VES-13-18-CO:R:P:C 111300 GV
Chief, Technical Branch
Commercial Operations
Pacific Region
1 World Trade Center
Long Beach, California 90831
RE: Vessel Repair; Entry No. C31-0005016-1; ARCO JUNEAU V-CF-
357; Cleaning; Coating; Modification
Dear Sir:
This is in response to your memorandum dated September 4,
1990, transmitting an application for relief from duties assessed
pursuant to 19 U.S.C. 1466. You request that we review seven
items contained in the above entry. Our findings are set forth
below.
FACTS:
The ARCO JUNEAU is a U.S.-flag vessel owned by Arco Marine,
Inc., of Long Beach, California. The subject vessel had shipyard
work performed on her at the Hyundai Mipo Dockyard Co., Ltd., in
Ulsan, Korea, during the period of March 19 - April 4, 1990.
Subsequent to the completion of the work the vessel arrived in
the United States in Valdez, Alaska, on April 17, 1990. A vessel
repair entry was filed on the date of arrival.
Pursuant to an authorized extension of time, an application
for relief, dated July 6, 1990, with supporting documentation was
timely filed. The applicant claims that three of the items in
question constitute nondutiable cleaning (Item 005), coating
(Item 102) and a lifeboat inspection (Item 601), respectively,
while the remainder (Items 815, 820, 821 and 904) constitute
nondutiable modifications.
ISSUE:
Whether the foreign expenses for which the applicant seeks
relief are dutiable under 19 U.S.C. 1466.
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LAW AND ANALYSIS:
Title 19, United States Code, section 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
section 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 section 1466.
The Court in Admiral Oriental, supra., cited with approval
an opinion of the Attorney General (27 Op. Atty. Gen. 288). That
opinion interpreted section 17 of the Act of June 26, 1884, (23
Stat. 57, which allowed drawback on the vessels built in the U.S.
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 section 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.
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 (1914)).
It should be noted that the fact that a change or addition
of equipment is made to conform with a new design scheme, or for
the purpose of complying with the requirements of statute or
code, is not a relevant consideration. Therefore, any change
accomplished solely for these reasons, and which does not
constitute a permanent addition to the hull and fittings to the
vessel, would be dutiable under section 1466.
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Upon reviewing the record with regard to the applicant's
claims, we note that the following four (4) items constitute
nondutiable modifications:
Item 815 - Cargo Pump Suction Strainer Drain Line
Modification
Item 820 - Cargo Stripping Pump
Item 821 - Pump Room Rigging Fittings
Item 904 - Ladder To Horizontal Girder In Wing Tanks
Item 005 has the heading "Local Cleaning In Way of Hot Work
in Tanks" and covers the removal of 50 tons of sludge and
pumping out 30 tons of oily water in areas where "hot work"
(i.e., repairs) was to be carried out. Insofar as cleaning is
concerned, Customs has long held the cost of cleaning is not
dutiable unless it is performed as part of, in preparation for,
or in conjunction with dutiable repairs (which includes
coating/painting) or is an integral part of the overall
maintenance of the vessel; see C.I.E.'s 18/48, 125/48, 910/59,
820/60, 51/61, 429/61; 569/62, 698/62; C.D. 2514; T.D.'s 45001
and 49531; and numerous Customs rulings, copies enclosed). Upon
reviewing the shipyard invoice covering the cleaning costs in
question it is clear that the cleaning in Item 005 was performed
in preparation for dutiable repairs and therefore is dutiable.
Item 102 has the heading "Surface Preparation and Hull
Coating." It is the applicant's contention that the purpose of
the anti-fouling coating (itemized separately from the other
dutiable coating costs under this item) "...is to act against
animal and plant fouling of the hull thus assisting with the
speed of the vessel as well as with fuel savings." Consequently,
the applicant claims that the anti-fouling coating is nondutiable
since it "...is not a maintenance or repair item but is instead
for the purpose of generally improving the operation of the
vessel."
In regard to coatings, Customs has held that coating with
substances which have protective and preservative qualities is
analogous to painting and therefore is dutiable (see C.I.E.'s
1203/60, 518/63 and 2045/66). Notwithstanding the applicant's
contention that these particular anti-fouling coatings (also
referred to as anti-fouling paint by the applicant, Devoe and
International Paint) are not preservative, they are
unquestionably protective in nature. Furthermore, while such
coatings may provide the benefit of fuel savings by reducing
drag, they are not permanently installed so as to constitute
nondutiable modifications/alterations/additions to the vessel.
Accordingly, the anti-fouling coatings in question remain
analogous to painting and therefore are dutiable.
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Item 601 covers a biennial U.S. Coast Guard life boat
inspection. The costs listed under this item include labor,
material and crane service to dismantle and remove two life boats
ashore to a safe location and block up on suitable chocks for
inspection. There were no repairs performed as a result of this
inspection.
Customs has held that where periodic surveys are undertaken
to meet the specific requirements of a classification society,
insurance carrier, etc., the cost of the surveys is not dutiable
even when dutiable repairs are effected as a result thereof;
however, in the liquidation process Customs should go beyond the
mere labels of "continuous" or "ongoing" before deciding whether
the item is dutiable. If an inspection or survey is conducted as
a part of an ongoing maintenance and repair program labelled
"continuous" or "ongoing" the cost is dutiable. Also, if the
survey is to ascertain the extent of damage sustained, or to
ascertain if the work is adequately completed, the costs are
dutiable as part of the repairs which are accomplished pursuant
to holdings in C.I.E. 429/61, C.S.D. 79-2, and C.S.D. 79-277.
Upon reviewing the invoices submitted it is apparent that
the costs associated with the periodic inspection listed in Item
601 are nondutiable.
HOLDING:
The foreign work for which the applicant seeks relief is
dutiable under 19 U.S.C. 1466 with the exception of those items
noted above.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch