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HQ 114972

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March 7, 2000

VES-13-18-RR:IT:EC 114972 GOB

CATEGORY: CARRIER

Port Director of Customs
Attn.: Residual Liquidation and Protest Branch, Room 761 Six World Trade Center
New York, N.Y. 10048

RE: Vessel Repair Entry No. C13-0043714-7; Petition; 19 U.S.C. 1466; M/V TELLUS; Modification to vessel

Dear Madam:

This is in response to your memorandum of February 18, 2000, which forwarded the petition submitted by Pacific-Gulf Marine, Inc. (“petitioner”) with respect to the above-referenced vessel repair entry. The vessel repair entry (CF 226) states Car Carrier, Inc. to be the owner of the subject vessel.

FACTS:

The M/V TELLUS (the “vessel”), a U.S.-flag vessel, arrived at the port of Baltimore, Maryland on July 16, 1998. The subject vessel repair entry was timely filed. The vessel underwent certain shipyard work in the Netherlands in June and July of 1998.

By letter of November 30, 1999, your office granted in part and denied in part the application for relief with respect to the subject entry.

ISSUE:

Whether the subject items are dutiable pursuant to 19 U.S.C. 1466(a)?

LAW AND ANALYSIS:

19 U.S.C. 1466(a) 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 19 U.S.C. 1466, Customs has held that (contrary to the treatment of vessel repairs and vessel equipment) modifications, alterations, and additions to the hull of a vessel are not subject to duty under the vessel repair statute. The identification of work constituting modifications vis-a-vis work constituting repairs has evolved from judicial and administrative precedent. See, for example, Otte v. U.S., 7 Ct. Cust. Appls. 166, T.D. 36489 (1916); U.S. v. Admiral Oriental Line et al., 18 C.C.P.A. 137, T.D. 44359 (1930), and Customs Bulletin and Decisions of June 18, 1997 (Vol. 31, No. 24/25, p. 23) and October 1, 1997 (Vol. 31, No. 40, p. 13). The various factors discussed within those authorities are not by themselves necessarily determinative, nor are they the only factors which may be relevant in a given case.

Reference to these and other authorities should not obscure the basic premise of 19 U.S.C. 1466 - vessel repairs performed in a foreign country and vessel equipment purchased in a foreign country are subject to duty under that statute.

The petitioner requests relief with respect to the follow items: items 701.1, 904, and 905 on Wilton-Fijenoord invoice no. 7700/80303/80304 dated October 22, 1998; U.S. spares invoice no. 6/7671/67 dated June 19, 1998; and DNV invoice no. 181-584856.

Item 701.1. Machining of #6 Cylinder Liner to Block Joint. The pertinent specification reflects the following: the removal of the pertinent cylinder cover, attached fittings, piston/rod assembly, and cylinder liner; the provision of assistance to service technicians who grind the block and “machine a new groove in block to liner seating surface on block to accept owner supplied O-ring;” and the stripping of cylinder covers of valves and the remachining of sealing surfaces. The pertinent invoice reflects “[w]ork as specified ”

The petitioner asserts that this work “is related to properly performing modification of the engine block to accept an O-ring not previously designed into this engine.” It states that “[t]his modification of the engine block was undertaken as the result of a suggestion by the engine manufacturer, MAN B&W, in order to allow for better sealing between the liner and block, which in turn promotes more efficient engine operation and reduces downline maintenance costs by prolonging the life of the cylinder liner.”

We find that this item is a nondutiable modification to the vessel. The documentation of record appears to be consistent with a nondutiable modification and that documentation contains no indication of repairs.

Item 904. Modification to SSDG Salt Water Piping and Item 905 Modification to Atmos. Condenser Cooling Water Piping. The pertinent invoices provide as follows:

Modification of salt water supply and return piping of all three ships diesel generators by installing six (6) new owner furnished butterfly valves, as specified.

Modification of SW supply and overboard piping to the atmospheric condensor by installing two (2) owner furnished BF-valves in same lines, as specified.

The petitioner states that:

In both cases modification of the vessel’s salt water piping was undertaken to accept block valves not previously designed or fitted into the salt water piping system. These piping modifications were undertaken at the request of the vessel’s Chief Engineer in order to provide for better isolation of the respective machinery components (i.e., three auxiliary diesel engines and the atmospheric condenser).

The specifications are consistent with the invoices and the petitioner’s statements. In support of its claim, the petitioner has submitted a copy of the vessel’s salt water piping drawing.

We find that items 904 and 905 are nondutiable modifications to the vessel. The documentation of record appears to be consistent with a nondutiable modification and that documentation contains no indication of repairs. The butterfly valves purchased in the United States are nondutiable.

DNV invoice no. 181-584856 – numerous surveys. The petitioner states:
with the exception of the Damage Repair Survey, which has been separately itemized on the invoice, the items for which relief has been requested were for surveys necessary for the continuation and renewal of classification of the vessel with DNV.

The petitioner has submitted a letter of December 14, 1999 from DNV which supports its statement.

We find that surveys on this invoice (with the exception of the Damage Repair Survey, which the petitioner recognizes as dutiable) are nondutiable because they are periodic classification surveys which are unrelated to repairs.

HOLDING:

As detailed above, the petition is granted.

Sincerely,

Acting Chief,
Entry Procedures and Carriers Branch

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