VES-13-18-CO:R:IT:C 112779 DEC
Deputy Regional Director
Commercial Operations
Pacific Region
One World Trade Center
Long Beach, California 90831
RE: Vessel Repair; Application for Relief; Modification;
Vessel Repair Entry: C27-0082357-1
Date of Arrival: February 9, 1993
Date of Entry: February 12, 1993
Port of Arrival: Long Beach, California
Vessel: SEA-LAND INDEPENDENCE V-142-165
Dear Sir:
This is in response to your memorandum dated June 10, 1993,
which forwards the application for relief from vessel repair duties
filed in connection with the above-referenced vessel for our review.
FACTS:
The SEA-LAND INDEPENDENCE is owned by the Connecticut National
Bank and operated by Sea-Land Service, Inc. The items that are the
subject of this application for relief from the assessment of vessel
repair duties were performed while the vessel was abroad. The
following items have been submitted for our review.
ITEM WORKSHEET DESCRIPTION
110 Page 7 Sea temperature readout
A19 Page 8 Satcom, radar, VHF
A27 Page 8 Forward foam station
B2 Page 9 Drip troughs
131 Page 11 Hatch covers
132 Page 11 20'/40' loading
132 Page 11 Vent System
132 Page 11 Loadline marks
132 Page 11 Workscope
134 Page 11 ISO sockets
135 Page 11 Lashing gear
137 Page 11 Lashing gear
138 Page 11 Explosion proof
139 Page 11 Relay
140 Page 11 Seaclean
141 Page 11 3 Hawke 1"NP
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156 Page 12 Smoke system
197 Page 14 Hatch sockets
199 Page 14 Hatches 1,2,4,5,7B,8,9,10
203 Page 14 Hatch covers
Additional items submitted for review are considered following the
itemized list above.
ISSUE:
Whether the cost of foreign shipyard work completed aboard the
subject vessel is dutiable pursuant to Title 19, United States Code,
section 1466.
LAW AND ANALYSIS:
Title 19, United States Code, section 1466(a) provides, in
pertinent part, for payment of a fifty percent ad valorem duty on
the cost of foreign repairs to a vessel documented under United
States law to engage in the foreign or coastwise trade, or to a
vessel intended to be employed in such trade.
Item 110 and Item B2
Item 110 represents the installation of a sea temperature
readout on the bridge console. The applicant contends that this
item is a non-dutiable modification because it is a first-time
installation and a permanent addition to the vessel. The
installation of this item was needed because the engine room has
been converted to operate fully unmanned making a call to the engine
room to report on the sea water temperature impossible.
Item B2 is the invoice for the installation of drip troughs.
The drip troughs were a first-time installation which was necessary
to avoid problems of rusting from water running down the vents and
sides of the aft house.
Over the course of years, the identification of modification
processes has evolved from judicial and administrative precedents.
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.
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(2) Whether the item under consideration would remain
aboard a vessel during an extended layup.
(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.
Before an item is to be construed as a part of the vessel, it must
be (1) a permanent attachment and (2) essential to the successful
operation of the vessel. Otte v. United States, 7 C.C.P.A. 166,
169 (1916).
The Customs Service is satisfied that the installation of the
sea temperature readout is a modification. In addition, the
installation of the drip troughs is also deemed to be a
modification. Accordingly, no duty is owed with respect to these
items.
Item A19 and Item A27
Item A19 represents the work performed to redesign and raise
the vessel's radar/Satcom/VHF antennas. Item A27 represents the
work performed to improve the operation of the foam monitor station.
This work was needed because the vessel was modified to carry one
higher tier of containers on deck. The appropriate inquiry to
determine whether a particular replacement operation is a
modification as opposed to a repair is to analyze the condition of
the structure(s) prior to being replaced. Customs has determined
that even though an operation might, under normal circumstances, be
considered a permanent duty-free modification, the benefit of such a
finding is not extended to operations which encompass the
replacement of existing structure(s) that are in need of repair at
that time. If a permanent addition is a first-time installation, or
if it replaces an existing structure that is in good working order
at the time of its replacement and an enhancement in operating
efficiency is provided, the operation may be considered a duty-free
modification. Headquarters Ruling 111224 (Feb. 19, 1991). Customs
is satisfied that these operations were modifications since no
repairs to existing equipment were carried out. Consequently, these
items are not subject to duty.
