VES 13-18 CO:R:P:C 110731 BEW
Chief, Technical Branch
Pacific Region
One World Trade Center
Long Beach, California 90831
Re: Protest No. 27049 003562; Vessel Repair Entry No. C27-
0032442-2; Date of Arrival: February 9, 1988; Port of
Arrival: Long Beach, California; Vessel: SEA-LAND PACIFIC,
Voyage No. 3
Dear Sir:
Reference is made to your memorandum of December 27, 1989,
which forwarded the above-captioned protest from the assessment
of vessel repair duties for our determination.
FACTS:
Between January 10 and 28, 1988, while in Kaohsiung, R.O.C.
Taiwan, the vessel SEA-LAND PACIFIC underwent various shipyard
operations. The dutiability of these operations has previously
been considered by your office. The protestant elected not to
file an Application for Relief. The entry was liquidated on
August 18, 1989. The protest was timely filed on November 13,
1989. Included in your considerations was the matter of whether
the cost associated with the installation of a Item Nos. 7/87-2 -
Stern Tube Lube Oil Piping Modification and 7/87-4 - Sea Chest
Strainer Modification; and Item 7/87-3 - Center Box Girder
Inspection is dutiable under the statute. These are the only
items which are presently being protested.
ISSUE:
Whether the installation of the Item Nos. 7/87-2 - Stern
Tube Lube Oil Piping Modification and 7/87-4 - Sea Chest Strainer
Modification is considered a modification or permanent addition
to the hull and fittings of the vessel so as to render the cost
nondutiable.
Whether the inspection of the Center Box Girder where no
repairs are made is considered non-dutiable.
LAW AND ANALYSIS:
Section 466, Tariff Act of 1930, as amended (19 U.S.C. 1466)
provides, in pertinent part, for payment of duty in the amount of
50 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 engage in such
trade.
A leading case in the interpretation and application of
1466 is United States v. Admiral Oriental Line et al., 18
C.C.P.A. 137 (T.D. 44359 (1930)). That case distinguished
between equipment and repairs on one hand and permanent additions
to the hull and fittings on the other, the former being subject
to duty under 1466.
The Court in Admiral Oriental, supra., cited with approval
an opinion of the Attorney General (27 Op. Atty. Gen 228). That
opinion interpreted 17 of the Act of June 26, 1884 (23 Stat.
57), which allowed drawback on vessels built in the United States
for foreign account, wholly or in part of duty-paid materials.
In defining equipment of a vessel, the Attorney General found
that items which are not equipment are:
those appliances which are permanently
attached to the vessel, and which would
remain on board were the vessel to be laid up
for a long period...[and] are material[s]
used in the construction of the vessel...
While the opinion of the Attorney General interpreted a provision
of law other than 1466 or a predecessor thereto, it is
considered instructive and has long been cited in Customs Service
rulings as defining permanent additions to the hull and fittings
of a vessel.
Under long-standing and consistently applied administrative
policy, an installation, even one of a permanent nature, is
considered to be a dutiable repair rather than a modification if
the installation addresses a repair need. Thus, if an area of a
vessel is enhanced by the replacement of one permanent
installation with another, the operation is considered dutiable
if evidence reveals that a defect or wastage was present in the
former installation, which condition was cured by replacement.
In the present case, the protestant claims that the Item
Nos. 7/87-2 - Stern Tube Lube Oil Piping Modification and 7/87-4
- Sea Chest Strainer Modification is a design and operational
improvement over the old one. It is claimed that these items
were not found to be damaged at the time they were replaced and
that the permanent installation of the subject items is to
improve the efficiency of the vessel's operation and should be
properly considered a non-dutiable modification.
Examination of the entire record, including that portion of
the invoice relating to the subject items, reveals that the
subject items were installed to enhance the operation of the
vessel's efficiency and are permanent installations to the
vessel's hull and fittings. Accordingly, we find that the cost
associated with Item Nos. 7/87-2 and 7/87-4 is non-dutiable.
In Headquarters ruling 106543 JM, we held that mere cleaning
operations are not dutiable. However, cleaning operations which
remove rust and deterioration or worn parts, and which are a
necessary factor in the effective restoration of a vessel to its
former state of preservation, constitute vessel repairs (see
C.I.E. 429/61). Our review of the invoice relating to Item No.
7/87-3 - Center Box Girder Inspection and American Bureau of
Shipping Reports SF31741 and KS5535 reveals that the Center Box
Girder was inspected and found in satisfactory condition.
Accordingly, the cost associated with this item is non-dutiable.
HOLDING:
In light of our present findings based upon the evidence
and as stated in the law and analysis section of this ruling, we
find that the installation of the Item Nos. 7/87-2 - Stern Tube
Lube Oil Piping Modification and 7/87-4 - Sea Chest Strainer
Modification was in the nature of a non-dutiable permanent
modification to the hull and fittings of the vessel; and that the
worked performed on item No. 7/87-3 - Center Box Girder was an
inspection. Accordingly, the protest is allowed and
reliquidation is directed.
Sincerely,
Stuart P. Seidel
Director
Regulatory Procedures
and Penalties Division
cc: VRLU, New York
VRLU, New Orleans