are 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.

Our determinations on the subject items are as follows:

Item 108- Rudder - The petitioner requests remission for rudder modification ($19,849), staging ($466), and inspection ($527). In HQ 113585, we found this item to be dutiable because the work constituted repairs. We noted that an ABS survey, which was referenced in the application, could establish that the item did not consist of repairs, but the survey was not submitted with the application. The ABS survey was submitted with the petition. Our review of the survey supports the petitioner's claim that this item did not consist of repairs. In addition, this item is very similar to an item (ABS alteration/modification survey) in HQ 227063, dated October 31, 1996, in which we found that item to be nondutiable because there was no evidence of a repair. Consequently, this item, including the staging and inspection costs, is not dutiable.

Item 403 - IGS piping inspection and repairs - This item consisted of inspecting and cleaning the interior of the IGS main deck 20" line, 500 feet long. The petitioner states that approximately one ton of deposits was removed, although the invoice also notes that 3 tons of deposits were removed. In HQ 113585, we found this item dutiable because it related to repairs, absent further evidence, such as the relevant ABS survey. The petitioner has submitted the relevant ABS survey and claims there is no evidence of repairs in the survey, as well as in the invoices for this item. As we stated in HQ 113585, "Customs has long held that the cost of 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." Although this item may not be related to dutiable repairs, we believe that the removal of one ton or three tons of deposits goes well beyond a normal cleaning and constitutes maintenance of the vessel. This finding is consistent with rulings relating to air scavenger spaces (HQ 111834, dated December 17, 1991, and HQ 112651, dated May 25, 1993) and boiler inspection and cleaning (HQ 111948, dated January 27, 1992) in which we found the removal of deposits was considered maintenance. Consequently, we find that this item is dutiable.

Concerning matters I-IV raised in the petition, the petitioner states the following:

As to issues I through IV supra, our contentions have been discussed at length in prior Applications and Petitions, ...., filed by our firm. In the interests of brevity, and since the current adverse to the vessel operator position of Customs is known, the basis of claim will not be repeated at this time. The first four issues are cited herein to let it be known we do not concur in the position taken by Customs, but, if the position is changed by Customs, to avail ourselves of the opportunity to secure the claimed duty reductions and/or remissions. We hereby re-affirm the claims made in the Application on these issues.

The regulations governing the submission of evidence and the determination of dutiability of foreign shipyard operations under section 1466 are found in section 4.14 of the Customs Regulations (19 CFR ? 4.14). Subsection (d)(1) of 19 CFR ? 4.14 provides that while an Application for Relief need not be submitted in any particular format, it is necessary that it:

...allege that an item or a repair expense covered by the entry is not subject to duty under paragraph (a) of this section, or that the articles purchased or the repair expenses are within the provisions of paragraph (c) of this section, or that both conditions are present.

In the petition, the petitioner has not linked matters I through IV to any particular items. Since no claims for relief for specific items have been articulated for matters I through IV, we are unable to grant relief relating to those matters. We note that our position with respect to the general issues raised in matters I through IV has not changed and has been discussed in detail in various rulings, for example, HQ 226873, dated October 29, 1996, a determination made in response to a petition for review submitted by ARCO Marine, Inc.

HOLDING:

The petition should be denied in part and granted in part as detailed in the Law and Analysis section of this ruling.

Sincerely,

Jerry Laderberg
Chief
Entry Procedures and Carriers

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