Items 131
Item 131 represents the cost of work performed on the vessel's
hatch covers. The documents submitted in relation to this item are
an ABS survey invoice with a line entry for hatch cover
modifications, a very vague ABS-provided description of the work
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performed, and drawings that reflect the work to be performed on the
hatch covers. In order to be classified as a modification, the
applicant must submit a more detailed description of the operations
that were performed. Unless and until such evidence is presented,
this item is dutiable. While this item may be related to the work
that is the subject of Headquarters Ruling 111849 (Feb. 3, 1992),
the Customs Service's ultimate decision on whether a particular item
is a modification or a repair is contingent upon a review of the
submitted evidence describing the work performed.
Item 132
Item 132 has four components (20'/40' loading, vent system,
loadline marks, workscope). The evidence submitted for review of
Item 132 includes an invoice stating that the container fittings and
hatch covers were installed as per the contract specification, that
the primsol marks and the vent system were modified, and that the
work scope has been amended in accordance with the agreement. Given
the frequency with which work orders are changed, we cannot assume
that the work actually performed was identical the work proposed.
Without further description of the actual installation process, we
are unable to conclude that these items constitute a modification to
the vessel. For this reason, the application for relief is denied
and these items will remain dutiable unless a detailed invoice
describing the work performed is submitted.
Customs has consistently stated that advisory rulings are
merely advisory and do not eliminate the requirement to declare work
done abroad at the subject vessel's first United States port of
arrival, nor does it eliminate the requirement of filing the entry
showing this work (19 C.F.R. 4.14(b)(1)(2)). Furthermore, any
final ruling is contingent on Customs review of the evidence
submitted pursuant to 19 C.F.R. 4.14(d)(1). The advisory ruling
stressed that any final determination would be contingent on review
of the evidence submitted as part of the entry and procedure for
review.
Item 134, Item 138, and Item 141
Item 134 represents the acquisition of ISO sockets. Item 138
is for the acquisition of brass adapters. Item 141 is for the
acquisition of explosion proof cable. Since these items arrived on
a vessel from a foreign port, the applicant has included proof that
the merchandise was of U.S. origin.
On August 20, 1990, the President signed into law Pub. L. 101-
382, section 484E of which amends section 466, Tariff Act of 1930,
as amended (19 U.S.C. 1466), by adding a new paragraph (h) to the
statute 19 U.S.C. 1466(h).
Section 1466(h) provides in pertinent part that:
(h) The duty imposed by subsection (a) of this section
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shall not apply to--
(2) the cost of spare repair parts or materials
(other than nets or nettings) which the owner or
master of the vessel certifies are intended for use
aboard a cargo vessel, documented under the laws of
the United States and engaged in the foreign or
coasting trade, for installation or use on such
vessel, as needed, in the United States, at sea, or
in a foreign country, but only if duty is paid under
appropriate commodity classifications of the
Harmonized Tariff Schedule of the United States upon
first entry into the United States of each such
spare part purchased in, or imported from, a foreign
country.
While section 1466(h) applies by its terms only to foreign-
made imported parts, there is ample reason to extend its effect to
U.S.-made materials as well. To fail to do so would act to
discourage the use of U.S.-made materials in effecting foreign
repairs since continued linkage of remission provisions of
subsection (d)(2) with the assessment provisions of subsection (a)
of section 1466 would obligate operators to pay duty on such
materials unless they were installed by crew or resident labor.
If an article is claimed to be of U.S. manufacture, there must
be proof of its origin in the form of a bill of sale or domestic
invoice. Since the applicant has provided a U.S. bill of sale
indicating that these parts were U.S.-manufactured, relief with
respect to these items is granted.
Item 135 and Item 137
The applicant contends that these invoices are for the
acquisition of various lashing gear for the vessel. Since there is
a lack of independently-generated documentation establishing whether
these items are instruments of international traffic or part of a
modification, Customs finds this item dutiable. Unless and until
satisfactory documentation is submitted establishing these items as
instruments of international traffic, these items shall be deemed to
constitute dutiable vessel equipment.
Item 139
Item 139 represents the cost of various parts used to prepare
the vessel for handling hazardous cargo. The applicant must submit
the documentary evidence that the regulations require (19 C.F.R.
4.14) before a determination that a particular operation is a
modification rather than a repair. The burden of proof rests
squarely on the applicant to overcome the presumption that an
operation is a repair. The parts that this invoice refers to are,
allegedly, related to improving the hazardous cargo handling
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capabilities of the vessel. Unless an invoice depicting the work
performed as a modification is presented to Customs, this item will
remain dutiable.
