HQ 115764 - Vessel Repair Entry No. C20-0060842-5; APL THAILAND; Modifications; 19 U.S.C. § 1466 - United States International Trade Commision Rulings

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HQ 115764

October 3, 2002

VES-13-18-RR:IT:EC 115764 GEV

CATEGORY: CARRIER

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

RE: Vessel Repair Entry No. C20-0060842-5; APL THAILAND; Modifications; 19 U.S.C. § 1466

Dear Sir:

This is in response to your memorandum dated July 24, 2002, which forwarded an application for relief from vessel repair duties assessed pursuant to 19 U.S.C. § 1466. You seek our advice regarding several modification claims of the applicant. Our ruling on this matter is set forth below.

FACTS:

The APL THAILAND is a U.S.-flag vessel operated by American Ship Management, LLC (ASM). Subsequent to the completion of foreign shipyard work, the vessel arrived in Los Angeles, California, on December 22, 2001. A vessel repair entry was timely filed.

An application for relief with supporting documentation was timely filed seeking relief for a myriad of costs. The work for which our review is sought includes the following spreadsheet line item numbers (SLINS): SLIN 34 (Rudder Fairwater); SLIN 35 (Air Cooler Cooling Tank); SLINs 36-41 (Hull and Structure of the Vessel – Tanks); and SLIN 42 (Bunker Line Hydro Test). The applicant claims that each of these items constitutes a non-dutiable modification to the subject vessel.

ISSUE:

Whether the documentation submitted substantiates the applicant’s claim that SLINS 34, 35, 36-41 and 42 contained within the subject entry are modifications to the subject vessel and are therefore nondutiable under 19 U.S.C. § 1466.

LAW AND ANALYSIS:

Title 19, United States Code, § 1466(a) (19 U.S.C. § 1466(a)), 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 following 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.

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 is 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

SLIN 34 covers the removal and replacement of the existing rudder fairwater with a new design fairwater which allows for greater hydrodynamic efficiency and rudder stability resulting in greater fuel conservation and enhanced operational performance. A review of the documentation submitted in support of the applicant’s claim (i.e., the shipyard invoice and the drawings attached as Exhibit H) reveals that this work constituted the replacement of an existing part of the vessel currently in good working order. Furthermore, the new rudder fairwater improves the operation and efficiency of the vessel and will remain with the vessel during an extended lay-up. Accordingly, SLIN 34 constitutes a nondutiable modification.

SLIN 35 covers the creation of an enhanced access feature to the air cooler cooling tank not in existence in the original vessel design. This new feature enables the crew to periodically inspect the tank where previously the design did not allow for inspection and any theoretical failure could only be noticed if the tank was to critically fail. A review of the documentation submitted in support of the applicant’s claim (i.e., the shipyard invoice) indicates that this work was a permanent first-time installation that improves the operation and efficiency of the vessel. Accordingly, SLIN 35 constitutes a nondutiable modification.

SLINs 36 through 41 cover work done to the hull and structure of the vessel tanks, specifically the design and installation of new lugs which are stated to have been performed “in order to test scantlings and side-shell design with focus on extending lifespan of [the] vessel.” A review of the documentation submitted in support of the applicant’s claim (i.e., the shipyard invoice and Exhibits C and G) indicates that
this work was a permanent first-time installation that improves the operation and efficiency of the vessel. Accordingly, SLINs 36 through 41 constitute a nondutiable modification.

SLIN 42 covers work done to allow for hydrotesting the vessel’s bunker lines, a feature not in existence in the vessel’s original configuration. A review of the documentation submitted in support of the applicant’s claim (i.e., the shipyard invoice) indicates that this work was a permanent first-time installation that improves the operation and efficiency of the vessel. Accordingly, SLIN 42 constitutes a nondutiable modification.

HOLDING:

The documentation submitted substantiates the applicant’s claim that Items 34, 35, 36 – 41 and 42 contained within the subject entry are modifications to the subject vessel. These items are therefore nondutiable under 19 U.S.C. § 1466.

Sincerely,

Georgina Grier

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