VES-13-18-CO:R:IT:C 112091 LLB
Chief, Technical Branch
Commercial Operations
Pacific Region
1 World Trade Center
Long Beach, California 90831
RE: Vessel repair; Repairs; Modifications; Survey; Overhead
charges; Application for Relief; Vessel OVERSEAS VIVIAN;
Entry number T99-0045985-8
Dear Sir:
Reference is made to your memorandum of February 11, 1992,
which forwards for our consideration the Application for Relief
from the assessment of vessel repair duties filed by counsel on
behalf of the operators of the vessel OVERSEAS VIVIAN. Duties
were assessed in connection with the above-referenced vessel
repair entry.
FACTS:
The record reflects that the OVERSEAS VIVIAN arrived in the
port of San Francisco, California, on July 25, 1991, filed a
timely vessel repair entry, and supplemented that entry as
required by the Customs Regulations. While in Singapore the
vessel underwent drydocking, repair, survey, and modification
operations. Headquarters recommendations have been sought on a
total of six (6) invoice items, which are:
Worksheet page 4 - Item 147 - Lube oil purifier
Worksheet page 4 - Item 176 - Anchor windlass
Worksheet page 7 - Item 5 - Underwater survey
Worksheet page 7 - Item 19 - Diesel generator
Worksheet page 8 - Item 40 - Administrative services
Worksheet page 20 - Item 68 - Salvage Association survey
Additionally, beyond the items regarding which we were requested
to provide advice, we reviewed all invoiced purchases and are in
agreement with your proposed liquidation as reflected on the 20-
page worksheet which you prepared.
ISSUE:
Whether the items under review constitute non-dutiable
operations due to association with modification or inspectional
operations rather than repair services.
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.
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.
With specific reference to the items presently under
consideration, we find that invoice items 147 and 176 represent
charges for modification procedures. In the case of item 147
(lube oil purifier), the charges are for the installation of a
second purifier where only one such purifier had been in
operation previously. In the case of item 176 (anchor windlass),
the charges are for the welding in place of doubler plates to
provide additional strength to the area. No repair element is
present. Given these circumstances, these items are considered
duty-free modifications.
Customs has had occasion to consider the dutiability of so-
called "overhead" charges (see Customs Ruling 111170, February
21, 1991). In that ruling, we cited a published Treasury
Decision of long standing (T.D. 55005(3), December 21, 1959),
wherein it was determined that:
Taxes paid on emoluments received by third parties
for services rendered...and premiums paid on workmen's
compensation insurance, are not charges or fees within
the contemplation of the decision of the Customs Court,
International Navigation Company v. United States, 38
USCR 5, CD 1836, and are therefore subject to duty as
components of the cost of repairs under [section 1466].
"Emoluments" as used in the cited decision would include
all wages, taxes, accounting fees, office space charges,
inventory or mark-up costs, purchasing costs, and management
fees. Certainly, general "administrative services" charges such
as are included in the entry under consideration (invoice item
40), are considered dutiable.
Two of the items under review, while not themselves repair
operations, are directly linked with dutiable procedures and are
therefore subject to duty. These operations are reflected in
invoice item numbers 5 and 68. Item 5, listed as an underwater
survey item, involves the grit blasting of the hull. This was
done in preparation for the painting of the hull as reflected in
item number 6 of bill number 91/G/4/001C. Being an operation
done in preparation for the dutiable painting procedure, the
cost of item 5 is also considered dutiable. Item 68 represents
the cost of a survey by the Salvage Association. A review of the
survey report reveals that its purpose was to assess the extent
or repairs necessary to the main engine, turbo alternator, and
cargo pump. The recommended repairs which were carried out are
dutiable, and so is the cost of the survey which preceded them.
The last item under review concerns the "diesel generator".
Review of the cost at issue (invoice item 19) reveals that the
charges are actually for oil and marine diesel fuel for running
the generator. No repair elements are involved and thus no duty
consequences attach to this item.
HOLDING:
Following a thorough review of the evidence as well as
analysis of the applicable law and precedents, we have determined
that of the six named items reviewed, items 5, 40, and 68 are
subject to duty, and items 19, 147, and 176 are not subject to
duty. For the reasons set forth in the Law and Analysis portion
of this ruling, the Application for Relief is allowed in part and
denied in part.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch