VES-13-18-CO:R:IT:C 111942 GEV
Port Director
U.S. Customs Service
Vessel Repair Liquidation Unit, Room 303
423 Canal Street
New Orleans, Louisiana 70130-2341
RE: Vessel Repair Entry No. VR-C15-0012323-2; M/V AMERICAN FALCON; V-84;
Post-Repair Cleaning; Modification; 19 U.S.C. 1466
Dear Sir:
This is in response to a memorandum from the Acting DARC, Commercial Operations
Division, dated October 3, 1991, forwarding for our review an application for relief from duties
assessed pursuant to 19 U.S.C. 1466. Our findings on this matter are set forth below.
FACTS:
The M/V AMERICAN FALCON is a U.S.-flag vessel owned by Crowley Maritime
Corporation. The subject vessel had foreign shipyard work performed on her in Lisbon, Portugal
during February of 1991. The vessel arrived in the United States at the port of Wilmington,
North Carolina on April 29, 1991. A vessel repair entry was filed on May 1, 1991.
Pursuant to an authorized extension of time, an application for relief with supporting
documentation was timely filed on July 26, 1991. The applicant requests relief for a myriad of
items contained within the above-referenced entry. The New Orleans Vessel Repair Liquidation
Unit seeks guidance regarding the following: the sufficiency of the shipyard invoice; the notation
"ABS/USCG Inspection" appearing throughout the Lisnave invoice; cleaning after repairs and
removal of debris; modification claims regarding Item 109 (and the related Cedervall invoice); a
request for credit on the Rentsch-Motoren invoice; and a waiver of all duty because the Military
Sealift Command (MSC) allegedly refused to grant a waiver which would have allowed the vessel
to return to the U.S. for the drydocking.
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ISSUE:
Whether the foreign shipyard costs for which the applicant seeks relief are dutiable
pursuant to 19 U.S.C. 1466.
LAW AND ANALYSIS:
Title 19, United States Code, 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 the foreign or coastwise trade, or vessels intended to
engage in such trade.
At the outset we note that although the Lisnave invoice in question is other than
exemplary in terms of clarity of cost breakdown, we are not of the opinion that it is flawed to the
point where this deficiency alone necessitates it being denied in its entirety. However, the
aforementioned deficiency will, where appropriate, be construed contra to the applicant's claims
for relief.
Further in regard to the lack of clarity discussed above, the notation "ABS/USCG
Inspection" appearing throughout the entire Lisnave invoice is in fact non-specific as to what
work was actually done. Consequently, those costs associated therewith are dutiable.
The Lisnave invoice is also replete with references to "cleaning after repairs" and "removal
of debris." Pursuant to the "but for" test enunciated by the U.S. Court of Appeals for the Federal
Circuit in Texaco Marine Services, Inc. and Texaco Refining and Marketing, Inc. v. United
States, Docket No. 93-1354, decided December 29, 1994 (affirming the decision of the U.S.
Court of International Trade at 815 F.Supp. 1484 (1993)), post-repair cleaning and protective
coverings (the latter of which is also contained within the Lisnave invoice at Item 002.3(L)) for
repair work are dutiable under 19 U.S.C. 1466. Although the costs for "removal of debris" are
segregated from those for "cleaning after repairs", the invoice is devoid of any detailed description
supporting a meaningful distinction. Accordingly, the costs for "cleaning after repairs", "removal
of debris" and protective coverings are dutiable.
Item 109 (and the related Cedervall invoice) is claimed to be a modification. 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
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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 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, 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))
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
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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 alleged modification in question, the record makes abundantly clear that
the work in question was performed in order to correct existing defects on the vessel.
Accordingly, notwithstanding the sufficiency of the remaining criteria discussed above, Item 109
(and the related Cedervall invoice) is dutiable.
With respect to the applicant's claim that a credit be allowed on the Rentsch-Motoren
invoice, the record does not support this claim. The only evidence submitted to that effect is a
Crowley Maritime Corporation internal memorandum. Accordingly, absent additional evidence
to the contrary, the full cost shown on the invoice is dutiable.
Finally, the applicant requests a waiver of all vessel repair duties because the MSC
allegedly refused to grant a waiver which would have allowed the vessel to return to the U.S. for
the drydocking. As you know, pursuant to an agreement between Customs and the MSC the
vessel repair statute is applicable to those vessels which are owned by, or time, voyage or
bareboat chartered to the MSC. The agreement contains no provision which would allow the
relief sought by the applicant under these circumstances.
HOLDING:
The foreign shipyard costs for which the applicant seeks relief are dutiable pursuant to 19
U.S.C. 1466 as discussed in the Law and Analysis portion of this ruling.
Sincerely,
Arthur P. Schifflin
Chief
Carrier Rulings Branch