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HQ 226826

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May 2, 1996

VES-13-18-RR:IT:EC 226826 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. C31-0015281-9; 19 U.S.C. 1466; ARCO INDEPENDENCE, V-152; Application; Drydocking charges

Dear Sir:

This is in response to your memorandum dated March 12, 1996, which forwarded the application for relief submitted by ARCO Marine, Inc. ("applicant") with respect to the above-referenced vessel repair entry.

FACTS:

The ARCO INDEPENDENCE ("the vessel") is a U.S.-flag vessel owned and operated by the applicant. Certain foreign shipyard work was performed on the vessel in 1995. The vessel arrived at the port of Valdez, Alaska on October 18, 1995. The subject entry was subsequently filed. It was untimely by one day in that it was filed on the sixth business day (October 26, 1995) after arrival of the vessel (October 18, 1995).

The applicant has submitted letters dated February 6, 1996 and February 9, 1996, and certain "Explanatory Statements," in addition to the pertinent invoices.

The narrative, or non-heading, part of the February 9, 1996 letter is less than one full page. It contains certain certifications and states when the vessel sailed from the U.S. and returned. The letter of February 9, 1996 also states:

The vessel sailed...to accomplish American Bureau of Shipping and U.S. Coast Guard required dry-dock surveys, and certain modifications. Other maintenance work was also accomplished.

The letter of February 6, 1996 is four pages. It contains certain of the information in the February 9, 1996 letter, and includes a list of 13 American Bureau of Shipping surveys which were conducted. The February 6, 1996 letter also contains certain allegations and statements based at least in part on the requirements of 19 CFR 4.14(d)(1)(iii) with respect to the supporting evidence to be submitted with an application for relief. These allegations and statements do not contain allegations and statements which are specific to the subject vessel repair entry, but they recite, essentially verbatim, the language of 19 CFR 4.14(d)(1)(iii)(A) through (G).

Also included with the applicant's materials is a twelve page document entitled "Explanatory Statements." This document contains explanations with respect to many of the specific items involved in this vessel repair entry.

You have asked for our determination with respect to the following items:

Item No. Description

N.A. ABS Survey
N.A. ABS Survey - administrative surcharge
Hyundai drydocking
408 mooring line
424 IGS and mast valve
433 IGS scrubber
450 power water line

ISSUE:

Whether the costs 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.

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.

Our analysis in this matter is based primarily on the pertinent invoices. The assertions of the application are not considered to be documentary evidence. In this regard, we note the statement of the court in Bar Bea Truck Leasing Co., Inc. v. United States, 5 CIT 124, 126 (1983):

Again, plaintiff has presented no affidavit or other evidence in support of its counsel's bald assertion...

If we are unable to determine the precise nature of certain work because of the lack of clear and probative documentary evidence, and are thus unable to determine that it is nondutiable, such work will be found dutiable. In this regard, we note the statement of the Customs Court in Admiral Oriental Line v. United States, T.D. 43585 (1929):

The evidence is conflicting upon that point, and the plaintiff has not proved the collector's classification to be wrong. The burden is upon the plaintiff to show not only that the collector was wrong in his classification but that the plaintiff was right.

In Sturm, A Manual of Customs Law (1974 ed.), p. 173-174, the author states, in pertinent part:

Where Congress has carved out special privileges or exemptions from the general provisions levying duties upon imported articles, the courts have strictly construed such exceptions and have resolved any doubt in favor of the government. Swan & Finch Company v. United States, 190 U.S. 143, 23 SCR 702, 47 L. Ed. 984 (1903); Pelz-Greenstein Co. v. United States, 17 CCPA 305, T.D. 43718 (1929)... ...
An exception which carves out something which would otherwise be included must be strictly construed. Goat & Sheepskin Import Co., et al. v. United States, 5 Ct. Cust. Appls. 178, T.D. 34254 (1914); [et al.]

After a consideration of the documentation of record we make the following determinations.

ABS modification survey. In its application letters, the applicant does not specifically address this item. The item is included among the numerous ABS surveys listed in the February 6, 1996 letter, but no representations are made with respect thereto by the applicant. In the absence of any acceptable documentary evidence to the contrary, we determine that this item is dutiable.

ABS survey - administrative surcharge. The applicant has not made any representations with respect to this item. In the absence of any acceptable documentary evidence to the contrary, we determine that this item is dutiable.

Hyundai drydocking charges. Your forwarding memorandum states "prorated all drydocking charges except insurance." Drydocking charges include, but are not limited to, such charges as berthing costs, refuse removal, electrical hook-up, and water-hook-up. In Ruling 113474 dated October 24, 1995, we stated in pertinent part:

A "but for" test was utilized by the court in the Texaco [case], supra [Texaco Marine Services, Inc. and Texaco Refining and Marketing, Inc. v. United States, 815 F. Supp. 1484 (CIT 1993), 44 F.3d. 1539 (CAFC 1994)] which test bases dutiability under the vessel repair statute upon findings that but for dutiable repair operations, an associated expense would not have been incurred. To be sure, in a great many vessel repair cases which include dry dock expenses there is at least some non-dutiable element which could justify placing a vessel in dry dock. We understand from the decision of the CAFC in Texaco, supra, that dock charges are non-dutiable if the underlying reason for dry-docking is not subject to duty, and that such charges are dutiable if dutiable operations underlie the docking. Proper implementation of the decision of the court requires that we consider the duty consequences in circumstances in which a mixed justification for dry-docking is present.

Customs has experience in duty determinations in another area involving a mixed-purpose vessel repair expense. Under the rationale provided by a long-standing published ruling (C.I.E. 1188/60) the cost of obtaining a gas-free certification, a necessary precursor to the initiation of any hotwork (welding) which may be necessary, constitutes an expense which is associated with shipyard operations. Since the expense is incurred without respect to whether the hot work to follow might constitute dutiable repair work, or is in connection with duty-free modification work, it is the practice of Customs in liquidating such expenses to apportion the gas-freeing charges between the cost of items which are remissible and those which are subject to duty. We are guided by the determination of the court in Texaco, supra, to apply the same formula to mixed-purpose dry-dock expenses. Accordingly, the cost associated with item 14 should be apportioned to reflect the dutiable and non-dutiable foreign costs in this entry.

The vessel repair entry was filed after the CAFC decision in Texaco. In Memorandum 113350 dated March 3, 1995, published in the Customs Bulletin and Decisions on April 5, 1995 (Vol. 29, No. 14, p. 24), we stated in pertinent part:

All vessel repair entries filed with Customs on or after the date of that decision [the CAFC decision in Texaco, December 29, 1994] are to be liquidated in accordance with the full weight and effect of the decision (i.e., costs of post-repair cleaning and protective coverings incurred pursuant to dutiable repairs are dutiable and all other foreign expenses contained within such entries are subject to the "but for" test).

In accordance with Ruling 113474 and Memorandum 113350, and as your forwarding memorandum states, the drydocking charges should be prorated between the dutiable and nondutiable costs associated with the drydocking. The method of prorating was described in Ruling 113474, supra: the drydocking costs "should be apportioned to reflect the dutiable and non-dutiable foreign costs in this entry." For example, if, aside from the subject "drydocking costs," as described supra, fifty percent of the costs of that particular drydocking were dutiable and fifty percent were nondutiable, then fifty percent of the subject "drydocking costs," as described supra, would be dutiable and fifty percent would be nondutiable.

Item 408 - mooring line. The invoice for item 408 describes the work on the mooring line installation. Item 408.1, as amended by item 408.5, involved the removal of the old wire line for scrapping. Item 408.2 involved connecting the new line. Item 408.3 involved the removal of the roller chocks, replacement of thrust bearings, addition of a bar to prevent snapping of the line, cleaning and epoxy coating the chocks. Although there was a change to this item, the invoice does not show any reduction in cost as a result in the reduction of work ordered by item 408.5. As shown by the change, 12 of the removed roller chocks had to have the corroded area built up and had to be machined before being painted. Additional item 01 involved the addition of a rub bar for the port aft mooring line. Additional item 02 involved the addition of tubing to allow the winches to be greased from the deck. Additional item 03 involved enlarging the holes in the drums to accept the larger diameter line. Additional item 04 involved the repair of one fairlead and two standard chocks.

The letter of the vessel's captain of February 7, 1996 states that the existing lines were still usable but that the new lines were safer to use and were more efficient.

