VES-13-18 CO:R:IT:C 111792 JBW
Chief, Technical Branch
Commercial Operations
Pacific Region
1 World Trade Center
Long Beach, CA 90831
RE: Vessel Repair; Modifications; Invoice; Translation; United
States Parts; Fish Nets; 19 U.S.C. 1466; 19 C.F.R.
4.14(d)(1)(iv); F/V PROGRESS; Entry No. H24-0010263-6.
Dear Sir:
This letter is in response to your memorandum of July 3,
1991, 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 F/V
PROGRESS, arrived at the port of Anchorage, Alaska, on January 4,
1991. Vessel repair entry, number H24-0010263-6, was filed on
the same day as arrival. The entry indicates that the vessel
underwent a dry-docking in Japan during December, 1990. During
the dry-docking, the company employing the agents coordinating
the shipyard work went out of business. Consequently, the vessel
operator has been dealing directly with the various vendors of
items used in the dry-docking, which in turn has resulted in the
submission of untranslated invoices and invoices that the
operator claims are substantially above the standard price. The
dry-docking involved, among other items, the installation of a
new plate freezer. The vessel operator seeks relief for this
item as a modification. The vessel operator also seeks relief
for items that it claims are classifiably free of duty, but the
invoice is in Japanese. You also request advice on the
dutiablity of fish nets purchased in the United States for
installation on the vessel in Japan.
ISSUES:
(1) Whether the installation of the freezer plates in the
vessel constitutes a modification, the cost of which is not
subject to duty under 19 U.S.C. 1466.
(2) Whether an untranslated invoice may be submitted as
part of an application for relief from the assessment of vessel
repair duties.
(3) Whether fishing nets purchased from a United Stats
supplier that were shipped to the vessel in Japan are subject to
duty 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. 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 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).
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.
The applicant seeks relief for costs appearing in Part I of
the Mayekawa Mfg. Co., Ltd., invoice for the installation of a
contact freezer. We have reviewed the descriptions provided in
the invoice and conclude that the installation of the contact
freezer represents a new design feature. Accordingly, the cost
of the installation is not subject to duty.
Part II of the Mayekawa invoice includes costs for service
of the ship's existing refrigeration system. The applicant
acknowledges that these costs are dutiable. However, two items
appearing after the grand total (i.e., the sum of Part I and Part
II of the invoice) that adjust the final invoice amount are
problematic.
First, the shipyard deducted from the grand total a "special
discount" in the amount of 1,224,290. The Customs Service
recognizes that only actual expenses borne by the vessel should
be taken into consideration when liquidating vessel repair
entries; we have thus permitted the deduction of "discounts,"
which are properly documented, from the invoiced cost of parts or
materials. Headquarters Ruling Letter 111230, dated November 8,
1990; C.I.E. 227/63, dated December 20, 1962. In cases where
dutiable and non-dutiable work appears, the discount must be
apportioned between such work. Headquarters Ruling Letter
111230. In this case, the discount is not apportioned on the
invoice. The discount must therefore be disallowed when
calculating the dutiable value of the work. Thus, the dutiable
cost for the servicing of the ship's refrigeration system is
4,088,340 (subtotal of Part II).
Second, the shipyard added a three percent consumption tax
after the discount was taken. The Customs Service has held that
foreign government taxes constitute dutiable expenses as that
term is used in the vessel repair statute. Headquarters Ruling
Letter 111304, dated March 4, 1991. Because the discount was not
apportioned, the dutiable cost of the tax must be calculated
based on the cost for servicing the ship's refrigeration system;
this amount is 122,650. Thus, the total dutiable cost for the
Mayekawa invoice is 4,210,990.
The applicant also seeks relief for items that it claims are
classifiably free from vessel repair duty. These items appear on
the Furuno Company invoice, which was submitted in Japanese. The
Customs Regulations require that a certified translation
accompany documentary evidence submitted in a foreign language.
19 C.F.R. 4.14(d)(1)(iv) (1991). Without such translation, this
office is unable to evaluate the merits of the applicant's claim.
The costs appearing on the Furuno Co. invoice are therefore
subject to duty.
Finally, you request our advice on the dutiability of nets
purchased from a United States company for installation on the
vessel in Japan. The recognition of nets as equipment for
purposes of the vessel repair statute has been longstanding. See
Otte v. United States, 30 Tres. Dec. 1043, T.D. 36489 (C.C.A.
1916). The recent amendment to the vessel repair statute that
exempts from duty spare repair parts or materials that have been
manufactured in the United States or entered the United States
duty-paid explicitly excludes nets or netting from the scope of
the exemption. 19 U.S.C. 1466(h).
Failing qualification for the exceptions accorded to spare
parts under 19 U.S.C. 1466(h), 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. Review of the documentation submitted
does not reveal the country of origin of the nets. In the
absence of such evidence, we find the cost of the nets to be
subject to duty.
HOLDINGS:
(1) The installation of the freezer plates in the vessel
constitutes a modification, the cost of which is not subject to
duty under 19 U.S.C. 1466. However, because a discount was not
apportioned between dutiable and non-dutiable items in the
invoice, this discount must be disallowed when calculating the
dutiable value of the work. Similarly, because the discount was
not apportioned, the dutiable cost of the tax must be calculated
based on the entire cost of the dutiable work.
(2) An untranslated invoice may not be submitted as part of
an application for relief from the assessment of vessel repair
duties. Costs appearing under this invoice are subject to duty.
(3) Absent evidence of United States manufacture, fishing
nets purchased from a United States supplier that were shipped to
the vessel in Japan are subject to duty under 19 U.S.C. 1466.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch