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HQ 226688

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July 29, 1997

VES-13-18-RR:IT:EC 226688 GOB

CATEGORY: CARRIER

Port Director of Customs
Attn: Vessel Repair Liquidation Unit
423 Canal Street, Room 303
New Orleans, LA 70130-2341

RE: Vessel Repair Entry No. C15-0019194-0; 19 U.S.C. 1466; M/V NOBLE STAR, V-34; Petition; Radar system; Equipment

Dear Sir:

This is in response to your memorandum dated January 19, 1996, which forwarded the petition for relief submitted on behalf of Sealift Tankships, Inc. (the "petitioner") with respect to the above-referenced vessel repair entry.

FACTS:

The M/V NOBLE STAR (the "vessel") is a U.S.-flag vessel owned and operated by the applicant. Certain foreign shipyard work was performed on the vessel prior to its arrival at Sunny Point, North Carolina on June 29, 1994. The subject vessel repair entry was subsequently filed.

ISSUE:

Whether the costs involved with respect to the items at issue 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.

The subject entry is a "pre-Texaco" entry, i.e., an entry filed before 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).

Items 55.2 and 55.20. The petitioner claims that item 55.2, transportation of hatch board sections, is nondutiable. As your memorandum points out, the transportation charge in item 55.2 (2.078) is nondutiable as a transportation cost with respect to a pre-Texaco entry. Your memorandum indicates that your office agreed at the application stage that this item was nondutiable.
Your memorandum further states that there may be some confusion between item 55.2, described above, and item 55.20, which was found to be dutiable because it was "for accessing dutiable repair work." We concur with your determination that item 55.20 (5.141) is dutiable as an item related to dutiable repair work.
To summarize, item 55.2 is nondutiable and item 55.20 is dutiable.

Items 83.03 and 83.04. The petitioner claims that these items for ultrasonic thickness testing are nondutiable because they are required by periodic survey. The pertinent invoice for these items reflects "...ultrasonic thickness tested by use of crane for periodic survey" and "frames 11-23 PS ultrasonic thickness tested as per periodic survey instructions by use of crane."
However, one of the surveys listed on ABS invoice no. SP009173 is described as "Hull Repairs." ABS Report No. CZ 5889-H is entitled "Damage/Repair Survey Report" and lists "Hull Repairs." Item #13 of the report provides:

In Way of Port F.O. Settling Tank

13. Port side shell plating 1st, 2nd and 3rd below shear found wasted and holed between frames 12/13 and 15/16. Affected area was thickness gauged to ascertain plating condition and cropped out and part renewed as found necessary as per original butts. New plats thickness 13 mm.

The ABS report indicates that the thickness testing was performed incident to a "Damage/Repair Survey Report" and that the testing resulted from dutiable repairs. Accordingly, we find that items 83.03 and 83.04 are dutiable.
We note additionally that the invoice items immediately preceding (item 83.02) and immediately following (item 84) reflect the renewal of shell plating and the renewal of steel. While this is not dispositive, it suggests that the subject items were incident to the steel repairs.

ABS items. The petitioner asserts that the following items are nondutiable as required periodic surveys: ABS (4), item 9 (technical fees gauging review); ABS (5), item 1 (cargo gear statement of fact); ABS (4), item 10 (SAF: 24 & 25/5/94) and ABS (5). Item 2 (SAF: 24 & 25/5/94).
We agree with the petitioner's claim. The record indicates that these items are nondutiable survey items. Accordingly, we find that they are nondutiable.

Items 60.01 and 60.02, Radar. The petitioner states:

The radar was a modification to the vessel and as such is nondutiable. Therefore items 60.01 and 60.02 together with the radar equipment purchase are nondutiable.
A new and improved radar system was installed during the shipyard period. Although the old radar was fully operational, it was decided to move up to a better system...
...
... A radar is not a temporary installation as the scanner is matched for each radar and removal of the scanner is a large job. This piece of equipment must be secured to withstand the rigors at sea. Every part of the radar is permanently attached...

In Ruling 113798 dated January 9, 1997, we thoroughly considered the issue of radar installation with respect to its dutiability or nondutiability under 19 U.S.C. 1466. We stated:

We find that this item [radar installation] is dutiable under 19 U.S.C. 1466 as vessel equipment. This finding is based on the following authorities.

In Otte v. United States, 7 Ct. Cust. Appls. 166, T.D. 36489 (1916), the court stated:

That the Congress intended to distinguish between equipment and the vessel itself is apparent from a reading of the two subsections above quoted. The line of distinction between equipment and the vessel is somewhat difficult to mark.

The question was considered by the Board of Naval Construction, and their report in part reads as follows:

Equipment, used in a general sense, may be defined as any portable thing that is used for, or provided in, preparing a vessel whose hull is already finished for service. It is the furniture of whatsoever nature which is put into a finished ship in equipping her. The Queen's Regulations and Admiralty Instructions give the following definition: "Equipment, in relation to a ship, includes the furnishing a ship with any tackle, apparel, furniture, provisions, arms, munitions, or stores, or any other thing that is used in or about a ship for the purpose of fitting or adapting her for the sea or for naval service."

In estimating the displacement of a ship naval constructors use the term "hull and fittings" in contradistinction to "equipment," the fittings of the hull being understood to be any permanent thing attached to the hull which would remain on board were the vessel to be laid up for a long period.

Adopting these definitions, the board is of the opinion that the term "equipment" would not include donkey engines, pumps, windlasses, steam steerers, and other machinery but that it would include anchors, chain cables, boats, life-saving apparatus, nautical instruments, signal lights, and similar articles.

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.

Any new areas to the vessel, that is, bulkheads, permanent ballast, decks, staterooms, bars, storerooms. etc., are considered to be qualifying additions to the hull and fittings. Likewise, the extension of existing services into new areas would also be free of duty. This would include piping, air conditioning, ventilation, electrical service, glazing, etc., as well as final finishing for the new areas (such as painting).

On the other hand, among the dutiable operations would be providing furniture for any of the areas (new and old); providing new electronic navigation equipment; providing new lifesaving apparatus ... providing computer apparatus... [Emphasis supplied.]

In Memorandum 105807 dated December 28, 1982, we stated:

The characterization of an article as vessel equipment, as opposed to fittings or hull/structural parts, is manifestly difficult in cases where the article has many of the attributes of both classes cited in the leading cases. For example, because a vessel pitches and rolls when at sea all radio gear is securely fastened, yet is classified as equipment even when such articles are usually too large to be considered (in ordinary parlance) "portable". [Emphasis supplied.]
[End of excerpt from Ruling 113798.]

19 U.S.C. 1466(a) provides in pertinent part:

The 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 to engage in the foreign or coasting trade, or a vessel intended to be employed in such trade, shall, on the first arrival of such vessel in any port of the United States, be liable to entry and the payment of an ad valorem duty of 50 per centum on the cost thereof in such foreign country. [Emphasis supplied.]

As the above excerpt from 19 U.S.C. 1466(a) indicates, "equipment" is dutiable under 19 U.S.C. 1466(a).

We find that the radar equipment involved in the subject vessel repair entry is dutiable.

HOLDING:

As detailed supra, the petition is granted in part and denied in part.

Sincerely,

Jerry Laderberg
Acting Chief,

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