In Admiral Oriental Line v. U.S., T.D. 45453 (Cust. Ct. 1932), the court held that the addition of the vessel's emergency generator house, when coupled with testimony that the installation was not caused by any wear or physical defect in the existing house and that it was for the sole purpose of providing additional machinery, was an addition to the vessel's hull and fittings rather than a repair or the purchase of equipment that would have been dutiable under 19 U.S.C. 1466. The court also held that the addition of an independent fitting line from a double bottom fresh water tank to separate potable and non-potable fresh water tanks was a modification rather than a repair.

In Admiral Oriental Line v. U.S., T.D. 43585 (Cust. Ct. 1929), maintenance painting to prevent deterioration and to keep the vessel and equipment clean was dutiable pursuant to 19 U.S.C. 1466. Temporary passenger partitions were held not to be additions to the hull because of their temporary nature, and therefore were found dutiable.

In U.S. v. Admiral Oriental Line, 18 CCPA 137 (1930), the court held that the addition of swimming pools for the comfort of passengers in the Pacific trade routes was outside of the scope of 19 U.S.C. 1466. The court found the work to be modifications of the hull rather than repairs based on the blueprints and testimony of the appellee's superintendent.

In C.S.D. 79-278, Customs held that the installation of gantry cranes and the work performed to accommodate the cranes were not dutiable under 19 U.S.C. 1466. In the same decision, Customs held that work performed on existing ladders, furniture modifications, and painting parts of the vessel other than the parts affected by the addition of the cranes were dutiable under 19 U.S.C. 1466.

Ruling 106768 dated June 19, 1984 dealt with the replacement of synthetic mooring lines for the wire rope lines. Customs held that the work on the winches to accommodate the new synthetic lines was not subject to duty under 19 U.S.C. 1466. The evidence in that ruling consisted of the yard's invoice and the vessel's job order. The job order called for the modification of the fore and aft tension winches and the fairlead blocks to allow use of the synthetic line. The invoice shows that the yard did the work in one day. There is nothing in the invoice to show any restorative work. The only machinery work performed was to accommodate the synthetic line. The total cost there was nearly one-third of the total cost involved here.

In this case, the letter of the captain merely states that the existing lines were still usable. The letter does not discuss the reasons for the need to overhaul the existing chock rollers to replace material lost through corrosion or the work described on the invoice as the repair of one fairlead and two standard chocks. The case of Admiral Oriental Line v. U.S., T.D. 45453 (Cust. Ct. 1932) does not support the applicant's position in that, in Admiral Oriental, there was undisputed testimony to the effect that there was no existing defect to the generator house. Here, the invoice describes work done to cure existing defects: building up corroded areas, grinding smooth sharp areas, painting damaged coating around the chock foundations, and repairing a fairlead and chocks.

Maintenance painting to prevent deterioration and to maintain appearance was held by the court in Admiral Oriental Line v. U.S., T.D. 43585 (Cust. Ct. 1929) to be dutiable under 19 U.S.C. 1466. U.S. v. Admiral Oriental Line, 18 CCPA 137 (1930) and C.S.D. 79-278 do not appear to be directly on point except for the general proposition that work performed to modify a vessel is not within the scope of 19 U.S.C. 1466.

Customs has held (C.S.D. 79-278) that the work done to accommodate new types of mooring lines is a modification outside of the scope of 19 U.S.C. 1466 when there is no evidence of repair work. Here, as noted, the evidence of the invoice shows repair work. Also, the cost of the work in this case is almost three times greater than the cost of the work in C.S.D. 79-278.

Customs has held that if dutiable and nondutiable charges are segregated or separately itemized, Customs will allow the nondutiable portions. See CIE 1325/58, CIE 565/55 and C.S.D. 79-277.

Consequently, the separately itemized charges for removal of the old wire (item 408.1 as amended by item 408.50), connecting the new line to the winches (item 408.20, the addition of the stern line rub bar (additional item 408.01), the addition of greasing tubes (additional item 408.02) and the enlargement of the holes in the winch drums to accept the new lines (additional item 408-3) should be allowed.

The work described as repair in item 408.3 and the repair work in additional item 408.04 is dutiable as a repair based on the foregoing analysis.

Item 424 - IGS deck isolation and mast riser valve. In its Explanatory Notes, the applicant states: "The IGS valves were previously manually operated...By modifying the valves for remote control, operating efficiency and control was greatly improved. The VPI readout is now available on the console in the cargo control room. This is a permanently installed modification...and is not a replacement of new for old." The invoice indicates that this item includes the retrofitting of an owner-furnished hydraulic actuator in place of the existing manual actuator, and related tubing and valve position indicator work with respect to the desk isolation valve and the mast riser valve.

There is insufficient evidence to support the allegation of the application that this item is nondutiable. We note that there is no statement or affidavit of the master with respect to this item. The work described appears to be within the scope of dutiable repairs and support for a contrary determination has not been documented. See the excerpts on page three of this ruling from Bar Bea Truck Leasing Co., Inc. v. U.S. and Admiral Oriental Line v. U.S. Therefore, we find that it is dutiable. The case of Admiral Oriental Line v. U.S., T.D. 45453 (Cust. Ct. 1932) does not support the applicant's position in that, in Admiral Oriental, there was undisputed testimony to the effect that there was no existing defect to the generator house. Here, there is no undisputed testimony. U.S. v. Admiral Oriental Line, 18 CCPA 137 (1930) and C.S.D. 79-278 do not appear to be directly on point except for the general proposition that work performed to modify a vessel is not within the scope of 19 U.S.C. 1466.

Item 433 - IGS Scrubber. In its Explanatory Notes, the applicant states: "The prior scrubber performance was inferior in comparison with the improved design of the modification scrubber...This is a permanently installed modification, installed to improve the efficiency of vessel operation..." The first two sheets of the invoices for this item clearly reflect repairs ("IGS Scrubber Repairs" is the heading for these sheets and the work described reflects repairs); these items are dutiable and are so reflected on the applicant's speadsheet. The next two sheets (pp. 484-485) contain the heading "IGS Scrubber Modification." These sheets are superseded by the following two sheets (pp. 486-487), which are headed "CHG' 433A. 01 I.G. Scrubber Mod. (W/A 150)," and which indicate that the work on pp. 484-485 is cancelled and that the item is revised. The revised item includes removing and disposing of filter beds, spray pipes, and water supply lines; installing a sheet liner; fabricating a quenching spool; bending a pipe; welding; cleaning; installing grating and packing; fabricating new spray manifolds; and connecting the sea water supply. The final sheet of this invoice, which is headed "433B IGS Recirc, Modification" (p. 488), includes removing the recirculating piping from the circulation valve to the scrubber; installing a blank flange; and prefabricating new piping.

There is insufficient evidence to support the allegation of the application that this item is nondutiable. We note that there is no statement or affidavit of the master with respect to this item. The work described appears to be within the scope of dutiable repairs and support for a contrary determination has not been documented. See the excerpts on page three of this ruling from Bar Bea Truck Leasing Co., Inc. v. U.S. and Admiral Oriental Line v. U.S. Therefore, we find that it is dutiable. The case of Admiral Oriental Line v. U.S., T.D. 45453 (Cust. Ct. 1932) does not support the applicant's position in that, in Admiral Oriental, there was undisputed testimony to the effect that there was no existing defect to the generator house. Here, there is no undisputed testimony. U.S. v. Admiral Oriental Line, 18 CCPA 137 (1930) and C.S.D. 79-278 do not appear to be directly on point except for the general proposition that work performed to modify a vessel is not within the scope of 19 U.S.C. 1466.

Item 450 - power water line maintenance. In its Explanatory Notes, the applicant states: "This was not a repair. It involved a 180 degree roll-over of the piping to insure uniform life." The invoice, as well as the applicant's statement, reflects that this item is a maintenance item. Maintenance items are dutiable pursuant to 19 U.S.C. 1466. In Ruling 111571 dated March 4, 1992, we stated, in pertinent part:

The dutiability of maintenance operations has undergone considerable judicial scrutiny. The United States Court of Customs and Patent Appeals, in ruling that the term repair as used in the vessel repair statute includes "maintenance painting," gave seminal recognition to the dutiability of maintenance operations. E.E. Kelly & Co. v. United States, 55 Treas. Dec. 596, T.D. 43322 (C.C.P.A. 1929).

Accordingly, this item is dutiable.

HOLDING:

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

Sincerely,

William G. Rosoff
Chief,
Entry and Carrier Rulings Branch

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