VES-13-18-CO:R:IT:C 111532 GEV
Deputy Assistant Regional Commissioner
Commercial Operations
423 Canal Street
New Orleans, Louisiana 70130-2341
RE: Vessel Repair; Entry No. C20-0029778-1; GREEN HARBOUR V-32;
Modifications; Equipment; Survey; 19 U.S.C. 1466
Dear Sir:
This is in response to your memorandum dated February 21,
1991, forwarding an application for relief from duties assessed
pursuant to 19 U.S.C. 1466. You ask that we review seven (7)
items listed in the application. Our findings are set forth
below.
FACTS:
The GREEN HARBOUR is a U.S.-flag vessel owned and operated
by Central Gulf Lines, Inc., (Central Gulf) of New Orleans,
Louisiana. On July 25, 1985, Central Gulf was awarded a charter
from the Military Sealift Command (MSC) for the use of the GREEN
HARBOUR in the U.S. Military Rapid Deployment Forces at Diego
Garcia in the Indian Ocean. Pursuant to the terms of the
charter, Central Gulf was required to alter the vessel from (i) a
LASH barge-only vessel to a combination LASH barge-containership,
and (ii) from a commercial liner vessel to a military support
ship.
The shipyard work in question was performed both in Japan
and in the Philippines. The vessel was delivered to the MSC in
Subic Bay on November 13, 1985, and was accepted on charter.
Thereafter the vessel continuously operated under the charter and
did not return to the United States until its arrival at New
Orleans on September 25, 1991. A vessel repair entry was filed
on October 1, 1990.
An application for relief, dated November 20, 1990, was
timely filed. The applicant's basis for relief for the work in
question is that it constituted modifications to the vessel or
otherwise nondutiable costs.
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ISSUE:
Whether evidence is presented sufficient to prove that the
foreign work performed on the subject vessel for which the
applicant seeks relief constitutes modifications or costs that
are otherwise 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 trades.
In its application of the vessel repair statute, Customs has
held that modifications to the hull and fittings of a vessel are
not subject to vessel repair duties. Over the course of years,
the identification of modification processes has evolved from
judicial and administrative precedent. In considering whether an
operation has resulted in a modification which 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 et al., T.D. 44359 (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. This element
should not be given undue weight in view of the fact that vessel
components must be welded or otherwise "permanently attached" to
the ship as a result of constant pitching and rolling. In
addition, some items, the cost of which is clearly dutiable,
interact with other vessel components resulting in the need,
possibly for that purpose alone, for a fixed and stable
juxtaposition of vessel parts. It follows that a "permanent
attachment" takes place that does not necessarily involve a
modification to the hull and fittings.
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 replaces a current part, fitting or structure which
is not in good working order.
4. Whether an item under consideration provides an improvement
or enhancement in operation or efficiency of the vessel
Very often when considering whether an addition to the hull
and fittings took place for the purpose of 19 U.S.C. 1466, we
have considered the question from the standpoint of whether the
work involved the purchase of "equipment" for the vessel. It is
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not possible to compile a complete list of items that might be
aboard a ship that constitute its "equipment". An unavoidable
problem in that regard stems from the fact that vessels differ as
to their services. What is required equipment on a large
passenger vessel might not be required on a fish processing
vessel or offshore rig.
"Dutiable equipment" has been defined to include:
...portable articles necessary or appropriate
for the navigation, operation, or maintenance
of a vessel, by 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 Court attempted to formulate criteria to distinguish non-
dutiable items which are part of the hull and fittings of a
vessel from dutiable equipment, as defined above. These items
might be considered to include:
...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... Admiral Oriental,
supra., (quoting 27 Op. Atty. Gen. 228).
A more contemporary working definition might be that which
is used under certain circumstances by the Coast Guard; it
includes a system, accessory, component or appurtenance of a
vessel. This would include navigational, radio, safety and,
ordinarily, propulsion machinery.
In regard to the items specified for our review, we note
that the following constitute dutiable repairs and/or dutiable
work done in conjunction with such repairs rather than
nondutiable modifications:
Application Item III(G) - Paceco Aux. Beam Guide Aft
Application Item III(T) - Power Cable Replacement
- Crane Junction Boxes
- Trolley Universal Joints
- Anchor Pins
Application Item IV(F) - Boiler Inspection and
Cleaning (specifically, items
M7-2,3.,4.,5.)
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In addition, the following items constitute equipment, the
installation of which is dutiable, rather than nondutiable
modifications:
Application Item P - Installation of Laundry Equipment
Application Item S - Container Temperature Charts
(Fuji Trading Co., Ltd.)
