VES-13-18-CO:R:IT:C 111427 GEV
Chief, Technical Branch
Commercial Operations
Pacific Region
1 World Trade Center
Long Beach, California 90831
RE: Vessel Repair Entry No. C31-0008329-5; VERONICA M;
Conversion Work; U.S. Parts; U.S. Labor; 19 U.S.C. 1466
Dear Sir:
This is in response to your memorandum dated November 21,
1990, transmitting an application for relief from duties assessed
pursuant to 19 U.S.C. 1466. Our findings our set forth below.
FACTS:
The VERONICA M is a U.S.-flag vessel built in New Orleans,
Louisiana, in 1968 as an oil field supply vessel primarily used
to transport drilling mud. The vessel was documented as a
fishing vessel in April of 1987. In May of 1989 the vessel was
sold by California Diesel & Equipment, Inc. to Premium Alaska
Fishing Corporation and departed Los Angeles, California, for
Vancouver, British Columbia, Canada, for the purpose of
undergoing a conversion from an oil field supply vessel to a
vessel used exclusively as a fishery and fish packing vessel.
The record does not indicate when the subject vessel was
purchased by the current owner, Veronica M, Inc.
Subsequent to the completion of this conversion work, which
took place during the period of May, 1989, through June 23, 1990,
the vessel arrived in the United States on July 1, 1990. A
vessel repair entry was filed on July 6, 1990. An application
for relief, dated July 6, 1990, was timely filed. The applicant
claims that the conversion work performed and related costs are
nondutiable, and that various equipment purchased in the United
States and placed on board the vessel prior to its departure for
Canada was installed by members of the regular crew and U.S.
residents and therefore is also nondutiable. In support of these
claims the applicant has submitted invoices and various other
documentation.
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ISSUES:
1. Whether evidence is presented sufficient to prove that
the foreign work performed on the subject vessel for which the
applicant seeks relief constitutes modifications/alterations/
additions so as to render the work nondutiable under 19 U.S.C.
1466.
2. Whether evidence is presented sufficient to prove that
the parts and materials for which the applicant seeks relief were
purchased in the U.S., placed aboard the vessel prior to its
departure and installed by members of the regular crew and U.S.
residents thereby rendering such costs nondutiable under 19
U.S.C. 1466.
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.
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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.
The Customs and Trade Act of 1990 (Pub. L. 101-382) which
amends 19 U.S.C. 1466, exempts from duty under the statute, the
cost of spare repair parts or materials which have been
previously imported into the United States as commodities with
applicable duty paid under the Harmonized Tariff Schedule of the
United States (HTSUS). The amendment specifies that the owner or
master must provide a certification that the materials were
imported with the intent that they be installed on a cargo vessel
documented for and engaged in the foreign or coasting trade. In
view of the fact that the VERONICA M is a fisheries vessel rather
than a cargo vessel, the applicant cannot avail itself of the
benefits of this amendment.
Upon reviewing the record in its entirety, we note the
following.
What the applicant refers to as Invoice no. 1 actually
consists of seven invoices of Pacific Western Shipbuilders Co.
Ltd. It is alleged that these seven invoices cover a myriad of
work, including both materials and labor, included in the
conversion of the subject vessel. While the application itself
provides a detailed explanation of the work stated to be
performed, the invoices themselves do not. Instead, the invoices
merely state "Conversion of Veronica "M" to Fish Packer" at the
top and list itemized costs of material and labor with no
description of the work involved. This, without more, is
insufficient to prove that the these costs were in fact performed
in conjunction with nondutiable modifications/alterations/
additions to the vessel.
Accordingly, the costs listed on the Pacific Western
Shipbuilders Co. Ltd. invoices referenced by the applicant as
Invoice no. 1 are dutiable with the exception of the following:
transportation costs, and the costs of cranes and electrical
services (invoice 0022 to June 11, 1989); the costs described as
"Berth Vessel" and "Turn Vessel" (invoice 0023 to June 18, 1989);
the cost of vessel moorage (invoice 0024 to July 2, 1989); the
costs of recharging galley fire extinguishers, steam cleaning
tanks, electrical services, and a dumper truck to clean port fuel
tanks (invoice 0026 to July 7, 1989); and the cost of water and
electrical services (invoice 0028 of July 10-18, 1989.
Invoice no. 2 of the application is stated to cover all
services and labor to set up for mounting of materials to provide
the vessel with two one hundred and twenty ton refrigeration
units. The eight page invoice from Reliance Machine Works Ltd.
which comprises Invoice no. 2 merely lists materials and labor
with the statement that they were used "...in the conversion of
F.V. Veronica M from an oil rig supply vessel to a fish packer
suitable for brine packing of West Coast Salmon." We note,
however, that Invoice no. 24, also from Reliance Machine Works
Ltd., is a two page letter expounding upon this conversion work
and describes the systems installed. Accordingly, the costs
listed on Invoice nos. 2 and 24 are nondutiable with the
exception of the costs of sand sweeping the hull, supplying
zincs, and priming and painting the hull, all of which are listed
on Invoice no. 24.
Invoice no.3 from Pacific Urethane Systems Ltd. covers the
installation of urethane foam in the eight fish holds of the
subject vessel. The invoice merely lists a cost of this
material and does not substantiate the claim that these costs are
part of nondutiable conversion work. Accordingly, these costs
are dutiable.
Invoice no. 4 allegedly represents the costs charged by
Grimwood Yachts to manufacture and supply eight hatch covers, to
supply and install kiln dried wooden subsurfaces to the eight
fish tanks, to install fiberglass liner in seven fish tanks, to
remove wooden blanks from vessels decks and prepare the surfaces
of eight ballast tanks for application of the foam installation
by Pacific Urethane (see above), to supply and fasten wooden
strapping and to secure plywood subsurfaces. We note that this
alleged "invoice" consists of sixteen handwritten pages with
sporadic descriptions of the work done, none of which appear on
Grimwood Yachts' letterhead, one of which is unsigned and
undated, and the others contain a signature (or just the first
name) of an unidentified individual. These submissions are
insufficient documentation upon which to grant relief.
Accordingly, Invoice no. 4 is denied in its entirety.
Invoice no. 5 is from Steelhead Industries. Ltd, and appears
to cover labor and materials for hatch coamings, crane base
plates, air vent extensions and exhaust stack extensions. This
invoice consists of a handwritten, unsigned, undated worksheet
containing figures representing what are supposed to be the costs
of this work, and a formal invoice dated July 31, 1989, which
appears to cover somewhat related charges. As to the former, it
is insufficient documentary evidence upon which to grant relief,
as to the latter, it appears to contain unsegregated costs of
repairs. Accordingly, Invoice no. 5 is dutiable in its entirety.
Invoice nos. 6 through 13 cover charges from Rotor Electric
Ltd. Invoice nos. 8, 9, 10, and 13 cover repairs to existing
equipment which the applicant agrees are dutiable. In regard to
the remaining invoices, we note the following. Invoice nos. 6
and 7 are itemized lists of electronic materials and equipment
(including a transformer), and the installation and mounting of a
transformer bracket and switch. These costs appear to be
related to the repairs to the existing equipment listed on
Invoice nos. 8 and 13 and therefore are dutiable. Invoice 11
covers the machining of piping for what the application states is
a new brine circulation system, however, this invoice does not
refer to any specific system and in the absence of evidence to
the contrary this cost is considered to be dutiable. Invoice no.
12 covers a 25 horsepower electric motor. The application states
that this motor is needed to drive hydraulic pumps on two new
cranes. However, other than the applicant's statement to this
effect, the only other evidence to substantiate the use of this
motor is an unsigned, handwritten sentence on the invoice. This
is insufficient evidence to grant relief and therefore Invoice
no. 12 is dutiable.
Invoice no. 14 consists of two unsigned, undated,
handwritten worksheets not on company letterhead, and a one page
invoice from J & J Metal Works Ltd., dated January 17, 1990.
These three pages purportedly cover the removal of existing
hatches. While a mere removal without more would not be
considered dutiable if adequately documented, we cannot accept as
cost evidence the two handwritten pages referenced above.
Accordingly, we will grant relief only for the J & J Metal Works
Ltd., invoice dated January 17, 1990.
Invoice nos. 15-19 are from J & J Metal Works Ltd. The
application states that the work covered by these invoices
includes the following: the removal of existing ballast lines,
decking, hatches and bulkheads; the fabrication and installation
of new framework to support new refrigeration equipment; and the
addition of four eight foot eight inch steel brine lines. The
invoices, however, do not reflect these claims. Invoice no. 15
only states, "Supply men & equipment to burn piping." In
addition, Invoice nos. 16-19 all state only, "Supply men,
equipment & material." Accordingly, in view of the fact that
this documentation does not support the applicant's claims, the
costs listed on Invoices 15-19 are dutiable with the exception
of the cost of a crane on Invoice no. 16.
Invoice nos. 20 and 21 cover engineering and consulting
services all claimed to be nondutiable as part of the conversion
of the vessel. Invoice no. 20 references the conversion work
covered by Invoice nos. 2 and 24 (discussed above) and therefore
is nondutiable. Invoice no. 21 contains no description of the
charges with the exception of an unsigned, handwritten reference
to engineering and travel. This is insufficient to support a
finding that these costs are nondutiable.
Invoice no. 22 consists of one unsigned, handwritten,
worksheet not on company letterhead, and four separate invoices
from Ross Supply Ltd. allegedly for supplying parts for the
piping in the new brine system. These are merely itemized lists
with no nexus to the conversion work in question. Accordingly,
the costs listed on Invoice no. 22 are dutiable.
Invoice no. 23 references owner supplied equipment which
was stated to be placed on board the vessel in Los Angeles and
installed on the vessel in Vancouver by members of the regular
crew and/or U.S. residents hired to install the equipment. The
documentation submitted does not support this statement, nor does
it support a finding that such costs constitute nondutiable
modifications/alterations/additions. Furthermore, as previously
stated, in view of the fact that this is a cargo ship, section
1466(h) is inapplicable. Accordingly, relief as to Invoice no.
23 is denied.
HOLDINGS:
1. The evidence presented is insufficient to prove that the
foreign work performed on the subject vessel for which the
applicant seeks relief constitutes modifications/alterations/
additions so as to render the work nondutiable under 19 U.S.C.
1466 with the exception of those items discussed above.
2. The evidence presented is insufficient to prove that the
parts and materials for which the applicant seeks relief were
purchased in the U.S., placed aboard the vessel prior to its
departure and installed by members of the regular crew and U.S.
residents thereby rendering such costs nondutiable under 19
U.S.C. 1466.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch