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HQ 115699





August 30, 2002

VES-3-12-IT:EC:RR LLO

CATEGORY: CARRIER

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

RE: Application for Relief; Entry No. C20-0058535-9 M/V PRESIDENT TRUMAN; V-140; 19 C.F.R. 4.14, 19 U.S.C. 1466; Modification

Dear Sir:

We received your memorandum dated May 28, 2002, requesting we advise your office as to whether the work covered by invoiced item 5 constitutes a modification of the vessel. Our ruling on this matter is set forth below.

FACTS:

The M/V PRESIDENT TRUMAN, a United States-fag vessel operated by Patriot Holdings, LLC of Walnut Creek, California arrived at the port of Los Angeles, California on September 16, 2001. The date of entry was September 25, 2001.

According to the vessel repair entry and other documents in the file, the vessel underwent work in China. An application for relief has been timely filed. This particular application is requesting relief regarding the dutiability of several items, including invoiced item 5.

ISSUE:

Whether the work covered by item 5 performed at a foreign shipyard aboard the subject vessel is dutiable pursuant to 19 U.S.C. 1466 or constitutes a non-dutiable modification.

LAW AND ANALYSIS:

Title 19 of the U.S. Code, section 1466 (19 U.S.C. 1466), provides in pertinent part for 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 expenses of repairs made in a foreign country upon a vessel documented under the laws of the U.S.”

In regard to the applicant’s claim that the work covered by item 5 constitutes a non-dutiable modification, 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 determinitive, 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 modification of a vessel which is non-dutiable under 19 U.S.C. §1466.

Patriot Holdings, LLC contends in its application that the reefer capacity enhancement covered by item 5 that it deems a modification as opposed to a repair, should be duty free. In considering whether an operation has resulted in modification, which is not subject to duty, the following elements must be considered:

-whether there is a permanent incorporation into the hull or superstructure of a vessel; -whether the item under consideration would remain aboard a vessel during an extended lay-up; -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; -whether an item under consideration provides an improvement or enhancement in operation or efficiency of the vessel.

The application for relief claims that the reefer capacity enhancement represents a modification to increase the cargo capacity for refrigerated containers on deck by removing 220-volt transformers and replacing them with 440-volt transformers, thereby allowing greater flexibility or types of refrigerated containers carried, which increases the overall reefer capacity of the vessel and allows greater competition and efficiency.

In regard to the first factor listed above the facts indicate that there was more than one 220-volt transformer removed in order to enhance the reefer capacity. However, none of the documents submitted by the applicant demonstrate that the subject transformers were permanently incorporated into the hull or superstructure of the vessel.

The second factor typically taken into consideration in distinguishing between modification and repair is whether the item would remain aboard a vessel during an extended lay-up. The application contains no evidence to that effect. Without some documentation or other evidence to show otherwise, the transformers, based upon the facts submitted are assumed portable as opposed to permanently attached to the superstructure of the vessel.

The third factor to be considered in deciding whether or not an operation has resulted in a modification, is an examination of whether, if not a first time installation, an item under consideration replaces a current part or structure that is not in good working order. The facts indicate that 220-volt transformers were replaced with 440-volt transformers. The facts do not indicate that the 220-volt transformers were broken, or in poor working order, only that they were replaced with 440-volt transformers which allow for greater flexibility in the types of refrigerated containers to be carried, thereby increasing the reefer capacity of the vessel. Since there is no indication that the 220-volt transformers were broken or in poor working order, but were merely replaced by higher voltage transformers, there is an implication that enhancement was the primary motivation behind the operation rather than repairs necessitating the operation.

The final factor to consider in discerning modification from repair is whether an item under consideration provides an improvement or enhancement in operation or efficiency of the vessel. As indicated in the immediately preceding analysis for the third factor, the higher voltage transformers that are replacing the old 220-volt transformers have led to an increase in the reefer capacity by allowing for a more varied array of refrigerated containers to be carried by the vessel. The added capability of the vessel to carry an increased variety of refrigerated containers has helped to improve and enhance the operation of the vessel.

The last two factors that are used to help discern between a modification and a repair indicated that the transformer replacement constituted a modification as opposed to a repair. However, the implication of the first two considerations is that the transformers are not permanently attached to the hull or superstructure of the vessel, and that the transformers are portable based upon the information provided. No documentation was submitted to demonstrate that the transformers were in fact permanently incorporated into the hull of the vessel or that these transformers were not portable.

HOLDING:

Following a thorough review of the facts in this case as well as an analysis of the law and applicable precedents that bear upon those facts, we have determined that the work covered by item 5 does not constitute a modification and is therefore dutiable.

Sincerely,

Glen E. Vereb
Acting Chief

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