Item 140
Item 140 represents a cleaning operation performed in
connection with the work performed to convert the vessel's container
capacity. Customs has held that cleaning performed in preparation
of or in conjunction with dutiable repairs is dutiable (Customs
Memorandum 109789 (Nov. 4, 1988)). As was stated previously (see
Item 132), Customs advisory rulings are merely advisory. Customs
reserves the right to make a determination of dutiability after a
review of the submitted evidence. The submission of the contract
specifications absent an invoice depicting the work actually
performed is insufficient given the frequency with which work orders
are changed. Therefore, this item representing a cleaning operation
carried out in conjunction with the container-capacity conversion
remains dutiable unless a detailed invoice describing the work
actually performed is submitted and determined to be a modification.
Item 156
This item depicts the operations carried out to modify a supply
fan to an exhaust fan. Customs is satisfied that the operation
described in the invoice submitted is a modification. Accordingly,
no duty is assessed with respect to this invoice.
Item 197, Item 199, and Item 203
These items all refer to operations performed to install
container stools. Customs is satisfied that these operations
constitute a permanent incorporation into the vessel's
superstructure. Accordingly, these items are found to be
modifications and not subject to the assessment of vessel repair
duty.
Item 10 and Item 126
The applicant's claim for relief with respect to these items
(Item 110 - bridge fitting, cone plate, and quick release shackles
and Item 126 - steel shackles) is based upon the premise that these
items are instruments of international traffic. To qualify as an
IIT within the meaning of 19 U.S.C. 1322(a) and the regulations
issued thereunder (19 C.F.R. 10.41a et. seq.), an article must be
used as a container or holder. Additionally, the article must be
substantial, suitable for and capable of repeated use, and used in
significant numbers in international traffic.
An application for relief from vessel repair duties is not the
appropriate forum for an IIT determination. Since the applicant's
chief concern is liability for vessel repair duties, a thoughtful
evidentiary presentation concerning the key attributes of an IIT is
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typically overlooked. The present case is no exception. The
applicant claims that the bridge fitting, cone plate, quick release
shackles, and steel shackles are IITs without providing any
supporting analysis. These items may or may not be granted IIT
status depending on how they are used. Absent any supporting
documentation specifically depicting their use, we are compelled to
conclude that these items are dutiable pursuant to 19 U.S.C. 1466.
Item 114 and Item 131
The applicant contends that the cost of the Marues Submerge
Industries, Ltd. (Item 114) inspection is not subject to duty. In
C.S.D. 79-277, the Customs Service addressed the dutiability of
surveys/inspections stating that "[i]f the survey was undertaken to
meet the specific requirements of a governmental entity,
classification society, insurance carrier, etc., the cost is not
dutiable even if dutiable repairs were effected as a result of the
survey."
With increasing frequency, this ruling has been utilized by
vessel owners seeking relief not only from charges appearing on an
ABS or U.S. Coast Guard invoice (the actual cost of the inspection),
but also as a rationale for granting non-dutiability to a host of
inspection-related charges appearing on a shipyard invoice. In
light of this continuing trend, we offer the following
clarification.
C.S.D. 79-277 discussed the dutiability of certain charges
incurred while the vessel underwent biennial U.S.Coast Guard and ABS
surveys. That case involved the following charges:
Item 29
(a) Crane open for inspection.
(b) Crane removed and taken to shop. Crane
hob and hydraulic unit dismantled and
cleaned.
(c) Hydraulic unit checked for defects, OK.
Sundry jointings of a vessel's spare
renewed.
(d) Parts for job repaired or renewed.
(e) Parts reassembled, taken back aboard ship
and installed and tested.
In conjunction with the items listed above, we held that a
survey undertaken to meet the specific requirements of a
governmental entity, classification society, or 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 sustained or
whether repairs are deemed necessary, the costs are dutiable as part
of the repairs which are accomplished.
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It is important to note that only the cost of opening the crane
was exempted from duty by reason of the specific requirements of the
U.S. Coast Guard and the ABS. The dismantling and cleaning of the
crane hob and hydraulic unit was held dutiable as a necessary
prelude to repairs. Moreover, the testing of the hydraulic unit for
defects was also found dutiable as a survey conducted to ascertain
whether repairs were necessary. Although the invoice indicated that
the hydraulic unit was "OK," certain related parts and jointings
were either repaired or renewed. Therefore, the cost of the testing
was dutiable.
We emphasize that the holding exempts from duty only the cost
of a required scheduled inspection by a qualifying entity (such as
the U.S. Coast Guard or the ABS). Moreover, we note that C.S.D. 79-
277 does not exempt repair work done by a shipyard in preparation of
a required survey from duty. Nor does it exempt from duty the cost
of any testing by the shipyard to check the effectiveness of repairs
found to be necessary by reason of the required survey.
The applicant has submitted an invoice for an underwater
inspection of the vessel's hull. There is no evidence suggesting
that this inspection was required or scheduled. Following the rules
set forth above, the Customs Service finds that this item is
dutiable.
Item 131 is an invoice from an ABS survey which the applicant
contends should not be subject to vessel repair duty. The standards
used to determine dutiability of inspection costs articulated above
indicate that the cost of the required survey not be subject to
duty, however, the repair carried out as a result of the survey are
dutiable pursuant to 19 U.S.C. 1466. The invoice submitted
indicates that certain repairs (fractured butt weld on portside and
heading edge erosion repaired) were performed, but the costs
associated with these repairs was not segregated from the cost of
the inspection. Unless and until sufficient evidence can be
produced itemizing the costs attributable to the surveys and repairs
respectively, this item remains dutiable.
Item C16
This item represents the expense associated with cleaning the
engine room spaces. 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
items that this cleaning has been associated with have been deemed
dutiable, these cleaning costs are dutiable as well.
Item 128
This item represents the costs associated with supervising for
the vessel's stern tube seal inspection. The applicant claims that
duty with respect to this item should be remitted because the seals
must be replaced when an ABS-required tailshaft inspection is
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conducted. No evidence indicating that the ABS required the survey
that Universal Pros Marine Co., Ltd conducted was submitted. Unless
and until such evidence is provided, the cost of the survey remains
dutiable. Additionally, the entry on the invoice for
accommodations, provisions, and other expenses remains dutiable
absent a sufficient segregation of costs is submitted for review.
No duty is assessed on the costs associated with the entry for
travelling time.
Item 143, Item 144, and Item 167
The applicant has submitted this Fuji Trading (America) Inc.
(Item 143) invoice in support of its claim that the items contained
in the invoice are not subject to duty. Customs is satisfied that
the turnbuckles and lashing rods (short and long) were removed from
the vessel prior to entering the United States. Accordingly, duty
is not assessed on these items. With respect to the twistlocks,
Customs has determined that they are instruments of international
traffic. Consequently, they are to be entered free of duty. Since
the spinners and single stackers have not been determined to be
instruments of international traffic and the applicant has not
provided any proof to establish these articles as such, they are
subject to duty pursuant to 19 U.S.C. 1466.
Item 144 is an invoice for shackles which were removed from the
vessel prior to entering the U.S. Accordingly, duty with respect to
these items is not assessed.
Item 167 is an invoice for the acquisition of twistlock
assemblies. As was stated previously, Customs has determined that
these items are IITs. Consequently, no duty is assessed with
respect to this item.
Item 145, Item 146, and Item 147
Item 145 is an invoice for 195 galvanised cone bases. Customs
has consistently held that segregated transportation costs are not
subject to duty. Accordingly, these charges ($162.93 and $1189.03,
respectively) are not subject to duty. The remaining invoice entry
for the cone bases is subject to duty until the applicant has
established, to the satisfaction of Customs, that these items should
be given instrument of international traffic status.
Similar treatment is to be accorded to Item 146 and Item 147.
The transportation charge is not subject to duty while the stacking
cones entry is dutiable. The applicant must submit a detailed
description of these items and an explanation of how the item is
used before Customs can grant IIT status.
Item 148, Item 149, Item 166, Item 182,
Item 194, Item 205, and Item 207
Items 148, 149, and 166 are invoices for double and single
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stackers. Item 182, Item 194, Item 205, and Item 207 are invoices
for terminal stackers. As stated in the preceding item, unless and
until the applicant submits a detailed description of these items as
well as an explanation of how the items are used, Customs will treat
these items as dutiable equipment.
HOLDING:
After a thorough review of the submitted evidence, this
application for relief is granted,, in part, and denied, in part,
for the reasons detailed in the Law and Analysis section of this
ruling.
Sincerely,
Acting Chief