VES-13-18-CO:R:IT:C 112604 DEC
Deputy Regional Director
Commercial Operations
Pacific Region
One World Trade Center
Long Beach, California 90831
RE: Vessel Repair; 19 U.S.C. 1466; Application; Modification;
Alteration; Inspection; Transportation; Cleaning
Vessel Repair Entry No. 718-0000421-1
Date of Entry: November 12, 1992
Date of Arrival: November 6, 1992
Port of Arrival: Portland, Oregon
Vessel: ULTRASEA V-I
Dear Sir:
This letter is in response to your memorandum dated February
17, 1993, which forwards for our consideration an application for
relief from vessel repair duties filed in connection with the above-
referenced vessel.
FACTS:
The ULTRASEA V-I, an American-flag vessel, underwent foreign
shipyard operations while in Singapore at the Keppel Shipyards.
Subsequent to the completion of the work performed in Singapore, the
vessel arrived in the United States at Portland, Oregon on November
6, 1992. A vessel repair entry covering the foreign shipyard work
was filed on November 12, 1992. An application for relief from
vessel repair duties was timely filed. The following items have
been submitted to this office for review.
Item Spreadsheet Description
130 Page 1 inspection and repair record
404 Page 4 fresh water evaporator
#119 forepeak tank repair
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341 Page 4 portable water tank
#122 aft peak tank modification
#171 bilge suction lines
223 Page 2 anchor chain marks
343 Page 3 life rafts
507 Page 3 economizer renewal
510 Page 3 main condenser
517 Page 4 boiler forced draft fans
Our ruling on the above-mentioned matters is set out below.
ISSUE:
Whether the cost of foreign shipyard work completed aboard the
above-referenced 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 an ad valorem duty of 50 percent on
the cost of foreign repairs to a vessel documented under the laws of
the United States to engage in the foreign or coasting trade, or a
vessel intended to be employed in such trade.
Transportation Charges
Transportation costs are ordinarily accorded duty-free
treatment provided that the costs are properly documented in the
invoice. A blanket entry in the invoice does not provide Customs
sufficient information to make a determination with respect to
dutiability. Absent a documented presentation to Customs detailing
what or who was transported and the costs associated with the
transport, these items shall remain dutiable.
Overhead Charges
In addition, Customs has had occasion to consider the
dutiability of so-called "overhead" charges. In Customs Ruling
111170, February 21, 1991, which cited published Treasury Decision
55005(3) (T.D. 55005(3), Dec. 21, 1959) 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,
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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 and unspecified "overhead" charges such as those included in
the entry under consideration must be considered dutiable.
Inspection and Repair Record....$ 1600
This invoice refers to the cost associated with furnishing
"draftsmen and equipment to make necessary sketch and reading report
for all machinery and equipment overhauled and inspected in the
shipyard period." Customs has held that a survey undertaken to meet
specific requirements of a governmental entity, classification
society, insurance carrier is not dutiable even when dutiable
repairs are effected as a result of the survey. We also held that
where an inspection or survey is conducted merely to ascertain the
extent of damages or whether repairs are deemed necessary, the costs
are dutiable as part of the repairs which are accomplished. Since
these items apparently relate to dutiable repairs and no mention of
an entity requiring this work, relief with respect to this item is
denied.
Fresh Water Evaporator $ 66,922
Transportation $ 9,650
Cleaning $ 2,420
Overhead $ 34,400
Customs has held that for an item to be characterized as a non-
dutiable modification, it must encompass the installation of an item
as a new design feature, not as a replacement for, or a restoration
of, parts now performing a similar function (Customs Memorandum
108871 (Apr. 16, 1987)). 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 (see C.I.E. 233/60).
Installations made to a vessel for the purpose of replacing
malfunctioning parts currently performing the same or similar
function cannot be characterized as a non-dutiable modification and
are held to be dutiable (Customs Ruling 111042 (Oct. 11, 1990)).
The evidence before us indicates that the original fresh water
evaporator was replaced without any indication of whether it was
worn and needed replacement. The invoice expressly refers to parts
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of the existing evaporator that were repaired and reused (see
Invoice, at p. 76). These items are unequivocally repairs and are
dutiable pursuant to 14 U.S.C. 1466. In light of these facts, we
are unable to conclude that the installation of the fresh water
evaporator aboard the subject vessel was a new design feature and
not a replacement for, or restoration of, parts currently performing
the same or similar function. Accordingly, we find the cost of the
installation to be dutiable.
Whether the cleaning was performed before, during or after
dutiable repair work is irrelevant as to the question of dutiability
of the cleaning. Customs has long held that cleaning performed in
preparation of, or in conjunction with dutiable repairs is dutiable
(Customs Memorandum 109789 (Nov. 4, 1988)). Since the item that the
cleaning is associated with is deemed dutiable, the cleaning costs
are dutiable as well.
The transportation and overhead charges associated with this
item are deemed dutiable pursuant to the analysis previously
provided. Relief is, accordingly, denied.
Forepeak Tank Repair $ 101,322
Transportation $ 18,200
Overhead $ 60,600
Stages $ 12,706
Portable Water Tank $ 20,125
Transportation $ 7,690
Overhead $ 9,200
Stages $ 1,435
Aft Peak Tank Modification $ 41,620
Transportation $ 15,000
Overhead $ 25,400
Stages $ 4,050
These invoices indicate that these various tanks underwent a
"modification/strengthening" operation. 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. The description provided in each of these
items is insufficient to determine how the various tanks were
"modified" and no drawings were provided to enhance our
understanding of what the operation entailed. Consequently, absent
more detailed and independently authenticated evidence, these items
shall remain dutiable.
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Reasonable staging costs have been consistently held to be non-
dutiable. Relief with respect to these staging costs is granted.
The transportation and overhead charges associated with these
items are deemed dutiable pursuant to the analysis provided above.
Relief is, accordingly, denied.
Bilge Suction Lines $ 5,520
Transportation $ 720
Overhead $ 2,640
Based on the invoice describing the new bilge suction lines,
Customs is satisfied that the requirements of a modification
established in United States v. Admiral Oriental Line et al., T.D.
44359 (1930) have been met. Accordingly, duty with respect to this
item shall be remitted.
Anchor Chain Marks $ 16,770
Transportation $ 1,900
Cranage $ 1,600
Overhead $ 2,500
Other Charges $ 5,373
This invoice represents work performed on the anchor chains in
preparation for an ABS survey. While the applicant claims that no
repairs were associated with this item, various cables were rewelded
and cleaned. This work is in the nature of a dutiable repair. The
applicant claims that this item should not be dutiable because this
work was carried out in anticipation of inspection. Customs has
held that the mere fact that repairs are required by the American
Bureau of Shipping, United States Coast Guard, or any other
governmental entity does not in and of itself necessitate a finding
that the repairs are non-dutiable. Customs Letter Ruling 108456
(Nov. 14, 1986). Consequently, all the costs associated with this
item are dutiable.
The transportation/cranage and overhead charges associated with
this item are deemed dutiable pursuant to the analysis provided
above. Relief is, accordingly, denied.
Life Rafts
Transportation $ 810
Cleaning $ 7,400
Overhead $ 8,710
Replacement Parts $ 4,050
The preceding item addresses exactly the same issues and,
accordingly, our conclusion is identical. As noted above, the fact
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that a survey is required is not determinative of its dutiability.
The present item concerns operations described in the submitted
invoice which are in the nature of repairs. Additionally, the
segregated amount for replacement parts, absent any evidence to the
contrary, is presumed to be for items which are worn and in need of
repair. Consequently, this item is dutiable.
Whether the cleaning was performed before, during or after
dutiable repair work is irrelevant as to the question of dutiability
of the cleaning. Customs has long held that cleaning performed in
preparation of, or in conjunction with dutiable repairs is dutiable
(Customs Memorandum 109789 (Nov. 4, 1988)). Since the item that the
cleaning is associated with is deemed dutiable, the cleaning costs
are dutiable as well.
The transportation and overhead charges associated with this
item are deemed dutiable pursuant to the analysis provided above.
Relief is, accordingly, denied.
Economizer Renewal $ 209,567
Transportation $ 18,000
Cleaning $ 41,000
Overhead $ 110,900
Stages $ 8,200
This eight-page section of the invoice refers to a litany of
operations performed relating to the renewal of various economizer
elements of the port and starboard boilers. These items are
dutiable repairs pursuant to 19 U.S.C. 1466. Customs has held that
for an item to be characterized as a non-dutiable modification, it
must encompass the installation of an item as a new design feature,
not as a replacement for, or a restoration of, parts now performing
a similar function (Customs Memorandum 108871 (Apr. 16, 1987)).
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 (see C.I.E. 233/60). Installations made to a vessel for the
purpose of replacing malfunctioning parts currently performing the
same or similar function cannot be characterized as a non-dutiable
modification and are held to be dutiable (Customs Ruling 111042,
Oct. 11, 1990). The invoice makes repeated reference to the renewal
of various steel plates, the repairs of cracks and corrosion, and
related cleaning operations. Consequently, this invoice represents
repairs and is, accordingly, deemed dutiable. Relief with respect
to this item is denied.
Whether the cleaning was performed before, during or after
dutiable repair work is irrelevant as to the question of dutiability
of the cleaning. Customs has long held that cleaning performed in
preparation of, or in conjunction with dutiable repairs is dutiable
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(Customs Memorandum 109789 (Nov. 4, 1988)). Since the item that the
cleaning is associated with is deemed dutiable (see analysis above),
the cleaning costs are dutiable as well.
Reasonable staging costs have been consistently held to be non-
dutiable. Relief with respect to these staging costs is granted.
The transportation and overhead charges associated with this
item are deemed dutiable pursuant to the analysis provided above.
Relief is, accordingly, denied.
Main Condenser
Cleaning $ 18,700
Testing $ 4,200
Overhead $ 1,500
Customs has determined that whether cleaning was performed
before, during or after dutiable repair work is irrelevant as to the
question of dutiability of the cleaning. Customs has long held that
cleaning performed in preparation of, or in conjunction with
dutiable repairs is dutiable (Customs Memorandum 109789 (Nov. 4,
1988)). Consequently, our focus turns to the testing element of
this invoice to determine whether any dutiable repairs were
affected. Included in this invoice is the renewal of zinc anodes
and the replacement of broken studs with new stainless steel studs.
These items are deemed to be dutiable repairs under 19 U.S.C. 1466.
Since the item that the cleaning is associated with is deemed
dutiable, the cleaning costs are dutiable as well.
The transportation and overhead charges associated with this
item are deemed dutiable pursuant to the analysis provided above.
Relief is, accordingly, denied.
Boiler Forced Draft Fans $ 13,370
Transportation $ 2,050
Cleaning $ 2,800
Overhead $ 7,500
This invoice represents the charges associated with the
inspection of the forced draft fans. More specifically, the invoice
involved the cleaning and maintenance of various parts of the boiler
forced draft fans. Customs has held that general cleaning that is
not associated with repairs is not dutiable. Traders Steamship
Corp. v. United States, C.D. 1827 (Customs Ct.). In other words,
cleaning which is not followed by dutiable repairs is not dutiable
as a repair under the vessel repair statute. Northern Steamship
Co., Inc. v. United States, 54 Cust. Ct. 92, C.D. 2514 (1965).
Since we find that no repair was carried out, the operations
described in this invoice are not dutiable under 19 U.S.C. 1466.
Accordingly, relief with respect to this item is granted.
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HOLDING:
After thorough review of the record 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