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HQ 226960

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February 10, 1998

VES-13-18-RR:IT:EC 226960 CC

CATEGORY: CARRIER

Chief, Liquidation Branch
U.S. Customs
P.O. Box 2450
San Francisco, CA 94126

RE: Vessel Repair Entry No. C27-0147615-5; SEA-LAND PATRIOT; V-157/159; Modification; General Services/ Drydocking; Proration; Casualty; 19 U.S.C. ? 1466

Dear Sir:

This is in response to your memorandum dated May 8, 1996, which forwarded the application for relief submitted by Sea-Land Service, Inc. ("applicant"), with respect to the above-referenced vessel repair entry.

FACTS:

The SEA-LAND PATRIOT is a U.S.-flag vessel operated by Sea-Land Service, Inc. (Sea-Land). Subsequent to completion of foreign shipyard work, the vessel arrived at the port of Los Angeles, California on December 10, 1995. A vessel repair entry was filed one day after arrival.

Pursuant to an authorized extension of time, an application for relief with supporting documentation was timely filed. You have asked for our determination with respect to the following items: #7.-1, hatch corner faceplates; #5 and #6, heavy weather damage; and proration of general services and drydocking.

ISSUES:

1. Whether evidence is presented sufficient to prove that the work covered by item #7.1 constitutes modifications to the hull and fittings of the vessel so as to render the work nondutiable under 19 U.S.C. ? 1466.

2. Whether evidence is presented sufficient to prove that certain foreign repairs performed on the vessel for which relief is sought were necessary for its safety and seaworthiness thus warranting remission pursuant to 19 U.S.C. ? 1466(d)(1).

3. Whether the costs of general services and drydocking are subject to proration between dutiable and nondutiable costs.

LAW AND ANALYSIS:

Title 19, United States Code, ? 1466, provides in pertinent part for payment of duty in the amount of 50 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 engage 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. Over the course of years, the identification of modification processes has evolved from judicial and administrative precedent. In considering whether an operation has resulted in a modification that is not subject to duty, the following elements may be considered:

1. Whether there is a permanent incorporation into the hull or superstructure of a vessel (see United States v. Admiral Oriental Line, 18 C.C.P.A. 137 (1930)), either in a structural sense or as demonstrated by the means of attachment so as to be indicative of the intent to be permanently incorporated. This element should not be given undue weight in view of the fact that vessel components must often be welded or otherwise "permanently attached" to the ship because ships are subject to constant pitching and rolling. In addition, some items, the cost of which is clearly dutiable, operate with other vessel components, resulting in the need, possibly for that purpose alone, for a fixed and stable attachment to those vessel parts. It follows that a "permanent attachment" may take place that does not necessarily involve a modification to the hull and fittings.

2. Whether in all likelihood, an item under consideration would remain aboard a vessel during an extended lay-up.

3. Whether, if not a first-time installation, an item under consideration replaces a current part, fitting, or structure which is not in good working order.

4. Whether an item under consideration provides an improvement or enhancement in operation or efficiency of the vessel.

In Headquarters Ruling (HQ) 113699, dated October 29, 1996, we ruled on a similar item, a "hatch corner faceplate modification." We found the item to be dutiable since it was done essentially to repair faceplates that had been fractured, and, therefore, the third criterion listed above was not met. In this case, the description for this item includes that the hatch corners "were permanently removed from the vessel as per ABS approved modification." An ABS report for the PATRIOT, dated November 23, 1995 and revised February 15, 1996, states that for the main deck hatch corner face plates, certain plates were found to be fractured. Consequently, we find, as we did in HQ 113699, that the third criterion is not met and this item is dutiable.

19 U.S.C. ? 1466(d)(1) provides that the Secretary of the Treasury is authorized to remit or refund such duties if the owner or master or the vessel was compelled by stress of weather or other casualty to put into such foreign port to make repairs to secure the safety and seaworthiness of the vessel to enable her to reach her port of destination. The term casualty, as it is used in the statute, has been interpreted as something that, like stress of weather, comes with unexpected force or violence, such as fire, explosion, or collision. Dollar Steamship Lines, Inc. v. United States, 5 Cust. Ct. 23, 28-29, C.D. 362 (1940). In the absence of evidence of such a casualty causing event, we must consider the repair to have been necessitated by normal wear and tear. C.S.D. 89-95, 23 Cust. B. & Dec., No. 43, 4, 5 (1989).

Concerning the issue of what constitutes sufficient evidence to support a casualty claim, we stated the following in HQ 113480:

Customs has previously addressed the sufficiency of evidence in casualty claims such as this where a vessel that has been damaged foreign proceeds in a state of disrepair between two foreign locations prior to its being repaired in a foreign port, and subsequently sails to its U.S. port of destination. (See Customs Rulings 112060, dated May 21, 1992; 112061, dated June 10, 1992; 112063, dated June 8, 1992; and 112229, dated June 11, 1992)). It is Customs position as stated in the aforementioned rulings that notwithstanding any practice of verbally reporting foreign casualties to the USCG and that agency's subsequent verbal instructions, remission pursuant to 19 U.S.C. 1466(d)(1) will not be granted in the absence of documentary evidence that the casualty occurrence was timely reported to the USCG and that agency, directly or through the medium of a marine surveyor, permitted the vessel to proceed between two foreign locations in a damaged condition. The mere submission of a USCG Report of Marine Accident, Injury or Death (CG-2692), without accompanying documentation from the appropriate USCG OCMI (New York or Honolulu) authorizing the vessel to proceed in a damaged condition, will not suffice for granting remission pursuant to 19 U.S.C. ? 1466(d)(1).

The applicant has presented the following evidence in support of its claim: invoices, excerpts from the vessel's deck log, and letters from the master and the radio officer. It was stated in those letters that the vessel encountered a severe storm on November 23, 1995, which damaged the ship's satellite communication transceiver, and that repairs were required to ensure the seaworthiness and safety of the vessel. Those letters and the other evidence submitted do not constitute documentary evidence showing that the casualty was timely reported to the USCG.
There has still been no documentary evidence presented showing that the USCG authorized the vessel to proceed in a damaged condition. Absent such evidence, the applicants's casualty claim for remission of duties pursuant to 19 U.S.C. ? 1466(d)(1) must be denied.

Concerning the issue of general services and drydocking, we have previously ruled that such costs should be prorated between dutiable and nondutiable costs. See, e.g., HQ 113699, cited above, HQ 226729, dated June 7, 1996, and HQ 227063, dated October 31, 1996. Consequently, the subject costs should receive the same treatment.

HOLDINGS:

1. Evidence is not presented sufficient to prove that the work covered by item #7.1 constitutes modifications to the hull and fittings of the vessel so as to render the work nondutiable under 19 U.S.C. ? 1466.

2. Evidence is not presented sufficient to prove that certain foreign repairs performed on the subject vessel for which relief is sought were necessary for its safety and seaworthiness; therefore, remission pursuant to 19 U.S.C. ? 1466(d)(1) for items #5 and #6 is denied.

3. The costs of general services and drydocking are subject to proration between dutiable and nondutiable costs.

Sincerely,

Jerry Laderberg
Chief
Entry Procedures and Carriers

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