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HQ 116589

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January 6, 2006

VES-3-18-RR:IT:EC 116589 GOB

CATEGORY: CARRIER

Chief, Vessel Repair Unit
U.S. Customs and Border Protection
Louis Armstrong International Airport
900 Airline Highway
Room W-103-400
Kenner, LA 70062

RE: 19 U.S.C. §1466; Vessel Repair Entry AYW-0467091-1; Protest 2002-05-100958

Dear Sir:

This is in response to your memorandum of December 21, 2005, forwarding for our review the protest filed by E-Ships, Inc. (“protestant”) with respect to Vessel Repair Entry AYW-0467091-1. Our ruling follows.

FACTS:

The ENTERPRISE (the “vessel”), a U.S.-flag vessel owned by the protestant, incurred foreign shipyard costs. The vessel arrived in the port of Newark, New Jersey on September 20, 2004. A vessel repair entry was filed.

ISSUE:

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

LAW AND ANALYSIS:

Initially, we note that the information in the file indicates that the protest, with application for further review, was timely filed under the statutory and regulatory provisions for protests. 19 U.S.C. 1514(c)(3) and 19 CFR 174.12(e).

Title 19, United States Code, section 1466 (19 U.S.C. §1466) provides for the payment of duty at a rate of fifty percent ad valorem on the cost of foreign repairs to vessels documented under the laws of the United States to engage in foreign or coastwise trade, or vessels intended to be employed in such trade.

The protestant asks for relief with respect to the following items on Malta Shipyards invoice #10929: 1. items 100, 2a and 2b – “grit blasting and hull painting (tin-free coating application)”; 2. and items 500 (tailshaft examination) and 501 (rudder, pintle and stock examination).

Grit Blasting and Hull Painting (Tin-Free Coating Application)

An issue very similar to this issue was examined in HQ 115763 dated September 30, 2002, wherein we stated:

As noted above, the applicant contends that these two items collectively constitute a modification to the subject vessel. The basis for this contention is that these items involve the application of “tin free” paint which is stated to be “an upgrade in terms of its favorable impact on the environment” and “is required to meet federal mandate.”

Notwithstanding the omission of a citation to the “federal mandate” to which the applicant refers, any such “mandate” is not recognized by the above-referenced judicial and administrative precedents as a determinative factor in assessing a modification claim. Furthermore, it should be noted that Customs has long-held “maintenance painting” to be a dutiable operation within the meaning of the vessel repair statute. (See E.E. Kelly & Co. v. United States, 55 Treas. Dec. 596, T.D. 43322 (CCPA 1929).) In regard to the documentation submitted with the application under review, it is devoid of any indicia that the two work items in question constitute other than “maintenance painting.” The fact that the “tin free” paint applied may have been an upgrade from the paint it replaced on the vessel, in and of itself, is of no moment in this case. Duty-free treatment pursuant to a modification claim is accorded when permanent additions enhance the operating efficiency of a vessel and, in cases such as this which do not involve a first time installation, replace a structure that was in good working order. (See Customs ruling letter 112779, dated July 26, 1993.) The documentation submitted by the applicant does not establish that the newly-applied “tin free” paint was replacing paint that was in other than a deteriorated condition.

Accordingly, Items 10 and 19 for which our review is sought do not constitute modifications and remain dutiable.

The protestant in this case states that the large majority of the surface area which was treated was not in a deteriorated condition and thus the work with respect to the non-deteriorated area constitutes a nondutiable modification.

After careful consideration, we find that this item is dutiable under the vessel repair statute. Our finding is consistent with HQ 115763, excerpted above. Further, our finding is generally consistent with our position with respect to work that has been, or resembled, a maintenance operation. For example, in HQ 114203 dated October 13, 1998, where we held that certain painting was dutiable, we stated:

We affirm our earlier finding that item 413 is dutiable under 19 U.S.C. 1466. The invoice clearly reflects dutiable vessel repair work which goes well beyond mere "ornamental" painting.

This position is supported by H.C. Gibbs v. United States, 28 Cust. Ct. 318, C.D. 1430 (1952), aff'd 41 C.C.P.A. 57, C.A.D. 529 (1953), where the court stated:

Relative to painting the hull of the vessel black between the decks and repainting the ship's name thereon, as well as the expenses of cartage of materials and labor, this court is of the opinion that the cost thereof is properly dutiable under the provisions of section 466 as "repairs." Although it is contended that the painting in question is strictly ornamental and in no sense performed for the preservation of the vessel and, therefore, cannot be considered "maintenance painting," it remains a fact that, irrespective of the intention behind the act, the painting of the ship black in order to present a better appearance to the public had the effect of restoring the old and rusted surfaces ...

We believe that the subject work is clearly more similar to a maintenance operation, which is dutiable, than to a nondutiable modification.

Tailshaft Examination; Rudder, Pintle and Stock Examination

The protestant states that these “. . . items in question had no repairs performed and were only done to satisfy American Bureau of Shipping requirements.” After a careful examination of the pertinent invoices, we conclude that these items do not involve dutiable repairs. We find that they are nondutiable.

HOLDINGS:

As detailed above: the costs for grit blasting and hull painting are dutiable; the costs of the tailshaft examination and the rudder, pintle and stock examination are nondutiable.

You are instructed to grant the protest in part and deny the protest in part.

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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