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HQ 115003

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May 9, 2000

VES-13-18-RR:IT:EC 115003 GEV

CATEGORY: CARRIER

Chief, Vessel Repair Liquidation Unit
U.S. Customs Service
423 Canal Street
New Orleans, Louisiana 70130

RE: Vessel Repair Entry No. C53-0028025-8; Modification; S/T COASTAL CORPUS CHRISTI; V-157

Dear Sir:

This is in response to your memorandum dated March 20, 2000, forwarding an application for relief from the assessment of vessel repair duties pursuant to 19 U.S.C. § 1466. Specifically, you seek our opinion as to whether a permanent incorporation into the hull and superstructure of the vessel was accomplished by the process described in the documents submitted. Our findings are set forth below.

FACTS:

The S/T COASTAL CORPUS CHRISTI is a U.S.-flag vessel owned by Coastal Tankships U.S.A., Inc. Subsequent to the completion of shipyard work in Mexico, the vessel arrived at the port of Houston, Texas, on May 29, 2000. A vessel repair entry was timely filed.

Pursuant to an authorized extension of time, an application for relief with supporting documentation was timely filed. The applicant seeks relief for a myriad of expenses incurred in Mexico. However, the focus of your inquiry is the work pertaining to the conversion of the subject vessel from a “dirty products” carrier into a “clean products” carrier. This conversion involved extensive work to the vessel’s cargo tanks, piping, valves, etc., in order for the vessel to be able to carry a different class of cargo.

In an advisory ruling predating the conversion work in question (Headquarters ruling letter 113366, dated March 13, 1995), Customs held that the work as proposed would constitute a modification to the hull and fittings of the vessel so as to render it non-dutiable under 19 U.S.C. § 1466. However, this ruling contained the caveat that it was merely advisory in nature and did not eliminate the requirement to declare work done abroad at the subject vessel’s first United States port of arrival, nor did it eliminate the requirement of filing the entry covering this work. It further provided that any final ruling on this matter is contingent on Customs review of the evidence submitted pursuant to § 4.14(d)(1), Customs Regulations (19 CFR § 4.14(d)(1); hence your memorandum requesting our review of this matter.

ISSUE:

Whether the documentation submitted substantiates the applicant’s claim that the conversion work done to the subject vessel constitutes a modification and is therefore non-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.

Upon reviewing the application and supporting documentation, it is readily apparent that the following work items listed on the shipyard invoice (Talleres Navales Golfo Shipyard “Itemized Work List/ Associated Costing”, dated September 21, 1995) evidence not only a permanent incorporation into the hull and superstructure of the vessel, but also those other criteria discussed in the above-referenced authority, and therefore constitute a non-dutiable modification: Item 32 (Cargo Valves); Item 78 (Cargo System Modification To Clean Products); and 86 (Coupling For Cargo System Modification). The remainder of the expenses contained within this vessel repair entry are subject to the scrutiny of your Vessel Repair Liquidation Unit as to their dutiability.

HOLDING:

The documentation submitted substantiates the applicant’s claim that the conversion work done to the subject vessel constitutes a modification and is therefore non-dutiable under 19 U.S.C. § 1466.

Sincerely,

Acting Chief

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