VES-13-18-CO:R:IT:C 111185 LLB
Chief, Technical Branch
Commercial Operations
Pacific Region
One World Trade Center
Long Beach, California 90731
RE: Vessel repair; Modification; Container carriage
modification; Repair; Compact seal; Vessel Repair Entry No.
110- 0103984-8, Vessel SEALAND INDEPENDENCE, V-124
Dear Sir:
Reference is made to your memorandum of July 13, 1990,
which forwards the Application for Relief filed by Sea-Land
Service, Inc., in regard to the above-captioned vessel repair
entry.
FACTS:
On February 18, 1990, timely entry was made concerning
various shipyard operations performed on the SEALAND INDEPENDENCE
in Asian repair facilities. Determinations regarding dutiability
have been made for all items represented in the entry and
supporting documentation with the exception of the purchase of a
seal used in connection with work on the stern tube seal, and a
change in the vessel configuration to allow for the carriage of
40-foot containers instead of 35-foot containers.
ISSUE:
Whether the purchase of a seal for use in stern tube seal
work may be considered the purchase of a consumable, and a
conversion of the vessel to allow for the carriage of cargo
containers of a larger size are considered dutiable repair items
under the vessel repair statute, or may be considered to be
duty-free operations under the statute.
LAW AND ANALYSIS:
Title 19, United States Code, section 1466(a), 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 the foreign or
coastwise trade, or vessels intended to be employed in such
trade.
In its application of the vessel repair statute (19 U.S.C.
1466), Customs has held that modifications/alterations/additions
to the hull and fittings of a vessel are not subject to vessel
repair duties. A leading case in the interpretation and
application of section 1466 is United States v. Admiral Oriental
Line et al., T.D. 44359 (1930) where the Court considered the
issue of whether steel swimming tanks installed on a U.S.-flag
vessel in a foreign port constituted equipment or repairs within
the meaning of section 1466. In holding that the installation of
these tanks did not constitute either equipment or repairs and
therefore was not dutiable, the Court in Admiral Oriental cited
earlier court decisions which define equipment, promulgations by
the Board of Naval Construction, and regulations of the Treasury
Department, as well as opinions of the Attorney General.
Accordingly, 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. Admiral Oriental,
supra., (quoting T.D. 34150, (1914)).
By defining what articles are considered to be equipment,
the authority cited above formulated criteria which distinguish
those items deemed to be modifications/alterations/additions to
the hull and fittings and therefore not dutiable under section
1466. These items include:
...those applications which are permanently
attached to the vessel, and which would
remain on board were the vessel to be laid up
for a long period... Admiral Oriental,
supra., (quoting 27 Op. Atty. Gen. 228).
It must be noted that even though an operation might under
normal circumstances be considered a permanent duty-free
modification, the benefit of such a finding is not extended to
operations which encompass the replacement of existing structures
which are in need of repair or replacement at that time. If a
permanent addition is a first-time installation, or if it
replaces an existing structure which is in good working order at
the time of its replacement and an enhancement in operating
efficiency is provided, the operation may be considered a bona
fide duty-free modification.
The courts and Customs have held (See American Viking Corp.
v. United States, C.D. 1830 (1956), and Customs Ruling Letter
104952, December 17, 1980), that the replacement of parts or
materials which are necessarily destroyed during the course of an
inspection where no repairs resulted, may be replaced without
duty consequence under section 1466. In the present matter it is
noted from the ample invoices which are supplied that the seal
which was used and which is at issue, was so used in connection
with a duty-free inspection of the stern tube seal ring (no
repairs resulted).
In the present matter, we have determined that the
modification of the cargo carrying capacity of the vessel to
accommodate 40-foot rather than 35-foot containers is a
permanent addition which does not replace existing wasted
structures. As such, the operation is a duty-free modification.
In regard to the matter of the replacement seal, there is
evidence that it was used in replacing a seal which was
necessarily destroyed in gaining access to the stern tube area.
As such, it should be considered duty-free under the previously
cited authorities.
HOLDING:
Following a full review of the facts presented in this case,
as well as an analysis of the law and applicable precedents, we
recommend that the Application for Relief presented in this
matter be granted for the reasons set forth in this document.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch