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HQ 115182

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May 29, 2001

VES-13-18-RR:IT:EC 115182 RSD

CATEGORY: CARRIER

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

RE: Vessel Repair Entry No. C27-0171446-4, SEA-LAND DEVELOPER V-0002; Modification of container stowage; 19 U.S.C. 1466,

Dear Sir:

This is in response to your memorandum dated October 6, 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 modifications of the vessel. Our findings are set forth below.

FACTS:

SEA-LAND DEVELOPER is a U.S.-flag vessel owned by U.S. Ship Management, Inc. which incurred costs at foreign shipyards. Subsequent to the completion of the work, the vessel arrived at the port of Long Beach, California, on June 20, 2000. A vessel repair entry was filed on September 12, 2000, as was an application for relief with supporting documentation. The entry contains many alleged modifications, which are marked on spreadsheets. We have been asked to review several of these alleged modifications.

According to the applicant, SEA-LAND DEVOLPER is a D9J class vessel which means that it is a fully cellularized container vessel having 14 hatch groups for carrying containers above and below deck plus a container stowage group over the aft mooring station. Previously, the SEA-LAND DEVOLPER utilized a system of portable stacking frames on hatches 1 to 7 and 9 to 12 and a system of permanently attached hinged frames for hatches 7A, 7B and 8. The portable stacking frames were truss type frames, which were four containers wide that were placed on top of each tier of containers on deck to secure the containers. The frames were fixed by pins at either end and secured by jaws attached to the fixed buttress towers installed between each hatch group. The stacking and hinge frames were a technology developed in the 1970s and early 1980s that had become outdated and costly to utilize and maintain and were an impediment to terminal productivity.

USSM removed the stacking frames, hinge frames and the associated structure to provide a modern system of securing containers, using semi-automatic twistlocks and lashing rods. In addition, for hatches 7A through 10, parts of existing hinge frame towers and buttress towers were used to create lashing bridges at the top of the first tier of containers on deck. A lashing bridge is a horizontal beam and walkway, which is used for securing the lashing rods connected to the containers. The lashing bridges provide a more effective lashing than lashing to the hatch cover, and allow a loaded fifth tier of containers to be carried on these hatches. Other hatches will have conventional lashing to the hatch covers.

In addition, lashing capability was added to above deck container stowage on group 13 over the aft mooring station and 20 foot stowage capability was added below deck in one to four hatches per ship depending on the existing vessel capacity. The modifications will remain on board the vessel were it to be laid up for any period of time as they are permanently incorporated or permanently attached to the vessels.

The modifications described will improve the vessel productivity; lower operating costs and enhance vessel market value. All of the work performed in connection with the container stowage modification does not include any maintenance or repair work. Any maintenance or repair work unrelated to the container stowage modifications is accounted for separately by invoice and on the spreadsheet. Furthermore, the current container stowage system is in good working order and not in a state of disrepair. The changes described constitute a new design feature for container stowage.

ISSUES:

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.

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”

ITEM No.5 (A B D E F G H I J K L 1 2 3 4 5 6 7 8 9 10 11 12)

In applying 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 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 which is non-dutiable under 19 U.S.C. § 1466. In regard to these claims, we note that in its application of the vessel repair statute, Customs has held that modifications to the hull and fittings of a vessel are not subject to vessel repair duties. 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 et al., T.D. 44359 (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 be welded or otherwise "permanently attached" to the ship as a result of constant pitching and rolling. In addition, some items, the cost of which are clearly dutiable, interact with other vessel components resulting in the need, possibly for that purpose alone, for a fixed and stable juxtaposition of vessel parts. It follows that a "permanent attachment" takes 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.

Headquarters Ruling 226968 dated May 31, 1996, concerned the conversion of deck stowage to carry six rows of 24ft containers in combination with exiting 40-ft container stowage. This work involved the construction and installation of eight new 40ft hatch covers per ship contract plan 1), and modification on hatch covers and pedestals for 24-ft container stowage, contract plan 2), and modification to the hatch coamings contract plan. After a consideration of the record, we found that this item was non-dutiable. The work described, conversion of stowage to carry six rows of 24-ft containers in combination with the existing 40ft container stowage, is the type of work which is a non-dutiable modification as opposed to a repair dutiable under 19 U.S.C. § 1466.

In this instance, after a review of the documentation submitted, we conclude that the work described therein constitutes modifications to the vessel which are non-dutiable under 19 U.S.C. §1466. The conversion or reconfiguration of a vessel to enable it to accommodate different sized containers, in the absence of repairs or a state of disrepair is typically held to be a non-dutiable modification. Therefore, these items would not be dutiable.

ITEM 6

This item relates to what is described as supplemental container modification work. The invoice provided specifies that the container modification work included the lashing platform Outer Pedestals (12EA), new lashing bridges and attachments to existing vessel, and preparation and painting to match existing structure. In addition, the invoice indicates that labor and materials to prepare and coat with owner’s paint all steel damaged by hot work where modification was performed. Based on this description, we are satisfied that this work constitutes a modification to the structure of the vessel and would not be dutiable.

ITEM 8

This item concerns work performed in the installation of lashing gear portable container equipment. Based on the invoice, we find that this work constitutes a non-dutiable modification.

ITEM 9

You have also asked us to evaluate whether a project supervisor’s expenses for his travel/hotel/meals/misc. costs incurred during the container stowage system modification would be dutiable. Because these expenses were incurred in connection with a modification rather than repair, we find that they would not be dutiable.

ITEM 10

The item involves improvements of hatch covers portable container securing equipment. The work included placing reinforcements for cover guide and position guide, relocating hatch cover staking fittings, placing a new lashing rod stowage rack, placing reinforcement for corner lashing eye plate, grating and ladders between hatches to lashing pedestals, and installing deck socket, lifting and lashing eye plate. We are satisfied that this work constitutes a non-dutiable modification.

ITEM 11

This item concerns the costs of transporting personnel who performed work on the hatch cover modifications. Because the hatch cover work appears to be a modification, the costs associated with the transportation of workers to perform the labor on the hatch cover modification would not be dutiable.

ITEM 12

This item concerns the costs for installing stacking frame scrapping. We find that this item should be considered a non-dutiable modification.

ITEM 17

This item relates to a shell plate modification. The invoice indicates that there were structural modifications to Double Bottom Tanks #2 and # 3 P&S; and modification of the bottom shell plate strake “D” (21 mm) from 250 mm aft of frame 10 to 25 mm forward of frame 15. Based on the information presented, we find that this item constitutes a structural modification, which is not dutiable.

ITEM 21

This item concerns work performed on the economizer of the vessel. The documentation submitted seems to indicate that the work performed on the economizer would constitute a repair rather than a modification. We note that there is a general statement in documentation submitted, which indicates “All work and repairs were accomplished to the satisfaction of the ABS.” Section 5.1-1-103 of the submission indicates that internal support I beams in each section of the economizer had been subject to high heat causing sagging and distortion of steel. There is also some reference to piping work for economizer heat damage. Accordingly, we believe that information presented indicates that the work on the economizer was performed because it was in need of repair, and thus such work is dutiable.

ITEM 25

This item concerns the expenses incurred for conducting vessel surveys. With respect to surveys or inspections, the general rule is that a survey undertaken to meet the specific requirements of a governmental entity, classification society, or insurance carrier is not dutiable even when dutiable repairs are effected as a result of a survey. When an inspection or survey is conducted to ascertain the extent of damage sustained or whether repairs are necessary, the surveys cost is dutiable as part of the repairs which are accomplished. In this case, we note that there is a statement from the American Bureau of Shipping that indicates that the surveys were performed in connection with a modification of the vessel. There is no indication that the surveys in item were connected to a repair of the vessel and thus the cost of the survey would not be dutiable.

ITEM 34

This item is similar to items 9 and 11 because it concerns expenses connected in the supervision of labor by an agent during the modification of aft stern seal. The expenses include costs incurred for travel/hotel/meals/misc. expenses. Because these expenses were incurred in connection with a modification rather than repair, they would not be dutiable.

ITEM 40

The final item concerns the services of technicians to work on the economizer and attend sea trials. The submission indicates that upon the start up of the economizer in normal run position, it experienced low pressures on air valves for soot blowers. In addition, later on in the submission there is an indication that the economizer was still having problems with limit switch settings and there was a recommendation to replace and to do an adjustment of all limit switches. A statement also indicates that there was a need to trouble shoot economizer run sequence which found limit switches out of sequence and timing relays out of adjustment, and after making necessary adjustment to the run controller through test operation, the test was ok. Because we believe that the work on the economizer constituted a repair, we find that this item also constitutes a repair that is fully dutiable.

HOLDING:

As detailed above, the claims under the application for relief are granted in part and denied in part as specified in this decision.

Sincerely,

Larry L. Burton
Chief
Entry Procedures and Carriers Branch


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