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HQ 115148

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April 20, 20001

VES-13 18-RR:IT:EC 115148 RSD

CATEGORY: CARRIER

Port Director of Customs
Attn: Vessel Repair Liquidation Unit
423 Canal Street, Room 303
New Orleans, LA 70130-2341

RE: Vessel Repair Entry No.VR-C14-0039217-6; GENEVIEVE LYKES; (Formerly M.V. PRESIDENT ARTHUR); 19 U.S.C. 1466; Petition

Dear Sir:

This is in response to your memorandum of September 1, 2000, which forwarded the petition submitted by the American Ship Management LLC (the “petitioner”) with respect to the above-referenced vessel repair entry.

FACTS:

The American Ship Management, LLC is the vessel operating agent for the American President Lines, Ltd. (APL). According to the petitioner, APL operated the M.V. GENEVIEVE LYKES under the name M.V. PRESIDENT ARTHUR as an American flag vessel. APL operated this vessel continuously in the Far East from its date of departure from Guam on April 16, 1989 until its return to Lykes Brothers Steamship Company in Jedda on September 27, 1996. The Mitsui Engineering and Shipbuilding Company built the PRESIDENT ARTHUR in Japan and delivered it in March 1987 as the M.S. DOCTOR LYKES. APL chartered the vessel from Lykes on March 31, 1987, and renamed her the M.V. PRESIDENT ARTHUR. Accordingly, the vessel was built to a metric standard with foreign origin equipment. The foreign origin parts used in the vessel generally are not available domestically. Your memorandum indicates that the vessel entered port on October 15, 1996, at Norfolk, Virginia. The subject vessel repair entry was subsequently filed. Your office decided the application with respect to the subject entry.

ISSUE:

The dutiability of the subject costs under 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 and equipment purchased in a foreign country for 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.

Section 466(a), Tariff Act of 1930, as amended (19 U.S.C. §1466(a)) provides, in pertinent part, that:

The equipments, or any part thereof ... 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 to engage in the foreign or coasting trade, or a vessel intended to be employed in such trade, shall, on the first arrival of such vessel in any port of the United States, be liable to entry and the payment of an ad valorem duty of 50 per centum on the cost thereof in such foreign country.

This statute provides in subsection (e) (19 U.S.C. § 1466(e)), that when a vessel covered by the vessel repair statute:
arrives in a port of the United States two years or more after its last departure from a port in the United States, the duties imposed by [section 1466] shall apply only with respect to[purchases and repairs] made during the first six months after the last departure of such vessel from a port of the United States.

Accordingly, only those foreign expenditures incurred within the first six months after the last departure of the subject vessel from Guam (April 16, 1989) are subject to the provisions of the statute.

At the outset, we note that the protestant seeks relief pursuant to 19 U.S.C. § 1466(h)(3) for certain articles specified in the subject entry. This statutory provision provides relief from duty imposed by § 1466(a) for the following:

(3) the cost of spare parts necessarily installed before the first entry into the United States, but only if duty is paid under appropriate commodity classifications of the Harmonized Tariff Schedule of the United States upon first entry into the United States of each spare part purchased in, or imported from, a foreign country.

However, subsection (h)(3) referenced above was added pursuant to Pub.L. 103-465, effective for all vessel entries made on or after January 1, 1995. Since Customs has long-held that for purposes of 19 U.S.C. § 1466, duty attaches at the date foreign repairs were made and/or foreign equipment was purchased (see C.I.E. 114/49), the petitioner may not avail himself of relief pursuant to § 1466(h)(3) inasmuch as that provision was not in existence at the time the costs in question were incurred. Consequently, all the petitioner’s claims for relief pursuant to subsection 1466(h)(3) (Voyage 23-Item no.18; Voyage 24 Items-Nos. 7, 13; Voyage 25-Item No. 4; Voyage 26 Items-Nos. 11, 23, 26, 47) are denied.

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-a-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 that 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 that is nondutiable under 19 U.S.C. 1466.

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.

We note that the narrative information provided by the petitioner is extremely limited. With respect to future submissions, we advise the petitioner should submit a thorough narrative explanation with respect to the work performed. This explanation is best provided within the body of the submission, i.e., within the application, petition, or protest. The submission of invoices, blueprints, and the like is not a substitute for a thorough narrative explanation in the application, petition, or protest.

You have requested our determination on the following items:

Voyage 21

Item No. 1--Refilling Oxygen Bottles—Petitioner contends that the refilling of cutting torch oxygen bottles should receive duty-free treatment, because the oxygen is a consumable. Customs has held that consumable supplies are not dutiable unless used in effecting dutiable repairs (C.I.E.'s 1759/56 and 196/60). Generally, consumables include articles wholly consumed in their first use such as food, medicine, etc. (Customs rulings 109285,104352 and T.D. 40934). Furthermore, Customs has held that oil is a consumable (Bureau Letter dated March 7, 1951). In this particular instance, we believe whether the refilling of the oxygen bottles is dutiable depends upon the character of the tasks for which the cutting torches were used. If the cutting torches were used for a repair of the vessel, the costs of refilling the oxygen bottles would be part of costs involved in accomplishing the repairs of the vessel and thus they would be fully dutiable. However, if the cutting torches were used for a modification of the vessel rather than for a repair, then the refilling of the oxygen bottles would not have been incurred as part of a dutiable item. If the cutting torch had a mixed used for both repairs and modifications, in accordance with the Texaco decision, the amount of duty owed would be pro-rated. A review of the invoice and other information submitted does not indicate for what tasks the cutting torches were used. Accordingly without information regarding the use of the cutting torches, we conclude that the oxygen refills should be considered dutiable.

Item No. 3--Cleaning—Petitioner states that this operation was not done in preparation for a repair or consequence of a repair. The invoice indicates that the cleaning operation consisted of “engine room cleaning—namely the purifying beam and scavenging cleaning on the bilges” and other areas as directed by the chief engineer. In analyzing the dutiability of foreign vessel work, the Customs Service has consistently held that cleaning is not dutiable unless it is performed as part of, in preparation for, or in conjunction with dutiable repairs or is an integral part of the overall maintenance of the vessel. E.g., HRL 110841, dated May 29, 1990 (and cases cited therein). The Customs Service considers work performed to maintain a part in good condition in order to prevent deterioration or decay to be maintenance operations within the meaning of the term repair as used in the vessel repair statute. See generally, HRL 106543, dated February 27, 1984; C.I.E. 142/61, dated February 10, 1961. The cleaning of the engine room must have occurred relative to some process. The protestant has not established that this item is not related to dutiable repairs. We find that this item is dutiable.

Item No.8 --3CM RADAR, April 30, 1989--Petitioner claims that this was an unsuccessful repair of a unit that was serviced in Guam. Another attempt to repair the same unit was made on May 5, 1989, which was successful. The invoice for item no. 10 indicates that this is the same repair as JCF 21-101 and 21-109. Accordingly, we find that Item No. 8 will be non-dutiable, but Item No. 10 will be fully dutiable.

Voyage 22

Item No.2—Cleaning of the engine room--The invoice indicates that the cleaning operation consisted of cleaning of the salt water cooler, engine room and the house areas. We believe that the cleaning of the salt water cooler is maintenance cleaning which is dutiable. A detailed breakdown of the costs of the other cleaning is not specified on the invoice and therefore we find that they will remain fully dutiable.

Item No.6--See-through covers, camshaft and fuel pumps--Petitioner contends that this is a previously non-existent modification to permit the vessel engineers to visually monitor the main engine under operating conditions, and thus improve the efficient operation of the vessel. For purposes of section 1466, dutiable equipment has been defined as: ...portable articles necessary or appropriate for the navigation, operation, or maintenance of a vessel, but not permanently incorporated in or permanently attached to its hull or propelling machinery, and not constituting consumable supplies. (T.D. 34150 (1914)). It should be noted that the fact that a change or addition of equipment is made to conform with a new design scheme, or for the purpose of complying with the requirements of statute or code, it is not a relevant consideration. Therefore, any change accomplished solely for these reasons, and which does not constitute a permanent addition to the hull and fittings of the vessel, would be dutiable under section 1466. See HQ 110294 dated September 11, 1989. In this instance, there is no indication that the solid valve covers were not functioning properly and needed to be replaced. Rather the see-through covers were installed so that the vessel’s engine could be more effectively monitored. Accordingly, replacing the solid valve covers with see-through valve covers would constitute a permanent improvement to the propelling machinery of the vessel, which would allow it to operate more efficiently. Therefore, we find that this item constitutes a modification rather than a repair and thus would not be dutiable.

Voyage 23

Item No. 3--Chief Engineer’s Office Chair–Petitioner claims that the chair was beyond repair and required replacement and that it should be entitled to the same duty treatment as though it had been imported and then re-exported. We find that the chair is equipment and is dutiable.

Item No. 4—New Electric Hot Water Heater—Petitioner is seeking duty-free treatment for the purchase of a hot water heater because it contends that the hot water heater is a permanent previously non-existing improvement to the vessel’s operation. Petitioner indicates that the vessel as originally built provided hot water for the crew’s use from a steam heated hot water tank. Whenever the auxiliary boiler was shut down for cleaning or repairs or for any other reason there was no steam for hot water heat and no hot water. The new previously non-existent electric heat supplied hot water tank was permanently installed to eliminate this problem. We find that the installation of a new previously non-existing hot water heater constituted a permanent improvement in the operation of the vessel should be considered a modification, and therefore we find that this item should not be subject to duty.

Item No. 9—Freon—The invoice indicates that the Freon was used in connection to refrigeration maintenance and the unexplained loss of the refrigeration charge. This indicates that the Freon was used in connection with s refrigeration repair and therefore it is a fully dutiable item.

Item No. 10—Saturn 3S Satcom Repairs—Petitioner states that this was an unsuccessful repair. Upon reaching Singapore (Item No. 18) the Satcom was serviced again and the repair was successful. Accordingly, they believe that Item No. 10 should be duty-free. A review of both invoices fails to indicate that the Satcom was not properly repaired in Item No. 10. Accordingly, we find that Item 10 is dutiable.

Item No. 11—Engine Room Cleaning—The invoice indicates the pit under the main engine accumulating a considerable amount of oil due to normal leakage from the main propulsion diesel. “Bilge under auxiliary diesel accumulating dirt, foreign matter and oily liquid.” This indicates that the cleaning was maintenance cleaning which is fully dutiable.

Item No. 26—Cleaning—Petitioner claims that the vendor did not perform any repairs and that crew opened and cleaned the unit for “cleaning.” It is claimed that crew labor is non-dutiable. The invoice indicates that the cleaning operation consisted removing sea growth and other foreign matter from plates from the cooler, which was causing high engine temperatures. Hong Tah Marine Service and Engineering Co. Ltd., billed the vessel for equipment rental, meals, labor and other services. This indicates that the vessel’s crew did not provide the service and therefore, the cleaning charges, which are maintenance costs, are dutiable at 50 percent.

Item No. 27—Cleaning—The invoice indicates that there was excessive amount of oil accumulating in the bilges, purifier room, and on pump drip trays of the main engine due to normal leakage and the operation of main engine. We find that this constitutes maintenance cleaning, which is fully dutiable.

Voyage 24

Item No. 9—Cleaning—We find that this item is maintenance cleaning, which would be fully dutiable.

Item No. 10—Cleaning—We find that this item is maintenance cleaning which would be fully dutiable.

Item No. 27—Cleaning—The invoice states that the auxiliary boiler found heavily plugged with scale and ash A/C poor quality heavy fuel oil and from burning its sludge residue from the purifiers. We find that this description constitutes maintenance cleaning which is dutiable.

Voyage 25

Item No. 17—ABS Survey—This American Bureau of Shipping Survey was completed as result of repairs to the steering system. In regard to the dutiability of inspection/survey costs, we note that C.S.D. 79-277 stated that, "[i]f the survey was undertaken to meet the specific requirements of a governmental entity, classification society, insurance carrier, etc., the cost is not dutiable even if dutiable repairs were effected as a result of the survey." We also held that where an inspection or survey is conducted merely to ascertain the extent of damages sustained or whether repairs are deemed necessary, the costs are dutiable as part of the repairs which are accomplished (emphasis added). Because the survey in this case was undertaken to determine that repairs were done correctly, we find that the survey cost is dutiable.

Voyage 26

Item No. 3—Condenser Back Flush System—The petitioner states that this is a modification and not a repair. It claims that the modification consists of a new previously non-existent permanently installed completed new section of piping and valves to create a piping line for “back flushing” the condenser when the vessel gets back out to sea in clear water. The invoice indicates that the vendor provided labor, materials and equipment to “repair aux condenser cooler.” Without additional evidence to establish that there was a modification rather than a repair, we conclude that work constituted a repair and is dutiable.

Item No. 5—Clean Main Engine Saltwater Cooler—Petitioner argues that the cleaning was not done in preparation for repairs nor was any cleaning done as a consequence of repairs. The job order states that “four months have passed since last cleaning. High LT cooling water temperatures in tropical and Persian Gulf water require the coolers to be kept scrupulously clean.” This indicates that the cleaning was performed in course of routine maintenance to prevent mechanical malfunction. Accordingly, we find that this is maintenance cleaning and would be dutiable.

Item No. 36—Cleaning—The job control order form states that engine room bilges under D/G’s and purifiers accumulating oil and fuel from normal usage. Drip trays on main engine accumulating oil and fuel. Center line framing between hatch coamings accumulating debris and dirt plugging drainage opening. We find that the cleaning constitutes maintenance cleaning that is fully dutiable at 50 percent.

Voyage 27

Item No. 3—Freon—As indicated previously, we believe that Freon would not constitute a consumable and thus would be dutiable.

Item No.20—Alarms—Petitioner contends that since no gyro alarm existed, the installation of a gyro alarm is a previously non-existent permanently installed improvement and should be considered non-dutiable. Since the invoice indicates that the work was done on October 29, 1989, which was more than six months after the vessel departed on its last voyage, in accordance with 19 U.S.C. § 1466(e), the item is not dutiable.

HOLDING:

As detailed above, the petition is granted in part and denied in part.

Sincerely,

Larry L. Burton

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