VES-13-18 CO:R:P:C 110953 JBW
Chief, Technical Branch
Commercial Operations
Pacific Region
1 World Trade Center
Long Beach, CA 90831
RE: Vessel Repairs; Modifications; Remission; United States
Parts; Rebate; ALASKA I; 19 U.S.C. 1466; 19 C.F.R. 4.14.
Dear Sir:
This letter is in response to your transmittal of March
26, 1990, forwarded for our review and ruling regarding the
application for relief involving the above referenced case.
FACTS:
The record reflects that the subject vessel, the ALASKA
I, arrived at Dutch Harbor, Alaska, on December 30, 1989. Vessel
repair entry number H24-0007838-0, Customs Form 226, was filed on
January 2, 1990, indicating work performed on the ship in
Ishinomaki City, Japan.
On February 26, 1990, the Fishing Company of Alaska,
Inc., by counsel, timely filed an application for relief. The
application states that the vessel was originally manufactured as
a tuna purse seiner for tropical water fishing. In 1985, the
vessel was converted into a stern trawl vessel in a United States
shipyard, and, in 1987, it had further work done in Japan to
improve its operating efficiency. Headquarters Ruling Letter
109510, dated June 15, 1988.
In December of 1989, the ALASKA I underwent further
conversions to enable the vessel to be used in the Bering Sea.
Further changes were made to protect the vessel from damages
resulting from heavy weather. Yamanishi Shipyard performed these
conversions. The applicant claims the work performed on the
vessel is not dutiable, for such work constitutes modifications,
not repairs.
While in Japan, the vessel's chief engineer and a
technician from Fraser Boiler and Diesel, Inc., both United
States residents, overhauled the main engine. The parts used
were purchased in the United States and were carried on the
vessel from the United States. The parts were declared on
Customs Form 4455, which was filed upon the vessels departure
from the United States.
Finally, the vessel owner received a rebate for certain
parts and equipment used in undisputed dutiable repairs for old
parts and equipment that were returned to the manufacturer.
Counsel contends that the amount of these rebates should be
reduced from the value of the parts used in the repairs in order
to determine the costs of these parts for duty purposes.
ISSUE:
Whether the work performed in a foreign country on the
subject vessel is dutiable under 19 U.S.C. 1466 (1988).
LAW AND ANALYSIS:
I. Alterations and Modifications to the Vessel
Title 19, United States Code, section 1466, provides
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.
The Customs Service, in its interpretation of 19 U.S.C.
1466 and in accord with the logic established in United States
v. Admiral Oriental Line, 18 C.C.P.A. 137 (1930), distinguishes
between equipment and repairs on the one hand and permanent
additions to the hull and fittings on the other. The court in
Admiral Oriental cited with approval an opinion of the Attorney
General (27 Op. Atty. Gen. 288) that defined the scope of the
term equipment in examining a statute that permitted drawback on
vessels built in the United States for foreign account, wholly or
in part of duty-paid materials. The Attorney General found that
items that 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....
Admiral Oriental, 18 C.C.P.A. at 140 (quoting the opinion of the
Attorney General).
For purposes of section 1466, dutiable equipment has
been defined as:
portable articles necessary or appropriate
for the navigation, operation, or maintenance
of a vessel, but not permanently incorporated
in or permanently attached to its hull or
propelling machinery, and not constituting
consumable supplies.
T.D. 34150, 26 Treas. Dec. 183, 184 (1914)(quoted with approval
in Admiral Oriental).
Customs has held that for an item to be characterized
as a nondutiable modification, it must encompass the installation
of an item as a new design feature, not as a replacement for, or
restoration of, parts now performing a similar function. We have
also held that the decision in each case as to whether an
installation constitutes a nondutiable addition to the hull and
fittings of the vessel depends to a great extent on the detail
and accuracy of the drawings and invoice descriptions of the
actual work performed. Even if an article is considered to be
part of the hull and fittings of a vessel, the repair of that
article, or the replacement of a worn part of the hull and
fittings, is subject to vessel repair duties.
In the present case, we find that the invoice
descriptions of the work performed to the hull, factory area,
crew quarters, and other areas of the vessel in conjunction with
the claims in the application for relief provide sufficient proof
that no repairs were made to the items claimed as modifications.
Moreover, under long-standing Customs interpretations, charges
relating to drydocking and staging are not dutiable. E.g.,
Headquarters Ruling Letter 109510, dated June 15, 1988.
II. Overhaul in Japan of Main Engine by United States Citizens
The applicant claims that the overhaul of the main
engine performed in Japan by the vessel's chief engineer and a
United States technician from Fraser Boiler and Diesel who used
parts purchased in the United States are not dutiable under 19
U.S.C. 1466(d)(2)(1988). This section provides for remission,
conditioned on the furnishing of good and sufficient evidence,
for:
such equipments or parts thereof or repair
parts or materials, were manufactured or
produced in the United States, and the labor
necessary to install such equipments or to
make such repairs was performed by residents
of the United States, or by members of the
regular crew of such vessel.
The applicant quotes from the memorandum published in
the Customs Bulletin on May 10, 1989, in which we sought to
clarify the interpretation of the Customs Service of this
section. In this memorandum, we stated:
When United States-made parts/materials are
placed aboard or installed either abroad or
on the high seas, they must have been
purchased in the United States by owner, in
addition to being installed by U.S. residents
or regular crew labor,in order to be free of
duty under 1466.
23 Cust. B. & Dec., No. 19, 15, 16 (May 10, 1989). The applicant
omits from his quotation the above underlined portion of our
statement. This omission, however, distorts the emphasis placed
by the statute and by our interpretation of the statute on the
fact that the equipments or parts must be manufactured or
produced in the United States. In contrast, parts or equipment,
whether of United States or foreign origin, may be installed free
of duty by members of the regular crew working alone. 19 U.S.C.
1466(a).
The work of the United States technician, who was not a
member of the regular crew, requires that the overhaul be
analyzed under 19 U.S.C. 1466(d)(2). The applicant submits
evidence that the parts used in the overhaul were purchased in
the United States. However, the applicant submits no evidence to
demonstrate that these parts were manufactured or produced in the
United States. Absent such evidence, the costs for the overhaul
of the engine are dutiable in full, with the exception of any
labor costs attributable to work performed by the chief engineer.
To meet the evidentiary requirement, the owner or master must
submit written documentation or other physical evidence, such as
an affidavit by the equipment manufacturer, that the equipment
was manufactured in the United States. See Headquarters Ruling
Letter 106515, dated April 4, 1984.
The Customs and Trade Act of 1990, 484E(2), Pub. L.
No. 101-382 (to be codified at 19 U.S.C. 1466(h)(2)), amended
the vessel repair statute to except from duty spare repair parts
or materials that have entered the United States duty-paid and
are used aboard a cargo vessel engaged in foreign or coasting
trade. The Customs Service interprets the use of the term cargo
to limit the exception contained in the amendment to vessels
whose sole service is the transportation of cargo and which are
actually engaged in that service while documented for the foreign
or coasting trade. The ALASKA I is a fishing and processing
vessel. The sole service of the vessel is not the
transportation of cargo. Consequently, the ALASKA I is
ineligible for the exemption from duty accorded to parts used in
repairs that have entered the United States duty-paid.
III. Rebates for Exchanged Parts and Equipment
Finally, new parts carried by the vessel from the
United States were used in the repairs performed to the vessel
other than the modifications and engine overhaul. The old parts
replaced in the repairs were exchanged, and a rebate for the
value of the old parts was credited against the cost of the new
parts. The applicant did not submit the complete invoices from
NC Machinery Co. for the parts purchased and the credits
received. From the pages received, "exchange core" was noted on
the original invoices (nos. 299326, 300295, 300296) dated in
October, 1989. At the time of these transactions, NC Machinery
granted no credit or rebate. It was not until February, 1990,
that NC Machinery (invoice no. 382596) actually granted the
rebate for the returns, and counsel's letter notes that the total
amount of the rebate is still in dispute.
The applicant acknowledges that the cost of these parts
is dutiable. The applicant claims, however, that the cost of
the parts used in the repairs should be reduced by the amount of
the rebate in order to determine the dutiable cost of those
parts. The statute assesses duty for foreign repairs based on
the costs of such repairs. 19 U.S.C. 1466(a). Liability for
the entry and payment of duties accrues at the time of first
arrival of the vessel in any port of the United States. 19
U.S.C. 1466(a); 19 C.F.R. 4.14(a)(1). The statute and the
regulations thus do not contemplate adjustments to the costs made
subsequent to the entry of the vessel. Cf. 19 C.F.R.
152.103(a)(4)(1990) (Customs regulation disallowing rebates made
after date of importation when determining transaction value for
the importation of merchandise).
The effect of the rebate was to reduce the cost
incurred by the owner for the foreign repairs. The final rebate
adjustment to the cost of the parts, however, was not fixed until
after December 30, 1989, the date liability for entry and duty
accrued. The dutiable cost of the parts is therefore the
originally invoiced price, and the cost should not be reduced by
the amount of the rebate.
HOLDING:
The work performed in Japan to modify the vessel as
described in the application is not dutiable under 19 U.S.C.
1466. Absent good and sufficient evidence to show that the
parts used were manufactured and produced in the United States,
the costs of the overhaul of the main engine reduced, by any
labor costs attributable to work performed by the chief engineer,
are dutiable. Finally, the cost of the parts purchased in the
United States and used in the dutiable repairs should not be
reduced by the amount of the rebate in order to determine the
dutiable cost of those parts.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch