VES-13-18-CO:R:IT:C 111654 LLB
Chief, Technical Branch
Commercial Operations Division
Pacific Region
One World Trade Center
Long Beach, California 90831
RE: Vessel repair; Vessel conversion; Modification; Fish
processor; Vessel ALASKA OCEAN, V-1; Entry No. 779-1514901-5
Dear Sir:
Reference is made to your memorandum of April 25, 1991,
which forwards for our consideration the Application for Relief
from the assessment of vessel repair duties associated with the
above-captioned vessel repair entry.
FACTS:
The vessel ALASKA OCEAN underwent a total conversion from an
oil supply vessel to a trawler/processor vessel suitable for use
in Alaskan fisheries operations. The vessel was in a shipyard in
Norway from January 1989 until June 1990, undergoing operations
valued at nearly $53,000,000.00. The vessel was increased in
length, breadth, and depth, with a new mid-body of 104 feet being
added.
ISSUE:
Whether foreign shipyard operations undergone by the vessel
ALASKA OCEAN may be considered non-dutiable modifications under
the vessel repair statute.
LAW AND ANALYSIS:
Title 19, United States Code, section 1466(a), 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 the foreign or
coastwise trade, or intended to be employed in such trade.
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 layup.
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.
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. Admiral Oriental,
supra., (quoting T.D. 34150, (1914)).
Pursuant to published Customs Service rulings (C.I.E.
1325/58 and C.I.E. 565/55), duties may not be remitted in
circumstances in which invoices fail to segregate dutiable from
non-dutiable expenditures. In the present matter, care has been
taken to segregate various elements of the costs, such as any
transportation cost elements involved in the overall operation,
as well as work involving the old portion of the vessel as
opposed to the new areas.
In the case of United States v. George Hall Coal Co., 134 F.
1003 (1905), it was held that any of various types of expenses
associated with foreign shipyard operations are classifiably free
from the assessment of duty, regardless of the character of the
overall shipyard work (repair vs. modification). The case found
that the expense of drydocking a vessel is not a repair cost.
Drydocking is not an isolated expense, and is commonly associated
with numerous others. These may include, but are not limited to,
sea water supply (for firefighting capability), fresh water
supply, hose hook-up and disconnection, fire watch services,
shore power hook-up, etc.
We have thoroughly reviewed the voluminous entry
documentation submitted in this matter. It is our conclusion
that the entered costs are clearly for non-dutiable modifications
or classifiably free items, with the following exceptions, as
noted from the Ulstein Hatloe invoice documents:
No. 2.1.2 Det Norske Veritas inspection of the old hull section,
which "led to repairs". (Repair-associated expense).
No. 9.1 Mooring lines. (Equipment).
No. 9.2 Halyards. (Equipment).
No. 10.2 Anchors and chains. (Equipment).
No. 13.2 Portable fire extinguishers. (Equipment).
No. 13.3 Fire suits. (Equipment).
No. 13.4 Fire Axes. (Equipment).
No. 14 Blasting/masking/painting old portion of vessel.
(Repair).
No. 15 All navigational electronics. (Sensitive equipment,
likely to be removed during long lay-up).
No. 16 Life saving equipment/boats (except boat cradles).
(Equipment).
No. 17(05) Silverware dispensers. (Equipment).
No. 17(07) Napkin dispensers. (Equipment).
No. 17(11) Electric rice cookers. (Equipment).
No. 17(14) Soup well inserts. (Equipment).
No. 17(18) Milk dispenser cans. (Equipment).
No. 17(19) Beverage dispenser. (Equipment).
No. 17(26) Microwave ovens. (Equipment).
No. 17(28) Deep-fat fryer baskets. (Equipment).
No. 17(38) Mobile food cart. (Equipment).
No. 17(39) Portable cooking oil filter. (Equipment).
No. 17(40) Portable waste-oil filter. (Equipment).
No. 17(47) Meat slicer. (Equipment).
No. 17(51) Can opener. (Equipment).
No. 17(56) Trash receptacle. (Equipment).
No. 17(60) Container and dolly. (Equipment).
No. 17(66) Dish washer rack transporter. (Equipment).
No. 17(67) Food cart. (Equipment).
No. 17(70) Counter-top refrigerator. (Equipment).
No. 17(72) Mobile food cart. (Equipment).
No. 19.2 Loose furniture and furnishings. (Equipment).
No. 19.4 Curtains and blinds. (Equipment).
No. 22.1 Protective boat covers. (Equipment).
No. 23.9 Extruded aluminum bin boards. (Equipment).
No. 66.2 Shelves and gratings. (Equipment).
No. 72.2 Arctic air horn. (Equipment).
No. 79.1 Removable floor plates. (Equipment).
No. 80.1 Bench-mount grinders, and vises. (Equipment).
No. 80.3 Torch assembly, electric welders, insulation
resistance measuring equipment, welder with 50 foot
cord, and acetylene/oxygen bottles. (Equipment).
No. 81.1 Fishing gear purchased in Japan, delivered to Norway
and not previously entered in the U.S. for
consumption, duty paid. (Equipment).
No. 90.5 Light bulbs. (Equipment).
No. 95.4 Removable/portable communications equipment.
(Equipment).
No. 96.1 Batteries and chargers. (Equipment).
No. 101.3 Tests to old portion of the hull/structure/tanks.
(Repairs, not classifiably free).
HOLDING:
Following a thorough review of the evidence as well as well
as an analysis of the law and applicable precedents, we have
determined that the Application for relief should be allowed in
part and denied in part, as specified in the Law and Analysis
portion of this ruling.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch