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HQ 114286

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March 20, 1998

VES-13-18-RR:IT:EC 114286 GOB

CATEGORY: CARRIER

Thomas W. Lord
Manager, Fleet Services
Sea-Land Service, Inc.
6000 Carnegie Blvd.
Charlotte, NC 28209-4637

RE: 19 U.S.C. 1466; Vessel repair; Vessel equipment; Coolers for scavenge air system

Dear Mr. Lord:

This is in response to your ruling request of March 10, 1998 with respect to the installation and fitting of new air coolers into the main engine scavenge air system of your Atlantic Class vessels. Our ruling follows.

FACTS:

You describe the work to be performed as follows.

The function of the scavenge coolers within the main engine scavenge system is to reduce the temperature, and increase the density, of air discharged from the main engine turbochargers. The efficiency of the coolers has a profound effect on the efficiency of the engine. A three percent improvement in scavenge efficiency typically results in a one percent improvement in fuel efficiency. The improved scavenge efficiency also reduces thermal loading on other main engine components, and so results in improved main engine reliability.

Scavenge coolers are designed for each specific vessel application and are optimized for the way in which the engine is expected to be operated. Because of this design/optimization process coolers designed and built for one class of vessel cannot, generally, be removed and used elsewhere.

During the next upcoming regulatorily required dry-docking we plan to fit newly designed and optimized coolers to the scavenge air system. If successful, the new coolers will be installed on all ACV Class vessels. These coolers are re-designed to be optimally efficient for our current vessel operating profile. In addition, these coolers incorporate new material combinations and advances in manufacturing processes since the original coolers were built. The net result will be increased engine fuel efficiency and improved reliability. ...
The scope of shipyard work includes the removal of the old coolers and installation and fitting of two new air coolers into the Main Engine Scavenge Air system. The design and manufacture of the new air coolers will be completed in the United Kingdom.

You state that the scavenge air coolers are a required integral part of the main propulsion system and thus are critical to the operation of the vessel. The current system is operational and not in a state of disrepair. The purpose of the work is improved fuel efficiency and main engine reliability.

In a subsequent submission, you submitted drawings for the air coolers which were described as "turbocharger intercooler replacements." In that submission, it is indicated that "the internal arrangement of the intercooler in entirely different from the original equipment, having a different number of tubes, a different fin arrangement, ... and a new design of waterbox, all built to match the new pressure frame housing."

ISSUE:

Whether the above-described work is dutiable under 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, and equipment purchased in a foreign country for, 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.

In its application of 19 U.S.C. 1466, Customs has held that (contrary to the treatment of vessel repairs and vessel equipment) modifications, alterations, and additions to the hull of a vessel are not subject to duty under the vessel repair statute. The identification of work constituting modifications vis-a-vis work constituting repairs has evolved from judicial and administrative precedent. See, for example, Otte v. U.S., 7 Ct. Cust. Appls. 166, T.D. 36489 (1916); U.S. v. Admiral Oriental Line et al., 18 C.C.P.A. 137, T.D. 44359 (1930), and Customs Bulletin and Decisions of June 18, 1997 (Vol. 31, No. 24/25, p. 23) and October 1, 1997 (Vol. 31, No. 40, p. 13). The various factors discussed within those authorities are not by themselves necessarily determinative, nor are they the only factors which may be relevant in a given case.

We have thoroughly considered the issue of the dutiability of the subject work under 19 U.S.C. 1466.

It is our determination that the subject work (described as redesign of coolers to the scavenge air system and turbocharger intercooler replacements) is dutiable under 19 U.S.C. 1466 as equipment of the vessel. We find that the subject work is essentially a modification to equipment of the vessel (i.e., a modification to the main engine or a modification to an accessory to the main engine), and is therefore dutiable as equipment of the vessel.

As a modification to equipment of the vessel, it is different from a modification to the hull of the vessel. A modification to equipment of the vessel is equivalent, for the purpose of 19 U.S.C. 1466, to equipment of the vessel and is dutiable under 19 U.S.C. 1466.

For example, in Ruling 105414 dated May 24, 1982, we stated:

It should be noted that the fact that a change or addition of equipment is made to conform with a new design scheme, or for the purpose of complying with the requirements of statute or code, is not a relevant consideration. Therefore, any change accomplished solely for these reasons, and which does not constitute a permanent addition to the hull and fittings of the vessel, would be dutiable under section 1466.

HOLDING:

The subject work (described as redesign of coolers to the scavenge air system and turbocharger intercooler replacements) is dutiable pursuant to 19 U.S.C. 1466.

Sincerely,

Jerry Laderberg
Chief,

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