VES-13-18 CO:R:IT:C 112513 GFM
Chief, Technical Branch
Commercial Operations
Pacific Region
1 World Trade Center
Long Beach, CA 90831
RE: Vessel Repair; Modification; Application; Segregation of
Costs; Documentation; Evidence; Inspection; Testing;
Propeller; Transportation; 19 U.S.C. 1466; ALASKA V-I;
Entry No. H24-0013047-0.
Dear Sir:
This letter is in response to your memorandum dated
November 3, 1992, which forwards for our review the application
for relief filed in conjunction with the above-referenced vessel
repair entry.
FACTS:
The vessel ALASKA V-I arrived at the port of Anchorage,
Alaska, on April 9, 1992, and filed a timely vessel repair entry.
The entry indicates that the vessel underwent foreign shipyard
work in Tokyo, Japan. This application seeks relief from duty
for various inspection, cleaning, repair, and modification
charges incurred during vessel's dockage at said foreign
shipyards.
ISSUE:
Whether the cost of foreign shipyard work completed aboard
the subject vessel is dutiable pursuant to 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.
Many of the transactions listed in the submitted invoice are
claimed to be duty-free modifications. In its application of the
vessel repair statute, the Customs Service 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
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
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.
The Customs Service has held that the decision in each case
as to whether an installation constitutes a non-dutiable 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.
HULL PART
Item 13 Cooling Coil Replacement............... 2,200,000.
This item represents charges for "replacing [the] cooling
coil of the entire fish hold, replac[ing] side sparring, and
replac[ing] grating." As this item involves the replacement of
existing equipment, it is considered to be a dutiable repair.
HULL PART
Item 14 Painting Works for Outer Hull.......... 125,000.
Item 15 Painting Works for Hull Bottom......... 200,000.
Item 16 Painting of Ship's Name................ 70,000.
Item 17 Painting Works for Exposed Structure... 120,000.
These items involve various painting operations performed
aboard the vessel. In C.I.E. 518/63, it was held that the
application of a protective and preservative coating to a
vessel's tanks, the charges for labor for erection and use of
equipment, the cleaning incidental thereto, and all materials
used in connection with such operations are dutiable as repairs.
Pursuant to C.D. 1430 (41 CCPA 57, C.A.D. 529), painting that is
strictly ornamental and in no sense performed for the
preservation of the vessel, cannot be considered "maintenance
painting." With respect to the above items, as the painting
performed pursuant to item 16 was ornamental in nature, it is
entitled to remission. The painting performed pursuant to the
remaining items, however, are dutiable as repairs.
HULL PART
Item 17 Miscellaneous Works.................... 500,000.
This item contains charges for the removal and disposal of
insulation, the installation of a head cutter and the
reinstallation of an otter board. As these activities are
tantamount to repair operations, the cost of the item
( 500,000.) is dutiable.
MACHINERY PART
Item 1 Modification of Propeller............... 2,970,000.
This item involves charges for removal, cleaning, and
maintenance of the vessel's propeller. Cleaning operations which
remove rust and deterioration or worn parts, and which are a
necessary factor in the effective restoration of a vessel to its
former state of preservation, constitute vessel repairs (See
C.I.E. 429/61). Customs has long held the cost of cleaning is
not dutiable unless it is performed as part of, in preparation
for, or in conjunction with dutiable repairs or is an integral
part of the overall maintenance of the vessel; see C.I.E.'s
18/48, 125/48, 910/59, 820/60, 51/61, 429/61; 569/62, 698/62;
C.D. 2514; T.D.'s 45001 and 49531. Pursuant to C.I.E. 919/60
remission of duty assessed on the cost or repairs is not
warranted under section 1466 where the repairs are maintenance
in nature. With regard to this item, it is quite clear that the
work performed was related to maintenance operations.
Accordingly, the cost of the item ( 2,970,000.) is dutiable.
MACHINERY PART
Item 3 Modification of Reduction Gear.......... 2,420,000.
This item involves charges for removal, cleaning, and
maintenance of the vessel's reduction gears. As stated, cleaning
operations which remove rust and deterioration or worn parts, and
which are a necessary factor in the effective restoration of a
vessel to its former state of preservation, constitute vessel
repairs (See C.I.E. 429/61). Customs has long held the cost of
cleaning is not dutiable unless it is performed as part of, in
preparation for, or in conjunction with dutiable repairs or is an
integral part of the overall maintenance of the vessel; see
C.I.E.'s 18/48, 125/48, 910/59, 820/60, 51/61, 429/61; 569/62,
698/62; C.D. 2514; T.D.'s 45001 and 49531. Pursuant to C.I.E.
919/60 remission of duty assessed on the cost or repairs is not
warranted under section 1466 where the repairs are maintenance
in nature. With regard to this item, it is also quite clear that
the work performed was related to maintenance operations.
Accordingly, the cost of the item ( 2,420,000.) is dutiable.
ELECTRIC PART
Item 6 Navigation Light........................ 700,000.
This item represents charges for "cut[ting] off the cable
between the aft. anchor light due to poor working of the terminal
and * * * replac[ing] the light." In accordance with previously
stated authority, these operations represent dutiable repairs.
Accordingly, the entire cost of the item ( 700,000) is dutiable.
NAVIGATION EQUIPMENT
Item 2 Miscellaneous Expenses.................. 580,000.
This item contains unsegregated charges for "transportation
expenses, expenditure spent during the work at site, and entering
and utilization of the dockyard" which are related to dutiable
transactions. Of these activities, only transportation costs are
considered non-dutiable, provided however, that the costs for
such are segregated. Here, as no segregation is made, the cost
of the entire item ( 580,000.) is dutiable.
Finally, after reviewing the invoice and supporting
documentation, where submitted, we have concluded that the items
listed below do not provide sufficient descriptions to establish
whether the work performed constitutes a modification to the
vessel; accordingly, each is dutiable:
HULL PART
NKK Shimizu Item 10, Hull Piping Works, page 4: 11,450,000.
MACHINERY PART
NKK Shimizu Item 3, Mod. of Reduct. Gear, page 4: 2,420,000.
NKK Shimizu Item 6, Change Hydraulic Pump, page 4: 470,000.
NKK Shimizu Item 7, Bilge Treatment, page 4: 300,000.
ELECTRIC PART
NKK Shimizu Item 4, Works for Fish Finder, page 2: 604,000.
NKK Shimizu Item 5, General Alarm, page 2: 1,500,000.
BELT CONVEYOR
NKK Shimizu Items 1-5, Mod. of Conveyor, page 1: 3,580,000.
REFRIGERATION PART
NKK Shimizu Items 1-6, Refrigeration, page 1: 7,060,000.
HOLDING:
After thorough review of the evidence presented, and as
detailed in the Law and Analysis portion of this ruling, the
application for relief is granted in part and denied in part.
Sincerely,
Acting Chief
Carrier Rulings Branch