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HQ 115228

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June 15, 2001

VES-13-18-RR:IT:EC 115228 RSD

CATEGORY: CARRIER

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

RE: Vessel Repair Entry No. C27 0171432-4, SEA-LAND INNOVATOR V-0004; Modification of container stowage; 19 U.S.C. 1466

Dear Sir:

This is in response to your memorandum dated November 22, 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 INNOVATOR 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 August 15, 2000. A vessel repair entry was timely filed on August 16, 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 INNOVATOR 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 INNOVATOR 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 The stacking and hinge frames were a technology developed in the 1970s and early 1980s that had become outdated and costly to utilize and maintain and were an impediment to terminal productivity.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 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 installation primarily accomplished by means of welding is a permanent incorporation into the hull or superstructure. The work performed on the vessel was designed to improve its productivity, lower operating costs and enhance its market value.

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 (H, A, B, D, 3, F, G, H, I, J, K, L, M, N, 1, 2, 3, 4, 5, 6, 7)

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 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 24-foot containers in combination with existing 40-foot container stowage. This work involved the construction and installation of eight new 40-foot hatch covers per ship contract plan 1), modification on hatch covers and pedestals for 24-foot container stowage, contract plan 2), and modification to the hatch coamings contract plan. After consideration of the record, we found that this item was non-dutiable. The work described, conversion of stowage to carry six rows of 24-foot containers in combination with the existing 40-foot 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. More recently, in Headquarters Rulings 115133 dated May 11, 2001, 115277 dated May 29, 2001, and 115182 dated May 29, 2001, we considered work performed on Sea-land’s D9J class vessels that was virtually identical to the work that was performed on the SEA-LAND INNOVATOR. The work was designed to remove stacking frames hinge frames and associated structure and modify the vessel to provide a modern system of securing containers using semi-automatic twistlocks and lashing rods. In each of these cited cases, after a review of the documentation submitted, we concluded that the work described therein constituted modifications to the vessel, which was non-dutiable under 19 U.S.C. §1466. We noted that 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. In this instance, after a review of the documentation submitted, we reach a similar conclusion regarding item number 5, that the work performed on the vessel constitutes non-dutiable modifications.

ITEM NO. 6

This item concerns supplemental stowage modifications. The invoice indicates container modification—supplemental; Lashing Platform, Outer Pedestals (12 EA); New Lashing bridges and attachments to existing vessel; prepared and painted to match existing structure. Labor and material to prepare and coat with owners paint all steel damaged by hot work where modification is performed. We find that this work constitutes a non-dutiable modification.

ITEM NO. 7

This item concerns container stowage modifications. The invoice indicates that the socket I.S.O. raised single and master M/V S/L Innovator in Transit ship spares. We find that this work constitutes a non-dutiable modification.

ITEM NO. 8

The item concerns lashing gear and portable container securing equipment. We have reviewed the invoice and find that this item constitutes a non-dutiable modification.

ITEM NO. 15

This item is labeled structural modifications to double bottom #2 and #3 and P&S. The documents submitted indicate that there was a modification of the bottom shell plate from frame 120 to frame 151. The documents submitted also indicate that the work included installation of modified continuous side girder # 5 P&SI in way of original intercostal girder. In addition there was an installation of modified continuous bottom longitudinals #8 and #9. Furthermore, modified panel stiffeners for the frames and web frames from frame 120 to frame 154 P&S were put in place. The FB panel stiffeners in way BL’s #8 & #9, P&S were renewed. Modifications to tripping brackets in line with the bilge keep P&S were also performed. Based on the information presented, we find that this item constitutes a structural modification, which is not dutiable.

ITEM NO. 21

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 were connection to a repair of the vessel and thus the cost of the survey would not be dutiable.

ITEM NO. 27

You have also asked us to evaluate whether certain expenses set forth in item no. 27 would be dutiable. These expenses were incurred for the supervision of labor, travel/hotel/meals/misc. The invoice from Kobelco Marine Engineering Co. Ltd. indicates that the expenses were incurred for supervision work conducted by its agent for modification of aft stern seal to Kobelco double compact Seal Dx-750 in M/V SEA-LAND INNOVATOR from June 24, 2000 to July 2, 2000 while it was docked at Hyundai Nipo Dockyard. In Headquarters Ruling 115133, dated May 11, 2001, we ruled that identical expenses incurred in connection with a modification rather than with repair, would not be dutiable. Again in this case, we hold that because the expenses were incurred in connection with a modification rather than a repair, the expenses would not be dutiable.

HOLDING:

As detailed above, the application for relief for the items specified is granted.

Sincerely,

Larry L. Burton
Chief
Entry Procedures and Carriers Branch


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