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HQ 113940

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August 27, 1997

VES-13-18-RR:IT:EC 113940 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. C27-0061057-2; PRESIDENT LINCOLN, V-87; 19 U.S.C. 1466; Protest

Dear Madam:

This is in response to your memorandum of April 30, 1997, which forwarded the protest submitted on behalf of American President Lines, Ltd. ("protestant" or "APL") with respect to the above-referenced vessel repair entry.

FACTS:

The evidence of record indicates the following. The PRESIDENT LINCOLN ("vessel"), a U.S.-flag vessel owned and operated by the protestant arrived at the port of San Pedro, California on November 26, 1991. The subject vessel repair entry was timely filed. The vessel underwent certain foreign shipyard work in Kaohsiung, PRC in October and November of 1991.

In Ruling 112444 dated May 22, 1996, which contained our determinations on the application for relief with respect to the above-referenced entry, we found certain items dutiable and certain items nondutiable.

In Ruling 113707 dated October 31, 1996, the petition for relief with respect to the subject entry was granted in part and denied in part.

ISSUE:

Whether the costs of 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.

As we have stated previously, this entry is a "pre-Texaco" entry, i.e., an entry filed prior to 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).

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 For Which Relief Is Requested

Item 515.1 (fourth and final sub-item p. 22). Longitudinal Hatch Coaming Repaired at Row 12, Aft (P/S). This item was thoroughly discussed in Ruling 112444, the application ruling in this case. APL did not request relief with respect to this item in its petition (Ruling 113707).

The invoice reflects that this item is a dutiable repair, i.e., the hatch coaming was "repaired" (see heading, above) and "cropped and renewed." Accordingly, we find that it is dutiable.

Item 515.2 (first sub-item on p. 31). Modification of Hatch Cover and Coaming #1 through #9 of Bearing Pad Assembly. The invoice description reflects that this item is a modification. Accordingly, we find that it is nondutiable.

Item 515.2 (second sub-item on p. 32). Modification of Hatch Cover #10-14 (P/S) in way of Bearing Pad Assembly. The protestant states: "This bearing pad modification was required to reinforce the hatch cover bearing pad with new previously non existent additional stiffening behind the bearing pad. This was the consequence of increase [sic] hatch cover carrying capacity..."

The invoice description, which is consistent with this explanation, indicates that this item is a modification. Accordingly, we find that it is nondutiable.

Item 520. Fuel Tank Sludge Removal for Tank Surveys. The pertinent invoice reflects, in numerous instances: "Cleaned the tank to be safe for men and surveys ..." The protestant states: This is a mandatory regulatory requirement of the ABS for the No. 2 Special Periodical Hull Survey. See ABS 1/3.7.3(b). The invoice reflects that this item was related to an "ABS & USCG Inspection."

There is no indication of repairs on the pertinent invoice. We find this item to be nondutiable.

Item 525.1 Ballast Tank Inspection. The protestant states:

Item 3525 Ballast Tank Inspection has been ruled duty free as a mandatory ABS inspection item. Item 525.1 is an addition to this inspection item. It provides for the required cleaning for the ABS inspection as noted in the ABS survey report ...
... no repairs are included in this item other than the replacement of missing or broken nut, studs, gaskets or grommets occasioned by this mandatory inspection.

The invoice reflects that this item is an inspection item that is nondutiable pursuant to 19 U.S.C. 1466.

Item 556 Salt Water Piping, Repairs. In Ruling 113707, we stated:

As we stated in Ruling 112444, the invoice describes this item as "SALT WATER PIPING, REPAIRS ABS & USCG INSPECTION." (Emphasis supplied in Ruling 112444 and Ruling 113707.) Thus, the invoice itself clearly reflects repairs. Under this circumstance, we are unable to conclude that this item does not include repairs. Accordingly, it is dutiable.

The protestant asserts that this item "is a mandatory regulatory requirements [sic] and it is entitled to duty free treatment." The protestant has not attempted to explain the prominent use of the word "REPAIRS" in on the invoice.

Based upon the invoice, it is our conclusion, as we concluded in Ruling 112444 and Ruling 113707, that this item includes repairs. Accordingly, it is dutiable.

HOLDING:

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

Sincerely,

Stuart P. Seidel
Assistant Commissioner,
Office of Regulations and Rulings

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