United States International Trade Commision Rulings And Harmonized Tariff Schedule

faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers

faqs.org > Rulings and Tariffs Home > Rulings By Number > 2003 HQ Rulings > HQ 116015 - HQ 229481 > HQ 116040

Previous Ruling Next Ruling
HQ 116040

---

October 3, 2003

VES-13-18-RR:IT:EC 116040 CK

CATEGORY: CARRIER

Chief, Vessel Repair Unit
Bureau of Customs and Border Protection
423 Canal Street, Room 303
New Orleans, Louisiana 70130

RE: Vessel Repair Entry No. C20-0055026-2; SS STONEWALL JACKSON; V-91; 19 U.S.C. §1466; Modification

Dear Sir:

This is in response to your memorandum dated August 13, 2003 which forwarded for our review the above-referenced vessel repair petition for review. Our ruling on this matter is set forth below.

FACTS:

The SS STONEWALL JACKSON is an U.S.-flagged vessel, owned by Waterman Steamship Corporation (“Waterman”). Subsequent to vessel repair work performed while dry-docked at Sembawang Shipyard in Singapore, the vessel arrived at the Port of New Orleans, Louisiana on September 21, 1998. A vessel repair entry and an application for relief were timely filed on January 20, 1999.

By letter dated June 2, 2003, the New Orleans Vessel Repair Unit (VRU) denied in part and granted in part the application for relief. Waterman’s claim of stern modifications was rejected due to lack of evidence. On August 1, 2003, Waterman filed a petition for review of the denial of relief for claimed modifications.

Petitioner states that the vessel underwent extensive permanent stern conversions resulting from Model Tank Testing Services carried out on various hull designs for improved hull efficiency. Petitioner states the stern conversion consisted of cutting away the previous existing stern configuration and installing a pre-fabricated hinge transom bumper and stowage system which allows for the heavy bumpers to be lifted out of the water before the vessel gets underway, reducing the drag that was created by the original bumper system that stayed immersed while underway.

In response to the VRU’s denial of relief for modifications due to the lack of evidence submitted, Waterman now states in its petition, that “the modifications were necessary to maintain enrollment status in the Maritime Security Program. The modifications are permanent to the vessel, and are in no way related to any repairs.”

Petitioner submitted a letter dated December 8, 1998 from a Port Engineer for LMS Shipmanagement, Inc. to the VRU stating that while the SS STONEWALL JACKSON was dry-docked it underwent extensive permanent stern conversions. The Port Engineer states that "the stern conversion consisted of cutting away the previous existing stern configuration (approximately 105 tons) and installing a pre-fabricated hinge transom bumper and stowage system which allows for the heavy bumpers to be lifted out of the water before the vessel gets underway, reducing the drag that was created by the original bumper system that stayed immersed while underway.

Petitioner states that conversion drawings were submitted with its letter of December 8, 1998, however, no such drawings were received by this office.

Petitioner did submit an invoice from Sembawang entitled “stern modification,” dated August 17, 1998. Included on the invoice were the lines items: blasting, painting, work was done on drains, and pipes, transom fendering modification, and work on the shell plate.

ISSUE:

Whether the work in question constitutes a modification to the subject vessel and is therefore nondutiable 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”

In its application of the vessel repair statute, U.S. Customs and Border Protection (CBP) 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 non-dutiable under 19 U.S.C. § 1466.

In considering whether an operation has resulted in a modification that is not subject to duty, the following elements may be considered.

Whether there is a permanent incorporation into the hull or superstructure of a vessel (See United States v. Admiral Oriental Line et al., supra, 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 costs 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.

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 that is not in good working order.

4. Whether an item under consideration provides an improvement or enhancement in operation or efficiency of the vessel.

In this case, the only evidence of a modification is the invoice provided from Sembawang. However, the invoice only lists items, and states “work done as specified in our supplementary quotation.” The quotations referred to in the invoice were not submitted. No diagrams or drawings detailing the alterations were submitted. Also, no evidence has been submitted that the alterations were not repairs, nor that they were not performed by necessity. While there are statements by the petitioner and the Port Engineer that the work performed on the stern were modifications rather than repairs, there is no evidence provided that supports those assertions. Absent evidence that the subject alterations meet the above-described criteria for modifications, no relief from duties pursuant to 19 U.S.C. 1466 can be granted.

HOLDING:

No evidence has been submitted that the foreign operations performed were actual modifications, therefore no relief from duties pursuant to 19 U.S.C. 1466 can be granted.

Sincerely,

Glen E. Vereb

Previous Ruling Next Ruling