Item III(C) of the application covers coating and painting
of the main deck, deck house, and stack house. Pursuant to
section C11.4(e)(8) of the MSC charter, coating and painting was
to be done to "All new and disturbed surfaces resulting from
modification work... The surfaces will be primed and painted to
match surroundings with a coating of the same type and color as
on adjacent surfaces." However, we note further that section C5
of the charter, entitled "Standards of Appearance", provides, in
pertinent part, that, "...the Owner and operator will institute a
continuous program of vessel maintenance. The hull, decks, and
deckhouses and all appurtenances will be cleaned and preserved as
necessary and painted as required." (emphasis added) Upon
reviewing the shipyard invoices in question, it is apparent that
the painting in question was not done in conjunction with any
modification work, but was in fact maintenance painting as
referenced in section C5 of the charter noted above. (see, for
example, Item H5-1-1 referencing "rusted areas of stack" emphasis
added). Accordingly, Item III(C) of the application is dutiable.
In regard to the dutiability of the American Bureau of
Shipping (ABS) Annual Hull Survey under consideration, we note
the following. C.S.D. 79-277 stated, "[i]f the survey was
undertaken to meet the specific requirements of a governmental
entity, classification society, insurance carrier, etc., the cost
is not dutiable even if dutiable repairs were effected as a
result of the survey."
With increasing frequency, this ruling has been utilized by
vessel owners seeking relief not only from charges appearing on
an ABS or U.S. Coast Guard invoice (the actual cost of the
inspection), but also as a rationale for granting non-dutiability
to a host of inspection-related charges appearing on a shipyard
invoice. In light of this continuing trend, we offer the
following clarification.
C.S.D. 79-277 discussed the dutiability of certain charges
incurred while the vessel underwent biennial U.S. Coast Guard and
ABS surveys. That case involved the following charges:
ITEM 29
(a) Crane open for inspection.
(b) Crane removed and taken to shop. Crane
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hob and hydraulic unit dismantled and
cleaned.
(c) Hydraulic unit checked for defects, OK.
Sundry jointings of a vessel's spare
renewed.
(d) Parts for job repaired or renewed.
(e) Parts reassembled, taken back aboard ship
and installed and tested.
In conjunction with the items listed above, we held that a
survey undertaken to meet the specific requirements of a
governmental entity, classification society, or insurance carrier
is not dutiable even when dutiable repairs are effected as a
result of the survey. We also held that where an inspection or
survey is conducted merely to ascertain the extent of damages
sustained or whether repairs are deemed necessary, the costs are
dutiable as part of the repairs which are accomplished (emphasis
added).
It is important to note that only the cost of opening the
crane was exempted from duty by reason of the specific
requirements of the U.S. Coast Guard and the ABS. The
dismantling and cleaning of the crane hob and hydraulic unit was
held dutiable as a necessary prelude to repairs. Moreover, the
testing of the hydraulic unit for defects was also found dutiable
as a survey conducted to ascertain whether repairs were
necessary. Although the invoice indicated that the hydraulic
unit was "OK," certain related parts and jointings were either
repaired or renewed. Therefore, the cost of the testing was
dutiable.
We emphasize that the holding exempts from duty only the
cost of a required scheduled inspection by a qualifying entity
(such as the U.S. Coast Guard or the American Bureau of
Shipping). In the liquidation process, Customs should go beyond
the mere labels of "continuous" or "ongoing" before deciding
whether a part of an ongoing maintenance and repair program
labelled "continuous" or "ongoing" is dutiable.
Moreover, we note that C.S.D. 79-277 does not exempt repair
work done by a shipyard in preparation of a required survey from
duty. Nor does it exempt from duty the cost of any testing by
the shipyard to check the effectiveness of repairs found to be
necessary by reason of the required survey.
Turning to the case before us, upon reviewing the ABS report
describing the Annual Hull Survey, it is evident that dutiable
repair work was performed during the course of this survey (e.g.,
"...defective gaskets on weathertight doors were renewed" and
"...defective hatch cover cleat catches were renewed..."). It is
therefore apparent the survey in question goes beyond mere
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inspection and is akin to a dutiable maintenance and repair
program. Accordingly, the ABS Annual Hull Survey listed under
Item IV(G) of the application is dutiable.
HOLDING:
The evidence presented is insufficient to prove that the
foreign work performed on the subject vessel for which the
applicant seeks relief constitutes modifications or costs that
are otherwise nondutiable under 19 U.S.C. 1466.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch