VES-13-18-RR:IT:EC 112641 GOB
Port Director of Customs
Attn.: Vessel Repair Liquidation Unit, Room 415
P.O. Box 2450
San Francisco, CA 94126
RE: Vessel Repair Entry No. C31-0005025-2; 19 U.S.C. 1466; ARCO
INDEPENDENCE, V-CF97; Application; Modification;
Overhead
Dear Sir:
This is in response to your memorandum dated March 16, 1993,
which forwarded the application for relief submitted by ARCO
Marine, Inc. ("applicant") with respect to the above-referenced
vessel repair entry.
FACTS:
The S.S. ARCO INDEPENDENCE ("the vessel") is a U.S.-flag
vessel owned and operated by the applicant. Certain foreign
shipyard work was performed on the vessel in Korea in late 1992.
The vessel arrived at the port of Valdez, Alaska on November 14,
1992. The subject entry was timely filed on November 15, 1992.
You ask for our determination with respect to the following
items:
Item No. Description
321 condensate piping
322 air heater valves
323 F.O. filter
326 oily water separator
407 mooring winch
419 I.G.S. storage rack
420 fairleads
423 manifold valves
427 liferaft platform
429 catwalk extensions
430 removal of unused steel
438 I.G.S. piping
439 I.G.S. piping for cooler
440 foam station catwalk
705 new handrail
819 C.O.W. machine
820 ballast test line
832 cargo pumps
904 pump room
905 gyro compass
906 metritage tank gauging
906-1 metritage tank gauging
906-2 metritage tank gauging
907 spare scrubber tower
910 fuel oil emulsification
913 e/e bilge separator
914 fathometer
915 refund for cables
1,2,3,4 overhead charge
ISSUE:
Whether the costs at issue are dutiable pursuant to 19
U.S.C. 1466.
LAW AND ANALYSIS:
19 U.S.C. 1466 provides for the payment of duty at a rate 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 be employed
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. The identification of work constituting
modifications vis-a-vis work constituting repairs has evolved
from judicial and administrative precedent. In considering
whether an operation has resulted in a nondutiable modification,
the following factors have been considered:
1. Whether there is a permanent incorporation into the hull
or superstructure of a vessel, either in a structural sense or as
demonstrated by means of attachment so as to be indicative of a
permanent incorporation. See United States v. Admiral Oriental
Line, 18 C.C.P.A. 137 (1930). However, we note that a permanent
incorporation or attachment does not necessarily involve a
modification; it may involve a dutiable repair.
2. Whether in all likelihood an item would remain aboard a
vessel during an extended lay-up.
3. Whether an item 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 provides an improvement or enhancement
in operation or efficiency of the vessel.
Our analysis in this matter is based primarily on the
pertinent invoices. The assertions of the application are not
considered to be documentary evidence. In this regard, we note
the statement of the court in Bar Bea Truck Leasing Co., Inc. v.
United States, 5 CIT 124, 126 (1983):
Again, plaintiff has presented no affidavit or other
evidence in support of its counsel's bald assertion...
There is no evidence submitted to establish that the
individual submitting the application has specific knowledge with
respect to the work performed such that the statements of the
application would constitute acceptable documentary evidence.
If we are unable to determine the precise nature of certain
work because of the lack of clear and probative documentary
evidence, and are thus unable to determine that it is
nondutiable, such work will be found dutiable. In this regard,
we note the statement of the Customs Court in Admiral Oriental
Line v. United States, T.D. 43585 (1929):
The evidence is conflicting upon that point, and the
plaintiff has not proved the collector's classification to
be wrong. The burden is upon the plaintiff to show not only
that the collector was wrong in his classification but that
the plaintiff was right.
In A Manual of Customs Law by Ruth F. Sturm, 1974 edition,
p. 173-174, the author states, in pertinent part:
Where Congress has carved out special privileges or
exemptions from the general provisions levying duties upon
imported articles, the courts have strictly construed such
exceptions and have resolved any doubt in favor of the
government. Swan & Finch Company v. United States, 190 U.S.
143, 23 SCR 702, 47 L. Ed. 984 (1903); Pelz-Greenstein Co.
v. United States, 17 CCPA 305, T.D. 43718 (1929)...
...
An exception which carves out something which would
otherwise be included must be strictly construed. Goat &
Sheepskin Import Co., et al. v. United States, 5 Ct. Cust.
Appls. 178, T.D. 34254 (1914); [et al.]
After a consideration of the documentation of record we make
the following determinations.
Item 321. The invoice reflects the installation of a bypass
line from the first stage heater to the condensate filter.
Cutting and welding are involved. The invoice does not reflect
why this work was performed. There is insufficient evidence to
support the allegation of the application that the "installation
is considered to assist with the proper application of the
vessel." Accordingly, we are unable to conclude that this item
is nondutiable. Therefore, we find that it is dutiable. See the
excerpt supra from the Customs Court decision in Admiral Oriental
Line.
Item 322. The invoice reflects the installation of
"isolation valves to the steam supply and return on each boiler
air heaters [sic]. Total of 6 air heater elements." There is
insufficient evidence to support the allegation of the
application that this item is a nondutiable modification.
Accordingly, we are unable to conclude that this item is
nondutiable. Therefore, we find that it is dutiable. See the
excerpt supra from the Customs Court decision in Admiral Oriental
Line.
Item 323. The installation of an additional fuel oil
filter, is a dutiable repair. The record indicates that the
previous filter was not functioning properly. The application
states that "[w]ith the type of fuel obtained on the modern
market the original strainer was not completely cleaning the fuel
oil for proper use."
Item 326. The invoice reflects the cropping out and
disposal of original E.R. oily water separator and the
installation of a new separator. There is insufficient evidence
to support the allegation of the application that "the old system
was in operation" and that due "to the new clean water
regulations of the USCG and other regulatory bodies the Oil -
Water separator in the engine room was upgraded to a larger
capacity." Accordingly, we are unable to conclude that this item
is a nondutiable. Therefore, we find that it is dutiable. See
the excerpt supra from the Customs Court decision in Admiral
Oriental Line.
Item 407. The application pertains to the clearance
checking of the mooring winches ($1,676). The invoice reflects
that this item is merely a "check" or test. We find this item to
be nondutiable because there is no evidence to show that the
expense is an expense of repair or purchase of materials,
equipment or repair parts.
Item 419. The invoice reflects the modification of the IGS,
including the purging of pipe, the shortening of pipes, and the
modifying of IGS pipe. There is insufficient evidence to support
the allegation of the application that "[t]he existing system was
not large enough to properly handle the IGS system with the type
of cargo now being carried. The installation is considered to be
necessary for the proper operation of the vessel." Accordingly,
we are unable to conclude that this item is a nondutiable.
Therefore, we find that it is dutiable. See the excerpt supra
from the Customs Court decision in Admiral Oriental Line.
Item 420. The invoice reflects "FAIRLEADS INSTALLATION
(2)... install by welding Owner's furnished two (2) 18" diameter
fairlead on forecastle deck..." There is insufficient evidence
to support the allegation of the application that "[w]ith the new
installation tie up of the vessel is faster and safer land [sic]
is considered to add to the proper operation of the vessel."
Accordingly, we are unable to conclude that this item is a
nondutiable. Therefore, we find that it is dutiable. See the
excerpt supra from the Customs Court decision in Admiral Oriental
Line.
Item 423. This item is a dutiable repair. The work
involves cropping out, renewing, and welding. There is
insufficient evidence to support the allegation of the
application that "[t]he existing platforms were not large enough
for safe operation...The installation was permanent and
considered to add to the proper operation of the vessel."
Accordingly, we are unable to conclude that this item is a
nondutiable. Therefore, we find that it is dutiable. See the
excerpt supra from the Customs Court decision in Admiral Oriental
Line.
Item 427. This item, the enlarging of a liferaft platform,
is a nondutiable modification. The invoice indicates that it
fits within the description of modification, supra.
Item 429. This item, the extension of a catwalk, is a
nondutiable modification. The invoice indicates that it fits
within the description of modification, supra.
Item 430. The invoice reflects the removal of unused steel
from the maindeck. The work involves cropping out, grinding
smooth, and coating. The application states: "Removal of
obsolete brackets and steel from deck. There is no repair
involved as no replacements were made." The invoice indicates
that this item may be a dutiable maintenance item. There is
insufficient evidence to support the allegation of the
application that this item is nondutiable. Accordingly, we are
unable to conclude that this item is a nondutiable. Therefore,
we find that it is dutiable. See the excerpt supra from the
Customs Court decision in Admiral Oriental Line.
Items 438 and 439. The invoices reflect the installation of
piping and valves for a new cooler. There is insufficient
evidence to support the allegation of the application that these
items are nondutiable modifications. Accordingly, we are unable
to conclude that this item is a nondutiable. Therefore, we find
that it is dutiable. See the excerpt supra from the Customs
Court decision in Admiral Oriental Line.
Item 440. The invoice reflects the installation of support
brackets on the starboard side catwalk. This work fits within
the description of modification, supra. Therefore, it is
nondutiable.
Item 705. The invoice reflects the installation of new
handrail. There is insufficient evidence to support the
allegation of the application that "[t]he rail is a permanent
installation and does not replace any wasted rail. The
installation is considered to add to the safe operation of the
vessel." Accordingly, we are unable to conclude that this item
is a nondutiable. Therefore, we find that it is dutiable. See
the excerpt supra from the Customs Court decision in Admiral
Oriental Line.
Item 819. The invoice reflects work relating to the C.O.W.
machines. The invoice does not reflect why this work was
performed. There is insufficient evidence to support the
allegation of the application that "[t]he new type machine
permanently installed allows for programmable operation. The old
type was mechanically fixed and not adjustable." Accordingly, we
are unable to conclude that this item is a nondutiable.
Therefore, we find that it is dutiable. See the excerpt supra
from the Customs Court decision in Admiral Oriental Line.
Item 820. The invoice reflects the installation of a
ballast pollution monitor test line. The invoice does not
reflect why this work was performed. We are unable to conclude
that this item is a nondutiable. Therefore, we find that it is
dutiable. See the excerpt supra from the Customs Court decision
in Admiral Oriental Line.
Item 832. The invoice reflects the installation of a pipe
line to the cargo pump strainers. The invoice does not reflect
why this work was performed, nor is there any conclusive
indication that this work is nondutiable. The application states
that this item is a "[n]ew permanent installation of a by pass
with a [sic] isolation valve to make work possible with less shut
down of systems." There is insufficient evidence to support the
allegation of the application that this item is nondutiable.
Accordingly, we are unable to conclude that this item is a
nondutiable. Therefore, we find that it is dutiable. See the
excerpt supra from the Customs Court decision in Admiral Oriental
Line.
Item 904. The invoice reflects the installation of a pump
room atmospheric monitor. The invoice does not state why this
new system was necessary. There is insufficient evidence to
support the allegation of the application that this item is
nondutiable. Accordingly, we are unable to conclude that this
item is a nondutiable. Therefore, we find that it is dutiable.
See the excerpt supra from the Customs Court decision in Admiral
Oriental Line.
Item 905. The invoice reflects the installation of two gyro
compasses. The invoice does not state why these two gyro
compasses were necessary. There is insufficient evidence to
support the allegation of the application that this item is
nondutiable. Accordingly, we are unable to conclude that this
item is a nondutiable. Therefore, we find that it is dutiable.
See the excerpt supra from the Customs Court decision in Admiral
Oriental Line.
Items 906, 906-1, and 906-2 involve the installation of a
metritage tank system. The invoice does not state why this new
system was necessary. There is insufficient evidence to support
the allegation of the application that "[t]his modification is
the permanent installation of an upgraded system. The old system
was mechanical in operation and the new system is all electrical
with faster and more accurate in operation [sic]. The new system
adds to the successful operation of the vessel." Accordingly, we
are unable to conclude that this item is a nondutiable.
Therefore, we find that it is dutiable. See the excerpt supra
from the Customs Court decision in Admiral Oriental Line.
Item 907. The invoice reflects the fabrication of a new
section of the spare scrubber tower. This work fits within the
description of modification, supra. Therefore, it is
nondutiable.
Item 910. The invoice reflects the installation of a fuel
oil emulsification system. The invoice does not state why this
system was necessary. There is insufficient evidence to support
the allegation of the application that "[t]his is a new system
and does not replace any equipment. The system adds to the
efficient operation of the vessel." Accordingly, we are unable
to conclude that this item is a nondutiable. Therefore, we find
that it is dutiable. See the excerpt supra from the Customs
Court decision in Admiral Oriental Line.
Item 913. The invoice reflects the installation of an
engine room bilge water separator. The invoice does not indicate
why a new system was necessary. There is insufficient evidence
to support the allegation of the application that "[t]he old
separator was not large enough to handle the bilge water to the
degree required by the regulations of today." Accordingly, we
are unable to conclude that this item is a nondutiable.
Therefore, we find that it is dutiable. See the excerpt supra
from the Customs Court decision in Admiral Oriental Line.
Item 914. The invoice reflects the installation of a new
fathometer. The invoice does not indicate why a new fathometer
was necessary. There is insufficient evidence to support the
allegation of the application that a "more advanced type
fathometer was installed permanently for the successful operation
of the vessel." Accordingly, we are unable to conclude that this
item is a nondutiable. Therefore, we find that it is dutiable.
See the excerpt supra from the Customs Court decision in Admiral
Oriental Line.
Item 915 reflects a refund for the supply by the vessel
owner of cable and splicing kits with respect to the renewal and
repair of deck cables. This item is dutiable. Documentation
has not been provided to establish that this cost is nondutiable.
The applicant must identify, with clarity and specificity, any
documentation which has been submitted which would establish that
these materials are nondutiable.
The overhead charges (items 1-4) which you have asked
us to review are listed on page 21 of the spreadsheet. Because
the entry at issue was filed prior to the C.A.F.C. decision in
Texaco Marine Services, Inc., and Texaco Refining and Marketing,
Inc. v. United States, 815 F.Supp. 1484 (CIT 1993), 44 F.3d 1539
(CAFC 1994), we find that these costs are nondutiable pursuant to
the authority of T.D. 39443 (1923). We note that our rulings
with respect to entries filed on and after the date of the
C.A.F.C. decision in Texaco, December 29, 1994, will follow the
analysis of Ruling 112900 dated November 4, 1993, where we stated
as follows:
As we stated in Ruling 112861, supra, it is Customs position
that overhead relating to repair work is dutiable as part of
the cost of the repair, i.e., the total cost or expense of
the repair is dutiable. In contrast, overhead relating to a
nondutiable item such as a modification is nondutiable,
i.e., the total cost or expense of a nondutiable item is
nondutiable. While Customs does not wish to see overhead
broken-out or segregated as a separate item, our position on
the dutiability of overhead, as stated supra, holds whether
or not overhead is a separate item.
...
...It is Customs position that the total cost or expense of
a foreign repair is dutiable. That total cost includes
overhead attributable to the repair. Overhead is part of
the shipyard's cost of doing business. In many cases in
various businesses, overhead expense incurred by the vendor
is recouped by including a provision for it in other costs,
such as the labor cost.
HOLDING: [of Ruling 112900]
The protest is granted only with respect to any overhead
which is related to nondutiable items; that overhead must be
included in the cost or expense of the nondutiable items or
clearly reflected as related to such nondutiable items on
the pertinent invoices. The protest is denied with respect
to all other overhead. [end of excerpt from Ruling 112900.]
HOLDING:
As detailed supra, the application is granted in part and
denied in part.
Sincerely,
Chief,
Entry and Carrier Rulings Branch