VES-13-18 CO:R:IT:C 111464 JBW
Chief, Technical Branch
Commercial Operations
Pacific Region
1 World Trade Center
Long Beach, CA 90831
RE: Vessel Repair; Modifications; Spare Parts; NORTHERN HERO;
Entry No. C31-0008307-1.
Dear Sir:
This letter is in response to your memorandum of December
27, 1990, which forwards for our review the application for
relief filed in conjunction with the above-referenced vessel
repair entry.
FACTS:
The record reflects that the subject vessel, the M/V
NORTHERN HERO, arrived at the port of Dutch Harbor, Alaska, on
June 9, 1990. Vessel repair entry, number C31-0008307-1, was
filed on June 15, 1990. The entry indicates that the vessel
underwent extensive foreign shipyard work to convert the vessel
from an oil rig supply vessel to a stern trawler head and gut
fish factory processing vessel. The work included the removal of
the superstructure, the lengthening of the vessel, the
construction of a new superstructure, the replacement the engine
to accommodate a different propulsion system, the installation of
a hydraulic system to operate trawl nets, and the installation of
freezing and processing areas.
ISSUE:
(1) Whether the work performed to the vessel while in a
foreign shipyard constitutes a modification to the vessel and is
therefore not subject to duty under 19 U.S.C. 1466.
(2) Whether the costs for parts used in foreign shipyard
work are dutiable 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 fifty 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.
In its application of the vessel repair statute, the
Customs Service has held that modifications, alterations, or
additions to the hull and fittings of a vessel are not subject to
vessel repair duties. Over the course of years, the
identification of work constituting modifications on the one hand
and repairs on the other has evolved from judicial and
administrative precedent. In considering whether an operation
has resulted in a modification that is not subject to duty, the
following elements may be considered:
1. Whether there is a permanent incorporation into the
hull or superstructure of a vessel (see United States
v. Admiral Oriental Line, 18 C.C.P.A. 137 (1930)),
either in a structural sense or as demonstrated by the
means of attachment so as to be indicative of the
intent to be permanently incorporated.
2. Whether in all likelihood an item under consideration
would remain aboard a vessel during an extended lay-up.
3. Whether, if not a first time installation, an item
under consideration constitutes a new design feature
and does not merely replace a part, fitting, or
structure that is performing a similar function.
4. Whether an item under consideration provides an
improvement or enhancement in operation or efficiency
of the vessel.
For purposes of section 1466, dutiable equipment has been
defined to include:
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).
In the present case, the applicant claims that certain items
contained in the Aizawa Shipping Company invoices, labelled as
"new," are non-dutiable modifications. The record shows that the
Aizawa Shipping Company managed the conversions, which actually
took place at Murakami Shipyards, Ishinomaki, Japan. The Customs
Service has 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 Aizawa invoice
descriptions do not enable us to determine conclusively that the
work performed to the vessel is not dutiable as a modification.
The invoices contain only the most general summary of the work
carried out by the shipyard. Without details provided by the
architectural plans and shipyard invoice descriptions of the work
performed, we can only speculate on the actual work carried out.
In the absence of such information, we find the costs contained
in the Aizawa invoices to be dutiable.
The applicant further seeks relief for certain supplies and
materials, contained in the Marco Marine invoices, that the
applicant claims were manufactured in the United States or
imported into the United States with duty-paid. The vessel
repair statute exempts from duty spare repair parts or materials
that have been manufactured in the United States or entered the
United States duty-paid and are used aboard a cargo vessel
engaged in foreign or coasting trade. 19 U.S.C. 1466(h). The
Customs Service interprets the use of the term cargo to limit the
exception contained in the statute 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.
Headquarters Ruling Letter 110953, dated September 19, 1990.
This interpretation excludes vessels such as factory processors
that process, store, and transport as cargo marine products, but
does not exclude those bona fide cargo vessels that may
incidentally carry that number of passengers allowed under Coast
Guard guidelines.
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 NORTHERN
HERO, at the time of arrival, was a fish factory processor and
consequently does not qualify for the exceptions contained in 19
U.S.C. 1466.
Failing qualification for the exceptions accorded to cargo
vessels, we must evaluate the petitioner's claims regarding duty
treatment of parts under the previously established statutory
rules. Customs administration of duty assessment issues under
section 1466 regarding United States manufactured materials
purchased in the United States has been guided by the terms of
Treasury Decision 75-257. T.D. 75-257, 9 Cust. B. & Dec. 576
(1975). That decision provides that when materials of United
States manufacture are purchased by the vessel owner in the
United States for installation abroad by foreign labor, the
labor cost alone is subject to duty under 19 U.S.C. 1466. Id.;
Headquarters Ruling Letter 111065, dated February 4, 1991. 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 110953, dated September
19, 1990. Absent such documentation, the material is deemed
foreign and consequently is dutiable.
We have reviewed the Marco Marine Company invoices and have
determined that the costs for materials, which are contained on
the following invoices and which are attested to be of United
States origin, are not dutiable:
336191 336956 337084 337111
337227 337283 337363 337503
337532 337641 337649
Marco Order 13998 (items 9 and 10 are dutiable)
The following Marco Marine invoices do not indicate country of
origin, and the items appearing on the invoices are dutiable:
338155 338218 338223 338345
339485
Finally, you inquire as to whether the costs for the main
propulsion gears contained in the Falk Corporation invoice are
dutiable. A letter signed by the Marine Sales Engineer of the
Falk Corporation indicates that the parts were manufactured at
the company's plant in Milwaukee, Wisconsin. The parts, being of
United States origin, are therefore not dutiable.
HOLDING:
The costs contained on the Aizawa Shipping Company invoices
for claimed modifications, absent more complete invoice
descriptions and architectural drawings of the work performed,
are dutiable under 19 U.S.C. 1466.
The vessel does not qualify as a cargo vessel under 19
U.S.C. 1466(h). Consequently, parts used in foreign repairs
must be established to be of United States manufacture to be free
from vessel repair duties. Our analysis and holdings are set
forth in the discussion above.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch