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HQ 114289

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June 4, 1998

VES-13-18-RR:IT:EC 114289 GEV

CATEGORY: CARRIER

Chief, Liquidation Branch
U.S. Customs Service
Post Office Box 2450
San Francisco, California 94126

RE: Vessel Repair Entry No. C31-0005034-4; ARCO ALASKA; V-344; Modification;
Sludge Removal; Inspection Costs; 19 U.S.C. ? 1466

Dear Sir:

This is in response to your memorandum dated March 9, 1998, forwarding a petition for review of our decision on an application for relief from duties assessed pursuant to 19 U.S.C.

FACTS:

The ARCO ALASKA is a U.S.-flag vessel owned and operated by Arco Marine, Inc. Subsequent to the completion of foreign shipyard work, the vessel arrived in the United States at Valdez, Alaska, on June 25, 1997. A vessel repair entry was timely filed as was an application for relief with supporting documentation.

By letter dated December 31, 1997, your office denied the application in part and granted it in part based on Headquarters ruling letter 114183 and informed the applicant of the right to file a petition of this decision pursuant to ? 4.14(d)(2) of the Customs Regulations (19 CFR relief for the following: Exhibit #57 (Halla Marine Supply Co. invoice #HM-70509-04); Exhibit# 67(a) (Mi Sung Corp. invoice #MS-97-429); and Exhibit #68 (Hyundai Mipo Dockyard Co. Ltd., p. 100-38, Item #109 C.).

ISSUE:

Whether the costs for which the petitioner seeks relief are dutiable under 19 U.S.C.

LAW AND ANALYSIS:

Title 19, United States Code, ? 1466, provides in pertinent part for the payment of an ad valorem duty of 50 percent of the cost of "...equipments, or any part thereof, including boats, purchased for, or the repair parts or materials to be used, or the expenses of repairs made in a foreign country upon a vessel documented under the laws of the United States..."

Exhibit #57 covers the installation of a new Butterworth Steam Return System and is alleged to be a nondutiable modification. In its application of the vessel repair statute, Customs 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. (See Otte v. United States, 7 Ct. Cust. Appls. 166, T.D. 36489 (1916); United States v. Admiral Oriental Line et al., 18 C.C.P.A. 137, T.D. 44359 (1930); and Customs Bulletin and Decisions, Vol. 31, Number 40, published October 1, 1997.) The factors discussed within the aforementioned authority are not by themselves necessarily determinative, nor are they the only factors which may be relevant in a given case. However, in a given case, these factors may be illustrative, illuminating, or relevant with respect to the issue of whether certain work may be a modification of a vessel which is nondutiable under 19 U.S.C. ? 1466.

Upon reviewing the petition and the supporting documentation enclosed therein (i.e., exhibits 1, 2 and 3), at the outset we note that since the old Butterworth Steam Return System that was replaced is stated to have been operational and not in a state of disrepair, the installation of the new Butterworth Steam Return System (which included a new additional inspection tank as well as numerous related piping and valves) would not constitute a dutiable repair. In addition, this new system improves the efficiency of the vessel by providing more hot water for its operation and provides a means of visual inspection of the condensate by the engineers so that any oil may be removed before the condensate reaches the boiler feed system. The old system was connected directly to the drain tank whereas the new system is segregated and can prevent any contamination of the plant. We note that upon further review of the supporting documentation, the new system would not constitute a dutiable purchase of equipment since it is not an operating entity unto itself. It is therefore readily apparent that the installation of the new Butterworth Steam Return System covered by Exhibit #57, which would not be removed from the vessel in the event the vessel is put in lay-up, constitutes a nondutiable modification.

Exhibit #67(a) covers the cost of sludge removal Customs previously determined should be prorated. However, upon reviewing the petition and supporting documentation enclosed therein (i.e., affidavit exhibits 1(a) and 3), it is readily apparent that the sludge removal in question was performed pursuant to a required periodic ABS survey irrespective of any dutiable repairs. Accordingly, Exhibit #67(a) is nondutiable pursuant to the holding of the court in Texaco Marine Services, Inc. v. United States, 44 F.3d 1539 (1994).

Exhibit #68 covers work incurred pursuant to a required ABS/USCG tailshaft inspection. Upon further review of the supporting documentation (specifically, exhibit 3), we have determined that the work in question was unrelated to any dutiable repair work. Accordingly, pursuant to Texaco, Exhibit #68 is nondutiable.

HOLDING:

As detailed above, the petition is granted in full.

Sincerely,

Jerry Laderberg
Chief
Entry Procedures and Carriers

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