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HQ 114954

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July 14, 2000

VES-13-18-RR:IT:EC 114954 GEV

CATEGORY: CARRIER

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

RE: Vessel Repair Entry No. C32-0010881-0; Modification; Casualty; MATSONIA; V-810

Dear Sir:

This is in response to your memorandum dated February 8, 2000, which forwards for our consideration an application for relief from vessel repair duties assessed pursuant to 19 U.S.C. § 1466. Your office requests our review with respect to certain of the applicant’s alleged modification and casualty claims. You also seek our review of Change Order Item No. 38. Our findings are set forth below.

FACTS:

The MATSONIA is a U.S.-flag vessel owned by Matson Navigation Company which incurred foreign costs in September and October of 1999. Subsequent to the completion of the work, the vessel arrived at the Port of Honolulu, Hawaii, on October 23, 1999. A vessel repair entry was timely filed as was an application for relief with supporting documentation.

ISSUES:

1. Whether the documentation submitted substantiates the applicant’s claim that certain costs contained within the subject vessel repair entry are modifications and therefore are non-dutiable under 19 U.S.C. § 1466.

Whether the documentation submitted substantiates the applicant’s claim that certain costs contained within the subject vessel repair entry are remissible pursuant to a casualty under 19 U.S.C.

3. Whether Change Order Item No. 38 contained within the subject vessel repair entry is dutiable under 19 U.S.C. § 1466.

LAW AND ANALYSIS:

Title 19, United States Code, § 1466 (19 U.S.C. § 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”

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-à-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.

The following work items appearing on Hyundai Mipo Dockyard Co. Ltd. Invoice no. 992473 are alleged to be non-dutiable modifications:

Item Nos. 9.1-9.8: these items cover structural work stated to be accomplished pursuant to the conversion of the vessel from the initial Matson 24’ container standards to the international 40’ container standard.

Item No. 9.9: this covers the fabrication and installation of new ladders for improved platform access and is associated with the conversion of the vessel.

Item Nos. 10.1-10.3: this work was done to the ventilation system and was associated with the conversion of the vessel.

Item Nos. 11.1-11.3: this work was done to reconfigure the vessel’s piping in conjunction with the conversion of the vessel.

Item Nos. 12.0-12.7: this work covers electrical work done in conjunction with the conversion of the vessel.

With respect to the above items, our review of the record indicates that with the exception of Item No. 9.7, the documentation submitted is probative of this work meeting the modification criteria discussed above. In regard to Item No. 9.7, it is stated to have been done in order to “replace a temporary type roof that was found to be unsatisfactory under operating conditions and which resulted in cargo damage (automobiles).” It is therefore readily apparent that this item does not appear to cover a first time installation but rather is replacing a current structure which is not in good working order. It therefore constitutes a dutiable repair rather than a modification.

The applicant also alleges that the following costs are attributed to modification work and therefore are nondutiable: Additional Item Nos. 1 (American Bureau of Shipping (ABS) Modification survey no. UL 19541); and 2 (International Paint Invoice Nos. IV131281 and IV131283). Upon reviewing the aforementioned documentation, we are in accord with the applicant’s claim.

Further in regard to the applicant’s claims, it is stated that the subject vessel, while attempting to anchor at or near the entrance to the Hyundai Mipo Dockyard, Ulsan, Korea on September 5, 1999, experienced a casualty resulting in the loss of the portside anchor and 12 shots of anchor chain. The applicant seeks remission due to the alleged casualty for various costs on Hyundai Mipo Dockyard Co. Ltd. Invoice no. 992473 claimed to be associated with this loss, including Change Order Item Nos. 1, 4, 10, 13, 20, 31 and 32. Our advice is also sought with respect to Additional Item Nos. 1 (Ulsan Salvage Co., Ltd. Invoice no. USC9091302); and 7 (American Bureau of Shipping (ABS) Anchor Damage Survey Invoice No. 7620890423).

Section 1466(d)(1) provides that the Secretary of the Treasury is authorized to remit or refund such duties imposed under § 1466(a) if the owner or master of 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. It is Customs position that “port of destination” means a port in the United States. (see 19 CFR

The statute sets forth the following three-part test which must be met in order to qualify for remission under the subsection:

The establishment of a casualty occurrence.

The establishment of unsafe and unseaworthy conditions.

The inability to reach the port of destination without obtaining foreign repairs.

The term “casualty” as it is used in the statute, has been interpreted as something which, like stress of weather, comes with unexpected force or violence, such as fire, spontaneous explosion of such dimensions as to be immediately obvious to ship’s personnel, or collision (Dollar Steamship Lines, Inc. v. United States, 5 Cust.Ct. 28-29, C.D. 362 (1940)). In this sense, a “casualty” arises from an identifiable event of some sort. In the absence of evidence of such casualty event, we must consider the repair to have been necessitated by normal wear and tear (Customs ruling letter 106159, dated September 8, 1983).

With respect to the applicant’s claims, we note that the documentation submitted is indicative of the loss being attributed to other than a casualty occurrence. This is evidenced by the Master’s statement that “the brake on the port anchor failed” (Emphasis added) Furthermore, ABS Survey Report No. UL 9540-A, dated October 13, 1999, provides, in part, that “the windlass brake lining has disintegrated.” (Emphasis added) Additionally, this report states that, “The windlass drum in way of the brake was shown to have significant corrosion.” (Emphasis added)

Accordingly, the evidence submitted shows that the loss of the port anchor and chain were not attributed to a casualty occurrence but rather were due to normal wear and tear. The applicant’s casualty claim is therefore denied and the above-referenced work items associated therewith are dutiable.

Change Order Item No. 38 on Hyundai Mipo Dockyard Co. Ltd. Invoice No. 992473 states as follows: “Provide labor and materials to assist technicians with the installation of instrumentation on the rudder stock.” Although the wording “No Repairs” appears under this item, the applicant nonetheless states with respect to this work that,

This vessel has suffered a history of rudder vibration. A project has been initiated to determine the cause of this problem and to initiate corrective action. (Emphasis added)

It is therefore readily apparent that although repairs may not have been effected under this work item, this item nonetheless covers work akin to a survey done to ascertain the extent of damages sustained or whether repairs are deemed necessary. Customs has held such survey costs to be dutiable. Accordingly, Change Order Item No. 38 is dutiable.

HOLDINGS:

1. With the exception of Item 9.7, the documentation submitted substantiates the applicant’s claim that certain costs contained within the subject vessel repair entry are modifications and therefore are non-dutiable under 19 U.S.C. § 1466.

2. The documentation submitted does not substantiate the applicant’s claim that certain costs contained within the subject vessel repair entry are remissible pursuant to a casualty under 19 U.S.C. § 1466(d)(1).

3. Change Order Item No. 38 contained within the subject vessel repair entry is dutiable under 19 U.S.C. § 1466.

Sincerely,

Acting Chief

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