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HQ 116224

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November 16, 2004

VES-13-18-RR:IT:EC 116224 IDL

CATEGORY: CARRIER

Chief, Vessel Repair Unit
U.S. Customs and Border Protection
423 Canal Street
New Orleans, LA 70130

RE: Protest No. 1601-03-100498; Vessel Repair Entry No. C16-0017367-3; M/V LYKES NAVIGATOR; V-15; Proration; General Services; 19 U.S.C.

Dear Sir:

This is in response to your memorandum dated April 26, 2004, forwarding for our review the above-referenced protest of vessel repair duties assessed pursuant to 19 U.S.C. § 1466. You specifically enumerate and present for our consideration only those costs that you believe should be held dutiable. Our ruling on this matter is set forth below.

FACTS:

The M/V LYKES NAVIGATOR is a U.S.-flag vessel operated by Marine Transport Corporation (“MTC”) of Weehawken, NJ. During the voyage in question, this vessel incurred foreign shipyard costs. On August 14, 1999, subsequent to the completion of the work in question, the vessel arrived at Charleston, South Carolina. A vessel repair entry, No. C16-0017367-3, was timely filed.

On January 11, 2000, U.S. Customs and Border Protection (CBP) received an application for relief of duties. The application for relief of duties was denied in full due to insufficient evidence. On August 1, 2003, the entry was liquidated. On October 29, 2003, a protest was timely filed. MTC is protesting assessment of duties on various expenses for which your office seeks our review.

ISSUE:

Whether the vessel repair costs incurred by the protestant for which our review is sought are dutiable under 19 U.S.C. § 1466?

LAW AND ANALYSIS:

We note that the protest was timely filed under the statutory and regulatory provisions for protests, 19 U.S.C. 1514(c)(3)(A) and 19 CFR 174.12(e)(1).

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, 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. Customs 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 considering whether an operation has resulted in a modification, we must consider, among other matters, the following elements: 1) whether there is a permanent incorporation into the hull or superstructure of the vessel; 2) whether the 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 or structure that is not in good working order; and 4) whether the work under consideration provides an improvement or enhancement in operation or efficiency of the vessel.

There are three Items for which our review is sought where the protestant has sought non-dutiable treatment pursuant to a modification claim. Another two Items for our review concern costs alleged to be non-dutiable pursuant to an inspection. With respect to these Items, our comments are as follows.

Exhibit 1, Item 172, simply covers the installation of a Duplex Strainer, and provides costs for labor, material, and equipment which the protest filer claims is a non-dutiable modification to “improve permanent fittings that result in an additional safety margin”. MTC fails to elaborate on the enhancement features of the strainer. As such, it is not clear that this item is entitled to modification status, and it should, therefore, be dutiable.

Item 213, which covers work done to the Shaft Generator, provides for labor by a service engineer relating to accessing, cleaning, maintnenance, and repair of the shaft generator. MTC claims that such labor was conducted to allow for duty-free inspection by a classification society survey or the U.S. Coast Guard (USCG). There is no indication on the shipyard invoice that either a classification society or the USCG inspected the area. Therefore, this item is held to be a dutiable repair.

Item 438, labeled as Wing Tank No. 6 SB Modifications, and Item 452, labeled as Engine Room, Chloropac Unit, Piping Modification, provide for labor and material for an additional structure alleged to enhance the vessel, and correct a design deficiency without elaborating on how this was accomplished. As such, it is not clear that these items are modifications, and, as such, they should be dutiable.

Exhibit 2, Item 196, labeled as Miscellaneous Cleaning M.E. provides for labor relating to accessing and cleaning of scavenging air spaces, underside piston spaces, crankcase and bilge tank. MTC claims that such labor was conducted to allow for duty-free inspection by a classification society survey or the USCG. There is no indication on the shipyard invoice that anyone, other than the chief engineer, inspected the area after such cleaning. Furthermore, the cleaning of scavenging air spaces has long been held to be dutiable. (See ruling letter 111917, dated February 3, 1992). Consequently, this item should remain dutiable.

HOLDING:

Accordingly, the protest of the vessel repair costs for which our review is sought should be DENIED.

In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2002, pp. 18 and 21), 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 the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods
of public distribution.

Sincerely,

Glen E. Vereb
Chief

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