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HQ 115578

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April 8, 2002

VES-13-18-RR:IT:EC 115578 GEV

CATEGORY: CARRIER

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

RE: Protest No. 5301-01-0062701; Vessel Repair Entry No. C53- 0035021-8; OVERSEAS NEW ORLEANS; V-203; Drydocking/ General Services; Repairs; Modifications; 19 U.S.C. § 1466

Dear Sir:

This is in response to your memorandum dated December 31, 2001, forwarding for our review the above-referenced protest. Our ruling on this matter is set forth below.

FACTS:

The OVERSEAS NEW ORLEANS is a U.S.-flag vessel that incurred foreign expenditures during the period of June 13-July 2, 1999. The vessel arrived in the United States at the port of Houston, Texas, on July 19, 1999. A vessel repair entry and an application for relief from vessel repair duties were untimely filed. Consequently, by your letter of November 30, 2000, the application was denied in its entirety and the applicant was informed of its right to file a protest. The entry was subsequently forwarded for liquidation which occurred on January 5, 2001.

A protest dated March 23, 2001, with supporting documentation was timely filed seeking relief for a myriad of expenditures. Your office marked the aforementioned documentation to indicate your suggestions as to the dutiability of the costs in question, with the exception of those costs alleged to be non-dutiable modifications for which you provided no recommendation. You request our review of the record in its entirety.

ISSUE:

Whether the costs for which the protestant seeks relief are dutiable under 19 U.S.C. § 1466.

LAW AND ANALYSIS:

Title 19, United States Code, § 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..."

At the outset it should be noted that the Customs Regulations in effect at the time of this entry provided that entry of all foreign repair costs and equipment expenditures shall be made within five working days after arrival of the vessel in the United States. The vessel arrived in the United States on July 19, 1999. The Record of Vessel Foreign Repair or Equipment Purchase (CF 226) reflects receipt of the entry by Customs in Houston on October 20, 1999. In addition, we note that this date is corroborated by the protest form (CF 19), which is signed by the agent for the protestant, showing the entry date to be October 20, 1999. We will therefore consider this to be the correct entry date and note the entry was delinquent by almost three months.

Upon reviewing the record in its entirety, with the exception of the following items, we are in accord with your notations on the supporting documentation regarding the dutiable status of the costs in question which include dutiable repairs, non-dutiable work, and general services/ drydocking costs incurred in conjunction with both dutiable and nondutiable work which are to be prorated pursuant to our position set forth in Customs ruling letter 113474 and memorandum 113350. The items with which we take exception regarding your recommendations are as follows: Neorion Syros Shipyard item nos. 11 (L. E.R. Access Opening – a prorated expense); and 40 (Stack Insignia – painting a new logo in place of an old one where the purpose of the painting is not restorative in any fashion is a non-dutiable painting as held in Customs ruling letter 112489, dated March 30, 1993); and Cunningham Marine Hydraulics Co. invoice no. 092930 – the cost of U.S.-resident labor is non-dutiable.

With respect to the protestant’s modification claims, we note that 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 work as described in the protestant’s letter in conjunction with the supporting documentation submitted in light of the above-referenced authority, it is readily apparent that all of the work items alleged by the protestant to be nondutiable modifications to the subject vessel are entitled to such treatment under the vessel repair statute. These non-dutiable modifications include the following work: Neorion Syros Shipyard item nos. 75, 76, 171 and 172.

HOLDING:

The costs for which the protestant seeks relief are dutiable in part under 19 U.S.C. § 1466 as discussed in the Law and Analysis portion of this ruling. Further, since this vessel repair entry was not filed in accordance with the time limitations prescribed by the Customs Regulations, we find ample reason to refer this matter for issuance of a prepenalty notice.

The protest is granted in part and denied in part.

In accordance with § 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with this decision must be accomplished prior to mailing this decision. Sixty days from the date of the decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the

Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Larry L. Burton

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