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HQ 116627

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March 16, 2006

VES-3-18-RR:BSTC:CCI 116627 GOB

CATEGORY: CARRIER

Sharon Steele Doyle, Esq.
Givens & Johnston, PLLC
950 Echo Lane
Suite 360
Houston, Texas 77024-2788

RE: 19 U.S.C. §1466; Vessel Repair

Dear Ms. Doyle:

This is in response to your ruling request of March 13, 2006 on behalf of Matson Navigation Company (“Matson”), the operator of the MAHIMAHI, the vessel at issue. Our ruling follows.

FACTS:

You state in pertinent part as follows:

The purpose of this request is to determine if certain proposed work will be classified as modifications of the hull and fittings of the U.S. flag vessel, the MAHIMAHI. The proposed work modifies the design of the vessel’s waste heat boiler system to increase the steam production for the vessel and thus improve the overall operation of the vessel.

The design of the existing boiler on the MAHIMAHI is over 20 years old and there have been advances in boiler design since its installation. . . .
The new boiler design that is proposed for the MAHIMAHI would improve the operation of the vessel by addressing and altering [the current] features. The design of the proposed new boiler is comprised of a number of rows of finned tubes with water and steam circulating inside and exhaust gas heating the outside surfaces. These tubes are housed in a large insulated casing which is supported by the ship’s structure. The physical outline of the boiler is rather large (19 ft wide, 10 ft deep, 17 ft tall) and the dry weight of a new boiler is in the order of about 80 tons. Waste heat boilers are custom built to a customer’s specifications. The new boiler design would provide safer operation with the elimination of the pre-heater section, the addition of heating coils in the steam drum such that the boiler does not cool down in port, and, the addition of a fixed system for fire fighting with fixed water washing and fire fighting nozzles, among other enhancements. These design changes would provide for safer and more efficient operation of the vessel. The new waste heat boiler would be an integral part of the main engine exhaust gas system. This type of waste heat boiler can not function as a stand alone unit and it requires the main engine to be operating to produce steam.

The Proposed Modifications would require: - Removal of the original Waste Heat Boiler System - Fabrication & installation of boiler lower transition piece - Fabrication & installation of new boiler foundations - Installation of new steam drum foundation & steam drum Installation of the new exhaust gas boiler Fabrication & installation of new boiler upper transition piece Pipe & valve connections – new boiler & steam drum to existing lines Circulating pump and new foundations installation with related pumps, valves, piping runs, supports and insulation New exhaust gas boiler electrical control & instrumentation with related wiring runs Intrafone sonic cleaner installation with related cables, valves and control box Hydrostatic pressure testing after installation[.]

ISSUE:

Whether the cost of the above-described work is dutiable under 19 U.S.C. § 1466.

LAW AND ANALYSIS:

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, and equipment purchased in a foreign country for, 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.

In its application of the vessel repair statute, Customs and Border Protection (“CBP”) has held that modifications, alterations, or additions to the hull of a vessel are not subject to vessel repair duties. The identification of work constituting modifications vis-a-vis work constituting repairs has evolved from judicial and administrative precedent. In considering whether an operation has resulted in a nondutiable modification, the following factors have been considered. These factors 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:

1. Whether there is a permanent incorporation into the hull or superstructure of a vessel, either in a structural sense or as demonstrated by means of attachment so as to be indicative of a permanent incorporation. See United States v. Admiral Oriental Line, 18 C.C.P.A. 137 (1930). However, we note that a permanent incorporation or attachment does not necessarily involve a modification; it may involve a dutiable repair or dutiable equipment.

Whether in all likelihood an item would remain aboard a vessel during an extended lay-up.

3. Whether an item constitutes a new design feature and does not merely replace a part, fitting, or structure that is performing a similar function.

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

You state that “the design of the existing boiler on the MAHIMAHI is over 20 years old and there have been advances in boiler design since its installation.” We note that you have not stated whether the existing boiler is in good operating condition.

We find that the proposed installation of a new waste heat boiler system constitutes a modification to the vessel which is not dutiable under 19 U.S.C. § 1466(a), provided that the current boiler system is in good operating condition. Documentation to this effect should be provided with the vessel repair entry.

HOLDING:

The proposed installation of a new waste heat boiler system constitutes a modification to the vessel which is not dutiable under 19 U.S.C. § 1466(a), provided that the current boiler system is in good operating condition. Documentation to this effect should be provided with the vessel repair entry.

We emphasize that this ruling is merely advisory in nature and does not eliminate the requirement to declare work performed abroad at the vessel's first United States port of arrival, nor does it eliminate the requirement to file the vessel repair entry showing this work (see section 4.14, CBP Regulations (19 CFR § 4.14). Furthermore, any final determination on this matter is contingent on CBP’s review of the evidence submitted pursuant to section 4.14, CBP Regulations (19 CFR § 4.14).

Sincerely,

Glen E. Vereb
Chief

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