VES-13-18-CO:R:IT:C 111642 GEV
Chief, Technical Branch
Commercial Operations
Pacific Region
One World Trade Center
Long Beach, California 90731
RE: Vessel Repair; Entry No. 131-0772734-2; S/S MANULANI;
Insulation; Access; 19 U.S.C. 1466
Dear Sir:
This is in response to your memorandum dated April 9, 1991,
forwarding an application for relief from duties assessed
pursuant to 19 U.S.C. 1466. You request that we review one (1)
item. Our finding is set forth below.
FACTS:
The S/S MANULANI is a U.S.-flag vessel owned and operated by
Matson Navigation Company, Inc., of San Francisco, California.
The subject vessel had work performed on her at Versatile Pacific
Shipyards, Inc., in Victoria, British Columbia, Canada, during
the period of January 7-13, 1991. Subsequent to the completion
of this work the vessel arrived in the United States at Seattle,
Washington, on January 14, 1991. A vessel repair entry was filed
on the date of arrival.
Pursuant to an authorized extension of time, an undated
application for relief, received by the San Francisco Vessel
Repair Liquidation Unit on March 28, 1991, was timely filed. The
applicant requests that Item 19 on the shipyard invoice be
determined nondutiable under the vessel repair statute. Item 19,
entitled "INSULATION", covers work involved with the removal and
installation of insulation covering the main propulsion boiler
air heater assemblies. Specifically, the existing insulation was
removed to gain access to a repair area (i.e., the removal and
replacement of boiler air heaters) and, since this insulation
material contained asbestos and could not be reinstalled once it
was removed, it was disposed of and replaced with new insulation.
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ISSUE:
Whether the removal of asbestos insulation in order to gain
access to a repair area and the subsequent installation of new
insulation after the completion of the repairs is 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 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
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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
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 dutiability of the insulation work covered
by Item 19 discussed above, we have long-held that the removal of
an article for access to an area where repair work is to take
place, and its reinstallation subsequent to the completion of the
repairs, is dutiable as an integral part of the repairs. (see
ruling 108366, dated March 4, 1987) Notwithstanding the fact
that the existing insulation contained asbestos and could not be
reinstalled once removed, we have held that the removal and
renewal of insulation does not constitute a nondutiable
modification. (ruling 108366, supra.) Accordingly, Item 19 is
dutiable.
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HOLDING:
The removal of asbestos insulation in order to gain access
to a repair area and the subsequent installation of new
insulation after the completion of the repairs is dutiable under
19 U.S.C. 1466.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch